Where Have You Been All My Blog-Life?

The other day I met with a former Silicon Valley entrepreneur to discuss SaveTogether. The matched savings account was a new concept to him. But he thought the basic idea of asset-building was compelling and sounded like the kind of thing that would be on the agenda of the nonpartisan Hope Street Group, which promotes policies fostering an “Opportunity Economy.” I admitted that I had never heard of the Hope Street Group but was glad for the pointer.

When I googled Hope Street, I discovered, sure enough, that “Savings & Assets” is one of their core areas of interest. The website has a policy brief on “Personal and Family Savings” and their blog includes such recent posts as “Encouraging Employees to Save” and “Incentivizing Savings in an Economic Downturn.” 

I’ve written this blog on asset-building for almost two years now. How could I not have heard of the Hope Street Group all that time?

In my own defense, they haven’t put out any new publications related to savings and assets (other than blog posts) since mid-2007. And they don’t seem to be very well networked with other organizations in the asset-building field. Makes me wonder if they’ve kept a low profile by choice, or if they just lack the resources and connections of the leading think tanks in the field — The Aspen Institute and New America Foundation. In any event, I’ll keep an eye on their blog from now on and report any interesting news they send out.

And Jesus Said to His Disciples, Build Them Some Assets

I was interested to read this article in the Christian Science Monitor on a national ecumencial initiative to fight poverty, with matched savings programs figuring quite prominently in the set of policy proposals that was released last week. It makes sense that asset-building could be an area of common ground for both conservative and progressive ends of the Christian spectrum.

I’ve been thinking for some time about how to get religious organizations engaged with asset-building, starting with my own very New England progressive congregational church, which is extremely committed to social justice and community-building. I’ll have to send the CSM link to our pastor and see what kind of reaction I get. I know that many churches across the country have become involved in Kiva and other microcredit efforts in recent years. Perhaps SaveTogether could provide a more tangible outlet for church involvement in the asset-building movement.

Understanding the 2009 Stimulus Bill First Time Home Buyer Tax Credit

My most widely read post ever, by far, was last July when I noted the passage of the 2008 Housing Bill that contained assistance for first time home buyers.

Are those first time home buyers paying careful attention to this stimulus bill, too? It looked for a while like Congress might enact a temporary $15,000 credit for all home buyers below certain income limits: the Senate had favored such a plan. Now, it turns out, the negotiated bill that will soon be voted on by both chambers (and in all likelihood will be passed and signed by the president) contains generous assistance for first time home buyers. The maximum credit is $8,000, not far off from the $7,500 credit currently in place via the 2008 Housing Bill.

But the big difference from that Housing Bill, as reported in The New York Times this evening, is that this time Congress has jettisoned the requirement for the credit to be paid back over 15 years. Now it’s a true credit instead of an interest-free loan. That makes it immensely more valuable, enough so that it could actually stimulate some activity in the housing market (but not the kind of speculation that might have resulted from the Senate’s proposed $15,000 credit for all homebuyers).

The credit will only be available to buyers between January 1, 2009 and December 1, 2009, so only the more prepared first time home buyers will get to benefit. And the credit does phase out for higher income levels (above $75,000 for individuals and $150,000 for couples). But this is encouraging news for many first time home buyers who may have been sitting on the sidelines.

This time next year I’ll be thinking of creative ways to help encourage first time home buyers who bought in 2009 to put their windfall into an asset-building investment, and get a double bang for this buck.

Assets for Artists 2009

I’m in the throes of item 1 on my 2009 asset-building to-do list: applications for my artist IDA program are due February 23. We’ve picked up some good press (click here for a pdf of an article in Berkshire Trade & Commerce), and a helpful grant from the Massachusetts Cultural Council.

I’ve also completed item 6, and I’m making progress on items 2, 3, and 5, in case anyone’s keeping track.

Hasn’t left a lot of time for blogging, or sleeping.  I’ve completely neglected to note a couple of very interesting news items from Reid Cramer on the New America Foundation’s asset-building blog:

1. The Boston Globe has people debating children’s savings accounts with a feature article in the Sunday paper not long ago.

2. NYC’s Office of Financial Empowerment has announced a tax season pilot program to provide low-income residents with a savings match to incentivize savings deposits from tax refunds. This is a bit like my idea to provide a tax season match tied partly to use of the Saver’s Credit, although my idea (item 5 on my to-do list) is more narrowly focused on retirement savings while the NYC program is trying to boost general savings from tax refunds. I do think I’ll have a little money to try out some version of an IRA/Saver’s Credit incentive for Berkshire County artists: I’m working on getting a local bank or two to buy in and provide additional match funds and outreach.

