march 16 and 17, 2006 chicago, il. the aspen institute federal reserve system achieving...

March 16 and 17, 2006 Chicago, IL

THE ASPENTHE ASPENINSTITUTEINSTITUTEFEDERAL RESERVE SYSTEMFEDERAL RESERVE SYSTEM

Achieving

Sustainability, Scale, and Impact

in Community Development Finance:

EITC and Tax Preparation Organizational DesignFederal Reserve Bank of Chicago

March 16-17, 2006

Kirsten Moy, Greg Ratliff and Amy Brown

The Aspen Institute


Supporters of this Meeting Conference Partner:

The Federal Reserve Bank of Chicago

Meeting Funder: The Annie E. Casey Foundation

Charrette Organizers: The National Community Tax Coalition & The

Center for Economic Progress

Forum Participants

You!

Thank you!

THE ASPENTHE ASPENINSTITUTEINSTITUTEFEDERAL RESERVE SYSTEMFEDERAL RESERVE SYSTEMSupporters of the Conference

Series Conference Partner: The Federal Reserve System

Research Partners

The F.B. Heron Foundation

GE Consumer Finance - Americas

Deutsche Bank

Past Supporters

The John D. and Catherine T. MacArthur Foundation

The Fannie Mae Foundation

Forum Participants - you!

Thank you!

GE Consumer FinanceAmericas


Conference Goals• introduce a new framework for scale and sustainability for the field

of community development institutions

• explore the feasibility of new business models with potential for promoting scale and sustainability in the EITC/Tax Preparation field

• provide a forum where all stakeholders can participate in the exploration and design of business models and initiatives and share ideas about the future of the field including the role of the National Community Tax Coalition

• encourage dialogue leading to action on implementation of business models and initiatives where appropriate


What is Scale?

More capital

More customers

More effectiveness

“Economies of scale” usually refers to the

development of mass markets and progressive cost reduction through

increased business volume. Can the industry groups assembled

achieve this kind of scale?


Why Pursue Scale? To reach more people

To provide access to services to as many low income people and communities as possible on a permanent and sustainable basis

To tap into economies of scale

To become more sustainable

To have greater impact in low income communities


But But … scale itself is not necessarily a suitable proxy

for success.

And the very characteristics - high customization and high touch - that helped make each group successful in the past are barriers to achieving greater impact because they lead to high cost delivery.

In other words, there’s no “economy of scale” if the cost to deliver the service goes up with increasing volumes.

So we need to better understand what scale is,

and the dynamics of getting to scale.


Model for Taking an Innovation to Scale

Source: Alan Okagaki & Associates

IdeaIdeaExperiment-Experiment-

ationation(Innovation(Innovation

& Refinement)& Refinement)

EarlyEarlyReplicationReplication

(Innovation(Innovation& Refinement)& Refinement)

BestBestPracticePractice

InnovationInnovationat Scale!at Scale!

the fantasy short cutthe fantasy short cut

THE ASPENTHE ASPENINSTITUTEINSTITUTEFEDERAL RESERVE SYSTEMFEDERAL RESERVE SYSTEMA Better Model for Taking an Innovation to

Scale


IdeaIdeaExperiment-Experiment-

ationation(Innovation(Innovation

& Refinement)& Refinement)

EarlyEarlyReplicationReplication

(Innovation(Innovation& Refinement)& Refinement)

BestBestPracticePractice

StandardizationStandardization InfrastructureInfrastructureBuildingBuilding

Wide ScaleWide ScaleRoll OutRoll Out

InnovationInnovationat Scale!at Scale!


New Innovationat Scale!


Idea

Experiment-ation

(Innovation& Refinement)

EarlyReplication

(Innovation& Refinement)

BestPractice

StandardizationStandardization InfrastructureInfrastructureBuildingBuilding

Wide ScaleWide ScaleRoll OutRoll Out

the keys to scale


Our Process Research

Publications

Conferences

Interviews

y

z

Case Studies

Banknorth Group

7-11 VCOM

Visa

Ace Cash Express

Allied Capital

The Reinvestment Fund

Fannie Mae Self Help

ACCION

Dell

Unified Western Grocers

Carpet One


Lessons from the

Case Studies


Lessons1.Profitability was the primary driver of product

development. The ability to produce a diversified yet complementary set of products was critical to achieving scale.




