AccountAbility Minnesota: Good RALs

August, 2007

Refund Anticipations Loans (RALs) may be expensive and unnecessary, but low-income taxpayers want them. To meet their demand, Bonnie Esposito, Executive Director of AccountAbility Minnesota, partnered with US Federal Credit Union to create a free RAL based on the Refund Express pioneered by Alternatives Federal Credit Union.

AccountAbility’s Refund Loan and Savings program requires taxpayers to open a savings account with the credit union while at the tax site. All of the client’s tax refunds (federal, state, and renter’s rebate) are then direct deposited into the savings account. The day after completing their tax return, the client goes to the credit union where they can take out a loan up to the full value of their federal refund.

 

Family with tax preparer

Bonnie’s goal is not just to provide instant loans, but also to draw customers into mainstream financial services as a customer of a credit union. The loan serves mostly as an incentive to get the client in the door. This year, 361 savings accounts were opened at sites, resulting in 243 taxpayers receiving loans at the credit union. At the end of May, 88 percent of accounts were still open.

Bonnie tells of one woman who came back the second year, immensely proud of herself for having a savings account with a positive balance, and having added an ATM card for her checking account.

In the program’s first year, a reporter interviewed several clients who said they paid over $400 to commercial preparers, and one who paid as much as $600. With free tax preparation and an Express RAL, what once went to commercial preparers now became savings for them.

Funding for the program is provided by the McKnight Foundation and the Annie E. Casey Foundation, which cover program planning and evaluation, staff time for direct service, and fees and interest for the loans ($30 per loan).

This three year pilot program will result in a service that can be brought to the whole  market. In this, its third year, AccountAbility Minnesota will look at fees, how financial institutions can be involved, and how it can be connected to VITA sites anywhere. At present, two credit unions participate, but Bonnie is bringing  on more from Greater Minnesota, including in rural areas.

In 2008, AccountAbility Minnesota hopes to open the program up to all 35 tax sites in their coalition. In 2009, the model should be available to all free tax preparation sites around country. For more information, you can hear Bonnie talk about the program at the NCTC national conference.

Increasing capacity with United Way
Greater Twin Cities United Way approached Bonnie a couple of years ago, when they started looking at the Earned Income Tax Credit (EITC) as a means to meet the “basic needs” goal promoted by United Way of America.

After a year of research into the EITC and the best way to mount a campaign, they called Bonnie in November, 2005 and asked her, “What would it take to double your numbers for the tax season?”  United Way soon realized that it was too close to the 2006 tax season, but on February 1, 2006, they started planning with AccountAbility Minnesota for 2007.

The Greater Twin Cities United Way’s three year goal is to reduce poverty for 40,000 low- and moderate-income households in the Twin Cities and to produce 5,000 new enrollees in EITC.

With a capacity building grant from United Way, Bonnie doubled her office space and added several staff: an outreach worker, another person to work with small businesses and self-employed taxpayers, and a full-time customer service person for scheduling. She increased tax site hours, so they are now open five days per week, from 10am to 9pm. Her general approach is to consolidate sites, but to keep them open longer. At present she coordinates 13 community sites in the nine-county area.

In this first year of the United Way grant, IRS data shows that there are 2000+ new EITC recipients in the nine-county area surrounding Minneapolis and St. Paul. AccountAbility Minnesota increased the numbers of clients served by 40 percent. So far this year, the program has assisted over 14,000 taxpayers, completed 27,500 returns, and generated refunds totaling almost 20 million dollars.

Another remarkable achievement has been the increase of direct deposits by 40 percent.  Bonnie discovered through her pilot program that customers often don’t understand what “direct deposit” means. Armed with this information, she modified the training of volunteers and paperwork so that at every step of the process, someone is explaining direct deposit to the taxpayer. The success of this procedure may offer a lesson for promoting split refunds as well.

Public funding

Eight years ago, Bonnie’s predecessor as Executive Director approached her state legislator to ask why the state didn’t fund free tax preparation. As a result, the state began to offer competitive grants for free tax preparation. Initially they   allocated $50,000, a figure which has gradually increased to $400,000.  Every two years, Bonnie and other nonprofit leaders testify in front of a number of state legislative committees to ensure the funding is continued. In the last round, 29 organizations received grants, of which $23,000 went to Bonnie’s program: 13 of the grantees, however, are her community partners.

Family at tax clinic

Bonnie and her partners also obtain funding from counties or cities. Bonnie meets with city council members to discuss the economic benefits to the local economy of increasing federal refunds, and also describes RALs and how they can victimize taxpayers. The grants of $7,000 or $10,000 are relatively small,  but it all adds up.

Congressional testimony
Bonnie also advocates at the federal level. She testified before a Congressional  Subcommittee of the Ways and Mean Committee investigating unclaimed EITC. Along with former NCTC Steering Committee member John Wancheck from the Center on Budget and Policy Priorities,  Bonnie testified in April to a Senate hearing looking for input on ways to increase the number of taxpayers that claim EITC.

Plans for next year
Bonnie is Co-Chair of a Financial  Literacy Network called Minnesota Saves.  She is partnering with nonprofits like Lutheran Social Services, financial institutions like the Federal Reserve Bank of Minneapolis, the statewide association of Credit Unions,and the University of Minnesota.  The goal is to share best practices of comprehensive financial literacy programs as well as educate and advocate on asset development. As part of this effort, they are trying to determine how better to coordinate services of other agencies,  something they have yet to accomplish.

While AccountAbility Minnesota has always worked with accountants, Bonnie is excited about a new partnership with the Minnesota branch of the Financial  Planners Association. Volunteers come to AccountAbility Minnesota tax clinics, pull credit reports and FICO scores, and offer one-on-one appointments for people who are interested in further information on financial planning. She hopes to eventually to build a core of volunteers to offer the service at more tax sites.

Bonnie is on the advisory committee of the Itasca Project of Minnesota, one of forty-plus community leaders including CEOs, the Governor, the Mayors of Minneapolis and St. Paul, and the President of the University, who are taking on asset development as their next initiative.

Now in her fifth year, Bonnie loves the work. She started with two staff and now has 11. The program, which began only in two other cities, is now in every region of the state. Best of all, it has assisted tens of thousands of working families to save and move forward.

Story by Don Wedd