The Indiana Assets & Opportunity Network's steering committee member Kathleen Taylor, the Convener and Policy Director for Prosperity Indiana provided testimony yesterday at the Indiana State House during the Interim Study Committee on Fiscal Policy on state tax incentives. Included in the testimony was a one-page fact sheet concerning the long-term benefits and impacts of Children's Savings Accounts, as well as support for Indiana Development Account tax credit, Low-Income Housing Exemption, and the Neighborhood Assistance tax credit.
Why Did They Meet?
The Legislative Services Agency (LSA) authored this thorough tax incentive evaluation following 2014 legislation (HB 1020) mandated the creation of process by which a bipartisan Commission on State Tax and Financing Policy to review and evaluate state and local tax incentives awarded by the state, counties, cities, and towns to encourage economic development or to reward or subsidize a particular action by businesses or other entities receiving incentives.
Below is the full testimony.
October 13, 2015
Dear Chairman Hershman, Vice Chair Brown, and Members of the Committee,
Thank you for the opportunity to respond to the 2015 Indiana Tax Incentive Evaluation. My name is Kathleen Taylor, and I am the Policy Director and Convener for Prosperity Indiana, a network of 200 non-profit organizations, units of local government, private companies and institutions dedicated to building vibrant communities and resilient families.
On behalf our members, I am here today to share context and feedback on the report’s findings pertaining to tax credits that are critical to community development efforts. First, Prosperity Indiana would like to commend the Legislative Services Agency for a thorough and balanced approach to evaluating these tax incentives. While our testimony will offer some critiques of certain assessments within the report, we concur with many of the report’s findings with regards to the effectiveness our state’s tax incentives and agree that these programs should be comprehensively evaluated based on their legislative purpose and outcomes.
At a fragile time in our economic recovery where demand for supportive services for housing stability remains high and asset-building options for low-income families remain limited throughout urban, suburban, and rural Indiana communities, organizations throughout the state continue to rely on flexible resources to help Hoosiers access affordable housing and economic opportunity. With that in mind, I would like to focus my testimony on three critical areas of focus for our membership: attracting investment in critical community programs, expanding access to affordable housing and promoting asset-building opportunities for low-wealth Hoosiers.
Attracting Investment in Critical Community Programs
Neighborhood Assistance Tax Credit
Prosperity Indiana supports the report’s findings with regards to the effectiveness of the Neighborhood Assistance Program in providing crucial incentives that stimulate charitable giving and leveraging more contributions from individuals and businesses for neighborhood-based programs and projects to improve economically disadvantaged areas and households.
Expanding Access to Affordable Housing
The Low-Income Housing Exemption
While Prosperity Indiana members utilize many programs to help individuals and families find safe, affordable housing such as the HOME Investment Partnerships Program, Section 8 Projec-ased enta ssistance and Section 8 Housing Choice Vouchers, by in large, the largest resources for expanding affordable housing stock are through the Low-ncome Housing Tax Credit (LIHTC) program. LIHTC is a federal income tax credit that is allocated by the Indiana Housing and Community Development Authority to property owners who agree to restrict occupancy of units to individuals or families with incomes at or below 60% of the area median income (AMI) and to restrict rents (including utilities) to 30% of tenant income. While the housing market shows signs of improvement for certain areas and households, Indiana is a state that still sorely needs these affordable rental housing options for low- and moderate-income households.
According to the National Low-Income Housing Coalition’s 2014 Out-of-Reach report, an Indiana household must earn $14 dollars an hour or $29,172 annually in order to pay the fair market rate of $729 for a two-bedroom apartment. Households comprised of minimum- and low-wage earners not at that income level are subsequently left with a deficit of affordable housing options. As the report states, Indiana leverages the approximately $15 million per year it receives from the Internal Revenue Services with the almost $4 million in savings from the Low-Income Housing Exemption to expand the impact of the federal investment. In 2014 alone, combined federal investments and the state exemption helped fund nearly 850 housing units and leveraged up to $109 million in private development capital to move forward on new construction, rehabilitation, and adaptive-reuse developments in communities throughout Indiana.
Beyond the report’s findings regarding the financial importance of the exemption’s impact are the implications for spurring additional investment due to its ease of implementation. For example, the complexity of these financing sources, including rent restrictions on multifamily development with the Section 42 Low Income Housing Tax Credit, means that Prosperity Indiana members often find themselves appealing assessments based on the income capitalization method (IC 6-1.1-4-41).
As the report states, the Low-Income Housing Exemption, which requires the property owner to provide a Payment in Lieu of Taxes (PILOT), represents modest property tax savings, dependin on the county. For many of our members and for assessors, however, the exemption represents more than a tax savings opportunity. The exemption is easier to implement and relieves administrative burdens associated with the income capitalization method.
Many Prosperity Indiana members leverage LIHTC resources to develop real estate, both residential and commercial, which grows the local tax base and spurs revitalization in communities across Indiana. We urge committee members to keep this information in mind when evaluating this exemption’s effectiveness.
Promoting Asset-Building Opportunities for Low-Wealth Hoosiers
The IDA Tax Credit
The Individual Development Account Tax Credit is a unique, innovative program to help low-income Hoosiers build assets, attain self-sufficiency, learn personal financial skills and invest in improving their quality of life. Specifically, participants receive case management support for financial literacy and empowerment as they save in a matched savings account that can be used to start a business, attain higher education, or buy a home.
