Jump in State EITCs Results from Foundation-Funded Efforts, by Michael Laracy of the Annie E. Casey Foundation

from Spotlight on Poverty

A closer look at the impact that the Earned Income Tax Credit can have in states.

National foundations determined to create new opportunities for low-income Americans often focus on policy decisions made in Washington, D.C. But policies enacted in each of the 50 state capitals are also vitally important to people struggling to leave poverty and gain economic security. And in one critical state policy area – the state earned income tax credit, or EITC – national foundations and their partners are having a profound effect. In a bit more than just one year – 2007 and early 2008 – the investments of a few national foundations have helped influence policy-makers in 11 states to either create or expand their EITCs, providing an additional $1 billion in the pockets of working families over five years.

The federal EITC was created by Congress in the mid-1970s and has been expanded since, with support from both Democrats and Republicans. The credit provides a tax cut for low-income working families and has been described as the single most effective tool for lifting people out of poverty.

For more than 10 years, the Annie E. Casey Foundation, the Charles Stewart Mott Foundation and other national foundations have supported a campaign to promote the expansion or creation of state EITCs, partnering with other nonprofit organizations that have been active for many years. To date, 24 states (including the District of Columbia) have followed the federal lead and enacted state versions of the EITC. While they are smaller than the federal credit, these state credits provide vital assistance to working families struggling to support themselves.

The campaign focuses on providing key support to state groups working to build strong state tax systems. Like most efforts to inform and influence public policy, this strategy to expand state-level EITCs is built around a network and infrastructure of partners developed over many years. The Washington, D.C.-based Center on Budget and Policy Priorities provides cutting-edge research, analysis and technical support to state groups involved in the effort. The Center’s experts are also available to state officials with questions about how to effectively implement or expand a state EITC.

The Hatcher Group, a leading communications firm, provides advice and support to help state nonprofit groups develop strategy and spread their message. The firm has traveled extensively, often as a team with CBPP staff, to consult with those groups on their communications and research needs. And in states across the country, The Hatcher Group has developed talking points, Op-Eds, position papers and other documents to bolster the case for the state EITC. Their team of nationally recognized professionals provides communications expertise that many local nonprofits lack.

The vital state-level partners are nonprofits, many of which are part of the State Fiscal Analysis Initiative (SFAI) network or the Kids Count network (or both); together these two networks cover all 50 states. These state-level nonprofits are able to take the work of CBPP, The Hatcher Group, and others and adapt it to their own states’ particular policy environment. The National Conference of State Legislatures also plays an important role by helping to educate legislators about the state EITC.

A key part of the campaign’s success is its ability to share results and lessons with other groups interested in pursuing state EITCs. The Hatcher Group maintains the www.stateeitc.com website, which provides a wealth of information and news about the issue, including links that allow groups to research the financial impact of a state EITC. From this, state groups can learn what works and what doesn’t based on their peers’ experience. Case studies provide good background as our partners plan strategy. SFAI and Kids Count network meetings provide opportunities for training, inspiration and peer-to-peer learning.

This campaign, which has posted remarkable accomplishments for several years, highlights how foundations, working strategically with key partners, can go beyond policy discussions to foster real progress on crucial challenges. Since 2000, 11 states and the District of Columbia have created their own EITCs, and 12 other states have expanded existing credits.

By any measure, however, 2007 and 2008 have been exceptionally good years, in large part because our team saw an opportunity and made the most of it. In the summer of 2006, we recognized that strong budget balances and favorable political environments in many states augured well if we and our national and state-level partners increased our efforts and focused strategically on a dozen of the most promising states. We asked our partners – CBPP, The Hatcher Group and our state networks – to redouble their efforts, to collaborate even more closely, and to work with other allies, including unlikely allies whenever possible. Significantly, the Annie E. Casey Foundation modestly increased its investments for technical assistance and communications advice, as well as made a half-dozen small grants to key state-based groups to support their efforts.

As a result, in 2007 alone, 10 states either created or expanded their EITCs, providing significant new support for low-income working families with kids. As of May 2008, two more states have followed suit and an additional three states are considering increases to existing EITCs. In all, the Center on Budget and Policy Priorities estimates that the EITC accomplishments of 2007 will put an additional $1 billion in the pockets of working families over the next five years. That represents a huge financial advancement for working families in all of those states.

Washington is often caught in policy gridlock, making progress difficult. But, I believe that foundations have an enormous opportunity to affect policy at the state level – on the state EITC issue and many others. This ramped-up EITC campaign provides a valuable lesson to the philanthropic community – that foundations can contribute to meaningful on-the-ground policy action that carries enormous implications for communities we are trying to reach. And, we have gained valuable lessons, which I believe are applicable to similar state-level work on other issues:

· This work takes time. Policy-makers, the public, the media and state officials need to be educated about the value of a state EITC, and success often requires a multi-year investment.

· Campaigns will succeed only if the right infrastructure and networks are in place, including on-the-ground partners with strong communications and advocacy skills. It takes years of sustained investments to build up this capacity, but when the opportunity arises, it can be galvanized, mobilized and supported to move quickly and strategically.

· Relatively small investments by foundations can have a major impact by giving state nonprofits much-needed flexibility in their policy work. Such investments also provide a vital boost of confidence to these nonprofits.

· Foundations and their partners must remain focused on results and move quickly when opportunities to “move the needle” arise.

· The essential elements for success include bi-partisanship; reputations for reliability in fiscal and policy analysis; strong on-going relationships between think tanks, advocates, and grassroots and grasstops groups; and savvy communications skills. We have learned the enormous importance of bringing together key partners with expertise in specific areas.

· Finally, it’s important for foundations to understand that this work is appropriate under federal tax restrictions. As foundations we are not allowed to lobby state legislatures. But our support goes to bolster the communications and policy research and analysis abilities of our partner nonprofits. They do the education of policy-makers; we help prepare them to make their case.

Michael Laracy is the coordinator for public policy with the Annie E. Casey Foundation. Spotlight on Poverty and Opportunity is supported by the Annie E. Casey Foundation and other national foundations.