Thursday, December 6, 2018

EITC and tax refunds as life changers -- credit where it's due

The Tax Policy Center's new database is a great tool.

In an informative post on the Tax Policy Center’s TaxVox blog, Richard C. Auxier touts the benefits of the Earned Income Tax Credit. Auxier praises the EITC while introducing the TPC’s new database “that makes it easy to access information about the EITC and to tailor that data for specific geographic and political communities.
It’s great to see facts and data being compiled about programs like the EITC. Also encouraging is thisarticle from The Economist highlighting the EITC’s bipartisan appeal and its cost effectiveness to taxpayers. Studies such as thisone from economist Jacob Bastian, on which The Economist based its article, lay the EITC’s effectiveness out in black and white.
"Both and" -- Financial Coach Adam Taylor, left, helped Leslie Brady
strategically utilize her Earned Income Tax Credit.
At Appalachian Community Federal Credit Union (ACFCU) and its Volunteer Income Tax Assistance (VITA) partner Tusculum University, we see those good effects firsthand. This is particularly true in the lives of people who have combined our tax prep with financial coaching – people like Leslie Brady, whose story is below.
Another important ACFCU partner, Family Promise of Greater Johnson City (FPJC), introduced us to Leslie in late October 2017. Leslie was late on her rent. ACFCU had established an innovative secured loan program with FPJC, and Leslie got a low-rate personal loan secured by FPJC. The loan was contingent on Leslie working with our financial coaching department to help insure a sustainable path forward, and she began meeting with Financial Coaching Specialist Adam Taylor.
VITA volunteers from Tusculum University help a client in 2018.
Leslie got current with her rent, but an array of additional financial hurdles remained. She had a $9,000 balance with a predatory “buy here pay here” car lot on a car worth less than $5,000, and two predatory loans with a total balance above $900. Those three loans together were costing her $492 a month. Leslie also had a bit of old debt. Enter VITA and the EITC.
Adam directed Leslie to ACFCU’s VITA program, which completed 736 returns last year. The year before, Leslie had paid $300 for tax prep in 2017. This time she saved that money, and an EITC of nearly $3,500 contributed to a refund of nearly $7,000.
Leslie let the buy here pay here car go and took Uber to work and back during a two-month car buying process. She got a secured ACFCU VISA credit card to help her build her credit score. She paid off old debt, put some money in a sinking fund, and held the rest for a vehicle down payment.
Leslie consulted Adam heavily during the car-buying process. He built a spreadsheet with a dozen prospective purchases. James Reeves, a mechanic with whom ACFCU has a relationship, vetted those prospects. Leslie found a good vehicle for her with a $181 monthly payment.
Leslie hasn’t been late on any debts in 2018 and her credit score has increased from 561 to 631. She got a raise at work and is working an extra job through the holidays with her eyes on the American Dream. She’ll use VITA for taxes again in February 2019 and at that point she’ll have begun the journey toward homeownership in earnest. She’ll be able to pay off her FPJC loan and a personal loan at a separate credit union, as well as a short-term ACFCU “quick cash” loan that the credit union offers as an alternative to short-term predatory loans.
Leslie plans to use that extra cash flow (more than $300 a month) to prepare for homeownership. By Christmas 2019, the ACFCU team is hopeful that Leslie and her kids will be living in their own home. Leslie’s financial goals have changed from being reactive (avoid homelessness) to being proactive through her relationship with ACFCU. The Earned Income Tax Credit has played a key role in this progress.
(Jeff Keeling is director of community relations for Appalachian Community Federal Credit Union.

Wednesday, November 28, 2018

Boon or boondoggle? Jury out on Opportunity Zones

Dark blue census tracts in Johnson City, Tennessee represent areas
of economic distress that aren't Opportunity Zones. That doesn't lessen
the need of residents there, nor ACFCU and partners' commitment.
“Boondocks and boondoggles,” indeed. This article in the latest issue of The Economist takes a closer look at “Opportunity Zones.” Created through the 2017 Tax Cuts and Jobs Act, Opportunity Zones (OZ) offer favorable tax status on unrealized capital gains if those gains are invested in OZ-designated census tracts.

