Yesterday, President Obama released his detailed budget for FY 2010.
In addition to healthcare reform, efforts to strengthen the economy and strategies to decrease the national deficit, the President has more than doubled funding for some programs and fully funded new programs that provide economic opportunity to low-and moderate-income Americans.
The budget supports asset-building by allocating:
- $24 million for Assets for Independence, the federal program that funds Individual Development Accounts (IDAs).
- $5 million for the Beginning Farmer and Rancher IDA Program, this is a new program with full funding.
- $25 million for microloans as well as support for technical assistance programs that give entrepreneurs access to counseling and business development expertise.
- $7 million to make Pell Grant funding mandatory and increase as well as index maximum awards.
- $2.5 billion Access and Completion Incentive Fund, a new five-year program to support innovative state efforts to help low-income students succeed and complete their college education.
- $2 million to pilot housing counseling program.
Within the next two years, the budget also proposes to expand the Earned Income Tax Credit, make the American Opportunity Tax Credit for higher education permanent, expand Child Tax Credit, and increase retirement security through auto enrollment.
We are especially pleased to learn that the administration has expressed an interest in working with Congress to revise asset limits for federal means-tested programs. It also takes steps to reverse the system of upside-down wealth subsidies by capping the mortgage interest, property tax and other deductions at 28%.
Advocates can learn more about this tremendous opportunity to promote policies that help low-income families build and maintain wealth by attending a webinar hosted by CFED. Click here to learn more and register.
For more information on the budget, click here.
The gap in income between the wealthiest Americans and all others has grown considerably in recent decades. According to a new report released by the Center on Budget and Policy Priorities, between 1979 and 2006 the income gap between the rich and the poor tripled. A growing body of data suggests greater income concentration at the top than at any time since 1929.
Regressive federal tax polices are partially responsible for this growing inequality. The report cites that legislation enacted under the Bush administration have provided tax payers with about 1.7 trillion in tax cuts through 2008. These large tax reductions have made the distribution of after-tax income more unequal. In fact, high-income households received by far the largest tax cuts—not only in dollar terms but also as a percentage of income—the tax cuts have increased the concentration of after-tax income at the top of the spectrum.
State leaders can begin to address the widening income and wealth gap by:
- Creating state funding for Individual Development Accounts, a successful program that provides incentives for low-income families to save and build wealth.
- Eliminating asset limits in public benefit programs. States have full discretion to eliminate the asset test that families are required to undergo in order to qualify for public assistance like CalWORKs, Food Stamps, Medical and more.
The widening income gap threatens the promise of the American Dream, the belief that if you work hard and play by the rules then you can move up the economic ladder and live the American Dream of owning a home and enjoying financial security. If the United States is to remain the land of opportunity then policy makers must consider these policy solutions.
To download the report click here: Income Gaps Hit Record Levels In 2006, New Data Show Rich-Poor Gap Tripled Between 1979 and 2006
APIC has recently released a new white paper entitled American Dream 2.0: Safe and Sound First-Time Homeownership Strategies for Working Families in California. This paper offers a series of actionable strategies on homeownership policy for California’s business, nonprofit, and government leaders. At the Assets and Homeownership Symposium, APIC and the Federal Reserve Bank of San Francisco convened thought leaders across sectors and industries to engage in a conversation that lead to some of the strategies outlined in this report.
Despite the turmoil in the state’s housing market, we believe there are innovations in the asset-building field for renters, in lending for first-time buyers, and in employer-sponsored benefits, all of which have successful homeownership track records. This year we hope to see California’s leaders seize this moment and take a thoughtful approach to how the state responds to the current crisis. We believe the American Dream 2.0 on homeownership innovations can help further this conversation.
President-elect Barack Obama has announced the creation of a White House Task Force on Working Families. His announcement comes at a crucial time when nearly 23 million families are at risk of falling out of America’s middle class, according to a Demos study. The task force will be a major initiative targeted at raising the living standards of middle-class, working families.
