Tax Refunds Start Ball Rolling: Families in Louisville Learn to Build Wealth

Andrea Breckenridge shares the dream of many Americans—to one day own a home. Breckenridge has a high school diploma, works 30 hours a week and earned $16,000 last year. She lives in a government housing community in the urban core of Louisville, Ky.

Is home ownership out of her reach? The hard-working single mother of three doesn't think so. She is moving toward her goal by taking advantage of tax credits and a matched savings account.

	Andrea Breckenridge, a mother of three, is working diligently toward her goal of owning a house. With her in a neighborhood park is her 8-year-old son, Jacorey.

This past spring, Breckenridge had her taxes prepared at a new Volunteer Income Tax Assistance (VITA) site established by the Louisville Asset Building Coalition. Breckenridge heard about the VITA initiative through The Center for Women and Families. In previous tax seasons, she often paid more than $200 to have her taxes prepared and to get a refund anticipation loan.

"I could not believe it when they said I could actually get all this done for free," Breckenridge said. "I even tried to get my friends to go, but they went and paid $200 to have theirs prepared. Two weeks later I had my tax refund, and they were still waiting on theirs."

Breckenridge received a refund of $4,200, of which $3,200 was her Earned Income Tax Credit (EITC). She immediately paid off five credit cards with debt totaling $2,200 and put $1,000 into a new savings account as an emergency reserve. This was on top of making her regular $50-a-month deposit into an individual development account (IDA).

She completed her 12-month IDA financial literacy course on time, attended a six-hour home-ownership course and is continuing to save and to repair past credit issues. Her goal is to purchase a new home under the Housing Authority of Jefferson County Section 8 Home Ownership Program. Breckenridge has already put $550 into her IDA and will receive a 2-for-1 match of up to $1,500 upon withdrawing the money for her home. She has been able to accomplish all of this in only one year.

Andrea Breckenridge's story is one that the Louisville Asset Building Coalition would like to see replicated throughout the Louisville area. The coalition, a group of more than 30 organizations, is dedicated to promoting financial stability for individuals and families. One of the coalition's goals is to provide free income-tax preparation, make taxpayers aware of the EITC and help them realize there are ways to use their refunds to build wealth.

The coalition created eight neighborhood-based VITA sites during the 2002 tax-filing season. In its initial year, the effort resulted in 635 returns prepared, $798,767 in refunds ($410,326 of which came from the EITC), an estimated $158,750 in tax preparation fee savings and 25 new checking accounts—far exceeding the group's expectations.

"By helping individuals obtain tax credits and connecting them to financial literacy training, financial services and asset development such as IDAs, individuals can begin to realize and plan for a brighter financial future," said John Nevitt of Metro United Way, a coalition member.

The success of the EITC/VITA initiative is even more impressive considering that the coalition did not exist before last November.

Last year, Louisville was one of 22 cities selected by the Annie E. Casey Foundation to improve the lives of children by helping to lift their families out of poverty. In early October 2001, a team from various Louisville organizations attended a conference in Tulsa, Okla. The conference was sponsored by the Casey Foundation, the Community Action Project of Tulsa County, Shorebank and the Center for Law & Human Services, organizations with a successful track record of building the financial strength of families and communities in Tulsa and Chicago. When the team returned to Louisville, motivated by what they had heard in Tulsa, they thought a realistic goal was to create five VITA sites with a goal of 50 returns prepared at each site.

With the help of the Casey Foundation and Metro United Way, a briefing was convened in November. Civic leaders discussed how the community could work together to increase some Louisville families' economic security. The meeting focused on the EITC, financial literacy training, financial services and asset development (such as IDAs and home ownership programs) in Louisville. At that first meeting, 65 organizations were represented, including banks, neighborhood associations, a large group from the IRS and city agencies.

The sponsorship by Metro United Way and the Annie E. Casey Foundation gave the initiative instant credibility. The potential economic impact of the EITC on Louisville was also a powerful tool in gaining support from the community. As a result of this initial meeting, participants committed themselves to developing strategies that could vastly improve the lives of low-income families.

