The Shriver Brief : Poverty Law Commentary & Insights : Sargent Shriver National Center on Poverty Law : Affordable Housing, Healthcare Reform

Urban Partnership, a new institution, bought out ShoreBank on Friday ending the bank’s 37 years of service and its title as the oldest and longest serving community development bank in the country. In a previous blog, the Shriver Center outlined the numerous opportunities ShoreBank offered to low-income communities, including underwriting homeownership loans for working families, providing alternative lending options to small businesses, and countless community development projects that improved low-income neighborhoods.

Recent reports have linked the failure of ShoreBank to the Obama Administration’s clear decision not to affiliate itself with any one bank or institution. Why did the White House push so hard for bailouts to Wall Street firms, the purveyors of the economic crisis, and not community banks, such as ShoreBank, the institutions hit hardest? Why did the White House bow to political pressure to avoid the impression that ShoreBank was only being saved because of its supposed ties to President Obama and other senior White House staff?  Why weren’t there lobbyists fighting on behalf of ShoreBank and others like it?

It is hard to understand how allowing the failure of ShoreBank fits into the administration’s promise to make the middle class a priority. What message is the government sending by allowing ShoreBank to fail, while allowing irresponsible banks like Wells Fargo and AIG, who shoulder a heavy proportion of blame for the current economic crisis, to come out ahead?

The reality is that community banks are coming under intense pressure from a crumbling commercial real estate market, a weak economy, and lop-sided competition with banking goliaths deemed too big to fail. Champion for working families, Elizabeth Warren agrees that small banks serve an important function in this economy and disproportionally lend the money to small businesses.

What those that opposed the bailout of ShoreBank failed to realize is that community banks are integral to the health and well being of our economy. Using large Wall Street banks as the only option not only ignores the needs of the small business community, but puts consumers at risk of a monopoly. In addition, if this trend continues, the needs of entrepreneurs and community rehabilitation projects may never see the light of day. It is widely known that small businesses are responsible for most of the net job creation in the United States, which makes it clear why we need community investment banks to remain alive and thrive.

Small banks need a different program than TARP if they are going to make it through this crisis. Small banks and big banks do not look like each other and certainly don’t act like each other. There needs to be differences in how they are treated, but these differences should not reward big banks over community banks, which have historically made significant strides in solving problems relevant to low-income families, blighted neighborhoods, and small businesses. One way to ensure that this occurs is to reform the Community Reinvestment Act (CRA) to reward community banks for their efforts while requiring big banks to do more. The recently introduced H.B. 1479 would do just that and should, therefore, be supported.  Additionally, the banking regulatory agencies recently held hearings to determine what updates are needed in the CRA regulations. These agencies should be encouraged to include these kinds of reforms.

Susan Ritacca coauthored this article.
 

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Investing in our children is investing in Illinois. When we help children grow and thrive, we are paving the way for our state’s next generation of healthy workers and leaders. Investing in our children means investing in their health through All Kids--Illinois’ nationally renowned health insurance program. Ensuring that every Illinois child has access to health insurance allows children to grow into healthy, productive adults. And we know that our investment is paying off because of the “All Kids Final Report”--a recently released study of the All Kids program. The Covering All Kids Health Insurance Act mandated the study, and it was conducted by the Health Evaluation Collaborative and Institute for Health Research and Policy at University of Illinois at Chicago School of Public Health. 

The study aimed to measure the progress of the All Kids program in insuring children as well as examine areas for improvement. The study showed that the All Kids program has been hugely successful in helping to cover Illinois’ uninsured children: more than nine out of every ten Illinois children have health insurance coverage—many through the All Kids program or a parent’s workplace. While an overwhelming majority of the children who are eligible for employer-sponsored coverage were enrolled in that coverage, that is not an option afforded to all. Luckily, All Kids is there to catch those kids whose families cannot afford or do not have the choice of employer-sponsored coverage so their families have one less thing to worry about during these difficult economic times.

Since All Kids was first offered, the rate of uninsured children has dropped dramatically. At the beginning of the All Kids program, one out of every five low-income children were uninsured, but today, that number is down to approximately one in twenty low-income children. The majority of this enrollment growth since All Kids became available to all uninsured children is among children who were already eligible before the program was expanded. Children are the least expensive population to insure, and the investment now in their health will pay back in dividends later. Research shows that individuals with access to health care as children are less likely to have chronic health problems as adults.  

