Pending legislation would boost matching funds for IDAs

Northwestern Financial Review, Jul 1-Jul 14, 2002 by Dullum, Justin

Savings accounts that offer matching funds for low-income people, known as Individual Development Accounts, have been around for some time and 10,000 or more are in use. Matching funds have mainly come from non-profit groups but new legislation would earmark as much as $1.7 billion for tax credits for banks matching funds in IDAs.

"We're looking into IDAs as part of a comprehensive approach to socially responsible banking," said Dorothy Bridges, president of Franklin Bank in Minneapolis. "We would want to use them for affordable housing-saving up for that down payment."

Bridges said banks are waiting to see exactly how the accounts will need to be monitored and whether the regulatory burden will make IDAs prohibitive. "Probably in the next sixty days, well be able say this is the program and here's how we're going to use it," Bridges said.

Introduced earlier this year by Senators Rick Santorum (R-Pa.) and Joe Lieberman (D-Conn.), federally funded IDAs would provide a dollar-for-dollar match up to $500 per person per year and would be available to single people earning less than $20,000 per year, heads of households with annual earnings of less than $30,000 and married couples earning less than $40,000 per year. The participating financial institution could provide the matching $500 and receive a dollar for dollar tax credit, along with $50 to help set up the account and provide training to the individual or family opening the account.

The legislation has wide bi-partisan support, presidential support and the endorsement of many trade groups.

"IDAs are a documented success throughout the country but because matching funds are currently very limited, they cannot reach all of the struggling families who are willing to work and save," read a letter addressed to Senate leadership and signed by America's Community Bankers, National Bankers Association and others. "IDAs are estimated to generate more than $5 for every $1 invested," by trickling down through various social and economic systems, the letter read.

"Before an individual starts an account, they spell out what the intended purpose for saving is," said Melissa Koide, senior program manager, Corporation for Enterprise Development. A depositor's goal must fall into one of three categories: post secondary education, home ownership or small business. Once they've saved to the predetermined level, then they're able to make a withdrawal for the qualified purchase and the bank writes out a check to the vendor-a college or mortgage broker, for instance.

"For the banks, with every dollar they put up, they get a full dollar back in tax credit," said Koide. "They're also likely to get CRA credit for doing this."

By Justin Dullum