Like “Enterprise Zones” and other well-meaning concepts that preceded them, OZs purportedly are designed to draw investment capital into economically struggling areas. That’s one reason Appalachian Community Federal Credit Union (ACFCU) helped drive the effort to establish OZs in appropriate census tracts within Northeast Tennessee’s eight counties.

As a mission-driven financial institution, ACFCU sees firsthand the overwhelming need for action and not just words when it comes to alleviating poor economic conditions in overlooked, underserved areas. “Opportunity” aptly describes an actual concrete thing that is sorely needed in many neighborhoods and census tracts in Northeast Tennessee and ACFCU’s other service areas of Southwest Virginia and Southeast Kentucky.
ACFCU provides opportunity here in rural Kentucky, where Opportunity
 Zones are in light blue and regentrification is just a really long word.

Yet as we have seen this fledgling concept evolve toward reality, some of us at ACFCU have developed the same concerns expressed in the Economist article. Plenty of OZ census tracts are experiencing pockets of regentrification. If capital linked to this program primarily flows into those areas, that concern will prove to have been justified as, per the Economist, “investors will pocket tax rewards for investments that they would have made anyway.”

As ACFCU’s Regional Community Development Coordinator, Adam Dickson, aptly noted, “the more I get into understanding OZs, the more concerned I am that the initial intent of the program is profit with limited regard to the interests of low-income communities.” Dickson also insightfully points out that, “OZs provide a prime opportunity to promote social enterprise, cooperatives, etc.”

Time will tell whether the areas most in need of opportunity benefit. The Economist noted that “place-based policies” are theoretically attractive, because many poorer parts of America find it increasingly difficult to catch up with wealthier ones. “In theory, geographically targeted tax cuts or subsidies could encourage new clusters of economic activity to form, thereby lifting depressed places,” the article states.

Will capital flow to Opportunity Zones like this tract in Kingsport,
where regentrification isn't likely in the cards? The need is obvious.
The Tax Policy Center’s Brett Theodos, Steven Rosenthal and Brady Meixell expressed similar concerns in a blog post published Oct. 23 after the feds released their first set of proposed OZ regulations.

ACFCU and its many partners will continue bringing opportunity to economically challenged areas that need it most and are unlikely to attract investment. Some of those areas are in Opportunity Zones, and ACFCU continues to lead efforts to bring OZ-eligible capital to such neighborhoods.

But we won’t wait to see how the new program turns out. We’ll try to steer a potentially impactful program in the right direction in our communities, including at an upcoming ACFCU-sponsored Opportunity Zone symposium, but we won’t pin our hopes on something that could, indeed, turn out to be a boondoggle. So I’ll take a slightly different tack than the Economist, which writes that when it comes to OZs, “for the moment, scepticism is in order.” Here in the mountains of Central Appalachia, where declines in coal and manufacturing make economic opportunity as badly needed as it’s been in a long time, I share my colleague Adam Dickson’s concern. But like Adam, I’ll choose “guarded optimism” over skepticism. After all, as folks like to say around here, “you can catch more flies with honey than you can with vinegar.”

 (Jeff Keeling is director of community relations for Appalachian Community Federal Credit Union.)

Wednesday, November 14, 2018

The good, the not so good, and the place for financial coaching

ACFCU works with many people who spend a high percentage
of income on necessities as our membership is primarily in Tennessee.
Low unemployment rates and rising wage levels across America sound great, and thank goodness for them. Other data out there, though, make clear the importance of financial coaching and other tools that can help families use their income more strategically. That importance is magnified in Tennessee and Kentucky, both of which are among the 13 states where renters spend more than 50 percent of their income on necessities.

