Stroke-of-a-pen State Policies to Increase Financial Security and Win Political Points
Although the country emerged from official recession more than two years ago, states continue to face budget shortfalls. High unemployment continues to both decrease tax revenue and increase demand for services. By law, most states must balance their budgets. The options they have for closing the gaps are to increase revenue, decrease spending or both.
The choices state policymakers are forced to make are undeniably painful – and in some cases, shortsighted. State policymakers should take a balanced approach to closing state budget gaps that includes raising revenue by eliminating ineffective tax expenditures, as well as careful spending cuts.
It is critical that existing programs and policies that provide financial security and opportunity for vulnerable families be protected. At the same time, policymakers can and should be laying the groundwork for future state economic prosperity. While there is clearly no appetite for new state spending in this environment, states' hands are not tied. There are a host of cost-neutral policies that expand economic opportunity and that are also political winners.
Last month, Prosperity Now released a new report that identifies two dozen approaches states can take to help people achieve financial security without putting additional strain on states' bottom lines.
These "stroke of a pen" ideas, as we call them, are more often a matter of shifts in approach or tweaks in existing programs, rather than large-scale policy changes. But, taken together, they can make an important difference for families struggling to stay afloat and save for a more prosperous future.
In developing the list of 24 stroke-of-a-pen policy ideas, we considered whether each policy was meaningful, moveable and manageable:
- Is the policy meaningful? While there is often a correlation between a policy's cost and its impact (consider, for example, the nearly $59 billion-federal Earned Income Tax Credit, which lifts roughly four million people out of poverty each year), there are many meaningful policy changes that cost little or nothing, but which can protect vulnerable families, bring federal dollars into a local community or lay the groundwork for future investment.
- Is the policy moveable? In this climate, the "moveabilty" of a policy is determined, first and foremost, by its cost. However, we also considered other factors, including whether there was political will and interest by policymakers in the idea, whether there was limited political opposition to the policy, and the policy mechanism necessary to make the change (for example, an administrative policy change is often easier to make than a legislative one).
- Is the policy manageable? Advocates sometimes come up with "great ideas" to solve social problems that are easier said than done. In assessing each policy, we also considered the feasibility of implementing the policy – acknowledging that feasibility will vary from state to state depending on a range of factors.
Example: Prize-Linked Savings
One example of a stroke-of-a-pen policy that has gained a lot of attention recently is prize-linked savings.
Prize-linked savings (PLS) programs give savings accountholders the opportunity to win prizes when they make deposits. In these programs, financial institutions offer consumers a savings product with a low minimum balance requirement; accountholders make monthly deposits, which qualify them for monthly and/or annual drawings. The possibility of a prize encourages greater savings. Unlike gambling, however, no one loses from participation in a PLS program. Prize-linked savings programs focus on the entertainment value and fun of winning prizes, but without risking any principle and with the knowledge that one is building an asset. Not everyone "wins" one of the prizes, but everyone comes out ahead with increased savings.
To make PLS programs possible, states need to ensure that banking and gaming regulations don't prevent financial institutions from holding private lotteries. Ten states currently allow financial institutions to offer PLS programs. Four others – Arkansas, Iowa, Mississippi and New Mexico -- introduced legislation in 2011. This is definitely one stroke-of-a-pen idea to watch!