CFED Assets & Opportunity Scorecard
State IDA Program Support
One in five Americans has zero or negative net worth. Through tax and spending decisions, government can create incentives for people to save and build assets. One policy that helps low- and moderate-income people build assets is a state-supported Individual Development Account (IDA) program. IDAs are special savings accounts that match the deposits of low- and moderate-income savers, provided that they participate in financial education and use the savings for targeted purposes – most commonly postsecondary education, homeownership or capitalizing a small business. Research demonstrates that these accounts make families more financially secure and communities more stable. States should provide funds and support for local IDA programs.
CFED evaluated the strength of each state’s IDA policy against the four criteria described in the Elements of a Strong Policy tab. Only states with allocated funds for 2012 were evaluated. The table below shows which criteria each state met.
CFED uses the following icons to denote the strength of state policies:
Strength of State Policies: State IDA Program Support 1
|Is there a strong agency steward |
for the IDA program (must
meet 2 of 3 to receive credit)?
|State||State IDA funding in FY 2012? 2||Annual invest- |
ment per low-income resident $200 or more? 3
|Training and TA provided?||System in place for gathering feedback?||85% or more of funds used?||At least 15% of funding for admin/ operating costs allowed?||Stable funding?||Rating|
|District of Columbia||No||—||—||—||—||—||—|
|Iowa 5||Yes||No ($0.27)||Yes||No||No||Yes||No|
|Kansas 6||Yes||No ($0.55)||No||No||Yes||Yes||Yes|
|New Mexico 11||No||—||—||—||—||—||—|
|North Carolina||Yes||No ($0.21)||Yes||Yes||No||Yes||No|
|North Dakota||Yes||No ($0.33)||Yes||Yes||Yes||No||Yes|
|Pennsylvania 12||Yes||No ($0.13)||Yes||No||n/a||Yes||No|
1. CFED collected data on state IDA policies in May-July 2012 through an online and phone survey of state agencies and/or state program administrators. Note: "-" indicates that the data is not applicable because the state does not currently have state IDA funding.
2. The threshold for receiving any credit for this measure is having a funded program in FY 2012; if the state did not provide funding in FY 2012, it was ineligible to receive credit for any criterion.
3. Ratio of state 2012 IDA funding to the number of low-income residents in the state. Low-income means incomes below 200% of the federal poverty level. Data was collected from: U.S. Census Bureau, American Community Survey, 2010.
4. Alabama passed legislation in 2011 that created a state IDA program which will be administered by the Alabama Department of Human Resources. The program has not yet received funding. Advocates are actively working with the state legislature to secure funding for the program.
5. Iowa appropriated $400,000 for IDAs in FYs 2008 and 2009, most of which was set aside for victims of 2008 flooding and other disasters. Unspent funds carry over into additional years. Because of difficulty drawing down the funding earmarked for disaster victims, the state lifted this requirement in 2012.
6. In 2011, Kansas restructured its IDA tax credit, effectively allowing practitioners to sell more credits. During the 2012 legislative session, advocates successfully defended the state IDA tax credit from being completely eliminated, although the structure of the credit will change in FY 2013.
7. Because Congress did not renew the Supplemental TANF Block Grants in 2011, Louisiana eliminated all funding for IDAs starting in FY 2012.
8. After defunding its program in 2010, Massachusetts restored funding for the state IDA program for 2013, albeit at a lower level than in 2010.
9. In 2011, Minnesota cut FY 2012 funding for IDAs; it restored funding for FY 2013.
10. Montana appropriated funding for a Family Economic Security Program (FESP) which allows providers to include an IDA project in their individual program.
11. State IDA funding in New Mexico was cut for FYs 2011 and 2012. Advocates are working to introduce legislation in 2012 that will reinstate funding at $500,000 annually.
12. The Pennsylvania Department of Community & Economic Development provided a one-time IDA funding allocation for FY 2012, after years without state funding.
WHAT STATES CAN DO
Funding for IDA programs comes from a combination of federal and state governments, foundations and the private sector. State funding, in addition to directly helping low- and moderate-income savers, can also leverage federal Assets for Independence Act funds, which require that every federal dollar be matched by a non-federal source.
