BILL ANALYSIS
AB 2561
Page 1
Date of Hearing: April 28, 2008
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Charles M. Calderon, Chair
AB 2561 (Niello) - As Amended: April 3, 2008
Majority vote. Tax levy. Fiscal committee.
SUBJECT : Pupil opportunities: tuition tax credits for pupils
enrolled in low-performing schools
SUMMARY : Provides an income tax credit for costs paid or
incurred for private school tuition. Specifically, this bill :
1)Sets forth the following legislative findings:
a) The state should provide a uniform, safe, secure,
efficient, and high-quality system that allows public
elementary and secondary school pupils the opportunity to
obtain a high-quality education; and,
b) A pupil should not be compelled, against the wishes of
that pupil's parent or guardian (parent), to remain in a
school found by the state to be failing for two years in a
four-year period.
2)States the Legislature's intent to enact legislation to:
a) Enhance the ability of pupils to gain knowledge and
skills necessary for success by affording parents the
opportunity for their children to attend a public school
that is performing satisfactorily, or to attend an eligible
private school;
b) Assist parents with any costs associated with the
private school tuition; and,
c) Allow existing low-performing schools the time necessary
to meet satisfactory standards.
3)Provides that the parent or guardian of a public elementary or
secondary school pupil may receive a tax credit equal to the
amount of tuition paid to an eligible school, or $5,000,
whichever is less, if the pupil:
AB 2561
Page 2
a) Has spent the prior school year attending a public
school that has been designated as failing to make adequate
progress, and that has had two school years in a four-year
period of that low performance (low-performing school), and
the pupil's attendance occurred during a school year in
which that designation was in effect.
b) Has been in attendance elsewhere in the public school
system, and has been assigned to a low-performing school
for the next school year.
c) Is entering kindergarten or first grade, and the parent
or guardian has been notified that the pupil has been
assigned to a low-performing school for the next school
year.
4)Provides that this bill shall not apply to a pupil enrolled in
a school providing educational services to youth in a juvenile
justice commitment program.
5)Provides that the tax credit shall be available to the pupil's
parent until the pupil returns to a public school or, if the
pupil's parent or guardian chooses to enroll that pupil in a
private school, of which the highest grade is grade 8, until
the pupil matriculates to high school and the public high
school to which the pupil is assigned is an accredited school
with an Academic Performance Index (API) score of 600 or
better.
6)Requires a school district to do all of the following for each
pupil enrolled in or assigned to a low-performing school:
a) Timely notify the pupil's parent as soon as that
designation is made of all options available under this
bill; and,
b) Offer that pupil's parent an opportunity to enroll the
pupil in a public school within the district that has an
API score of at least 650.
7)Provides that the parent of a pupil enrolled in or assigned to
a low-performing school may choose as an alternative to enroll
the pupil in, and transport the pupil to, a higher-performing
public school that has available space in an adjacent school
district.
AB 2561
Page 3
8)Provides that, if, for any reason, a qualified private school
is not available for the pupil, or if the parent chooses to
request that the pupil be enrolled in the higher performing
public school, rather than choosing to use the state tax
credit, transportation costs to the higher performing school
shall be the responsibility of the school district.
9)Provides that, in order for parents to be eligible for the tax
credit, the private school attended by the child shall:
a) Demonstrate fiscal soundness by being in operation for
one school year or by providing the State Department of
Education with a statement by a certified public accountant
confirming that the private school applying for
participation is insured and the owner has sufficient
capital or credit to operate the school for the subsequent
school year; and,
b) Accept pupils on an entirely random basis without regard
to the pupil's past academic history.
10)Provides that a pupil whose parent or guardian use the tax
credit shall remain in attendance throughout the school year,
unless excused by the school for illness or other good cause,
and shall comply fully with the school's code of conduct. If
a pupil fails to comply with these requirements, his/her
parent shall not be eligible for the tax credit.
11)Provides that, for each taxable year beginning on or after
January 1, 2010, there shall be allowed as a credit against
the net tax, an amount equal to the tuition paid to a private
school participating under this act, or $5,000, whichever is
less.
12)Defines "tuition" to include enrollment fees, textbook fees,
lab fees, and other fees related to instruction, including the
cost of transportation of the pupil between his/her home and
the school.
