FEATURED STATE: Rhode Island
In 2007, the Rhode Island Legislature passed HB 6561, a joint resolution establishing a legislative commission on family income and asset building. Comprised of three senators, three representatives and two staff members, the commission conducted a review of public and private programs designed to support low-income families and help them build assets.
Based on meetings with citizens, government agencies and private organizations, the commission first produced a strikingly direct analysis of why it’s so difficult for low-income Rhode Island families to pull themselves out of poverty and into the middle class.
The commission’s starting premise was basic: one-third of Rhode Island children grow up in families that can’t meet their basic needs. Two of five live in households that are asset poor. Families stuck in this demographic are just that – stuck. And evidence strongly suggests that they are likely to remain financially dependent.
The Rhode Island Commission’s report goes on to describe a nationwide predicament: due to their financial vulnerability, poor money management skills, limited access to mainstream banking and insufficient education or job training, low-income families are unlikely move up the economic ladder – despite their best efforts – without targeted assistance.
So despite facing historic funding shortfalls, states like Rhode Island have calculated that investments in the financial wellbeing of lower income families have the potential to help stabilize budgets – and communities – over time.
By taking the time to look at the big picture, the Rhode Island Commission was able to hone in on places where state involvement could be cost-effective and have a meaningful impact. The report’s recommendations are specific and detailed, ranging from an expansion of adult education programs to protecting tenants and implementing a state Individual Development Account (IDA) program.
Rhode Island also aims to encourage personal savings in two additional ways – one conventional, the other innovative. First, the state eliminated asset tests for some of its public assistance programs. Second, lawmakers voted to allow credit unions to operate prize linked savings programs.
- Boosting Savings—Removing Asset Limits
Public benefit programs often limit eligibility to those who have few or no assets. This can discourage low-income families from accumulating savings, thus increasing their long-term dependence on state assistance. To encourage families to save for the future, Rhode Island in 2009 removed asset limits from both family Medicaid and the Supplemental Nutrition Assistance Program (SNAP, formerly the food stamp program). Other states have taken similar action. Roughly one-half have eliminated the Medicaid asset test, and nearly one-third have excluded assets from SNAP eligibility requirements. In 2009, Rhode Island voted to exclude Earned Income Tax Credit receipts when calculating a family's eligibility for public assistance. States also have the authority to remove or increase asset restrictions from Temporary Assistance for Needy Families (TANF). These asset eligibility limits typically are as low as $2,000 to $3,000.Read Asset Limit Legislation (HB 5983)
- Boosting Savings—An Innovative Incentive
The chance to win big can be a powerful impetus. In 2007, for instance, sales of the nation’s 42 state lotteries approached $54 billion, an average of more than $189 per capita—$479 per household. Some studies suggest Americans spend more money on a chance at the jackpot than they spend on milk. In an effort to encourage people to save by making savings more fun and exciting, Rhode Island in 2010 became the second state to allow credit unions to operate prize-linked savings (PLS) accounts. Michigan began offering a PLS product in 2009. For as little as a $25 deposit, savers earn interest like they would in a regular account, but they also have a chance to win monthly raffles and a yearly $100,000 jackpot. By depositing more money, account holders earn more raffle tickets and increase their odds of winning. In just 11 months, more than 11,600 participants saved more than $8.5 million with eight Michigan credit unions. As of early 2011, Rhode Island credit unions were in the initial stages of developing a prize-linked savings product. Read Prize Linked Savings Legislation (SB 2399)
- Legislative Commission on Family Income and Asset Building—Findings
After two years of information gathering, the Rhode Island Commission on Family Income and Asset Building published a report in 2009 that begins by outlining a few key causes of the cycle of poverty in the state. The logic of the commission’s findings is simple but sound. Almost 25 percent of Rhode Island residents without a high-school diploma live below federal poverty guidelines, bouncing between unstable, low-wage, dead-end jobs. For these and thousands more families that are asset-poor, work supports such as food stamps, child care assistance and health care subsidies help close the gap between income and basic needs. Although the safety net keeps low-income families from falling into extreme hardship, few, if any, forces are at work to propel families off assistance and onto independent financial footing. After stretching paychecks to cover expenses, low-income families rarely have money leftover to invest in assets, which are the real foundations of financial security and upward mobility. Instead, they end up falling behind and must rely on high-cost, subprime sources of credit—such as payday loans—to meet their needs. For families on the bubble, the structure of assistance programs sometimes increases this destructive cycle of dependence by creating disincentives to save. According to the Rhode Island Poverty Institute, in 2008 a single parent with two children living at 175 percent of federal poverty guidelines ($21,200 for a family of four in 2008) can just about make ends meet. If the parent receives a small raise—from $14.81 to $15.65 per hour, for example—work supports are no longer available and the family faces a monthly shortfall of $1,114. Read Commission Report
- Legislative Commission on Family Income and Asset Building—Solutions
After surveying current state and private programs, the Rhode Island commission recommended several ways the state could make it easier for low-income families to work toward financial independence.