2.Demand for services or a clear market gap were the primary drivers in determining which products and services to scale up.





3.Geographic expansion was central to generating sufficient volume of transactions to reach scale.






4.Infrastructure investments were crucial to growth. Investments often increased integration of operations and facilitated product development.






4.Infrastructure investments were crucial to growth. Investments often increased integration of operations and facilitated product development.

5.Technology investments often led to increased efficiency and cost savings.


Lessons6. Companies partnered to gain specific knowledge

or expertise, or to access a needed component of the product or service.




7. Capital was raised several times; the volume of capital raised was tens of millions in every instance.





8. Several organizations changed their legal structure to accommodate growth.






9. Regulatory changes often supported or enabled growth and expansion.







10.Different management skills were needed at different points in the growth process.


Lessons6. Companies partnered to gain specific knowledge or

expertise, or to access a needed component of the product or service.




10.Different management skills were needed at different points in the growth process.

11.The ability to adapt to changing market conditions allowed organizations to continue growing.


Product Innovation Organizational Innovation

Industry Innovation

Design for scale (e.g., standardization, simplification &

refinements)

InfrastructureTechnology

CapitalPartnering

ManagementNew organizational structures

Regulatory policyStrategic positioning

Industry intermediariesIndustry infrastructureNew sources of capital

imp

ac

tAchieving Scale

ac

tio

ns


“Innovations for Scale and Sustainability in EITC Campaigns:

Lessons for Community Development from Two Years of Pilots”

By Amy Brown For the Annie E. Casey Foundation


The 2005 Pilots

Chicago, ILLouisville, KYTulsa, OKAtlanta, GABaltimore, MD


Lessons from the Pilot Innovations Lesson #1: It may be easier to borrow rather

than build the infrastructure for scale, but maintaining relationships is a constant challenge for partnership efforts.

Lesson #2: Successful partnerships with government or the private sector require a far greater understanding of those sectors than the field currently has.

Lesson #3: More research is needed to understand what services and products the market wants and how to best deliver them.

Lesson #4: A true calculation of program costs is a prerequisite to roll-out, and to be scalable, programs must reduce per-unit costs.


Lessons from the Pilot InnovationsLesson #5: Roll-out will not be achieved by

good-will alone; partners will require a clear value proposition, backed up by data.

Lesson #6: Community agencies will need to increase their organizational capacity and sophistication in order to sustain partnerships and implement programs at scale.

Lesson #7: The size of the solution must match the size of the problem; small pilots, by their very nature, may never be able to point the way to scale.


Next Steps in Pursuit of ScaleStructured negotiations to develop more

effective partnership agreementsUse of technology to minimize direct staff

involvement in service deliveryDevelopment of new products that

directly mirror popular fringe servicesAdoption of specific marketing techniques

to reach population subgroupsData collection to document program

costs and outcomes


Next Steps in Pursuit of Scale Research to better understand the characteristics

of potential partners, the environment in which they operate and key sectoral trends that affect them, as well as identification of critical attributes to look for in establishing partnerships.

Market research to better understand the demand for financial products and services among low-income consumers, what services they use and why, and how best to market services to them.

Data collection to develop more sophisticated value propositions around the benefits of financial services to key potential partners, including employers, government, and specific corporate sectors.


Issues Facing The EITC & Tax Preparation

Field


Problem Statement

“The free tax preparation movement is clearly at a crossroads. If it is to continue growing as well as expand its impact……, it will need to systematically address…..some of its strengths and weaknesses…..determine whether it seeks to pursue more long-term and broad-based partnership opportunities…..(and) confront whether a scattered and highly variable approach to running programs….. is ultimately sustainable and has the potential to go to scale.”

EITC & Tax Preparation Concept Paper


Key Challenges Identified in Concept Paper

Achieving scale and sustainability in free tax preparation programs, given funding limitations and issues associated with managing large on-the-ground operations

Achieving broader asset development goals by connecting clients with other products and services that can help them manage their finances and save for the future


Questions for Consideration in the Charrettes

1. Can programs continue to grow w/o new resources (e.g., fee-for-service, dues, direct subsidies)?

2. Are there opportunities for partnerships and cross-subsidy through collaborations w/ financial institutions, tax software vendors and paid tax preparers?