13)Provides that, in cases where the credit exceeds the net tax,
the excess may be carried over to reduce the net tax in the
following year, and succeeding years if necessary, until the
credit is exhausted.
14)Takes immediate effect as a tax levy but becomes operative on
AB 2561
Page 4
July 1, 2010.
EXISTING LAW provides various tax credits designed to provide
relief to taxpayers who incur specified expenses or to influence
socially beneficial behavior.
FISCAL EFFECT : The Franchise Tax Board (FTB) estimates that
this bill would reduce state revenues by $3 million beginning in
fiscal year (FY) 2010-11.
Proposition 98 Fiscal Effect : This bill would reduce K-14
education funding by $1.2 million in FY 2010-11.
COMMENTS :
1)The author states, "California law restricts the ability of
parents to choose where their children go to school. With an
increasing number of failing schools, AB 2561 seeks to give
parental choice to students in failing schools. AB 2561 aims
to relieve parents that are bound to low performing schools
(API less than 600) based on the location of their home."
2)Opponents state, "Even if it becomes the policy of the state
to fund private school tuition for students at failing
schools, as this bill proposes, tax credits cannot perform
that function. While there are no means tests in the tuition
tax credits proposed in the bill, we can presume that families
whose children are at failing schools are of low to moderate
income. California's high tax threshold for families with
children means that these families pay no tax, or perhaps
small amounts of tax, but the tuition credit, as the measure
notes, is likely to be at least $5000. Virtually none of the
families who would be eligible to send their children to
private school can use this credit, no matter how long it
carries forward, because if they have positive tax payments
they will be little more than a few hundred dollars. It is
also probably fair to say that if families have state tax
liabilities as high as $5000, they already have choices for
their children's schools, if they happen to be in a failing
district. Alternatively, of course, you could provide a
refundable credit, but that effectively is a grant of tuition
dollars. Since tax credits do not work, that issue then
becomes a question of educational spending priorities."
3)FTB notes the following implementation concerns:
AB 2561
Page 5
a) This bill would allow a tax credit for costs paid or
incurred for private tuition. This bill fails to specify
who would be eligible to receive the credit. Without
clarification, it could be interpreted to allow anyone to
take a credit for tuition paid to a private school. The
author may wish to amend this bill to specify criteria
under which a taxpayer or "qualifying pupil" would qualify
for the credit. For instance, the author could require
that, to receive the credit, the taxpayer must be able to
claim the private school attendee as a dependent.
b) This bill uses a host of undefined terms like "private
school", "other fees", "pupil", and "school". The absence
of definitions could lead to taxpayer disputes and would
complicate the credit's administration.
c) It is unclear what expenses qualify as "costs for
transporting the pupil". Without clarification, the
services of a chauffeur, the purchase of skates or
scooters, and the costs of maintaining and insuring the
family car, could be considered qualified costs.
d) FTB would have difficulty determining the eligibility of
a private school. Typically, credits involving areas for
which FTB lacks expertise are certified by another state
agency. The author may wish to amend this bill to include
language requiring certification that a "pupil" is
attending a private school.
e) This bill would add provisions to the Education Code
that would appear to specify qualifications for the tax
credit, but those qualifications are not included in the
Revenue and Taxation Code (R&TC). Because the tax credit
would be administered through the R&TC, it is recommended
that this bill be amended to provide the specific criteria
for tax credit eligibility in the R&TC.
f) This bill references an operative date of July 1, 2010,
throughout the Education Code but provides for an operative
date of January 1, 2010 in the R&TC. This bill should be
amended to provide consistent operative dates.
4)Committee staff notes that this bill:
a) Lacks a sunset date to allow periodic legislative review
of this tax expenditure.
AB 2561
Page 6
b) Would allow for an unlimited carryover period.
Consequently, FTB would be required to retain the carryover
on the tax forms indefinitely. Recent credits have been
enacted with a carryover period limitation because credits
are typically exhausted within eight years of being earned.
c) Could be subject to constitutional challenge for
indirectly funneling potential state revenues to private
religious schools.
REGISTERED SUPPORT / OPPOSITION :
Support
None on file
Opposition
California Tax Reform Association
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098