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March 15, 2013

To: Members of the Health and Human Services Committee

From: Aubrey Mancuso, Policy Coordinator – Economic Stability and Health

Re: Support for LB 236 – to Appropriate funds to establish an Individual Development Account Pilot Project

Voices for Children is in support of LB 236 and would like to thank Senator Howard for bringing this bill forward.  This bill would allow Nebraska to join the 42 other states in the nation that provide a state funding source for Individual Development Accounts (IDAs).  Attached to my testimony is an issue brief we produced that lays out in more depth and detail how IDAs work and research on their effectiveness as a means of promoting financial stability for lower income families, but I will briefly summarize the issues for the committee here today.

An Individual Development Account is a goal-directed matched savings account for lower income families. LB 236 creates a state source of funding to match contributions to these accounts.   These accounts have a defined goal of homeownership or small business or educational expenses.  A participant agrees to contribute a monthly amount in earned income to a special savings account over a defined time period and that contribution is matched by both public and private sources.   At the end of the time period, the participant moves forward with the asset purchase.  During the saving period, the participant also receives financial education, including education specific to the asset being purchased.  The ultimate goal is that the participant leaves the program with an asset that supports longer-term financial stability as well as better tools for managing personal finances.  Under the bill, the Department of Labor could enter into contracts with IDA programs for the use of these funds.

There are many ways in which public policy incentivizes asset-building for middle and upper income families.  The most prominent example is through tax deductions for mortgage interest and educational savings.  Unfortunately, many lower income families are not able to take advantage of these incentives.  An IDA is an asset-building incentive targeted at families that are left out by these public policy incentives.

IDA programs have been operating in Nebraska since at least 2000 through federal and private funding.    LB 236 would allow for state recognition of the promise that IDA programs have as an economic development tool and provide a source of funding to expand their impact.  These accounts have been operating in both rural and urban communities in the state and are currently available on a limited basis in Omaha, Lincoln, Kearney, Fairbury, Pender and Scottsbluff.

The research on IDA programs shows clear potential.  These programs have found to be a tool in helping lower income families develop better financial tools and a stronger connection to mainstream financial services.  In follow-up studies with IDA program participants, they have been found to have been able to sustain small businesses, complete education, and purchase homes.

State support for the expansion of Individual Development Accounts has the potential to help stem the growing number of families in the state struggling to maintain financial stability without public assistance.  We hope that the committee will advance this bill.  Thank you.

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