Mitty Owens of the Office of Financial Empowerment is the friend of a friend, and I’ll have a chance to talk shop with him in a few weeks on a trip down to New York. I look forward to hearing more about the great programs coming out of the OFE, and getting his feedback on SaveTogether, Assets for Artists, and anything else I can think of between now and then.

SETI, CFED-Style

With my interest in promoting the Savers’ Credit for self-employed tax filers, I’ve been reading up on CFED’s Self Employment Tax Initiative, also known as SETI (gotta love that the asset-building field has come up with an even nerdier use of the SETI acronym, which is somewhat better known to space-loving geeks as the shorthand for the Search of Extra Terrestrial Intelligence, which has its own SETI Institute).

I see a strong need for free tax assistance for self-employed people in the low- to moderate-income range. Here in Berkshire County, our local Volunteer Income Tax Assistance (VITA) sites are still small and not well equipped to assist Schedule C filers. I’ve been pondering how to expand that capacity.

Then I had this idea: would it be inappropriate to provide VITA services to low/moderate-income self-employed people for free, but only on the condition that the taxpayer make a deposit into a restricted investment account (IRA, 529 college savings plan, or IDA, for example) in an amount equal to or greater than the approximate cost of paying a professional preparer to file such a return?

In theory, one could make this argument about any VITA site with free tax preparation, but it strikes me as different for the self-employed because people filing a Schedule C are often still accustomed to paying a preparer (they have rarely gotten used to filing taxes for free through a VITA site) so they’re more likely to be able to switch the amount that’s in the tax prep line in their budget over to a new savings line item instead and not really notice the difference.

Yes, this smacks of paternalism, suggesting that the person can’t determine for herself how best to “invest” the money that would otherwise have gone to tax preparation. And certainly some self-employed people might be better off investing the difference in their business rather than an IRA or some other savings vehicle.

But if the program could be set up in such a way as to connect with and encourage the use/expansion of small business IDAs for self-employed people whose short-term focus needs to be on business investment, then the charge of favoring retirement investments at the expense of small business investments is less relevant. Free tax prep could be one of the benefits associated with a small business IDA, allowing the saver to make a tax-time deposit in the IDA that would otherwise have gone to tax prep costs.

Administrators at VITA sites often lament that few of their clients use tax day to put funds into savings despite efforts to promote such options. I understand why it’s not practical for most VITA sites to require a certain amount of savings as a condition for receiving free tax prep (the need to put emergency savings first, for one), but perhaps it should be tested in connection with self-employed people, who I suspect may have a bit more emergency savings and income security than the typical VITA client (I don’t have the data to substantiate that latter hypothesis — it’s just my gut instinct at this point).

Banks and investment firms might like the forced savings enough to take a stronger interest in funding the scale-up of self-employment VITA services (you’d have to be careful not to take money from certain firms just in order to steer clients into investments that aren’t appropriate for them, but that kind of ethical issue always exists in asset-building work and can be managed by programs with strong policies and procedures around always putting the client’s best interests first).

I’d love to find out if some VITA sites have tried anything like this.

2009 Asset-Building To-Do List

1. Recruit 14 talented low- to moderate-income artists in Berkshire County to open new individual development accounts (IDAs) as part of my Assets for Artists program.

2. Check in with all my savers by email or telephone every month without fail, and keep providing strong encouragement and assistance.

3. Help launch national asset-building intermediary, SaveTogether.org, to raise funds from individual donors online.

4. Persuade my representatives in Congress and President-elect Obama to support CFED’s asset-building agenda for the next session of congress.

5. Experiment with providing modest levels of matched savings for retirement accounts for Berkshire County artists, incentivizing more of them to take advantage of the underutilized Savers’ Credit.

6. Finish reading Abt Associates’ national evaluations of the Assets for Independence program run by the federal Office of Community Services (they full PDFs are a lot to take in, but I’m finding loads of tangible advice and useful statistics).

7. Explore possibilities for setting up a program in Berkshire County to match college savings by low-income families utilizing 529 plans — I’ve heard Rachel Page at Boston’s Compass Working Capital speak on several occasions about Compass’s innovative work in this area (spurring families to save even with small amounts of match), and I’d like to try something out here in the Berkshires.

I like to keep my to-do lists to 7 items or less — more than that becomes unmanageable. And these 7 items should keep me busy for the first few months of the year, at least.

CFED Innovations: SaveTogether and the Saver’s Credit

The flurry of announcements I’ve been receiving via CFED about nominating “innovative ideas” in the asset-building field has gotten me thinking about what I personally would propose.

Certainly the project I mentioned in my last post – building an online platform for individual donations to support matched savings programs and savers — strikes me as innovative and important for the field, so the SaveTogether team will probably propose that (although we’re already engaged in some collaborative work with several staff at CFED on developing this project and thus the idea doesn’t really need to be nominated to come to their attention).