- In addition to outlining new policies, the report first emphasized that the state should try to ensure that residents are taking advantage of existing federal programs such as food stamps. If an additional 10% of eligible Rhode Islanders participated in the program, it would generate another $14 million in economic activity in the state.
- The report also called on the state to preserve its own work support system, citing a general 69 percent decrease in such assistance between 1996 and 2008. The Commission noted that it is counter-productive to encourage people to work, yet take away the support that makes it possible for many to find and keep jobs.
- The report prioritized fully funding the successful Rhode Island Office of Adult Education, which has a waiting list of 1,500 to 2,000 people for elementary math and English classes. Beyond the basics, about 17,000 students are enrolled in the Rhode Island Community College system (CCRI), but nearly 70 percent need remedial high school-level courses they often can’t afford. The commission found that CCRI’s budget constraints make it difficult to offer expensive remedial courses and thus move students toward the coursework that will significantly improve their earning potential over time.
- The report also recommended increasing the refundable percentage of the Rhode Island Earned Income Tax Credit, and bills were introduced in 2010 that would have made the entire credit refundable.
- To create an incentive for workers to save, the commission suggested that Rhode Island support Individual Development Accounts, possibly by partnering with community-based IDAs.
- Throughout the report, the commission noted that the state should be on the lookout for opportunities to join forces with organizations, such as the United Way, that could expand successful programs and leverage more funding with the help of some state support.
View Rhode Island's State Profile for more notable legislation, state action plans and participants by year.
Hear It From Them
Senator Juan Pichardo
Q and A with Senator Juan Pichardo
Hear from lawmakers and others who have been intimately involved with their state’s efforts to create opportunities for low-income working families. Legislators explain why they feel these issues are important. They also discuss the factors that helped them be successful – both in the statehouse and at home in their district.
Q: Why do you think asset building should be a part of state policy?
A: It’s important to me because I know first-hand that people want to grow and build knowledge and skills, have a home, provide for their families and help their kids pay for college. I strongly believe that, if attention is given to these initiatives, we can really help people get on the right track so they can sustain themselves. Many people are responsible and want to make it on their own—a little boost can really make the difference.
Q: Why did you determine that a commission established by joint resolution was a good way to begin considering asset-building initiatives in Rhode Island?
A: To accomplish future goals, we knew we would need support from both chambers, so we thought it would be a good idea to start by studying these issues jointly with legislators who had similar concerns. That way, we could build awareness and momentum throughout the legislature about the commission’s work related to poverty and creating opportunities for families to move up.
Read Full Q and A
State Programs Links
About the Opportunities for Working Families Meeting
Since 2003, the NCSL/AECF Partnership on Family Economic Success has held a yearly meeting to give lawmakers a chance to convene with their colleagues and discuss solutions to the challenges faced by low-income working families. Legislative leadership from 10 states send small teams of legislators to the forum. Participants hear from leading experts and practitioners and develop an action plan that is relevant to their state.