3. Are there economies of scale achievable through shared infrastructure for hundreds of organizations offering free tax prep?


Questions for Consideration in the Charrettes

4. How can EITC programs connect tax filing and asset development? Given limited success to date, is this a realistic goal? If so, what are more effective mechanisms?

5. Do existing financial products and services have the potential to achieve scale? What new products & services could help achieve asset development goals?

6. How might the National Community Tax Coalition and other national entities facilitate future growth and program efficiencies in the free tax preparation field?


Special Considerations for the National Community Tax Coalition as an Industry

Intermediary


CUSTOMERSCUSTOMERS INDUSTRY MEMBERS

INDUSTRY MEMBERS

TRADE ASSOCIATIONINDUSTRY

INTERMEDIARY


INTERMEDIARY

INVESTORS & FUNDERS

INVESTORS & FUNDERS

POLICY MAKERS& REGULATORS


Basic Model of Key Players

Industry leaders play a powerful role in setting standards and creating standardization in the industry.


Industry Structure 1


INDUSTRY MEMBERS


INTERMEDIARY


INTERMEDIARY

INVESTORS & FUNDERS

INVESTORS & FUNDERS



Industry Structure 1: The Corporation -Customer Dynamic

In most industries, direct interaction between the customer and the industry member is a primary factor.




INDUSTRY MEMBERS


INTERMEDIARY


INTERMEDIARY

INVESTORS & FUNDERS

INVESTORS & FUNDERS



Industry Structure 2: The Small Players Dynamic




INDUSTRY MEMBERS


INTERMEDIARY


INTERMEDIARY

INVESTORS & FUNDERS

INVESTORS & FUNDERS



Industry Structure 3: Subsidy Dependent


In industries dominated by smaller players …

… industry networks and other forms of affiliation become more important as agents for successful scale and growth.

Access to common infrastructure can enable networks of organizations to work cooperatively to deliver greater volumes of product with increased efficiency

Networks can facilitate needed market research, product development and partnerships

Strong training and development efforts through network services support the development of management talent

Sufficient industry clout can create a more supportive legal, regulatory and policy environment and increase the availability of subsidy where needed


Innovations Panel - Parts 1 and 2

Vaughan Cox, La Union del Pueblo Entero

Lee Davenport, FoodChange

Steve Neumann, Center for Economic Progress

Steven Dow, Community Action Project of Tulsa County

Dennis Campa, City of San Antonio

Mary Dupont, Nehemiah Gateway

Lauren Leimbach, Community Financial Resources

Peter Tufano, D2D Fund


Achieving

Sustainability, Scale, and Impact

in Community Development Finance:

EITC and Tax Preparation Organizational DesignFederal Reserve Bank of Chicago

March 16-17, 2006Contact Information:

Kirsten Moy, Greg Ratliff and Amy [email protected],

[email protected], [email protected]

mailto:[email protected]

mailto:[email protected]

Panel on Innovation :

La Union del Pueblo Entero

Presented by: Vaughn CoxLUPE Program Development Director

EITC & Tax Preparation Charette Achieving Scale, Sustainability and Impact

March 16-17, 2006Chicago, IL

Description of Innovation High quality competitive services

Tax preparation & filing E-file & Direct Deposit (for those with bank account)

Mail-in returns tax due ITIN applicants

Bank products (commercially available) Refund transfer (for un-banked customers) RAL (for emergencies)

Priced to cover operating expenses

Innovation Goals Service to members

More reasonable cost than commercial outfits More reliable in the event of a problem

Sustainability of the organization Services available all year Build confidence in organizational leadership

Implementation Lessons

o Growing market share – takes time & investment

o Distribution of 10,000 flyers – minimal response

o Minimal radio advertising – not effective

o Loyal customers return when served well

Potential for Scale Good potential with significant investment

Much larger volume of returns is possible

Non-profit approach to an important task Help customers at a reasonable price Continual contact & support throughout year

Open doors to financial literacy & wealth-building opportunities

Implementing at Scale• Nationwide non-profit Tax-Prep franchise

outlets with competitive local advertising

• Local non-profits • Purchase license for nominal fee• Train & Certify staff• Collect and share preparation fees to cover