Take this piece by GOBankingRates’ Cameron Huddleston. The Life and Money columnist reports on GOBankingRates’ study of the Consumer Price Index and of housing cost data. Rents are up 7.6 percent in three years, and other necessities have risen by 14 percent.

GOBankingRates surveyed 5,000 renters about monthly expenses, defining necessities as rent, groceries, transportation, utilities and health care. After figuring how much of median household income those expenses accounted for in each state, they used the “50-30-20” budgeting rule to determine what percentage of folks in each state can’t afford the cost of living. That budgeting rule figures 50 percent of income for necessities, 30 for nonessential costs and 20 percent toward saving.

Tennesseans’ average monthly cost for necessities totals 60 percent of median income – third highest behind Delaware and New Mexico. And with Northeast Tennessee median incomes lower than the state average, the folks Appalachian Community Federal CreditUnion (ACFCU) and its partners serve fight even more of an uphill battle to balance their budgets.

Financial coaching has helped Kayla Cabe improve
her financial health tremendously.
That’s why at ACFCU we continue to feel very fortunate to work with people like Kayla Cabe, an aspiring nurse who wants to carve out a good life for her sons Adarius, 8, and Kamari, 1. Cabe learned about ACFCU’s financial coaching resources during an ACFCU workshop at Adarius’s after-school program.

In less than a year working with Financial Coaching Specialist Adam Taylor, Cabe’s credit score has increased by more than 100 points. She’s paid off predatory debt and delinquent school debt and is poised to start LPN school next year. “I want to eventually have my bachelor’s in nursing but I’m taking it step by step because I have two kids,” Cabe said.

Through the process, Cabe’s income hasn’t fluctuated much – she’s learned to make the most of it. She’s gained financial knowledge and “learned to wait on things.”

So long as the cost of living remains problematic for many Americans, there can’t be enough partners out there working together to help families use the resources they have more knowledgeably and strategically. And as Cabe said, many don’t realize they can benefit.

“I think people think they know, and that ‘there’s nothing they can tell me that I don’t know.’ I kind of felt that way at first.”

Now Cabe is saving $100 a month in a sinking fund and another $80 a month for school fees “and a house eventually.” She’s bucking the trend GoBankingRates found in their study. Despite a modest income, the fact Cabe has any savings puts her ahead of a third of Americans.

“I think you guys really want to help people be successful,” Cabe said of ACFCU. She’s right.

 (Jeff Keeling is director of community relations for Appalachian Community Federal Credit Union.)

Monday, November 5, 2018

Home is where the difference is

Carla Strickland and her daughter Caira, 5 -- at home.
“I came back home from Georgia and had (daughter Caira), my dogs, a pocketbook and a diaper bag and started over. If you had told me I would be where I am now with her 5 and a half years old I wouldn't have believed it.”  Carla Strickland

One could tell right away that Caira Strickland felt secure on a pretty fall night in the Northeast Tennessee mountain town of Erwin. The kindergartener sat at her kitchen table with mom Carla’s full attention as she ran the “drive-through” on a tabletop toy. Later she’d help Carla feed their chickens, then mom and daughter would lay and read before Caira got tucked into her own bed, in her own room, in her mom’s own home. “She’s a mama’s girl for sure,” Carla said.

Caira will grow up in her own home largely because of Carla Strickland’s hard work and determination. Without Appalachian Community Federal Credit Union’s involvement in the “Project Reinvest” down payment assistance program, though, Carla would probably still be trying to save for her own place.

Caira holds "Bo" on the Stricklands' front porch.
“I feel like this assistance really allowed me to make the numbers work,” Carla said. Those numbers working mean the world to Carla, who grew up mostly in rented housing and wanted something different not just for herself, but for Caira. Carla slept on her dad’s couch so she could afford to save money and pay Caira’s daycare.

The National Association of Realtors compiled information from numerous studies about homeownership’s benefits in this 2016 study. Those benefits accrue to people like Carla, Caira and the 199 other families ACFCU helped through Project Reinvest and the $10,500 in down payment assistance it offered each participant.

