Empowerment through Individual Development Accounts

Juneau Economic Development Council

Posted: Thursday, January 23, 2003

A new economic development tool, Individual Development Accounts, can strengthen our communities by empowering our citizens.

The accounts combine financial literacy and personal-skills training with a matched savings account. They enable lower-income people to achieve lasting self-sufficiency through the acquisition of productive assets such as a home or a small business.

IDAs are not another government handout. They are disciplined and structured programs that provide a hand up. It is not welfare. It is a partial solution to help people escape poverty. IDAs are an ideal carrot-and-stick approach to empowering people. An IDA can provide the means to build the capital that is necessary to start a business while requiring the preparation and discipline that are crucial to success in business.

Too often we focus our economic development efforts on large projects like the Anchorage seafood plant, a veneer mill, a barley export facility, or a shipyard. The track record for these large projects is disappointing. Of the four projects cited above, only the shipyard can be considered even a moderate success. Furthermore, the success of the current shipyard operator (the third such operator) is due largely to the subsidized lease arrangement (they pay $1,500 per month to lease a $50 million facility).

The creation of 15 to 20 new jobs through self-employment can provide a diverse and sustainable boost to a local economy. The ultimate goal of the Alaska IDA Network is to bring this grassroots economic development opportunity to every community in Alaska.

A variety of organizations operate IDA programs throughout the Lower 48. Community development organizations, local United Ways, credit unions, Catholic and Lutheran social services, and a few county departments run IDA programs. Funding for IDAs typically involves a combination of state and federal grants as well as contributions from financial institutions, charitable organizations, and even individuals.

IDAs are federally recognized programs. The national Housing and Urban Development office has specifically allowed for the use of Community Development Block Grant funds for IDA programs. The Assets for Independence Act authorized an annual grant exclusively for IDAs (see www.act.dhhs.us). Finally, the welfare-reform legislation of 1996 allowed for Temporary Assistance for Needy Families-funded IDAs at each state's discretion. Twenty-nine states have included IDAs in their TANF plans.

The state of Alaska has not undertaken any actions yet to bring this "trickle-up" economic development strategy to its citizens. The state could include IDAs in the TANF plan. It could designate IDAs as a priority use of CDBG funds.

To learn more about IDA programs, visit the IDA Network pages on www.jedc.org, sign up for the IDA list-serve by e-mailing Laura at LJohnson@jedc.org, or attend the IDA Summit and training event on March 4-6 in Anchorage.

Brian Johnson is director of (U.S. SBA-funded) Business Assistance at the Juneau Economic Development Council and is project director of the Alaska IDA Network.

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