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Supportive Services Resources - Welfare to Work Vouchers

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Using Individual Development Accounts

Individual Development Accounts (IDAs) are asset-building tools that provide low-income individuals with an incentive to save money to continue their education, start a business, or buy a home. More than 2,500 people in over 150 communities nationwide are currently participating in IDA programs. Twenty-seven states have passed laws to implement IDAs, and the federal government has authorized more than $125 million to fund IDA programs.

Section 404(h) of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 authorized states to create community-based IDA programs with TANF block grant funds. The funds saved by TANF recipients in IDAs are not counted as income when determining eligibility for cash assistance, food stamps, Medicaid, or other government means-tested programs. The legislation designates nonprofit community-based organizations (CBOs) as custodians of IDA accounts. Management, monitoring, counseling, and enforcement responsibilities must be delegated to CBOs to ensure that IDAs are used for their intended purposes. In addition, funds must be held in licensed financial institutions, such as banks and community development credit unions. Finally, it is recommended that at least 20 percent of the total match be set aside to defray the CBOs' operating expenses.

PHAs can take the following steps to help their voucher recipients set up IDA accounts:

  • Determine if your state already has an active IDA program. The best resources for IDA program information include your local One-Stop career center and Workforce Investment Board. Or, check Washington University's Center for Social Development for information on State IDA policies.

  • If your state does not have an active IDA program, organize a campaign through local elected officials and lobby the Governor to enact one. The program should be structured on the framework contained in proposed federal IDA legislation in order to take advantage of demonstration funds and maximize chances of success. To view a summary of the Saving for Working Families Act, visit the Corporation For Enterprise Development (CFED) Web and view the article on "Federal IDA Policies Gain Momentum and Support." CFED also has many publications available, including an information and resource handbook on IDA program design.

  • Seek out IDA demonstration funds. The U.S. Department of Health & Human Services (DHHS) offers competitive grants of up to $500,000 to nonprofit organizations to set up IDA demonstration projects. For more information on the DHHS IDA grants, contact Sheldon Shalit with the Administration of Children and Families at 202-401-4807 or sshalit@acf.dhhs.gov.

  • Encourage local churches and nonprofit organizations to invest matching funds in local IDA programs. Some states, including Colorado and Virginia, provide tax credits to individual and corporate contributors as an incentive to increase local participation. To determine if your state has a Neighborhood Assistance Tax Credit, visit the Washington University's Center for Social Development Web site. You can also contact the CFED at info-dc@cfed.org or 202-408-9788.

  • Encourage employers to contribute to the IDAs of welfare recipients who they hire and for whom they receive a wage subsidy. Massachusetts, Mississippi, and Oregon require employers to contribute matching funds to the IDAs of TANF recipients who begin in subsidized positions as full-time employees. To determine if your state has such a provision, visit the Washington University's Center for Social Development Web site or contact the CFED at info-dc@cfed.org or 202-408-9788.

  • Educate voucher recipients about the incentives for creating IDAs.

    - The matching component of the program is similar to an IRA or 401K, which helps build a "nest egg" more rapidly than do normal savings plans.

    - IDA funds are not counted as income when determining eligibility for TANF or other means-tested programs.

    - Savers receive tax credits for money deposited in IDAs.

    - Asset building enhances self-esteem and provides financial and psychological momentum when moving to self-sufficiency.

    - IDAs expand understanding of money management and increase economic literacy.

Building assets is important to the future of all individuals regardless of financial means. It is the price of entry into the economic mainstream of America. Individual Development Accounts are a new policy tool that will help struggling families build assets just as home mortgage interest deductions, IRAs, and capital gains benefits have assisted middle and upper income individuals. PHAs and their partners can play an essential role in helping low-income families transition toward self-sufficiency by establishing IDA programs, linking voucher recipients to existing IDA programs, and educating voucher recipients on the benefits of participating.

For more information on IDA accounts:

Stephanie, a 27-year-old, single mother from Indianapolis, hit bottom nearly five years ago when she moved into a women's shelter to escape an abusive boyfriend. Soon afterward, her three-year-old son died of sickle cell anemia.

Today, despite her emotional wounds, Stephanie is rebuilding her life thanks to the IDA program. Stephanie is a participant in an expanded IDA program called "Down Payments on the American Dream," which will help as many as 2,000 low-income individuals start building assets and work to achieve their own dreams.

The purpose of the six-year program is to test the extent to which low-income people will save when provided with the right incentives. Major donors like the Ford, Joyce, and Mott Foundations are contributing $8 million, while local partners, including churches, corporations, and banks, are adding $4 million.

Stephanie has been able to save $800 over 18 months in her IDA, with matching funds of $9 for every dollar from public and private sources. With the money, Stephanie is pursuing a degree at a local Indianapolis college, which in turn, has helped her obtain a job that will enable her to become self-sufficient. Stephanie also receives financial counseling, a mandatory part of the IDA program administered by Eastside Community Investments, a community-based group in Indianapolis.

Source: Ford Foundation Report, Winter 1998 "Down Payments on a Dream."

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