Some of the goals for the task force include:
- Expanding education and lifelong training opportunities
- Restoring labor standards, including workplace safety
- Helping protect middle-class and working-family incomes
- Protecting retirement security
“President-elect Obama and I know that economic health of working families has eroded, and we intend to turn that around” said Vice President-elect Joe Biden, who will be the chairman of this task force. In addition to producing annual reports, we are pleased the task force will function in a transparent fashion where outside groups have the opportunity to chime in.
How would you define the point at which a family is poor in this country? How about in San Francisco? Most people are shocked when they learn how the federal government measures poverty. If you’re unfamiliar with this number you too will be shocked. Especially if you are a Californian.
According to the Feds, a family of three has to be earning under $17,600 per year to be poor. Let’s put this into perspective: The average family income in San Francisco is $94,000 per year, according to HUD, and the average is about $50,000 per year for the entire United States. But there is no allowance to adjust poverty levels locally. In addition to being unfair, this is unreasonable.
The Federal Poverty Rate is an absolute dinosaur of policy tool. It might even be funny if its obsolescence didn’t make it so harmful for tens of millions of poor Americans. Mayors across the nation have long bemoaned this discrepancy – because it has shortchanged cities of cash they’ve needed to serve the huge number of poor people the federal government won’t recognize, due to where the poverty line rests.
But it appears local efforts at redefining a definition of poverty, by Mayors, has created some new momentum at the national level.
A September 1st, 2008 NY Times article describes a meaningful, bi-partisan effort in Congress to redefine the poverty line. According to the article, “Democrats and Republicans alike say [the federal policy level] is hopelessly outdated…This month, Representative Jim McDermott, the Democrat from Washington who is the chairman of the House subcommittee on income security, plans to introduce legislation that would require the government to develop a more modern and accurate method to determine who is poor.” For more click here.
What is now unclear is how the staggering $700 billion price tag on the bailout package might make reasonable legislators think twice before they expand the universe of people who become eligible for federal aid.
I recently had the opportunity to participate in a working group tasked with identifying strategies that encourage CalWORKs clients to take full advantage of asset building programs and services. As mandated by AB 1078 (Lieber), a bill that was signed into law earlier this year, the California Department of Social Services (CDSS) assembled this large working group in Sacramento recently.
As I’ve reflected on this day, I’ve been struck by the promise this group has and what a shift this conversation represents. I was heartened that asset-building was finally being officially integrated in the state’s approach to helping low income families get ahead.
Representatives from the public and nonprofit sectors working on local, county, and state levels engaged in lively discussions to identify effective administrative and legislative strategies that encourage CalWORKs families to take advantage of
Earned Income Tax Credit (EITC), a refundable tax credit that is among the nation’s most effective tools in helping families leave poverty;
Save or invest part of their EITC funds;
And, leverage their savings through matched savings programs such as Individual Development Accounts (IDA)
The upshot of this group will be a formal report to elected officials. Findings and recommendations made by EARN and APIC along with other public and nonprofit organizations will be outlined to the legislature and released December 1, 2008. We hope creative conversation like this grow within California and in states around the nation.
FDIC, which took over IndyMac last month, has unveiled an ambitious plan this week to help thousands of troubled IndyMac borrowers repay their mortgages and stay in their homes. The FDIC will be mailing out about 25,000 loan modification proposals to borrowers whose mortgages it currently owns and services.
This plan aims to assist 37% of IndyMac’s seriously delinquent borrowers by conditionally modifying the loan into a fixed-rate mortgage with an interest rate capped at 6.5%. Once the modification offer reaches the borrower, all they need to do is sign the new agreement, send a check for their new mortgage payment, and information necessary to verify income.
“Keeping borrowers in their homes is the optimal low-cost choice,” says Sheila Bair, Chairwoman of the FDIC.
Recent FDIC research finds that sales of performing loans to outside investors recover 87 cents on every dollar, compared to 32 cents for nonperforming loans.
The large-scale nature of this new program hopefully signals a paradigm shift in the way regulators and banks assist borrowers. Analysts predict dozens of small bank failures in the next two years. If successful, this loan modification plan could be FDIC’s new strategy in the event of a similar bank takeovers.
