|Volume 10, Issue 2, 2010||Federal Reserve Bank of Dallas|
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Community Action in Southern New Mexico
The national Community Action program began in the 1960s to serve as a focal point in local communities for the war on poverty. Programs were established in a majority of counties across the U.S., including some in rural areas. Many programs continue to thrive today, and in mostly rural southern New Mexico, a highly productive Community Action Agency is paving the way to financial stability and success for thousands of low-income working families.
The Community Action Agency of Southern New Mexico (CAASNM) is based in Las Cruces and opened its doors in 1965. Among the counties CAASNM serves are four with some of the highest poverty rates in the state: Doña Ana, Hidalgo, Luna and Sierra. Doña Ana County is the most populated, with an estimated 200,000 people. Almost half that population resides in Las Cruces. Doña Ana County includes 37 of the state's 55 designated colonias—unincorporated and unregulated settlements that typically lack electricity, water, sewer, paved roads and safe housing. Luna County recently appeared on the Associated Press list of the top 20 most economically stressed counties with a population of 25,000 or more. The stress test weighs three variables: unemployment, foreclosure and bankruptcy.
Although challenged by stark economic poverty, CAASNM is moving beyond providing temporary assistance to facilitating high-impact, life-changing results for households it serves. The CAASNM strategy has three steps:
Strengthen—stabilizing families by helping them increase their income and reduce their expenses;
As CAASNM clients stabilize their finances, they begin to save and reduce debt. This ultimately leads to business creation, employment, educational attainment and/or homeownership. Clients are not only moving out of poverty and into the mainstream economy; they are also becoming an economic development driver for their region.
CAASNM services include an array of high-impact programs for its low-income working clients. This includes a food bank, a Healthy Communities Access Program, a Teen Parent program and a single-stop benefits screening for 40 state and federal benefits programs. The key asset-development programs in the CAASNM high-impact strategy are Volunteer Income Tax Assistance (VITA), Individual Development Accounts (IDAs) and a Small Business Development Program.
Many of CAASNM's clients discover the program's services for the first time when they come in for free income tax preparation assistance. For 2009, CAASNM assisted about 4,000 low- to moderate-income working families with free federal and state income tax preparation of 7,863 tax returns. This free service saved each household an average of $150 in tax preparation fees. The agency partners with AARP volunteers and Doña Ana Community College student volunteers who staff two tax sites that serve the four counties.
Additional services are available at CAASNM's Single Stop VITA site, where families are offered a free screening service to determine household eligibility for 40 state and federal benefits such as food stamps, utility bill assistance, child care assistance, credit repair, financial and legal counseling, small business support and participation in IDA matched-savings programs. A national nonprofit organization, Single Stop USA, provides funding to support this benefits-screening software program, and CAASNM provides screening to the most clients of any Single Stop site. As of the end of tax season, approximately 1,000 households had been screened and another 1,800 made an appointment and have since returned to CAASNM for benefits screening. Since CAASNM uses the applicant's tax return information for the screening process, its accuracy rate is 90 percent. These prescreen services also help expedite clients through the county's local Health and Human Services Division, saving administration processing time.
For a largely rural population, the VITA program's track record of reaching over 4,000 households in one tax season is considered a tremendous success. Even with this accomplishment, Executive Director Stacey Cox says there are still many areas for improvement. For example, she points out that by the time most low-income working families get their tax forms in the mail in January each year, they find themselves with urgent needs for the refund money. Even though the VITA program offers electronic filing, which can typically result in a refund within seven to 10 days, families are often tempted to use the services of a paid tax preparer offering a refund anticipation loan (RAL). Through the commercial tax service, families get their refund instantly; however, they pay a large fee for the tax preparation plus an additional fee for the RAL. Looking to the future, Cox said, “We hope to partner with a local financial institution to establish a low-fee alternative RAL for our sites and enable our clients to save these fees.”
CAASNM operates the largest IDA portfolio in southern New Mexico, with over 200 accounts. IDAs provide income-eligible, low-income workers the opportunity to save up to $1,000 and receive a 4-to-1 match—saving up to $4,000—for the purpose of starting or expanding a small business, funding higher education tuition and books, or buying their first home. CAASNM serves the counties of Doña Ana, Grant, Luna and Sierra with this matched-savings program.
Word is out throughout southern New Mexico about the success of this program, and CAASNM now has a long waiting list of families hoping to begin saving for their dream in the IDA program. Recently First American Bank—the only financial institution in the rural colonias community of Chaparral—committed grant funds to help provide the match for six accounts. According to Russell Foddrill, president and managing officer of First American Bank in Chaparral, the Bank “is proud to be a part of this process and proud of CAA for everything they do for the community.” Foddrill continued, “CAASNM's IDA program is one of the first steps to moving people out of poverty. This program creates opportunities for homeownership, business creation and financial education.”
A marked need for financial education was revealed in the process of screening applicants for the IDA program. Mario Prieto, asset development director and 10-year CAASNM employee, explained that many applicants cannot be accepted for the IDA program because they are not able to show an ability to save. “These families have high debt-to-income ratios, they are paying high-interest-rate loans and they have negative net worth.”
In response to this need, CAASNM has recruited bankers to participate in financial education classes. Bankers can explain the benefits of mainstream banking products, such as low-cost savings accounts, automatic deposit and other products to help clients save.
Small Business Development Program
CAASNM provides one-on-one case management for its IDA clients who are saving to start or expand a small business. Services include business incorporation; application for federal and state tax identification numbers; training in calculation of gross receipts taxes, registration and licensing in the local municipality, processes and requirements for worker's compensation and unemployment insurance; and education on the concepts of risk mitigation, budgeting, credit, marketing, recordkeeping and many other keys to successful entrepreneurship.
e-Perspectives, Volume 10, Issue 2, 2010