Community Action Duluth
Duluth, MN. January 2007.
Most of Community Action Duluth’s work is with Individual Development Accounts (IDAs), but from
January through April, they run a tax site for 1 evening and 1 Saturday. Angie Miller, asset program coordinator, started the tax preparation program in 2005 after seeing that some of her IDA clients took out Refund Anticipation Loans (RALs), only to regret the move a month later when they needed the $300 they spent at a commercial tax preparer.
Free tax preparation complements Community Action’s IDA program, which has 150 participants. More than half of the IDA clients now get their taxes done for free. Last year, 4 IDA clients were able to use their tax refunds to cross the threshold and buy their own homes. One was featured on the front page of the Duluth News Tribune under the headline: “Tax refund buys a home.”
Benefits Screening
While most tax clients want to get in, get their taxes done, and get out quickly, tax preparation can be a great way to get others thinking about their future. Last year, the program provided quick and easy benefits screening for clients while they waited for a volunteer to prepare their taxes.
Benefits screening utilizes a Children’s Defense Fund (CDF) Minnesota web-based program called “Covering All Families” which screens for 5 programs. It is “super simple, fast, and free,” according to Angie.
Angie is particularly pleased about an arrangement she made last year in conjunction with CDF MN for healthcare screening. She elicited permission from clients to send their contact information to the local Healthcare Access office, which then contacted the clients. At least 9 people turned out to be eligible for health insurance under Minnesota Care.
Financial Services
Bankers present on site provide financial services. Last year, 93 clients obtained credit reports on site, and 9 opened bank accounts. This year Angie is working with a small community bank that will open savings accounts on the spot, providing an account number that can be used for e-filing. The bank is waiving its requirements so clients can open a CD with only $500, while receiving interest at a higher rate than usual. The bank also offers a high-interest rate CD inside an Individual Retirement Account (IRA), and a high-interest savings account for children that cannot be cashed without a penalty until the child reaches age 18. Angie says that CDs help people save their money and not deplete their savings from split refunds, while providing money to fall back on in a crisis.
Impact
Last year, the program completed 528 tax returns, bringing back over $620,000 in refunds to working families, with an average federal refund of $852.
How do clients spend their refunds? According to a survey on their plans last year:
- 265 pay bills
- 70 savings
- 9 purchase a car
- 8 medical bills
- 12 car/home repairs
- 1 buy a home
Marketing
Angie is going to try split refunds in 2007. She has prepared a full-page ad in the community newspaper with this focus and allocated $3,000 of a $5,000 grant from the Minnesota Department of Revenue to marketing. By marketing jointly with the University of Minnesota Duluth’s VITA program, they get more value for their limited funds.
In the future, she might try an interest-free Express Refund Loan RAL like Accountability Minnesota. RALs may be bad for taxpayers but it's hard to counteract the marketing power of paid preparers who run RAL ads every 10 minutes on TV in January. If you can’t beat them, join them by offering a better version.
Duluth has a population of about 100,000 and about one-third of the population is poor. The average Adjusted Gross Income (AGI) of clients is only $12,000. The city is 93% white but 18% of Angie’s clients are either Native American or African American. Angie pays a person to distribute fliers and posters to places where low-income people might see them, including laundromats, soup kitchens and gas stations.
Angie is concerned that only about 40% of her clients are eligible for the Earned Income Tax Credit (EITC) and that too many families with children are going to paid preparers and losing their money to RALs because they want their money fast. They don’t realize they can get their state tax refund in 4 days, and it can be substantial because of the Minnesota Working Families credit (worth about 25% of the federal EITC). So this year, Angie’s billboards say “Fast and Free!”
Volunteers
The VITA program has 25 volunteers, about half of whom areMayor Herb Bergson professionals. For example, their volunteer tax return reviewer works for the Minnesota Department of Revenue. Last year, Duluth Mayor Herb Bergson was also a reviewer, and he wants to be tax preparer this year. He arranged for Angie’s program to insert marketing materials in city utility bills, so Angie seized the opportunity and had a graphic designer prepare a stuffer.
While Angie began a free tax preparation program to help people buy homes, something Mayor Bergson said at last year’s volunteer party sticks with her. “You can talk about people who use their refund to buy a house or major asset, but consider that tonight there is probably a kid out their riding a bike with the money his mother saved by going to a free tax site.”
