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Building lives through IDAs: How Flint is making it work
By ANN RICHARDS
When combined with other community resources, Individual Development Accounts (IDAs) can make a big difference in the lives of low-income families.
IDAs are a relatively recent innovation that use matching funds to encourage saving by low-income, working families to meet specific financial goals such as starting a business, going to school or buying a house.
“It’s not an entitlement program,” said Ravi Yalamanchi, executive director of Metro Housing Partnership in Flint. “For someone who is working hard at a low-wage job, IDAs offer a little push that can help develop a savings habit — a different behavioral attitude — that can make a lifelong difference.
His organization is partnering with Legal Services of Eastern Michigan (LSEM), headquartered in Flint, to administer the Genesee Area Investment Network (GAIN$), established in 2004 to provide IDA services for Flint and Genesee County residents.
“It’s only $4,000 per person, but we’re leveraging that money to provide more stability for families who are struggling,” Yalamanchi said.
“In the past six months, two of our families have purchased Habitat for Humanity homes. We’ve been able to layer their IDA savings with sweat equity, down payment assistance from MSHDA [Michigan State Housing Development Authority], a zero percent mortgage and homeownership training.”
Said Amanda Crews, a former real estate broker now assisting GAIN$ clients purchase homes through Metro Housing: “IDAs offer us a chance to help families change their lives. To watch people begin to get a sense of their own power, to understand that they are more than consumers — that they can be builders of their own lives — that is the value of IDAs. That’s what makes this effort so satisfying.”
Not every IDA account holder meets his or her savings goal. But of the 88 individuals who enrolled in GAIN$, 27 have “graduated” and 61 are still saving, according to Edward J. Hoort, executive director of LSEM, a nonprofit law firm that serves 14 mid-Michigan counties.
The IDA concept was proposed by Michael Sherraden, a professor at Washington State University, in a paper published in 1990 by the Progressive Policy Institute in Washington, D.C. The Mott Foundation has been a national leader in promoting asset-based strategies — most notably IDAs — as a poverty alleviation tool. Since 1994, the Foundation has invested more than $13 million to expand IDA programs across the country.
In 1998, Congress passed the Assets for Independence Act (AFIA), which spurred the growth of IDA accounts nationwide.
Typically, IDA participants — working individuals or families with incomes at or below 200 percent of the federal poverty level (currently just under $40,000 for a family of four) — open a savings account under the sponsorship of a local nonprofit.
Deposits are matched by government or private dollars at a pre-determined rate, ranging from 50 cents to $5 for every dollar saved. Maximum savings generally are limited to $1,000 per participant (plus the match) over a multi-year period. Participants also are required to complete a financial literacy course.
GAIN$ is the Flint-area community’s second try at establishing an IDA program. In 2001, three area organizations applied for, and received, funding from the Michigan Individual Development Account Program (MIDAP), which has received more than 1.2 million in Mott funding, to provide IDAs for Flint residents.
“The model first used in Flint lacked a central coordinating agency; everyone wanted to run their own program,” Yalamanchi said. “The problem wasn’t resources, but how and who could administer accounts efficiently.”
Jan Losby, director of research for the Institute for Social and Economic Development in Washington, D.C., has evaluated several IDA initiatives across the country. She recently submitted an evaluation of the first phase of GAIN$. It rated GAIN$’s collaborative model as one of its greatest strengths.
“In the two years before GAIN$ began operating, time was spent in understanding why efforts in Flint under MIDAP were unsuccessful,” Losby said.
“Running an IDA program can be hard, time-consuming work. The MIDAP experience demonstrated that partnerships that seem logical on paper may dissolve when faced with the realities of their demands on each of the partners.”
The key to a successful partnership, she said, is a common vision of IDAs and how they are intended to work. Sharing tasks with strong partner organizations can make the work easier. It also can enrich what is offered to participants by making additional resources — services, staff time and expertise — available.
“I see this kind of work as economic development for poor people — who are our clients,” Hoort said.
“It’s part of my mission to set up programs like this. Just like any business lawyer, it’s our job to enhance a client’s income. The difference is, no poor person is going to come to us and ask us to set up an IDA program. The initiative has to come from us.”
Yalamanchi and Hoort credit Flint-area funders, including the Mott Foundation, with keeping the idea of a countywide IDA program alive. Since 2001, Mott has provided $490,000 in grants for the development and implementation of an IDA program for its home county.
GAIN$ also receives support from the Community Foundation of Greater Flint, the Ruth Mott Foundation and the United Way of Genesee County.
Both private and public dollars are used to operate GAIN$ and match savings on a 3-1 basis.
The addition of local philanthropic dollars allowed for some modifications to the Flint program that better meet the needs of clients, says Hoort.
“We’ve designed an IDA program that best uses the flexibility that can be induced into the federal program,” he said.
“Under AFIA, you are required to provide match dollars on a quarterly basis. For people who are struggling, the temptation to take the money and quit is really strong. We don’t do that. Instead, we don’t accept applications until participants have completed a pre-IDA component.”
During the six-month pre-IDA period, an account holder must demonstrate a consistent effort to save in order to be formally eligible for an IDA slot.
This serves as a savings “proving ground,” according to Yalamanchi. “It’s an excellent way to see if someone is ready to commit to the program.”
Private dollars also have enabled GAIN$ to include vehicle purchase as a savings goal. Thus far, that has been the most popular asset goal for GAIN$ savers.
Modifications to GAIN$ education and job training accounts — again made possible by private dollars — enable participants to double their savings to cover tuition costs for up to three or four semesters.
“Traditionally, account holders saving for school can accumulate enough money for only a semester or two, then they are forced to drop out and save again,” Hoort said.
“Using a combination of public and private dollars, we match a student’s first $1,000 with federal money and a second $1,000 with local dollars, which helps them stay in school with fewer interruptions.”
Private dollars also have been used to increase support services and case management to ensure maximum leverage for savings.
“Good case management can make a big difference in your success rates,” Hoort said.
Case management generally is the responsibility of selected local nonprofits. Organizations receive $150 up front for each individual referred to the program, but do not receive a final $150 until the client has successfully graduated from the program. In Flint, nine nonprofit organizations provide case management services.
Metro Housing serves as the “gateway” agency and is responsible for overseeing training and case management by individual sponsoring agencies. Metro also is responsible for collecting data and fulfilling reporting requirements. LSEM drafts and enforces all contracts, approves all payments and serves as the grantee for both federal and private dollars. Both organizations collaborate on fundraising.
As GAIN$ gears up to open a second round of accounts, the biggest challenges will be operational, Yalamanchi said.
“Making sure all our partners — service organizations, clients, advisers — are on the same page takes time. Selecting clients who have a chance to succeed is critical — for every 10 people who walk in here excited by the opportunity, we hope we can identify two or three who will make it.”
He is optimistic about the future.
“If we can continue to add 75 to 100 clients every two years, we can help a lot of people,” Yalamanchi said.
“Given our situation here in Flint — our struggling economy — it’s one of the best investments we can make.”