Arkansas Democrat Gazette, November 28, 2007: Matching accounts help poor save cash
BY DAVID SMITH
Some Arkansas households making as much as $ 40, 000 a year qualify for a savings account that is matched with taxpayer money at a rate of 2 to 1 or 3 to 1. Individual Development Accounts are offered to lowto moderate-income individ-
Federal and state funds are used to finance part of the matching portion of the accounts. Michael Tanner, director of health and welfare studies at the Cato Institute in Washington, D. C., a libertarian think tank, said the use of taxes to supplement individuals۪ savings is not necessarily a bad idea.
“It۪s better to give money for savings than for consuming,” Tanner said. “It is a good thing to encourage savings on the part of low-income people.”
But Grover Norquist, president of the Washington-based Americans for Tax Reform, doesn۪t think it۪s a good idea at all.
“What are we trying to teach people here ? Here۪s some free money, save it ?” Norquist said. “We۪ll give you extra free money if you save it ? Why is someone else who is working on Saturdays paying for somebody else to get money so they can put it in their bank account ?”
The accounts must be used for financial goals such as buying or repairing a home, paying for postsecondary education, or starting or expanding a business.
Valeria Franklin of Pine Bluff began saving $ 20 a month in an Individual Development Account in 2003. It took her two years to save $ 667, which was matched with $ 2, 000.
She had no paying job when she started, just volunteering to clean her church, Full Gospel Christian Fellowship. But she used the money to start her own business, Touch of Anointing Janitorial and Lawn Service.
Her first year, the business grossed about $ 8, 000, Franklin said. Now she has four parttime workers and does about $ 35, 000 in business annually, Franklin said.
“I often recommend [the savings accounts ] to friends and people I come in contact with,” Franklin said. “I spread the word. It may not be for you, but this is a start.”
The accounts are administered by several nonprofit organizations throughout Arkansas, including the Southern Good Faith Fund, Black Community Developers of Little Rock, the Central Arkansas Development Council of Benton, Chicot Housing Assistance Corp. of Lake Village, Community Action Program for Central Arkansas of Conway, Crawford-Sebastian Community Development Council of Fort Smith, Crowley۪s Ridge Development Council of Jonesboro, Equal Opportunity Agency of Washington County in Springdale, Healthy Connections of Mena, South Arkansas Community Development of Arkadelphia and Universal Housing Development Corp. of Russellville.
A number of banks throughout the state offer the accounts.
To be eligible for accounts, a participant۪s income must be less than 200 percent of the federal poverty line, which is $ 34, 340 for a family of three or $ 41, 300 for a family of four. The maximum matching amount for an account is $ 2, 000.
About 700 Arkansans are participating in the program, with almost half working through Southern Good Faith Fund. A total of about 1, 500 Arkansans have been involved in the program since it began in 1999.
“It۪s largely a matter of resources” and lack of publicity that more people do not take advantage of the accounts, said Michael Leach of the Southern Good Faith Fund, a nonprofit subsidiary of Southern Bancorp, an Arkadelphia-based rural community development bank.
Many banks cater to wealthy customers with specialized accounts and even entire departments to meet their needs, said Virgil Miller, a senior vice president with Metropolitan National Bank in Little Rock.
“That۪s part of the business, and we need to cater to those individuals,” Miller said. “But we also need to understand that we have another market to cater to, the market of low- and moderate-income individuals. Some like this product that will help them save.”
Bank of the Ozarks offers a 5 percent interest rate on the accounts, said Dan Rolett, executive vice president. It۪s one of the highest interest rates on the accounts in the state.
Rolett said the rate probably will drop, possibly to 4. 5 percent, next month.
Funding for the accounts is provided through the Arkansas Department of Workforce Services۪ Temporary Assistance for Needy Families, the U. S. Department of Health and Human Services, and the Assets for Independence Act.
This year, the Legislature authorized up to $ 1. 7 million per year for the savings accounts through next year. There is additional money available from federal sources.
Federal funds for the program are given to every state in the country, said Michael Rowett, a spokesman with Southern Good Faith Fund. In recent years, Arkansas has had a surplus of these funds, Rowett said, and has used some of the money for these matching funds.
Another source of matching funds comes from financial institutions or private foundations, Leach said.
Typically, however, banks offer little as far as matching funds for the program, said Michael Powers, a spokesman with the Federal Deposit Insurance Corp.
Banks that offer the savings program can get required Community Reinvestment Act credits from federal regulators for assisting low-income individuals.
Most banks are “throwing $ 500 or $ 1, 000 towards the program,” Powers said.
“Unfortunately, with that, they can۪t enroll as many people as they۪d like in the program,” Powers said.
That۪s why the FDIC recently decided to partner with Arkansas nonprofit organizations to expand access to the savings accounts, as well as other services for low-income banking customers, Powers said.