The EITC is a refundable federal tax credit of up to $4,008 for taxpayers with an income of less than $28,281 and one qualifying child or an income of less than $32,121 and more than one qualifying child. Individuals with no children and an income below $10,710 also qualify. It is a tax benefit to help low-income workers increase their financial stability. The EITC is intended to reduce taxes for workers, supplement wages and make work more attractive than welfare. The General Accounting Office estimates 25 percent of EITC dollars owed to working families go unclaimed every year. For Louisville, this means a lost opportunity to pump millions of dollars into the local economy.

VITA sites assist low-income workers with free filing of their tax returns to ensure they receive the EITC and other federal and state tax credits for which they qualify. VITA can be used to connect low-income families to asset-building opportunities and to help them avoid predatory lenders.

The biggest challenge of opening the VITA sites was the short time the coalition had to organize the effort. Six or seven organizations from the initial meeting expressed interest in hosting a site. Eventually, eight VITA sites opened during the 2002 tax season. They were at Wesley House Community Services, Presbyterian Community Center, Louisville Central Community Center (two locations), Clarksdale Housing Project, Portland United Methodist Center, Newburg Cop Shop and Americana Community Center.

Leigh Ray of Wesley House Community Services volunteered to coordinate the sites. Working with the IRS, she arranged training for site coordinators and volunteers. Normally, the IRS requires three to five full days of training, which would have drastically reduced the pool of volunteers. Fortunately, the Atlanta IRS office was testing a condensed version of training that only required six hours for those who had previous tax preparation experience and who were computer literate. Within a few weeks, 80 volunteers were trained. All of the sites offered electronic filing, a step they had not hoped for originally.

While Ray assumed responsibility for overseeing the VITA sites and volunteers, Michael Davis and the Center for Women and Families took the lead in coordinating the EITC effort. The center created a hot line to answer questions about the EITC. The advertising agency used by the center produced a brochure to promote the EITC. In all, 50,000 brochures, including 2,000 in Spanish, were distributed to the housing authorities of Jefferson County and Louisville, to nonprofit agencies and to VITA sites. The Louisville Housing Authority sent 8,000 fliers to Section 8 families. Each VITA site received a building banner advertising the free tax services. The Transit Authority of River City placed brochures in 300 buses and advertisements in bus shelters. Billboards in five targeted neighborhoods displayed an ad for the EITC. Five hundred posters were distributed to social service agencies, businesses and government organizations. A KFC restaurant located in a targeted neighborhood inserted fliers in boxes of chicken.

Beyond the tax credit promotions, the coalition assembled seven financial services providers that offer services ranging from basic banking to lessons on how to become a homeowner. National City Bank provided on-site bankers to open checking and savings accounts, increase financial literacy and answer basic banking questions. Edward Jones and Scott Financial Services presented financial literacy sessions at VITA sites, and Jewish Family Vocational Services offered multilingual financial literacy classes at one site. Home Ownership Partners and Kentucky Housing Corp. provided home buying seminars and materials. The Center for Women and Families set aside $200,000 in matching funds for 60 EITC recipients to enroll in an IDA program and sent a staff member to a different VITA site every week to promote financial literacy programs and recruit for the IDA program.

Next year, the coalition plans to link unbanked clients to institutions that can provide basic banking products, credit repair, debt reduction, budgeting, money management and homeownership counseling. Other goals include expanding to 10 VITA locations, retaining all 200 trained volunteers, preparing 150 returns per site, achieving $2 million in refunds ($1 million in EITC) and $375,000 in tax preparation savings, and helping 500 clients to save their money through asset building connections. Also, a certified public accountant will join volunteers at each VITA location to answer questions that are more complex.

Members of the core group that traveled to Tulsa agree that the diversity of the organizations willing to join the coalition contributed to the success of the first-year effort. Glenna Deekle of the Annie E. Casey Foundation said that the interest and commitment demonstrated by the local community far exceeded levels she had seen in other first-year cities.

"United Way, The Center for Women and Families, the IRS and Wesley House—that was really the core working group that got this off the ground," she said. "Without players from organizations such as these in other cities, I'm not sure you would be able to pull it off. Those are the pieces you need."