‘franchise’ expenses

• Local banks offer ‘RAL’ products through non-profit tax prep

Panel on Innovation:FoodChange

Presented by: Lee DavenportEITC & Tax Preparation Charette

Achieving Scale, Sustainability and ImpactMarch 16-17, 2006

Chicago, IL

Staffing Innovations Volunteer Preparers (3 groups)

Paid Preparers (4 groups)

Paid Quality Checkers and Management

FoodChange’s EITC Goals Decrease Errors

Respond to Demand

Upward Funding Spiral

Lessons Learned High Staff Costs delivered Quality

Float needed for responsive funding

Changed staff sourcing models

How big is the Scale? New Friends Partners Others

Rank Site Returns completed

# 1 Harlem 6,305

# 3 Bronx (Fordham Road) 4,245

# 4 Brooklyn (Downtown) 4,203

Leading Civilian Free Tax Sites in U.S.― 2005

Transferability:Income Support Centers

Large Scale Sites lead network (T1)

TA and Direct Service to CBO Partners (T2)

Small CBO partners funnel clients (T3)

Referral Community (T4)

Lee DavenportAssistant Director, Income Policy

FoodChange39 Broadway, 10th FloorNew York, NY 10006212.894.8053646.852.1485 (cell)212.616.4990 (fax)

www.foodchange.org

Panel on Innovation:Center for Economic Progress – Financial

Empowerment

Presented by: Steve NeumannEITC & Tax Preparation Charette


Chicago, IL

Description of Innovation Concept - Provide financial services to low wage

workers through four local employers Services offered

Financial Education - 500+ individuals have participated in workshops over 2 years

Credit Union services - 600+ credit union members through the employers, nearly 200 new in two years

Free Tax Prep services - 170+ people served by free tax prep, saved $17,000+ in fees, returned $200,000+ in federal and state refunds

Services well received - 96% of individuals would recommend workshops and tax services to colleagues

Innovation Goals Examine employers as channel to

reach low wage workers with needed financial services

Build employer buy-in for long term sustainability

Why Employers? Source of most key financial transactions Financial stress impacts job performance Regular opportunities to reach workers Financial institutions already partnering

Implementation Lessons What worked best?

Strong take-up at employers where HR staff “bought in” Employers provided outreach, some paid time Employers went beyond the pilot – initiated own

financial literacy series, underwriting emergency loans What didn’t work?

Employers have not provided financial support HR staff turnover led to high project costs to simply

maintain the employer relationship Changes made

More focus on employers who are “bought in” Expanded to work with local workforce intermediary

Potential for Scale Some potential for scale up

Tools are cheaply adaptable to multiple employers – outreach materials, curricula, tax prep services

Offering services through multiple employers in same geographical area drives down unit cost of delivery

Cast wide net to find receptive employers A few employers nationally are leading the way – paying

for tax prep and/or financial education onsite Cost to deliver services is lower when employer is

already bought in Inexpensive to add to what they may already be doing

Other possible benefits Potential for good measurement of outcomes among

employees - HR data, follow up surveys Increased employee retention / job stability

Implementing at Scale Reach more employers through

intermediaries Large “bank at work” programs More partnerships with workforce intermediaries Credit Union associations – many staff who used project

services were also credit union members Centralize some aspects

Collection of data – attempts to measure long term impacts on employees and employers

Gathering and sharing of best practices Creation of tools

Customize application of services for each employer’s specific needs

Panel on Innovation:Providing benefits eligibility

screenings through commercial tax preparers

Presented by: Steven Dow,Community Action Project of Tulsa County



Description of Innovation Partnership between CAPTC and H&R Block

to offer benefits eligibility screening as part of the tax preparation process

HRB tax prep software identified likely clients

HRB tax professionals offered the screening service

CAPTC benefits eligibility specialists provided actual screenings

Innovation Goals Maximize number of people screened for

benefits Utility: ID need/potential, focus resources

Informally compare alternative distribution channels—”free” vs. “fee”

Test deployment of re-branded BESO application in non-CAP site

Test ability to partner with perceived “competitor” and for-profit firm

Implementation Lessons Clients behaved differently than expected

Less receptive, offer seemed “out of the blue” Strongly preferred later screenings, by phone