Generally, state-supported IDA programs involve a partnership between a state agency, nonprofit service providers and financial institutions. Once a state authorizes a state IDA program through a legislative or regulatory process, it designates a state agency or non-governmental entity to serve as the program administrator and steward. At least half of the state programs surveyed in a 2005 study1 were administered jointly by a state agency and a nonprofit.
The program administrator may set up accounts with the financial institution partner; provide fiscal management, administration and overall marketing services; and report results to a state auditor or evaluator. The administrator also partners with nonprofit service providers to interface with accountholders. Service providers manage outreach and recruitment, data collection and administration of individual accounts, and also provide financial education training, budget and credit counseling and asset-specific classes.
WHAT STATES HAVE DONE
To date, 42 states2 have enacted or administratively created state IDA programs, though not all are currently active or have current state appropriations. States that at one time or another have had a state IDA program are: Alabama, Arizona, Arkansas, California, Colorado, Connecticut, District of Columbia, Florida, Georgia, Hawai‘i, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, New Hampshire, New Jersey, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Puerto Rico, Rhode Island, South Carolina, Tennessee, Texas, Utah, Vermont, Virginia and Washington.3 Sixteen states had funding for IDAs in 2012.
1 Naomi Warren and Karen Edwards, Status of State Supported IDA Programs in 2005, (St. Louis, MO: Center for Social Development, 2005).
2 The total of 42 includes two non-state jurisdictions: the District of Columbia and Puerto Rico.
3 CFED survey of state agencies and/or state program administrators, July 2012. Historic information about active programs from: Naomi Warren and Karen Edwards, Status of State Supported IDA Programs in 2005, (St. Louis, MO: Center for Social Development, 2005).
ELEMENTS OF A STRONG POLICY
Based on direct work with IDA providers, government officials and savers, CFED considers a state’s IDA policy strong if it meets the following criteria:
1. Is the state’s commitment to IDAs sufficient to meet demand? The state’s annual commitment to IDAs should be no less than $200 per low-income resident.1 This level of funding is sufficient to cover matching funds for savers as well as the administrative and operating expenses of running an IDA program.
2. Is there a strong agency steward for the IDA program? It is important for the state program to have a steward within state government and for the stewarding agency to be committed to all uses for IDA savings. State stewards should provide training and technical assistance for IDA providers, have a system in place for gathering feedback that informs improvements to the program, and ensure that at least 85% of state funding is utilized annually. CFED considers a state to have a strong steward if the responsible agency (or designated nonprofit) meets two out of three of the following criteria:
- Training and TA: The agency provides training and technical assistance for practitioners.
- Feedback: The agency has a system in place for gathering input on program improvements, e.g., convening a working group, hosting focus groups or providing a place for comments on the agency’s website.
- Utilization of funds: If funding for IDAs comes through an appropriation, 85% or more of appropriated funds are utilized. If funding comes through the sale of tax credits, 85% or more of credits authorized by the state are sold.
3. Does the state allow at least 15% of state funding to be used for program administration, program services, operating costs and/or TA to providers? IDA providers currently cobble together federal, private and – if the state has a state program – state funding. Restrictions on the uses of these monies are numerous and often force IDA providers to subsidize the operating and administrative costs of the program. In addition to matching deposits for IDA program participants, states should allow at least 15% of state funding to be used to cover program administration, program services, operating costs and/or technical assistance to providers.
4. Is state funding for IDAs stable over time? While state budgets grow and shrink with fluctuations in the economy and annual appropriations negotiations can be protracted, it is important for state funding for IDAs to come from a stable and protected source. To be classified as having stable funding, states must demonstrate funding stability over a three year period.2
Whether through law or administrative rule, states may also opt to include other highly desirable elements in their state IDA policy, including:
- Flexibility of uses. While most IDA programs permit savers to purchase a home, finance a higher education or start a small business, a state may also allow accountholders to use their savings for other uses deemed appropriate, such as a computer, a car, home repairs, retirement or assistive technologies for people with disabilities.
- Protecting savers’ eligibility for means-tested programs. The accountholder’s savings and matching funds should not affect his or her eligibility for any means-tested public benefits, including Medicaid, Temporary Assistance for Needy Families, Supplemental Nutrition Assistance Program (formerly Food Stamps), Supplemental Security Income (SSI), subsidized child care or housing programs.3
- Financial education. Most IDA programs mandate that participants complete financial education in order to access their matching funds. This education may encompass both general financial capability and asset-specific content.