The recently released study also showed that children in All Kids were significantly more likely to have received an annual check-up and to have seen a dentist in the last 12 months than uninsured children, which means that they received necessary vaccinations and illnesses could be caught early to allow for more time in the classroom. Parents of All Kids’ enrollees were also more likely to report that their child had a “medical home” than both parents of uninsured children and privately insured children, which means that the state of Illinois has been successful in connecting All Kids’ enrollees to a provider who knows the child's health history and can provide health care on a regular basis. These investments are crucial to ensure Illinois kids are ready to learn and on the right track to become healthy, productive young adults.

The study also highlighted areas for improvement, including connecting All Kids’ enrollees to the care they need. We need to ensure that All Kids enrollees can get appointments with specialty doctors when they need them and that providers and clinics offer expanded hours for working parents to take their children to their primary care provider. Overall, the study findings show that there is much to be proud of with the All Kids program: It is leading the way in covering kids, which benefits our entire state. Every child should be able to count on access to affordable, quality health insurance and care, and supporting the All Kids’ program isn’t just the right thing to do. It’s one of the best investments we can make as a state.

This article was co-authored by Kathy Chan, Associate Director, Illinois Maternal and Child Health Coalition.
 

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Students who are parents, expectant parents, or survivors of domestic or sexual violence face unique challenges as they try to stay in school, stay safe while in school, and successfully complete their education. Failing to complete school can have life-long consequences, with high school dropouts reporting lower employment levels, lower lifetime earnings, and overall poorer health. Teen pregnancy and parenting and domestic and sexual violence are factors that contribute to the dropout and push-out crisis, but have thus far received insufficient attention from policymakers in Illinois.

Because of this, the Women’s Law and Policy Project at the Shriver Center got together a coalition of education, youth, and violence prevention advocates and students and their parents from across Illinois in 2003 to address these issues. The coalition drafted a bill to support elementary and secondary students who are parents, expectant parents, or survivors of domestic or sexual violence, which was introduced by Rep. Karen Yarbrough in 2005 and again in 2007. In 2007, the legislation was enacted into law as Public Act 95-0558. The law created the Ensuring Success in School Task Force, charged with examining and making recommendations regarding barriers to school attendance, successful school performance and graduation faced by students who are parents, expectant parents, or survivors of domestic or sexual violence.

This summer, the Ensuring Success in School Task Force released its Final Report to the Illinois General Assembly. The report is the product of extensive research, consultation with experts, and public hearings held across the state, and it encompasses all of the task force’s findings and recommendations for how to support elementary and secondary students who are parents, expectant parents, or survivors of domestic or sexual violence.

Moving forward, the Shriver Center is convening a meeting of stakeholders to develop a strategic action plan based on the findings and recommendations of the report. If you are interested in participating in the first meeting, which has been set for Tuesday, September 7, from 2:00 p.m. to 4:00 p.m., or in future meetings, please contact Wendy Pollack at 312-368-3303. For those outside of Illinois who are interested in pursuing these issues in your area, also please contact Wendy.

For more background information on the Ensuring Success in School Initiative, contact Wendy, or see The Ensuring Success in School Act: Promoting School Success and Safety for Young People Who Are Parents, Expectant Parents, or Victims of Domestic or Sexual Violence. The full text of the legislation as originally introduced in 2005 is available at ilga.gov.

Shana Heller-Ogden coauthored this article.

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August 14, 2010, marked the 75th anniversary of Social Security. The social security system has helped reduce the rate of poverty among the elderly, but millions of seniors continue to face economic insecurity. Social Security alone cannot remedy the growing inadequate rate of Americans’ retirement savings and current pessimism about the security of such savings. In fact, Social Security was never intended to be the sole source of retirement income, but rather to provide seniors with a moderate standard of living. Yet, it has become an increasingly larger part of people’s retirement funds. Without Social Security, approximately 20 million Americans would fall below the poverty line, including more  than 13 million elderly and 1 million children.

According to the Social Security Administration, Social Security benefits constituted 50 to 90% of income for more than 33% of Social Security recipients, and 90 to 100% of income for more than 31% of recipients. Women, in particular, may be forced to over rely on their Social Security benefits. Social Security is virtually all of the money that more than 4 out of 10 single women over age 65 in will have. This highlights the need to put more policies like Universal Voluntary Retirement Accounts (UVRAs) in place to provide economic security for low- to moderate-income people.