“Value proposition” less effective than expected Clients forgot about screening offer Not tied to specific economic value (benefit $)

Consequences of phone preference Workflow issues: loss of electronic advantage BESO not optimized for phone delivery

Potential for Scale Conduct screenings by phone

Responds to preference of most clients Centrally located call-center—smoothes out

demand “bumps” Issues and caveats

How to reorient BESO for better phone delivery How to preserve/maximize electronic advantage

Potential for effectiveness CAPTC: 20,000 clients vs. HRB: 20M clients 1,000x order of magnitude leap

Implementing at Scale Goal: maximize # of clients screened and enrolled

Integration with tax prep software Transparent to client, minimize add’l burden/resources Eliminate redundant questions and data entry by reusing info Requires software developers, tax preparation providers, and

various agencies The more local the benefits, the more complex the process

Utility, effective use of resources Assess likelihood of eligibility throughout process Eliminate questions that screen for benefits the client is clearly not

going to be eligible for Immediate, electronic application

Requires “data bridge” to many agency platforms Maximize # of eligible clients who ultimately receive benefits

Panel on Innovation:San Antonio Coalition for Family Economic

Progress

Presented by: Dennis J. CampaCity of San Antonio

Department of Community InitiativesEITC & Tax Preparation


Chicago, IL

Description of Innovation

Shared leadership Coalition leadership comprised of

five diverse organizations External supporters include:

Other public entities Non-profits Financial institutions Community organizing groups

Coalition PartnersUnited Way

Advertising, funding, and 211-hotlineCatholic Charities

Volunteer recruitment, personnel and logistics Annie E. Casey Foundation

Site management, grant maker and funderCity of San Antonio, Department of Community

InitiativesSite management, grant maker and funder,

technical assistance, facilitiesIRS

Software, technical assistance

External SupportersFinancial Institutions

Grant making, banking products, loan refinancing

Competition to sponsor sitesLocal foundations

Grant making, volunteers, linkagesElectronic and print media

Led by City’s Public Information OfficeWeekly radio and print storiesSpanish language outreach

Innovation GoalsChallenges: Low use of the EITCHigh use of paid tax preparers and RALsHigh number of unbanked taxpayers

Goals: Ensure taxpayers receive the maximum creditsIntroduce them to mainstream financial servicesConnect them with multi-benefit services

Implementation Lessons

Coalitions take time, patience and constant nurturing

Keep steering committee small but find vehicles for greater inclusion

Clearly define roles and responsibilities

Remain flexible and adjust on the fly Always start with the future in mind

Potential for Scale Scale might range from 50,000-60,000

returns or 33% of eligible EITC filers Create greater opportunities for bundling

services Change service delivery and open door for

new funding partners Allow for deeper embedding of Family

Economic Success principles Serves as a platform for multiple financial

product

Implementing at Scale Significantly expands service delivery

opportunities based on the number of participants and their financial buying power

VITA co-located at: Municipal and County Courts Hospitals Utility customer service offices Financial institutions Investment clubs or cooperatives Public Libraries

Panel on Innovation:

DE EITC CampaignPresented by: Mary Dupont

EITC & Tax Preparation Achieving Scale, Sustainability and Impact


Description of Innovation

IT Experiments

3-credit courses

2005 IT Strategy 2006 IT StrategySecure Terminal Server for 10 tax sites with 10 workstations each: 3 remote servers – 1 backup, 1 production server, 1 TaxWise terminal, and 1 Netilla Firewall to access terminal server

Peer to peer networks of 10 workstations with Taxwise on C drives for printing with back ups to a single computer

High Speed broadband Internet Connections through cable installed at each location

Broadband for downloads/updates and Wireless network cards

Centralized efiling De-centralized efiling and secure thumb drives for Site Managers

Peer to peer networks in the field with Taxwise on each C-Drive

Each site manager has their own transmitting computer

Mixed bag of equipment: laptops, desktops, borrowed from site hosts, IRS, supplied by Nehemiah

Equipment used exclusively for taxes

IT consultant volunteers IT Manager on call 24/7

Volunteers receive CD rom with training curriculum and Taxwise for practice

Volunteers receive CD rom with training curriculum and Taxwise for practice

University PartnershipsGoal: Involve post-secondary institutions as strategic partners

in the Campaign by including it in their curriculum

Strategy: Meet with University presidents to “sell” idea

Concept Origination: Replicate Fred Gordon’s strategy of a 3 credit course composed of tax training and community service

Results: Three statewide universities adopted the course and 50 students enrolled and became volunteers

Future Goals: Increase number of students and universities

Innovation Goals IT: Increase security, centralize the return

database without passing files back and forth, increase IT capacity and minimize IT issues in the field.