- Allowing unrestricted sources of deposits. Some states require that deposits to an IDA be made from earned income only. CFED discourages such provisions, as they exclude individuals who do not have earned income (such as retirees receiving Social Security, or people with disabilities receiving disability or SSI income). In addition, these restrictions can require extensive, time-consuming documentation of deposits to prove their source. Thus, rather than listing out multiple allowable sources of contributions to an IDA, CFED recommends that legislative language remain silent on eligible contributions. Doing so will permit a virtually unlimited range of contribution options.
1 This amount assumes $2,000 per IDA and a 10% participation rate among eligible residents. Low income is defined as having adjusted gross income no more than 200% of the federal poverty level, consistent with AFIA eligibility standards. It should be noted, however, that standards based on area median income are often stronger and more meaningful since they take into account differences in cost of living, especially in high-cost areas.
2 In the Assets & Opportunity Scorecard, funding trends are determined by reviewing funding levels for the last three fiscal years. If funding remained the same, increased over time, or if an average of all three years was within 10% of the peak year, funding is considered to be stable.
3 By federal law, all states exclude IDAs funded by TANF and Assets for Independence from federal public benefit programs. However, states should exclude non-TANF and non-AFI-funded IDAs from these programs as well. For more information, see: “2002 Federal IDA Briefing Book: How IDAs Affect Eligibility for Federal Programs.” (Washington, DC: CFED and the Center on Budget and Policy Priorities).
Making the Case
Strategies for a Successful Campaign
1. Use pre-legislative session months to promote the sponsorship and drafting of IDA legislation. Since IDAs are not likely a familiar concept to many legislators, use pre-session time to identify potential bill sponsor(s), acquaint them with IDAs and draft bill content. Identify a “lead” advocate for the legislation. It may not be the state steward agency, but rather another statewide advocacy organization. This will prevent the legislation from getting lost in any state agency lobbying efforts. However, it is important for advocates to be perceived as authorities on IDA legislation in the state. It is also important to share concrete examples of well-crafted IDA legislation. As an agreement is reached with the bill sponsor(s) on what IDA initiative elements will be most productive for the state, the sponsors’ knowledge of the state process can be beneficial.
2. Identify the most receptive legislative committee. The state legislature may move filed bills into specific committees (health, community development, social services, economic, business, etc.) for approval before allowing them to be introduced on the floor. If this is the case, determine which committee is the best fit for the bill. Consider a committee that is receptive to asset building or that routinely deals with issues similar to IDAs. While it may be a good strategy to work with a committee (e.g., human services) that typically deals with legislation affecting poor families, some states have achieved success by working with committees (e.g., commerce, finance, economic development) that have a broader mandate. Working with this type of committee can help to remove the stigma that IDAs are another form of public welfare.
3. Keep the IDA legislation simple. Legislation should be designed to minimize the work of state government officials. The state administrators of IDA initiatives usually have dozens of programs to manage. An administration-heavy initiative will present problems for these understaffed departments, thus delaying implementation dramatically. Furthermore, many organizations may be reluctant to participate in an IDA initiative with onerous regulations. Following burdensome regulation requires significant staff time, which is time better spent on the IDA initiative itself. Generally speaking, flexible, administration-light legislation will be easier to implement and will result in more diverse and stronger IDA initiatives. Administrative rules, which are created for most new laws, can be used to more clearly define the IDA initiative, if necessary.
4. Create legislation that can be applied evenly to rural and urban areas. Legislation should be flexible enough to serve all low-income constituencies within the state, including both urban and rural areas. Legislative language should consider the community development infrastructure in different areas in the state and provide support for those areas where the infrastructure is weaker.
5. Identify and recruit allies. There are certain to be parties outside of the legislature who have an interest in the passage of IDA legislation. Potential beneficiaries include educational institutions, housing and real estate groups, and financial institutions. Banks and financial institutions, in particular, are potential allies as they may see IDA accountholders as a new potential market to serve. In addition, the banking lobby should be consulted on how to operate IDAs effectively, with incentives for banks to participate and with few administrative burdens.