UVRAs are a simple, easy way to encourage individual retirement savings. Generally, UVRAs are government-administered contribution retirement plans for those who lack access to an employer-sponsored plan. Under UVRA programs, employers that do not offer a retirement plan would be required to allow their workers to open and contribute to a UVRA account through regular payroll deductions. Through automatic enrollment with an opt-out option and a limited number of investment options, UVRAs can attain high participation rates. Additionally, by including a low default contribution rate, UVRAs alleviate potential burdens on low-income individuals while ensuring that they engage in at least minimal savings. Because UVRAs are paid through payroll deductions, they would be portable from job to job thereby encouraging continued savings behavior regardless of changes in employment.

The Automatic IRA Act of 2010, S. 3760, sponsored by Senator Jeff Bingaman (D-NM) and John Kerry (D-MA), would expand retirement savings coverage. Specifically, the bill, which is similar to the bill previously introduced into Congress in 2007, would amend the Internal Revenue Code to allow employees not covered by qualified retirement plans to save for retirement through automatic IRAs. Employers would be required to provide Automatic Individual Retirement Accounts (IRAs) to each qualifying employee. Several states have also introduced UVRA legislation in recent years, and the concept of UVRAs was proposed in President Obama’s 2010 budget. These repeated attempts to enact UVRA legislation demonstrate lawmakers' recognition of the growing retirement problem. In particular, the need to continue Social Security in order to lift millions of Americans out of poverty, while at the same time providing other retirement opportunities for those who do not currently have them or who are most vulnerable.

For more information on UVRAs, see “Universal Voluntary Retirement Accounts: A Financially Secure Retirement” in Clearinghouse Review and the archive of the Shriver Center’s recent webinar on UVRA.

Ji Won Kim coauthored this article.

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Every time you see a healthy, happy child this fall, there’s a good chance we’ve got Congress to thank for it. If you’ve never heard of the Federal Medical Assistance Percentage (FMAP), doesn’t worry – almost no one has. But FMAP – the share of Medicaid costs covered by the federal government – is a lifeline for the 1.6 Illinois children who depend upon Medicaid for the health care they need to grow and thrive. FMAP helps seniors, people with disabilities, and parents stay healthy, too. This week, as part of its response to the recession, Congress extended a temporary FMAP increase that will provide $545 million dollars to help Illinois avoid drastic cuts that would have put children’s health at risk and cost state employees and local health care providers their jobs. And these funds will generate additional economic activity in Illinois. Every $1 million in federal funds generates $1.7 million in business activity on average, 17.1 new jobs, and $600,000 in wages and salaries.

Keeping kids covered is a win for our state. Kids get the checkups and preventive care they need to stay healthy, so they miss less school and so problems like nearsightedness and hearing trouble don’t hold them back. Parents get the peace of mind of knowing that a playground mishap or flu outbreak won’t drive the family deeper into debt. And we all get more value from every health dollar, by focusing on prevention instead of letting today’s minor problems become tomorrow’s costly burdens.

Among our leaders in Washington, Senators Durbin and Burris along with the entire Democratic Congressional delegation voted to keep Illinois kids healthy by keeping FMAP strong. Every late summer picnic, every high school football game, and every afternoon at the park – everywhere we see happy, healthy kids is a reminder to thank our leaders for standing up for families struggling through the recession and putting the health of Illinois children first.

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The Internal Revenue Service (IRS) announced last week that starting with the 2010 tax filing season they will no longer provide tax preparers with the mechanism they had been using to underwrite refund anticipation loans (RALs). Specifically, the IRS will no longer provide a “debt indicator” tool which gives tax preparers an indication of whether a client will have any portion of the refund offset for delinquent tax or other debts including unpaid child support or delinquent student loans. Preparers used this indication to decide whether or not to offer a customer a RAL as an incentive to immediately pay for the fees of tax preparation and get cash in hand.

RALs are short-term, high-interest-rate bank loans sold through tax preparation sites like H&R Block and are heavily marketed and sold in low-income communities. RALs provide taxpayers an immediate advance on their anticipated tax refunds, yet at a cost of interest rates ranging from 50% for a $10,000 RAL to 500% for a $300 RAL.

Because refunds are now widely issued electronically within 10 days of filing, the IRS decided that there was no longer a need for the debt indicator or an instantaneous refund. As IRS Commissioner Doug Shulman explained: “Refund Anticipation Loans are often targeted at lower-income taxpayers. With e-file and direct deposit, these taxpayers now have other ways to quickly access their cash.”

