BILL ANALYSIS Ó Senate Appropriations Committee Fiscal Summary Senator Christine Kehoe, Chair SB 803 (DeSaulnier) Hearing Date: 05/09/2011 Amended: 05/04/2011 Consultant: Mark McKenzie Policy Vote: G&F 7-2 _________________________________________________________________ ____ BILL SUMMARY: SB 803 would establish the California Youth Leadership Project under the State Department of Education and create a new scholarship program to support youth who participate in civic engagement programs that meet specified criteria. This bill would also establish the California Youth Leadership Project Fund tax-checkoff program for up to five years to allow taxpayers to designate contributions to the fund on their income tax returns to support the scholarship program _________________________________________________________________ ____ Fiscal Impact (in thousands) Major Provisions 2011-12 2012-13 2013-14 Fund CDE: program administration $50 $50General $25 $25 Special* Taxpayer donations (revenue) ($250) ($250)Special* Tax revenue loss $16 $16 General FTB administration minor annual administrative costs, General reimbursed from donations Scholarship program future cost pressures of $250-$300 afterGeneral the repeal of the tax checkoff provisions __________ * California Youth Leadership Project Fund _________________________________________________________________ ____ STAFF COMMENTS: This bill meets the criteria for referral to the Suspense File. Tax check-off program Currently, there are 15 "check-off" programs on the personal income tax return which allow taxpayers to donate their own SB 803 (DeSaulnier) Page 1 funds for various purposes. Generally, each tax check-off program has a specific sunset date and an initial contribution limit of $250,000, adjusted annually for inflation, with specified exceptions. Donations to check-off programs are deductable as charitable contributions on taxpayers' tax returns during the subsequent tax year. SB 803 would establish the California Youth Leadership Fund check-off program that would be added to income tax forms when the Franchise Tax Board (FTB) removes an existing voluntary contribution program or determines space is available on the form. The designation would appear on tax forms for five years unless contributions do not meet the minimum threshold of $250,000 per year, adjusted for inflation, in which case the check-off program would be repealed. Donated funds would be allocated, upon appropriation by the Legislature, to the State Controller and FTB for administering these provisions, and to the State Department of Education (CDE) to provide for the California Youth Leadership Project. Assuming the check-off appears on the 2011 tax return and the minimum donation amount of $250,000 is achieved, the estimated tax revenue loss would be about $15,625 annually (applying the average marginal tax rate of 6.25%), beginning in 2012-13, because contributions would be claimed as an itemized deduction in the following tax year. Costs for FTB to administer the program are minor and reimbursed from donated amounts. California Youth Leadership Project SB 803 would establish the California Youth Leadership Project (CYLP) under the CDE to award scholarships to youth who participate in civic engagement programs that meet specified criteria. The CYLP would be overseen by a CYLP Committee, which is chaired by the Superintendent of Public Instruction (SPI) and comprised of no more than six members, as specified. The Committee would, either on its own or through an interagency agreement with CDE, carry out the following administrative duties: develop and provide scholarship applications, promote the program, establish selection criteria, establish a meeting schedule, and submit an annual report to CDE. SB 803 authorizes the CYLP to accept gifts and grants from any source, public or private, to help perform its functions. However, the bill also prohibits the use of state funds to support the CYLP, except for those provided under the tax checkoff program. If the CYLP SB 803 (DeSaulnier) Page 2 Committee determines that there are insufficient funds to cover all costs of the program, all CYLP activities would cease. SB 803 specifies that up to 10 percent of all funds available to the CYLP Committee may be used for administrative purposes, but it is unlikely that $25,000 would be sufficient to fully support the program's administration (assuming the minimum taxpayer donation amount of $250,000 is achieved). It is unclear whether the administrative duties would fall to the Committee or to CDE, pursuant to a future interagency agreement. Staff estimates that total costs to administer the scholarship program would likely exceed $50,000 annually. To the extent that insufficient funds are generated to cover the full administrative costs of the program, the bill would create cost pressures. Furthermore, the bill would create additional cost pressures of $250,000 to $300,000 annually to fund the scholarship program after the tax checkoff program is repealed (either for failure to meet minimum donation thresholds or expiration of the five-year checkoff program) since the provisions related to the CYLP would remain in statute following the repeal of the funding source. Staff recommends that the bill be amended to sunset the CYLP provisions (Section 2 of the bill) on January 1, 2018.