6. Use a legislative vehicle that is likely to pass and relevant to IDAs as the base for an IDA amendment. In order to speed up the legislative process and/or increase your chances of successful passage, IDA supporters and their sponsor(s) should be willing to add the IDA bill to another piece of similar legislation that is likely to pass. Often, other legislation that addresses similar community development issues is the right legislative “vehicle” on which to attach IDA legislation. Several states have passed, and funded, IDA legislation this way.
7. Tell compelling stories. One excellent way of energizing and attracting attention to your campaign is to tell the stories of individuals and families (in their own words, wherever possible). If your state already has an IDA program, seek out current and former accountholders who can share their success stories. You might also consider creating profiles of individuals who do not currently have access to an IDA, but who would benefit from the opportunity. It is particularly powerful to share stories from a legislator’s home district.
8. Document the impact. If your state already has an IDA program, consider engaging in research to quantify the positive economic impact that the program has had. For instance, you might cite data on the total amount of personal savings accumulated by savers in the program, the value of assets acquired (such as home values) and new income generated by savers who have used their accounts to make asset purchases (i.e., through small business creation, or better-paying jobs due to educational attainment), and the resulting increases in property and income tax revenues for the state.
9. Use effective messages. In promoting the creation and funding of your state’s IDA program, consider using messages that have been effective in other states, such as:
- There is strong precedent for asset-building programs. The Homestead and Land Grant Acts of 1862 and the GI Bill of 1944 illustrate that an appropriate public role is to invest in its citizenry.
- IDAs are not just a social service program; they are an economic development tool that helps people with lower incomes enter the financial mainstream.
- Years of data and research have demonstrated the power and success of IDAs. See the CFED Assets Research Library for specific studies and data points: http://cfed.org/knowledge_center/assets_research_library/#savings
- The data show that low-income people can and do save. Some of the most successful programs are working with people with very low incomes. Low-income savers will make sacrifices to turn the opportunity that an IDA provides into lasting prosperity.
- IDAs are a wise investment; there is a direct return on investment by leveraging federal and private funds.
- IDAs are good for communities. They help families become more stable, put down roots and climb the economic ladder. In turn, communities grow and prosper, broadening their tax base and creating new jobs.
- IDAs provide economic opportunities in rural areas as well as urban centers.
- There is a low foreclosure rate among IDA homeowners.
For each edition of the Assets & Opportunity Scorecard since 2007, CFED has worked with experts in the field to capture detailed stories of noteworthy state policy changes—both policy victories and instructive defeats. These case studies appear in the Resource Guides for each policy priority.
Creating and Securing State Funding for IDAs during Tough Budget Times in North Dakota (published October 2011)
The North Dakota Community Action Partnership began offering IDAs in 2002. The program was initially funded primarily by foundations. Although the program graduated a number of successful participants, advocates realized they needed state funding to reach greater scale. Click here to read more.
More than 10 Years of Strong Support in Oregon (updated October 2011)
The Oregon IDA Initiative has enjoyed the support of several dedicated champions over the years, and has appealed to members in both parties…Because the original sponsors have moved on from the Legislature, advocacy efforts now focus on growing and maintaining a strong group of legislative champions from across the state who are familiar with the program as it is implemented in their districts. Click here to read more.
Establishing and Improving IDA Programs in North Carolina (published September 2009)
IDAs became a part of North Carolina’s statewide policy discussion in 1996. Representatives of state and local government agencies came together with community-based organizations to discuss the establishment of IDA programs. Over the years, the state has tapped many different funding sources to support IDAs. Click here to read more.
Establishing and Improving IDA Program in Indiana and Washington State (published September 2007)
Indiana was one of the first states to create a large-scale statewide IDA program. The impetus for Indiana’s program was a local IDA program (one of the first in the nation) administered by a community development corporation in Indianapolis and funded by private philanthropies…Washington State began supporting IDAs later than Indiana did; it first funded IDAs in 2000. Over the years, Washington has struggled to secure reliable funding. Click here to read more.
For a two-page overview of state IDA program support, download CFED’s Policy Brief.
For an in-depth compendium of analysis, research, and resources on state IDA program support, download CFED’s Resource Guide.