Among a group of preschool teachers who work on Barbour Street in North Hartford, in one of Connecticut's poorest neighborhoods, the annual federal tax refund is more about the basics than the extras.
Melissa Howard used a tax refund to buy a new car this year. She gave her old car to her mother, who now can help take care of Howard's four children more often.
``Every year, we plan for that,'' she said of her tax refund.
For co-worker Cynthia Gee, the refund goes for more ordinary needs: to catch up on bills. Her IRS refund -- $2,300 this year, boosted by the federal Earned Income Tax Credit -- ``is the biggest lump sum money I get all year.''
Because of Hartford's extraordinary concentration of low-income working people, its post welfare reform economy is now more directly tied to one of the big financial events of the year: income tax season.
Unlike the affluent suburbs, however, money tends to flow into Hartford, and Connecticut's other cities and poorer towns, during income tax season, not out.
Like a bloom of plankton in the ocean, the sudden influx of refund money to poor neighborhoods represents an opportunity at all levels of the economic feeding chain. For some local merchants, for instance, it's a mini-Christmas.
In many cases, the refund money also attracts businesses that thrive on people who lack knowledge of, or access to, mainstream financial services. In particular, tax preparation services take hefty fees from clients eager to get their refunds quickly.
Each spring, the Earned Income Tax Credit -- America's biggest program to aid working poor families -- pays more than $20 million directly to Hartford's low-income workers. In 1999, the tax credit paid $7.6 million into the 06106 ZIP code, which stretches from the edge of downtown into southwest Hartford, more than any other ZIP code in the state. The money arrives as part of the annual federal tax refunds.
The earned income credit can add as much as $4,008 to the refund of a low-income family, making the annual IRS check the biggest payday of the year for thousands of wage earners. This year, it is available to families who earned $32,121 or less in 2001.
``The tax refund, it becomes a way of living,'' said Reinaldo Henriquez, who manages ABC Communications & Wireless, a cellphone store on Park Street. After Christmas, the late winter-early spring refund season is the busiest time of year at the store. ``That type of refund, it's an answer to their prayers.''
The income credit paid about $60 million to low-income workers in Connecticut's three largest cities in 1999, an analysis of IRS records shows. The average credit in Hartford, New Haven and Bridgeport was about $1,560 per return for those who qualified.
The impact is not limited to the big cities. Pockets of rural poverty, particularly in eastern Connecticut, also benefit from the program, which was expanded during the 1990s as an incentive for low-income people to work. More than a quarter of 1998 tax returns in the Wauregan section of Plainfield, for example, claimed the credit.
A bill before the Connecticut legislature would create a state earned income credit, which would boost the federal credit by 10 percent for each taxpayer.
For many families, the credit tends to be ``the lump sum for things that helped the families become more upwardly mobile,'' said Shelley Geballe of Connecticut Voices for Children.
The infusion of income credit money is more dramatic in Hartford than anywhere in the state. Nearly half the 1998 tax returns in the 06120 ZIP code in the North End received the credit, the highest rate in Connecticut.
``The concentration of the working poor in [Hartford] is pretty dramatic,'' said Alan Berube, a research analyst with the Brookings Institution who studied the earned income credit in 100 U.S. metro areas. ``About a third of all filers get the credit. That's a figure that is more characteristic of cities in the deep South and some places in the West, where wage levels are generally quite a bit lower than in the Northeast.''
For many Hartford families, a big refund check represents an opportunity that comes but once a year: a dependable car, a security deposit on a better apartment, perhaps new furniture.
For many city retailers, refund time also is becoming a key business opportunity.
Luis of Hartford, a furniture store on Park Street in the 06106 ZIP code, starts running ads on Spanish-language television and radio around Valentine's Day, and offers discounts and sometimes even cashes refund checks for customers.
``It's one of our busiest times,'' store owner Carlos Lopez said.
Tax time also represents an opportunity for commercial tax preparation services, from one-desk operations to H&R Block, the nation's biggest income tax service.
In Hartford, travel agencies, insurance agencies and even cellphone stores are getting into the tax preparation business. Statistics on tax preparers are not available because the state does not require them to be licensed.
The Brookings Institution has started an investigation into whether commercial tax companies are clustering in poor cities to capitalize on the lucrative refund business.
``I think it's odd for the federal government on one side to make a $30 billion a year effort to make work pay for low-income families, but on the other side to really help to subsidize a multi-billion-dollar industry,'' Berube said.
H&R Block and other tax services earn fees to prepare tax returns, but also make money through ``refund anticipation loans,'' short-term loans that can carry high interest rates -- annualized rates can top 700 percent, consumer groups say. The taxpayer gets a check -- minus fees and interest -- in a few days; the IRS refund goes to the lender.
Tax preparation fees, electronic filing fees and refund anticipation loans extract as much as $1 billion a year from the Earned Income Tax Credit program, according to a recent study by two consumer groups.
In Hartford, IRS officials estimate that up to $2.1 million in earned income credits is siphoned off each year for refund loans and other fees. Hartford taxpayers in 1999 received nearly $24 million from the earned income credit.
``The intention of the Earned Income Tax Credit is to lift people out of poverty, not to create a business model for private companies,'' said Shelley Curran, a policy analyst with Consumers Union, the nonprofit publisher of Consumer Reports magazine.
The IRS offers free tax preparation and electronic filing, and can get a refund deposited to a filer's bank in 10 to 14 days. But consumer groups say advertising overwhelms the public's knowledge about those free services.
Ramon Rojano, Hartford's director of human services, said his stomach turns when he sees billboards advertising rapid refunds.
``These are often financially illiterate people who don't understand that this is not free,'' Rojano said. ``But when you're talking about people who need money now for bills, for their rent, for food, how do you convince them of that?''
At Maxes Taxes in Hartford, preparer Mark Russo says he always advises people about the cost of the advance loans. The cost is high, he said, to cover the significant risk of advancing money to people who often have little collateral to secure the loan.
``People on the street know the deal. It's been around a long time,'' he said.
H&R Block's Internet site promotes advance refund loans in bold type as ``Instant Money.'' ``You pay nothing out-of-pocket,'' the site says.
The fee for advance loans offered at Block offices ranges from $29.95 to $89.95, which a Block spokeswoman said is a charge similar in concept to an ATM fee.
``We are not a loan company and we wouldn't be offering these if the clients didn't demand them,'' said the spokeswoman, Denise Sposato. She said documents that clients sign spell out that the advance is a loan.
David Byrd, a 23-year-old teacher at the Community Renewal Team's Creative Learning Center, earned over $20,000 for the first time in 2001.
But to repay a student loan, he said, he took an advance refund loan from H&R Block. Byrd said $163 in fees were deducted from what would have been a $645 refund.
Even then, Byrd said he didn't receive his ``instant money'' for several days. He said Block was never clear with him that the advance was a loan.
``They didn't tell me nothing,'' he said.
Information about free Volunteer Income Tax Assistance services is available from the IRS at 800-829-1040.