But there’s another (innovative?) idea that has been rattling around my brain recently that has to do with the underutilized Saver’s Credit, a federal tax credit for low- to moderate-income people who make investments in 401k or IRA retirement plans. This credit offers a match of up to 50% (a maximum credit of $2,000 for a married couple), and the match phases out altogether for couples earning more than roughly $53,000.

Working with many self-employed microentrepreneurs in my “Assets for Artists” program, I worry for some of them being able to get by in retirement. Most artists don’t have access to an employer-sponsored 401k plan, and some of them have been making only minimal social security contributions over the years through the self-employment tax because their net self-employment income (after business expenses) is so low.

I’ve been thinking I should experiment with a private retirement savings match program — a modestly sized match — to help bring notice to the Saver’s Credit and encourage people to take advantage of it. I don’t think it would take much to get people’s attention and make them realize that the Saver’s Credit is a great opportunity if they qualify and can afford to put something away, even a small amount. The credit is only for people who would otherwise owe income taxes, so the lowest income people (who don’t end up owing any income tax) wouldn’t get to use the credit.

Here’s the extent of my research: I did a very unscientific analysis of the 2007 tax returns of 11 artists I’ve  worked with. Four of them didn’t owe any income tax for 2007 — they only owed self-employment tax, and the Saver’s Credit in its current form can’t be counted against self-employment tax — so they wouldn’t have been eligible for the Saver’s Credit. And one of the eleven artists earned a bit too much to qualify. But the other six owed some federal income tax and were below the maximum income levels for the Saver’s Credit, thus making them eligible for the credit.

Two of those six claimed the maximum credit for which they were eligible (one was in the 50% credit bracket but only owed $40 in income tax so only received a $40 credit for a roughly $1,000 IRA contribution, and the other was in the 10% credit bracket and received a $200 credit for a $3,000 IRA contribution because an individual will only receive the credit for up to $2,000 in annual retirement contributions).

Of the other four who were eligible but didn’t make any retirement contributions, two of them would have been in the 10% bracket (both earned just a bit too much to qualify for the 20% credit bracket), and thus they could have received up to $200 each for retirement savings of at least $2,000 each for the year. One of the four would have been in the 20% bracket and could have received $400 for retirement savings of $2,000. The fourth would have been in the 50% credit bracket, owed roughly $350 of federal income tax, and thus could have received a credit of $350 for retirement savings of $700.

So six of the 11 artists in my little analysis were eligible for some sort of credit, of which only two of them actually made contributions to tax-advantaged retirement plans, earning a tax credit. The other four left some money on the table, so to speak, by not making retirement contributions.

I’m not surprised. A potential match of a few hundred dollars (especially if it might require locking up a couple thousand dollars in a retirement plan) just may not be so attractive if you’re barely getting by anyway. And they may be making very logical decisions to set aside any available money to invest  in their business or in an emergency fund or in plans for a future home purchase rather than a retirement plan.

But still, they probably haven’t carefully weighed exactly what tax credit match they might get from a retirement contribution. I bet they would give it some thought, however, if they heard about a private program to provide some match for the retirement savings for low-to moderate-income people. A tax credit that only offsets a tax liability you would otherwise incur just doesn’t feel the same as real money.

I suspect that if a reasonably well-marketed program could offer even just a couple hundred dollars of private match to go into the retirement account of someone who’s also eligible for the Saver’s Credit, the targeted publicity and the combined benefit would encourage some people to put money away for retirement who wouldn’t otherwise do so. And it might get them in the habit of saving so they could be in a position to claim the Saver’s Credit in future years as well, or draw on the retirement funds for a qualified investment like a first home or post-secondary education if either of those becomes a higher priority.

I’m going to see if I can scrounge up a few thousand dollars to try this as a pilot program for 15 or 20 artists in the Berkshires during the 2009 tax season. I’d be very interested to see what sort of demand it might generate.

Asset-Building Vs. Eradicating McDonald’s

For months I’ve been spending numerous hours of my evenings and weekends on the development of a project called SaveTogether.org, an online platform that will serve as a person-to-person fundraising intermediary for the asset-building field. I first wrote about the concept on this blog way back in June 2007, and it has actually started to pick up a fair amount of steam in the past 6 months. Terrific people in 5 or 6 different cities across the country are spending a lot of personal time (unpaid) to get this off the ground. We’ve still got months of work to go before launch, but it feels within reach.

The other night I was rushing my 7-year-old daughter into bed so I could get on the phone for another SaveTogether call, and she asked me why I was having all these evening calls and and all these weekend mornings trying to get work done before the day’s family activities begin. There was a bit of irritation in her voice: it’s obvious she finds my “work” pretty dull — just typing on the computer and talking on the phone, not (in her words) a real job like teaching, medicine, art, or music (I’m glad she puts those latter two in the category of real jobs, unlike too many adults).