To learn more click here and here.
A new documentary produced by the California Reinvestment Coalition (CRC) entitled “Mo’Money, Mo’Money, Mo’Money” shows how foreclosures destroy the dreams of California families and threaten the stability of small businesses, city governments, and neighborhoods.
The film reveals how this disaster could have been avoided if regulators and government officials had not ignored predatory lending practices.
California accounts for a quarter of all foreclosures in the country and seven of the state’s cities are consistently in the list of top ten foreclosure rates in the nation. Earlier this year, seven bills were introduced in the California legislature to address the mortgage foreclosure crisis. Despite strong support from community groups, the legislature only passed one meaningful bill.
To view the documentary and learn more click here.
Asset building groups have advanced over 80 positive policy changes in the last year and half, according to CFED’s Assets & Opportunity Scorecard Progress Report. These policies are bringing an additional $325 million towards asset building and asset preservation programs throughout the United States. Key policy victories include enacting state Earned Income Tax Credits, reforming asset tests for public assistance, and curbing predatory lending.
For example:
Washington became the first state without an income tax to enact a State Earned Income Tax Credit (EITC). 3 other states passed legislation also enacting a State EITC.
New Hampshire passed a bill capping interest rates for payday and title loans at 36%
California along with 7 other states significantly raised asset limits or exempted categories of assets to help more families qualify for public assistance.
9 states took up substantive mortgage lending reform bills though only 6 states successfully enacted legislation. California introduced a comprehensive package of predatory lending, foreclosure reform bills but only one (SB 1137) passed.
California asset building advocates and policy makers introduced ambitious bills earlier this year to address the foreclosures crisis, retirement savings, and financial literacy, but due to the widening $16 billion state budget deficit, all but a few bills stalled in the legislature.
Now that Congress and the White House have agreed on an economic stimulus package to spur spending and try to keep the U.S. economy from going into recession (if it isn’t there already), it’s time to think about ways to encourage more saving and investing in America.
Millions of Americans are barely getting by, living from paycheck to paycheck, or going into debt using high-cost financial services. One in five families lacks sufficient assets to survive at the federal poverty level for three months if they lose their income, according to CFED’s 2007-2008 Assets & Opportunity Scorecard.
What messages are workers and families in America hearing every day? Spend, spend, spend. Although continued consumer spending might help the broader economy and some families to stay afloat in the short term, this continued spending craze is not helping families living on the edge to become more financially secure in the long term.
What we need are policies that encourage people to save — for a rainy day, for home ownership, for college, for retirement, and for their children’s futures. Most of the current policies that encourage saving and investing primarily benefit those who already have assets. We need policies that also help low-income families to save and build wealth.
States and tribal governments can encourage public benefit recipients to use mainstream financial services and begin saving for the future by counting financial education as a welfare work activity, eliminating asset limits that discourage saving, facilitating direct deposit of cash benefits, supporting free tax counseling and preparation programs, and allowing taxpayers to split state refunds. Allowing self-employment as a welfare work activity and supporting car ownership programs expands the range of work options available to low-wage workers.
States, schools, and banks can partner to develop teen bank programs that bring a new generation into the financial mainstream and prepare teens for jobs in the high tech financial services industry. Savings programs such as Individual Development Accounts, Lifelong Learning Accounts, Family Self-Sufficiency accounts for public housing residents, universal Child Development Accounts, and automatic enrollment into portable retirement accounts help adults and children save for postsecondary education and training, homeownership, small business development, retirement, and other asset goals.
Banks and credit unions can partner with cities and states to bring everyone into the financial mainstream through innovative programs such as Bank on California and America Saves.
Policies that protect consumers from high cost financial services such as check cashing, payday loans and consumer installment loans, refund anticipation loans, and predatory mortgage loans allow people to redirect those resources into savings and investments.
Let’s work to implement these policies and encourage people to save, save, save!
Dory is Supervising Attorney for Community Investment at the Sargent Shriver National Center on Poverty Law in Chicago. For more information, contact Dory Rand at 312.368.2007 or doryrand@povertylaw.org.