Universities: Insure an annual ongoing flow of qualified volunteers and identify other partners who may be willing to assume some operating responsibilities over time, ie. Recruit and train volunteers, host sites, fundraise to support operations.

Implementation Lessons Lessons Learned:

IT: Terminal server will only work if the software is compatible IT: Full time IT support is needed to manage a large scale operation IT: IT consistency is required in the field to minimize unwanted operating surprises

Universities: Need to work from the top to get buy-in Universities: New course planning and implementation takes one year Universities: Students need discipline and coaxing in advance to motivate reliable

participation Classroom training should happen in January when students are back from break

What worked best: IT: Terminal Server didn’t work with Taxwise. New tax software is needed to be compatible with

terminal server. Univ: Once students get into the field they love the program.

What didn’t work: Terminal Server Training in December

Changes you have made:

New IT system as described in chart: sell Terminal Server Evaluation will take place with students and stakeholders at university. Will change training

dates, advertise course in curriculum guide for Fall 06, identify university liaison to motivate students to participate when tax season starts.

Potential for Scale Scalable?

IT – yes, with money Universities - yes

How big do you think it could it get? IT: With funding for equipment (laptops, thumb drives,

broadband) can be implemented anywhere Universities: Automatic generation of hundreds of

trained volunteers

What other benefits could scaling up this innovation bring to the field? Both: Smoother site operations and more manpower allowing more returns

Implementing at Scale National Roll Out:

IT: national partnership with Compaq, Dell, Microsoft for hardware & operating systems software distributed directly to coalitions and VITA programs at the local level. Handbook on IT solutions including ingredients needed and implementation strategies, potential bugs and work arounds. Web-based technical assistance for IT solutions. (similar to PowerUp which implemented 1,000 community based tech centers)

Universities: State universities and community colleges adopt the curriculum and buy in to the VITA portion of the program. Program becomes the service focus in college-based Accounting Fraternities.

E.g. Who would be involved in delivery? IT: IRS, NCTC, and local or state organizing entities Univ: Work through national post-secondary networks of state universities and

community colleges to disseminate.

What aspects should be standardized and what would be customized? All aspects should be customized to adapt to local needs while maintaining the

integrity of the basic systems.

Panel on Innovation:SVCs and Worker

CentersPresented by: Lauren Leimbach



Description of Innovation Distribute prepaid debit cards (SVCs)

through Worker Centers

Utilize community organizing model as a marketing outreach strategy

Leverage collective bargaining power to negotiate product features, pricing, and revenue share with suppliers

Innovation Goals Why Prepaid Debit Cards (SVCs)?

Meets the market’s needs: virtual savings, purchase card, money transfer tool, bill payment, with options for phone minutes and picture ID

Basic ID requirements to open account Portable Convenient

Mitigating the impact of globalization Financial and social empowerment

Implementation LessonsWhat Works The value of the community network

480+ interviews Focus groups to explore price points and messaging

Vendor cooperation

Challenges Training focus group moderators Foundation funding lead times vs. pace of

business negotiations

Potential for Scale 8-site pilot program to create a roll-out

template with implementation options

140 Worker Centers have access to 3 million households

The larger the scale, the greater our power to negotiate consumer-friendly terms with business partners

Implementing at ScaleThe Alternative Progressive Economy

Network of CDFIs and Credit Unions as the banking platform

Non-profit Middle-marketer card issuer CBO-based distribution network Add-on products & services:

Credit building, emergency loans, micro-finance

Leveraging remittance flows for Int’l economic development projects

march 16 and 17, 2006 chicago, il. the aspen institute federal reserve system achieving...

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