Determination keys the turnaround

Carla Strickland did most of the work herself. ACFCU, Neighborworks America and other Project Reinvest partners just offered a hand up. After Caira was born, Carla declared bankruptcy and moved back home.

“I’m sitting there with a newborn kid thinking, ‘what am I going to do?’” Carla said. What she did was put her dental hygienist credentials to work and research how to rebuild her credit. Carla established a savings account and opened a secured credit card. “It was a super low limit, $500. It just went from there. I made sure everything was paid on time, kept my usage below 30 percent and just kept doing that. My score started going up fairly quickly.”

Carla has seven different accounts to escrow money for everything from her house payment to Christmas. “That way there’s no dumb decisions being made,” she said.

Carla admitted it isn’t always easy. It took a lifestyle change when it came to her spending and budgeting habits, and even now, she said, “every once in awhile I splurge and buy a $25 mascara.”
Lying with Caira as read together at night, and knowing the discipline she must maintain to keep her life on best trajectory for her and her daughter keeps Carla focused. In turn, life-changing stories like Carla’s keep ACFCU and its partners focused. It’s a huge part of what puts the “Community” in Appalachian Community Federal Credit Union. We hope to be part of many more such experiences in the months and years to come.

(Jeff Keeling is vice president of communications and community relations for AppalachianCommunity Federal Credit Union.)

Tuesday, October 23, 2018

Making more of a good thing?

ACFCU hopes a fun savings incentive can
lead to deeper conversations with low and
moderate income taxpayers about financial goals.
“Because it’s received at one time I worry that we’re creating a system where we essentially make people non-poor in the spring and then we drop them right back into poverty for the rest of the year.” – Elaine Maag, Urban-Brookings Tax Policy Center, on the Earned Income Tax Credit

Across the income spectrum, holiday spending time is here. Halloween costumes, home d├ęcor, and Christmas presents are seen as absolute musts – even for folks long past the months when large tax refunds had left them relatively flush.

People will spend an average of more than $86 on Halloween this year. When your checking account is often down to $8, never mind $80, before the next payday comes, 86 bucks is a lot to shell out. But shell out we often do, even if it means borrowing from predatory lenders or maxing out the credit card.

At Appalachian Community Federal Credit Union, we believe it doesn’t have to be that way. We’re hopeful that with financial coaching, some fun incentives and plenty of innovation, we can help some folks move the needle on the income volatility that large refunds and relatively low earned incomes tend to create.

The boon of an $8,549 tax refund for a two-parent family of five with a $28,000 adjusted gross income can’t be overstated. Neither can $9,066 for a two-parent family of four with AGI of under $21,000, or $6,955 for a single mom of two with AGI just below $28,500, or $9,983 for another single mom of two with AGI of less than $18,000.

Elaine Maag of the Urban Institute
ACFCU and Tusculum University served the families above earlier this year through their Volunteer Income Tax Assistance (VITA) partnership. Dozens of those low and moderate-income families received refunds exceeding $4,000 and the EITC played a big part. But what happens to that one-time money, and is there room for greater impact?

“When Pew Research did some analysis on income volatility, they asked people questions about whether you’d rather have more income or a steady income,” the Urban Institute’s Elaine Maag told me in a recent wide-ranging interview. “People said they would like steady incomes even more than knowing their total income in a year would be more.”

Maag’s work focuses on income support programs for low-income families and children – the EITC being one of the biggest and longest-running. A big proponent of the EITC and its expansion, she’s aware of the “fiscal cliff” folks often fall off later in the year. March through June are good months. Families catch up on late bills, pay ahead sometimes, stock up on staples, have a little fun and get needed big-ticket items or repairs. Then the lump sum dwindles and regular monthly take-home pay isn’t enough.

“We live monthly lives,” Maag said. “Our rent or mortgage payments our due monthly, we eat food not just in April, we eat it throughout the year. Our needs are not annual needs in a lot of cases.”