Over the past two years, Prosperity Indiana has convened working groups for our members and partners who administer IDA programs. Those discussions have largely revolved around significant, recent changes to the federal guidelines for IDA funds administered through the Office of Community Services under the Assets for Independence (AFI) program that are detrimental to our members, such as a reduction in the administrative cost reimbursement rate from 20 percent to 15 percent and no longer including homeowner occupied rehabilitation.
Some organizations noted that they could not continue operating the program at these reimbursement levels because of its lack of financial viability due to the investment of intense staff time required for case work and reporting, such as asset goal-specific education, credit repair education, monthly check-ins with clients, and review of purchase plan estimates from participants.
Since Indiana receives a match from AFI for our state funded IDA grant program, we must comply with those changes. With those policies now in place, the IDA tax credit is now the only avenue that still allows administering organizations the flexibility to receive the 20 percent administrative reimbursement to help clients pursue homeowner occupied rehabilitation. Indiana Housing and Community Development Authority (IHCDA) has reported that, following these federal changes, the tax credits have already become more competitive.
Prosperity Indiana agrees with the report’s findings that, traditionally, low credit usage could be attributed to a lack of awareness of the IDA credit or the program itself. We have been working this past year with IHCDA to improve marketing and awareness around this opportunity. We disagree with the report’s findings, however, that low usage may be attributed to the complexity of the tax credit program. The report’s earlier references to the successes of the Neighborhood Assistance Program (NAP) do not mention any barriers to participation due to complexity; and our member agencies confirm that the IDA program is operated the same way, administered and coordinated by the same staff member at IHCDA.
While we will agree it has not been utilized as much as other tax credits in the past, more Indiana non-profits are turning to alternative options like the IDA tax credit to help eligible, low-income Hoosiers create a path to a more secure financial future. We support the report’s findings that the credit could induce additional contributions that would not otherwise have occurred. In addition, several Prosperity Indiana members are able to layer direct state and federal resources, in addition to IDA tax credits, to maximize impact in their communities.
At LaCasa, Inc., the Elkhart County Community Housing Development Organization based in Goshen, Indiana, more than $280,000 in IDA funds were invested by their clients from Elkhart, St. Joseph, Kosciusko, Marshall, Noble and LaGrange Counties by layering all three of those resources. We urge the Committee to reconsider eliminating this tax credit during this time of policy transition when more community organizations may rely on this resource to help Hoosiers.
The 529 College Savings Program
Included in our written testimony is a fact sheet from the Indiana Assets and Opportunity Network on the impact Child Savings Accounts have in expanding educational and economic opportunity for low- and moderate-income families. The Assets and Opportunity Network is a program co-led by Prosperity Indiana, the Local Initiatives Support Corporation, and the Indiana Institute for Working Families. It was formed to help support programs and policies that increase asset acquisition for low-wealth Hoosiers and strengthen local economies. The Network supports the report’s findings regarding the Indiana 529 College Savings Account Contribution Credit.
Prosperity Indiana believes the tax credits and exemptions specifically addressed in this testimony represent strong community building programs across the state. Prosperity Indiana can attest to the effectiveness of these investment tools in addressing local needs, enhancing the quality of life in our communities and leveraging financial returns for economic development.
Thank you for your time today. Children’s Savings Accounts (CSA)
Children’s Savings Accounts (CSAs) have shown to expand educational and economic opportunity for low- and moderate-income families. Most CSA programs actively engage young children to think about their aspirations after high school by discussing future career choices, incorporating financial education, and involving family and community in the college bound conversation.
Children with $500 or less saved for college are three times more likely to enroll and four times more likely to graduate college. [I]
Children who are provided a CSA at birth score better on socio-emotional development indicators than their counterparts who did not receive a CSA. These positive effects occur regardless of the amount or frequency of deposits made by parents into the child’s account. [II]
After receiving five hours of classroom-based financial education, students demonstrated greater knowledge of financial concepts, and these knowledge gains persisted one year later. Attitudes towards saving and financial institutions also improved. [III]
Promise Indiana, a CSA initiative, has received national recognition for its innovative efforts in changing the cultural mindset about continuing education.
- During school enrollment, students K-3 opened CollegeChoice 529 Direct Savings Accounts with a $25.00 seed deposit from the enrollment sponsor Parkview Health.
- Over 2,200 accounts have been opened so far.
- Strategically aligned with a regional aim to increase the percentage of the overall population completing college to 60% by 2025 [IV]
- Almost one quarter of low-income families report saving for college in 529s [V]
- U.S. Student loan debt topped $1.2 trillion, with 63 percent of Indiana’s graduates carrying an average of $27,500 in debt per borrower. [VI]
[I] Assets and Education, 2013 [II] Huang et al., Effects of Child Development Accounts on early social-emotional development: An experimental test, 2014 [III] Wiedrich et al., Financial Education & Account Access Among Elementary Students, 2014 [IV] Seaman, E., Wabash County Promise becomes pilot program for three Northeast Indiana counties, 2014 [V] Jones-Layman, A., Community counts: Activating all families to save for higher education, 2015 [VI] Institute for College Success, Student Debt and the Class of 2011, 2011