I explained that I was working on something I think is pretty important, a new way to help people who are facing financial difficulties but are working hard to afford to go to college, or start a business, or buy a home. I said I knew she had heard about this bad economy we’re in, which made it all the more urgent that people work together to start finding solutions to our country’s economic problems, like we hear Obama talking about on the radio; this project was a way I could contribute, although it meant putting in lots of extra hours and I was sorry that it took my attention away from her some of the time.

There was a respectful pause; I got the sense my explanation had sunk in and that she could sort of appreciate all the effort for something I found exciting and important, just as she wants appreciation for the effort that goes in to her often distracting and messy yet impassioned art projects. She thought about my words a moment longer, then said “Okay, but can you also do something to get rid of all the McDonald’s.  Then everyone wouldn’t be as fat and unhealthy.”

Clearly my wife’s healthy food rants were making a strong impression, plus my daughter had McDonald’s on her mind because she had recently made her first visit to the golden arches and found it a major disappointment. The ice cream was nothing special, and it turns out she had liked being the only kid in her class who had never been to McDonald’s. Now that had been taken away from her and she seemed to want McDonald’s to be punished for stealing her individuality.

Causes benefit from having a bad guy, and the bad guys of our current economic malaise are a bit abstract to a 7-year-old (even one who’s a budding activist) compared to the omnipresent McDonald’s corporation.

I told her I’d see what I could do.  I’m a father after all; we don’t like to disappoint. I’ll just have to make room in the business plan: develop website; forge partnerships; raise money; build assets for the poor; wipe out McDonald’s.

Good Intentions Gone Bad at Federal Housing Finance Agency

It’s been discouraging to see the efforts by the Federal Housing Finance Agency and the Federal Home Loan Banks to divert resources from responsible first time home buyer assistance and education to instead support mortgage re-financing for home owners who are in trouble. Yes, our economy is hurting because of home owners facing foreclosure, and many of those troubled home owners were the victims of terrible lending practices, while some have only themselves to blame. But the Federal Home Loan Banks shouldn’t be allowed to divert the home ownership set-aside funds from their mandated “Affordable Housing Programs.” They should be identifying other resources for mortgage re-financing so as to preserve what’s available for first time home buyer assistance at a time when our economy would benefit from responsible first time home buyers coming into the market.

I haven’t followed all the details of this “proposed rule” and “public comment” process, but it sounds like the banks are close to getting the change they want in order to receive more aid in restructuring their previously issued bad loans. In June, CFED was encouraging folks in the asset-building field to speak out against the change. Now, CFED must feel there’s no doubt the rule is going into effect in some form, and their advocacy is focused on requiring the member banks to at least provide a 2:1 match out of their own resources for any mortage re-financing funds they use from the “Affordable Housing Program” allocation. I hope some letter-writing might get that provision re-instated in the final rule. Here’s what I put in my letter (borrowing heavily from CFED’s template):

I write to comment on the Federal Housing Finance Agency (FHFA) interim final rule to require the FHFA to allow the the Federal Home Loan Banks (Banks) to use Affordable Housing Program (AHP) homeownership set-aside funds to refinance mortgages.

I am deeply concerned that the FHL Banks would be allowed to re-allocate funds from low-to moderate-income first time home buyer assistance in providing resources for mortgage-refinancing. We should provide some opportunities for relief to home owners who are in danger of foreclosure because of inappropriate lending practices, but not by taking away resources that are a critical part of our country’s infrastructure for making responsible home ownership feasible for low-to moderate-income families.

At a minimum, the FHFA should demand a $2 match from participating financial institutions for every $1 received from the AHP for foreclosure mitigation. The Federal Housing Finance Board’s original proposal included this requirement.

The Banks, in cooperation with other federal and state efforts to mitigate the foreclosure crisis, should first utilize other funds already available to them and demonstrate their impact before tapping into a reliable source of homeownership assistance already seen as a critical part of the pipeline for affordable homeownership.

This concern has not been adequately addressed in this Interim Rule.

The FHFA has substantial flexibility to require some local buy-in before enabling a member financial institution to take resource from new, first-time low-income homeowners at a time where it is more difficult to get mortgages.

Fingers crossed that the interim rule gets improved a bit before it’s finalized. I’ll be watching to see how it impacts the terrific first time home buyer programs funded through the Federal Home Loan Bank of Boston.

New York Times on Check-Cashing and Payday Lending

Last Sunday’s New York Times Magazine had a great article on the check-cashing and payday lending industry, exploring what makes it succeed in the market despite the exorbitant fees.

An interesting read for anyone trying to deliver responsible financial services for the poor.