Commonwealth's Mariele McGlazer
That’s one reason why this coming tax season our VITA taxpayers can participate in SaveYourRefund. Anyone who puts at least 50 bucks of their refund into a second savings account is put into a drawing, and 10 $100 prizes are distributed each week of tax season. Mariele McGlazer of Commonwealth, which partners with the folks at America Saves to promote the program, says it’s a nice carrot and an opening to discuss bigger things.

“There can be a real reluctance or hesitation around using that moment as a time to talk about people’s financial goals and what they might be able to do with that refund to leverage it to their advantage,” McGlazer told me in an interview. “It’s an easy way into that conversation and an easy way to start talking about saving at tax time.”

We hope to engage people in those conversations and offer taxpayers financial coaching and other paths to meeting their long-term goals. America Saves’ motto says it all: Start Small. Think Big.
(Jeff Keeling is vice president of communications and community relations for AppalachianCommunity Federal Credit Union.)

Tuesday, October 9, 2018

Good minds thinking alike to tackle a nationwide problem

Low credit scores equal high costs for
debt -- a bad combination for anyone
but especially hard for low-income workers.
“How familiar” I thought last week as I read this post by the Urban Institute’s Emily Peiffer. Americans don’t understand credit very well, and low- and moderate-income people are more likely to suffer negatively from the impacts of having low credit scores. They’re also more likely to have low credit scores, or no score at all.

As we’ve seen at Appalachian Community Federal Credit Union and as Peiffer points out, “credit, preferably prime credit, is critical for families who need to smooth expenses until the next paycheck or pay for an emergency.” And as the institute’s Margery Austin Turner adds, safely building credit can mean everything in terms of people’s “ability to move themselves ahead financially and potentially out of poverty and into financial security.”

Urban Institute did some great work with this recently-released video that combines humor and fact to show how common myths about credit are in the U.S. What’s not humorous is the financial toll having subprime credit or no credit at all takes on low and moderate-income working families. By extension – and I’m so glad to see this addressed in Peiffer’s post – employers suffer.

Think about it: You’re living paycheck to paycheck and the car breaks down, or your kid gets sick and can’t go to daycare so you miss a few days of work. You have poor credit. The accompanying graphic shows the cost for your $550 car repair if you have to take out a payday loan to get the work done and pay it back over three months – nearly $400 in interest. With prime credit and enough capacity to put the bill on your card, it would cost you just $15 in interest to pay it back over three months.

Jennifer Black, right, went from being a self-described financial mess
to a homeowner thanks to coaching from Candy Craig, left.
Time and again with coaching clients we see these types of situations, often after things have snowballed out of control. Too often, people in these situations have quit or lost jobs as a result. That’s one reason ACFCU has an innovative partnership with Senture LLC and Kentucky Highlands Investment Corp. that offers a 7 percent, payroll-deducted hardship loan program for employees who qualify. (See page three of KHIC’S 2018 newsletter for a story on the program.) Most have subprime credit in the 500s, yet the default rate is minuscule and the program is helping Senture retain workers.

ACFCU offers one-on-one financial coaching to help the borrowers begin the journey toward financial health, better credit scores and the knowledge to remain on the right path. The credit union hopes to convince other employers of the value such a program can generate.

That jibes with comments in Peiffer’s post from Brenda Palms-Barber of North Lawndale Employment Network and Ricki Granetz Lowitz of Chicago-based Working Credit. Palms-Barber says employers need to be approached “in a language that speaks to (them),” adding that credit-building services can help reduce the cost of turnover. Lowitz notes that such programs help employers built a more financially resilient team.

Thankfully, we’re also beginning to see time and again the positive results when working families do take advantage of one-on-one financial coaching. Those results help both the families and their employers. It’s good to see we’re not alone in recognizing the importance of these kinds of efforts and innovating to try and make good things happen.

(Jeff Keeling is vice president of communications and community relations for Appalachian Community Federal Credit Union.)