To replace the debt indicator, the IRS will begin exploring the possibility of providing a new tool to tax preparation sites. Instant access to cash and the ability to immediately pay for tax preparation services with RALs have been major selling points for consumers. The IRS is, therefore, investigating cost-effective and secure alternative product s to RALs.

Legislators and advocates alike have praised the decision to no longer provide the debt indicator. These high-cost loans, which are targeted at low-income families and those eligible for the earned income tax credit who need money quickly, are irrelevant given the speed at which federal tax refunds are now delivered. In eliminating these loans, taxpayers will no longer spend millions of dollars for a 10-day loan when they can receive the cash for the refund in approximately the same time period.

In recent blogs, the Shriver Center reported on the negative impact RALs have on low-income communities and the measures being taken to eradicate these product s from the tax preparation industry and from financial institutions. The Office of the Comptroller of the Currency (OCC), reacting to consumer advocacy including efforts by the Shriver Center, issued new requirements for tax preparers’ advertisement and sale of such loans earlier this year. Similarly, the FDIC mandated at least one cease and desist order and several RAL provided voluntarily agreed to stop proving such loans. The IRS’ recent investigation into RALS and the task force which it convened on this topic lead to its decision to eliminate the debt indicator tool. This latest development could spell the end for RALs, and the Shriver Center applauds the IRS’ action in ending this abusive practice.

Susan Ritacca coauthored this article.

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In the next several weeks kids throughout the state will head back to school. As summer vacation comes to a close, annual vaccinations and check-ups are often on the back-to-school to-do list of Illinois families. But for the estimated 148,000 uninsured children in Illinois, accessing these services can be a challenge. Fortunately, in Illinois this is a problem we can solve. In Illinois every uninsured child qualifies for Illinois’ public health insurance program: All Kids. For kids whose families cannot afford or do not have the choice of employer-sponsored coverage, All Kids is there to catch them so their families have one less thing to worry about during these difficult economic times.

Health insurance coverage allows children to get the care they need so they can spend more days in the classroom. Healthy children can grow and thrive. And children who have access to care now are much more likely to grow into healthy, productive adults. In fact, a recent study found that children enrolled in All Kids were significantly more likely to have had a well-child visit in the last year than uninsured children. And parents of children enrolled in All Kids were significantly more likely to report that their children had a usual source of care than did parents of uninsured children. Enrolling every uninsured child in All Kids health insurance can ensure that children have access to care so they are ready for the first day of school, have eyeglasses so they can see the chalkboard, dental exams so they are not distracted by a toothache, and medications for childhood illnesses like asthma so they can run and play.

Check out the Shriver Center’s All Kids Enrollment Event Toolkit for resources and best practices for enrolling eligible children in All Kids. And be sure to take a look at the new resources from Cover the Uninsured on back-to-school efforts. Parents can enroll their children in All Kids online or find an All Kids Application Agent in their area who can assist with the application process. 

This article was coauthored by Carrie Gilbert.

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This fall Congress will be considering whether to extend the Bush Administration tax cuts for families earning more than $250,000 that are scheduled to expire this year. Proponents of extending these tax cuts for the wealthy argue that allowing the tax cuts to expire will place an enormous strain on the economy and result in higher unemployment.

The non-partisan Congressional Budget Office (CBO) has evaluated this claim and come to the conclusion that it is without merit. To the contrary, extending the Bush tax cuts for the wealthy will do far less to grow the economy and produce jobs than any alternative use of these funds.

Extending the Bush tax cuts would reduce the government’s revenues by approximately $40 billion in 2011. The CBO compared this tax expenditure with ten other potential uses for this money, including such things as extending unemployment insurance benefits, providing a jobs tax credit, or giving fiscal relief to the states. The CBO found that, at the same cost as extending the Bush tax cuts for the wealthy:

• A temporary jobs tax credit that reduced a firm’s payroll taxes on new hires would generate three times more economic growth and create four to six times more jobs.
  
• State fiscal relief would generate three to four times more economic growth and create two to three times more jobs.
  
• Extending unemployment insurance benefits, such as the extension approved by Congress last week, would generate five times more economic growth and four to six times more jobs.
  

Why do all of these alternatives spur so much more economic growth and create so many more jobs than extending the Bush tax cuts for the wealthy? The answer is simple. When the economy is weak, spending is needed to stimulate it. But wealthy people, given an extra dollar in income, are much more likely to save it instead of spending it. This simple principle explains why extending the Bush tax cuts for the wealthy is the worst alternative available if the goal is to stimulate the economy and create jobs.

