Senator Feinstein Co-Sponsors Bipartisan Legislation to Aid Working Poor
February 2, 2000

Washington, DC – U.S. Senator Dianne Feinstein (D-Calif.) today joined a bipartisan group of Senators to unveil new legislation to help low-income families strengthen their economic security and better share in the nation's ongoing economic boom.

Senator Feinstein joined Senators Joseph Lieberman (D-Conn.) and Rick Santorum (R-Penn.) as an original cosponsor of the Savings for Working Families Act of 2000, which promotes savings and asset-ownership for low-income workers through Individual Development Accounts (IDAs). These innovative accounts encourage working families to save for their future by matching deposits dollar-for-dollar, while allowing withdrawals only for buying a home, investing in education, or starting a business.

“Even in these times of astounding economic growth, many hard-working families across the nation and in California earn barely enough to make ends meet,” Senator Feinstein said. “This bill provides a step for working families to save for the future and improve their lives.”

“The gap between rich and poor is getting larger. From the late 1970s to the late 1990s, incomes for the poorest fifth of Americans dropped by 6 percent. In contrast, incomes of the top fifth grew by 33 percent. In California the gap is even greater as incomes of the poorest fifth of families declined by 19 percent while the top fifth grew 28 percent. Over that period, the poorest Californians saw their incomes fall $2,900 in real dollars.”

“The legislation is important because it allows families with incomes up to $28,000 to save $2,000 while at the same time permits tax incentives for lending institutions to add $500 more. It gives people an additional opportunity to save and hopefully it will provide an incentive.”

“It has worked in the San Francisco Bay Area as the Levi-Strauss Foundation and the Pac Bell Foundation participate in the “Bay Area IDA Collaborative” – the first functioning IDA program in California. In its first two years, the “Bay Area Collaborative” has enrolled 250 program participants and accumulated over $235,000 in participant savings and match. Eight program participants have even purchased homes.”

The legislation is similar to a proposal that President Clinton endorsed in his State of the Union Address and plans to include in his forthcoming budget.

The Individual Development Account program is designed to help working families save and accumulate wealth, while helping them earn money for higher education or to start their own business. IDAs are matched savings accounts, similar to 401(k)s. They reward the monthly savings of working-poor families who are trying to buy their first home, pay for post-secondary education, or start a small business through the use of matching funds from a variety of private and public sources.

The Savings for Working Families Act of 2000 would:

• Provide a tax credit for banks and other financial and community institutions participating in the program to help meet the cost of the matching funds.

• Require individuals participating in these accounts to take a “financial literacy course” to teach them about savings, banking and investing.

• Make some minor technical fixes to the Savings for Working Families Act of 1999.

To be eligible to open an IDA, the account holder’s gross income can not exceed 80% of the area median income (as determined by the Department of Housing and Urban Development) and the net worth of the household can not exceed $10,000. This means that the upper income threshold would be up to $28,000 in some areas of the country. The flexibility of the 60% eligibility criteria allows different communities to design different IDA programs appropriate to community needs.