United Way of Metropolitan Atlanta Low-Income Car Ownership Program Proposal

Introduction
Lack of reliable transportation is a major barrier to obtaining and keeping a job for low-income people. While public transportation is prevalent in Atlanta’s urban core, the system becomes less accessible as we travel to our suburbs. Due to Atlanta’s current gentrification efforts, many of the city’s public housing is being torn down. Residents are forced to leave their homes and with government issued vouchers, encouraged to find housing elsewhere. Their search often times leads them to Atlanta’s suburbs, where their situations are often better than what they left behind, but fraught with issues.

Working “off-hour” shifts, which is required of many low-wage jobs, can be problematic when one is faced to rely on public transportation. Reliable transportation is often an issue in cases where a job and a childcare provider are located at some distance from each other. Public transportation, although available in metro Atlanta’s suburban areas, is often time consuming. Car ownership translates to better work opportunities, more time spent with family, and greater access to educational training and recreational opportunities.

Across the country, there are Low-Income Car Ownership (LICO) programs present in 33 of the 50 states. LICO programs are beneficial to our community in that they provide reliable cars, on-going car support, consumer protection (protecting low income families from price gouging on car purchases), car repair, vehicle insurance, a stepping stone to savings and asset building, and financial literacy training.

Georgia has had six LICO programs supporting many rural areas. Five of the LICO programs were ownership assistance programs and one was an Individual Development Account (IDA) program. In 2000, Lutheran Services of Georgia, located in Decatur, which offered the IDA program, created 449 accounts, 436 of which were used to purchase cars. The program eventually ended due to loss of funding.

Recipients of LICO assistance are working more hours. They are earning more money. They are relying less on public assistance –making these individuals self-reliant and responsible citizens. An IDA with United Way of Metropolitan Atlanta can provide necessary assistance to low-income people, which will make them productive citizens in the city of Atlanta.

Individual Development Accounts
Individual Development Accounts allow customers to get in the habit of regularly saving. IDAs increase the assets or savings of the participant. The monthly savings of the participant is matched by either governmental foundations or private funds. A specific asset goal is chosen by the participant and a time frame to reach the goal is determined.

According to “Low-Income Car Ownership Programs: Survey 2006”, the maximum savings eligible for a match ranged from $500 to $3,000 in the programs. The programs contributed two dollars to every dollar the customer saved. IDA savings accounts were exempt from public benefit asset limits in more than half of the IDA programs.

Financing Strategies
“Low-Income Car Ownership Programs: Survey 2006” reports that there are three financing strategies used by the LICO programs. The first strategy is to coordinate management with one or more financial institutions. The LICO program pre-qualifies the customers while the financial institution funds and manages the loan. The second financing strategy is to provide down payment assistance in the form of a grant or payment on behalf of the customer to the car dealer. The payment goes directly from the program to the car dealer. The third strategy used is to find a special in-house loan. According to the “Low-Income Car Ownership Programs: Survey 2006” half of the loan programs had interest rates which were one to two points above prime. Forty-eight percent of the loan programs offered loans at or below the prime rate, including 18, which offered zero-percent interest loans.

Loan Default
“Low-Income Car Ownership Programs: Survey 2006” reports that one out of four loan programs had a default rate of zero to four percent and one-third had a default rate of four to eight percent. The report also states that one-fourth had a default rate of at least 15%. Some of the primary reasons that customers default on their loans are: losing their job, cannot pay for repairs, cannot make ends meet, car failure, accident and injury or illness. The issue of loan default underlies the importance of the LICO program’s role in providing assistance to the customer. Job retention components of programs and components that address the quality of cars provided to customers as well as ongoing repairs and maintenance prove to be important components to the success of LICO programs.

Support Services
Nearly all of the programs state that they help customers deal with ongoing repairs and maintenance in some way. The most common way is by providing car maintenance workshops and financial counseling that help customers prepare budgets that include expected repair costs. Many of the programs offer more support by providing a warranty or service agreement on the car. They arrange with repair shops to provide lower-cost services to their LICO customers or manage emergency car repair loan funds.

The LICO programs, in order to aid the customers, provide support services such as: assisting customers with the necessary insurance, ongoing car repair and maintenance issues, financial education to prepare customers for the budgeting required for car ownership, services and referrals based on program partnership and innovations. Some LICO programs help customers become approved by insurance companies by maintaining good relationships with insurers. A small percentage of LICO programs were able to get their customers discounts from insurers.

Funding LICO programs
LICO programs are funded generally in four ways: public funding, private funding, self-sustaining, and a mix of funding strategies. “Low-Income Car Ownership Programs: Survey 2006 states,” public funding was the primary source of funding for LICO programs. Some programs combine funding with either a private or self-sustaining funding strategy. Of the LICO programs using public funding with private or self-sustaining funding strategy, 80% increased the number of cars distributed from 2004 to 2005, compared to 28% of all other programs.

United Way of Metropolitan Atlanta LICO
United Way of Metropolitan Atlanta proposes to provide Atlanta’s low-income population with the opportunity to invest in their futures by creating a pilot LICO program via a combination of private and public funding. The program will operate as follows:

• Individuals will be required to set up one IDA account for participation in the program.
• The individuals cannot have owned a car in the past two years.
• They must have a FICO score of 500 or higher.
• Individuals must save $1,000 over six months.
• The match will be 2:1 ($1,000 saved, receive $2,000 from United Way).
• Funds will be used for down payment on a vehicle.

Like most of the LICO programs researched, United Way of Metropolitan Atlanta intends to provide car maintenance classes, a roadside assistance plan, affiliations with car repair specialists, and financial literacy classes. Individuals will be provided with a $500 reserve fund held by United Way of Metropolitan Atlanta during the first year of car ownership. In this way, IDA participants will be protected with savings for incidentals like car accidents and car repairs. We will also have affiliations with reputable car dealerships; alleviating IDA participants of the problems they might face with unreliable cars.

It is United Way of Metropolitan Atlanta’s goal to house the accounts of our IDA participants with a financial institution that will understand the needs of our customers and provide for them quality care.

Conclusion
A LICO program at the United Way of Metropolitan Atlanta will allow low-income car buyers the finance and support they need to purchase reliable cars. Car ownership will alleviate problems people face when having to find and keep jobs. Although there are some LICO programs in Georgia, there is definitely a need for LICO presence in the metro Atlanta area evident by the shift in low-income families from the urban core to the suburbs.