In the long term, after the current economic crisis has passed, the revenue from allowing the Bush tax cuts for the wealthy to expire should be dedicated to reducing our nation’s unsustainable budget deficit. This would be only fitting since the mammoth loss of revenue resulting from the Bush tax cuts for the wealthy is what created the deficit mess in the first place.

This blog is based on Marr, “Letting High-Income Tax Cuts Expire is Proper Response to Nation’s Short- and Long-Term Challenges,” Center on Budget and Policy Priorities, July 26, 2010.


 

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This year is providing a growing opportunity for mainstream financial institutions to offer affordable small-dollar loans while proving to be a difficult one for predatory lenders. First, Illinois passed legislation closing a gaping loophole in payday lending regulation. Now, the Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law by President Obama on July 21st, has the potential to significantly increase the number of affordable small-dollar loans available to consumers. Title XII of the Act “encourage[s] initiatives for financial products and services that are appropriate and accessible for millions of Americans who are not fully incorporated into the financial mainstream.” Specifically, the Act will incentivize financial institutions to offer low-cost, small-dollar loans that serve as safe alternatives to payday loans.

Rather than regulating high-cost payday lenders, the Dodd-Frank Act seeks to provide financial incentives to institutions to offer more competitively priced small-dollar loan products through loan loss reserve funds, technical assistance funding, and other programs and grants to promote financial access and education. The Act authorizes the Secretary of the Treasury to establish grants to eligible entities to provide low-cost small-dollar loans. In this case, eligible entities include any federally insured depository institution, state, local or tribal government entities, community development financial institutions (CDFI) and 501(c)3 organizations. In order to receive a grant, the loan provider must offer financial literacy and educational opportunities to each small-dollar loan consumer.

The Act also includes several provisions that are exclusive to CDFIs. A CDFI is a financial institution that expands the availability of credit, investment capital, and financial services in economically distressed communities. The new legislation allows for the creation of loan loss reserve funds in order to help defray the costs of any defaults. Concerns regarding defaults are one of the primary obstacles cited by bankers who have expressed interest in starting a small-dollar loan program. However, after offering small-dollar loans for two years, the charge-off ratios were in line with industry standards for unsecured loans to individuals and charge-off rates compared favorably with credit cards. In order to qualify for the grant, the CDFI must offer a small-dollar loan program that offers loan amounts of $2,500 or less, to be repaid in installments with no pre-payment penalties, as well as any other requirements established by the fund administrator. As blogged previously, not all payday loan alternatives are created equal. Therefore, it is necessary to define the parameters of the eligible loan programs in a way that creates products that are truly safe, reasonable, appropriate, and accessible for consumers.

One tool to help create a consumer-friendly product is the template proposed in the FDIC’s Small-Dollar Loan Pilot Program. According to the FDIC, the essential elements of safe, affordable and feasible product design include:

• Loan amount of $2,500 or less;
  
• Term of 90 days or more;
  
• APR of 36% including fees;
  
• Streamlined underwriting with proof of identity and income;
  
• Credit report (but not necessarily score) to determine loan amount and repayment ability.
  

This two-year pilot program, completed in the fourth quarter of 2009, included 28 participating banks that made more than 34,400 small-dollar loans with a principal balance of over $40 million, all with an APR of 36% or below, including any fees.

Three banks headquartered in Illinois participated in the FDIC study: Community Bank – Wheaton/Glen Ellyn, Lake Forest Bank & Trust, and State Bank of Countryside. Lake Forest Bank was able to earn a small profit on the loans and intends to develop long-term relationships with performing borrowers. Losses on their small-dollar loan product were no higher than those on other consumer loans. Lake Forest Bank reported one of the most successful changes made to its program was reducing the minimum loan amount to $250 to accommodate borrowers who did not need large amounts of credit. Also on the state level, the Illinois Asset Building Group (IABG), a diverse statewide coalition invested in building the stability and strength of Illinois communities through increased asset ownership and asset protection, is working to promote alternative small-dollar loans in Illinois. For more information, see the IABG brief Alternative Small-Dollar Loans in Illinois: Creating Sound Financial Products Through Regulation and Innovation. With 2010 just half over, there are even more changes on the horizon for the alternative small dollar loan landscape. Stay tuned!

This article was coauthored by Hannah Weinberger-Divack.

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