By: Andrea Levere
January 31, 2014
In his State of the Union address Tuesday night, President Obama's message was clear: There is much we can do to create economic opportunity for all Americans, whether or not Congress decides to act.
"America does not stand still," the president said.
And nowhere is that more evident than in states that have made it a priority to help all residents achieve financial security.
This week, my organization, the Corporation for Enterprise Development (CFED), released data showing how well states are doing when it comes to helping residents get ahead. The results are telling.
Our research clearly shows that policies aimed at decreasing poverty and creating more opportunities for low- and moderate-income families can have a major impact. These policies range from connecting the "unbanked" to the financial mainstream to raising the minimum wage to encouraging poor children to save for college.
But adoption of those policies varies dramatically from state to state.
States such as Minnesota and Vermont, for instance, rank in the top 10 for both outcomes for residents and policies critical to family economic security, according to CFED's "2014 Assets & Opportunity Scorecard." It's no coincidence that both states have adopted such policies as statewide, refundable Earned Income Tax Credits, expanded Medicaid and foreclosure protections. (Click here for a slideshow of state outcome and policy rankings.)
Conversely, many states with poor outcomes have adopted few policies to support family financial security. Mississippi, Alabama and Tennessee all rank at or near the bottom for both the low number of policies adopted and outcomes for families.
The results for state residents can be profound. In Alabama, 63 percent of residents (compared with 44 percent nationally) are "liquid asset poor," meaning they lack adequate savings to cover basic expenses equal to the federal poverty level for even three months in the event of an emergency, such as a job loss or health crisis. By contrast, just 28 percent of Minnesotans are liquid asset poor -- second lowest in the nation.
Policies, of course, are not the sole drivers of outcomes for families. We found that even with strong policies, it is more difficult to improve outcomes in states that have high levels of income inequality, a high cost of living and substantial demographic diversity. For example, states like New York, Connecticut and New Jersey all have policy ranks in the top 10, yet their outcome ranks trail by more than 20 places.
The reality is that policies are often adopted only after a problem reaches a crisis level. And even then, there can be a substantial lag between when a policy is put in place and when a measurable change in outcomes occurs. For example, in 2010 New York adopted a foreclosure policy that is considered the strongest regulation of mortgage servicers in the nation. Since then, the number of foreclosures has fallen, but the state's foreclosure rate still ranked 49th in 2013.
Without policy interventions at all levels of government, far too many families will remain stuck in place -- barely managing to save enough to cover emergencies and with little or no hope of investing in the future.
It doesn't have to be that way. Our research shows that if the United States took measures to improve outcomes to the level of the best-preforming states, wealth and income inequality would shrink significantly. If the U.S as a whole performed as well as Iowa, for example, there would be nearly 20 million fewer liquid asset poor households living on the edge of financial disaster. If the nation could match Florida in adopting policies that helped low-income residents create employment for themselves through microenterprise, nearly 7 million more workers would own these small businesses. And if the country followed Montana's lead, some 13.5 million more adults would have a high school degree.
Of course states will have greater success if the federal government also lends a hand by, for instance, adopting policies that change our upside down tax structure to better support the needs of low- and moderate-income families to save and invest in their futures.
Just as President Obama's executive orders can only go so far toward strengthening our economy and building "new ladders of opportunity into the middle class," states in the end cannot do it on their own. But they can help lead the way.