Wednesday, October 3, 2018

This atlas doesn't make us shrug

Kingsport, Tennessee's census tract 47163040200, outlined
in black, has income, incarceration and other statistics that
contrast starkly with neighboring tract
 47163041500 (dark blue).
Welcome to census tract 47163040200, Kingsport, Tennessee. People in their mid-30s who grew up here have an average household income of $29,000. In April 2010, the incarceration rate for 30-something males who had been born in this census tract was 9.4 percent (1 percent margin of error). For black males – the tract was 31 percent non-white in 2010 – that rate was 15 percent, with a 4 percent margin of error. Most importantly, for purposes of the Census Bureau’s recently released “Opportunity Atlas,” and as it relates to Appalachian Community Federal Credit Union’s mission, 64 percent of the tract’s natives now in their mid-30s still live in Kingsport – and their average household income was $24,000 in 2015.

The numbers are starkly different for those who grew up just to the west in tract 47163041500. Average household income for them was $62,000 in 2015. Male incarceration rate for those folks in 2010 was 1 percent. Of the 41 percent who stayed in Kingsport, 2015 household income averaged $41,000. The neighborhood’s 2006-2010 poverty rate was 1.4 percent and it was 5.2 percent non-white in 2010.

30-somethings from tract  47163041500 have above-average incomes,
miniscule incarceration rates and high employment levels.
The Census Bureau released the atlas Oct. 1. The missions of ACFCU and other Community Development Financial Institutions – to serve and empower economically distressed communities – couldn’t be more relevant in light of this interesting new release.

As National Public Radio reported the same day, the atlas, a robust online data tool, “finds a strong correlation between where people are raised and their chances of achieving the American dream.” The data, crunched, analyzed and packaged with the help of Harvard’s Raj Chetty and Nathan Hendren as well as Brown University’s John Friedman (Chetty and partners blog about their research methods and findings on this census bureau blog site), comes from more than 20 million Americans who are in their mid-30s today. Stripped of personal information, it uses census bureau and IRS data to estimate average earnings, incarceration rates and many other outcomes. The data are linked to the tracts the subjects were children in, even if they don’t live in them now.

Natives of the "tract across the tracks" 47163040200, has average
 incomes less than half those of their childhood near-neighbors.
According to NPR’s piece, “Chetty found that if a person moves out of a neighborhood with worse prospects into a neighborhood with better outlooks, that move increases lifetime earnings for low-income children by an average $200,000.” As the NPR piece notes, though, “moving a lot of people is impractical, so researchers are instead trying to help low-performing areas improve.”

We see some stark contrasts in our Tri-Cities, Tennessee service area, as the introduction to this post reveals. ACFCU and its partners strive to provide opportunity within neighborhoods, not just shrug and think, “if people have enough desire, they’ll move to somewhere with better opportunities.”

Another good piece from the census bureau on the atlas’s findings suggests the takeaway shouldn’t be that moving is the best way to increase upward mobility. Anyway, that’s not always an option. Instead, the lesson should be “that the low rates of upward mobility in some areas can be changed.”

While policymakers consider the implications of this data and local and state governments mount their own efforts to address these types of findings, ACFCU will provide financial coaching and fair lending products to help people whom other institutions often overlook. It will continue pursuing innovative new, partnership-dependent affordable homeownership opportunities so more families can achieve the American dream of homeownership. It will continue partnering with Tusculum University and others to maximize opportunity so underserved people can access free VITA tax preparation, and will encourage them to leverage their refunds to get out of debt, build savings and work toward increasing their credit scores. And we hope someday, thanks to everyone working together, staying home in census tract 47163040200 won’t equal a ticket to lower opportunity.

(Jeff Keeling is vice president of communications and community relations for Appalachian Community Federal Credit Union.)

EITC and tax refunds as life changers -- credit where it's due

The Tax Policy Center's new database is a great tool. In an informative post on the Tax Policy Center’s TaxVox blog, Richard C. A...