BILL ANALYSIS                                                                                                                                                                                                    




                     SENATE GOVERNANCE & FINANCE COMMITTEE
                            Senator Lois Wolk, Chair
          

          BILL NO:  AB 394                      HEARING:  6/26/13
          AUTHOR:  Yamada                       FISCAL:  Yes
          VERSION:  4/18/13                     TAX LEVY:  No
          CONSULTANT:  Austin                   

            PERSONAL INCOME TAX: VOLUNTARY CONTRIBUTION: ALZHEIMER'S  
                                    DISEASE.
          

          Extends from 2015 until 2020 the "California Alzheimer's  
          Disease and Related Disorders Research Fund" Check-Off.


                           Background and Existing Law  

          Existing law allows taxpayers to contribute to one or more  
          of 18 voluntary contribution funds, known as VCFs or  
          check-offs, by checking a box on their state income tax  
          return.  California law requires contributions made through  
          check-offs to be made from taxpayers' own resources and not  
          from their tax liability, as is possible on federal tax  
          returns.  Check-off amounts may be claimed as charitable  
          contributions on taxpayers' tax returns in the subsequent  
          year.

          The Franchise Tax Board (FTB) designs tax returns to  
          provide for the designation of contributions to specified  
          funds either on the return itself or on a separate schedule  
          that must be attached to the return.  With a few  
          exceptions, VCFs remain on the return until they are either  
          repealed by a sunset date, or if they fail to meet a  
          minimum contribution amount.  Minimum contribution amounts  
          are adjusted annually for inflation, with specific  
          exceptions.  For most VCFs, the minimum contribution amount  
          is $250,000, beginning in the fund's second year.  

          By September 1st of each year, the FTB must determine the  
          minimum contribution amount required for each fund to  
          remain on the form for the following calendar year and  
          estimate whether contributions to each fund meet that  
          amount.  If the FTB estimates that a fund will fail to meet  
          its minimum contribution amount, that fund is repealed for  
          the following calendar year. 





          AB 394 -- 4/18/13 -- Page 2



          The following check-offs do not have a minimum contribution  
          requirement:
                 California Firefighters' Memorial Foundation Fund,
                 California Peace Officer Memorial Foundation Fund,  
               and
                 California Seniors Special Fund.

          Proceeds from tax check-offs are dedicated to a range of  
          programs.  The following list provides information on all  
          the check-offs as well as how many groups are eligible to  
          receive funding.  Some of the funds have been repealed by  
          their own terms.


           ------------------------------------------------------------ 
          |Voluntary            |    2012    | Contribution Allotment  |
          |Contribution  Fund   |Contribution|                         |
          |                     |   Totals   |                         |
          |---------------------+------------+-------------------------|
          |ALS/Lou Gehrig's     |  $137,290  |As many as apply and     |
          |Disease Research     |            |receive grants provided  |
          |Fund                 |            |for by the monies        |
          |                     |            |contributed.             |
          |---------------------+------------+-------------------------|
          |Alzheimer's          |  $466,485  |As many as contract or   |
          |Disease/Related      |            |receive grants provided  |
          |Disorders Fund       |            |by the monies            |
          |                     |            |contributed.             |
          |---------------------+------------+-------------------------|
          |Arts Council Fund    |  $165,647  |As many as apply and     |
          |                     |            |receive grants provided  |
          |                     |            |by the monies            |
          |                     |            |contributed.             |
          |---------------------+------------+-------------------------|
          |CA Breast Cancer     |  $440,771  |As many as apply and     |
          |Research Fund        |            |receive grants provided  |
          |                     |            |from the monies          |
          |                     |            |contributed.             |
          |---------------------+------------+-------------------------|
          |CA Cancer Research   |  $432,355  |As many as apply and     |
          |Fund                 |            |receive grants provided  |
          |                     |            |from the monies          |
          |                     |            |contributed.             |
          |---------------------+------------+-------------------------|
          |CA Firefighters'     |  $152,004  |1 Group: California Fire |
          |Memorial Fund        |            |Foundation.              |





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          |---------------------+------------+-------------------------|
          |CA Fund for Senior   |  $272,742  |1 Group: California      |
          |Citizens             |            |Senior Legislature.      |
          |---------------------+------------+-------------------------|
          |CA Peace Officer     |  $136,172  |1 Group: California      |
          |Memorial Foundation  |            |Peace Officer Memorial   |
          |Fund                 |            |Commission.              |
          |---------------------+------------+-------------------------|
          |CA Police Activities |  $67,202   |The state CALPAL and     |
          |League (CALPAL) Fund |            |county CALPAL chapters.  |
          |---------------------+------------+-------------------------|
          |CA Sea Otter Fund    |  $351,037  |Department of Fish and   |
          |                     |            |Wildlife, and as many as |
          |                     |            |apply for grants and     |
          |                     |            |contracts provided for   |
          |                     |            |by 50% of contributions. |
          |---------------------+------------+-------------------------|
          |CA Seniors Special   |  $61,315   |The first $80K to the    |
          |Fund                 |            |Area Agency on Aging     |
          |                     |            |Advisory Council of      |
          |                     |            |California and the rest  |
          |                     |            |to area agencies as      |
          |                     |            |allocated by the         |
          |                     |            |California Department of |
          |                     |            |Aging.                   |
          |---------------------+------------+-------------------------|
          |CA YMCA Youth and    |Initial Tax |The first $300K to the   |
          |Government Fund      |Return 2012 |CA YMCA Youth and        |
          |                     |            |Government Program.  The |
          |                     |            |rest is allocated in     |
          |                     |            |$10K annual grants to    |
          |                     |            |the: African American    |
          |                     |            |Leaders for Tomorrow     |
          |                     |            |Program, Asian Pacific   |
          |                     |            |Youth Leadership         |
          |                     |            |Project, Chicano Latino  |
          |                     |            |Youth Leadership         |
          |                     |            |Project.  The money is   |
          |                     |            |to be used to support    |
          |                     |            |program participation.   |
          |                     |            |Remaining funds          |
          |                     |            |allocated to the CA YMCA |
          |                     |            |Youth and Government     |
          |                     |            |Program, whose board may |
          |                     |            |award additional $10K    |
          |                     |            |annual grants to         |





          AB 394 -- 4/18/13 -- Page 4



          |                     |            |additional nonprofit     |
          |                     |            |civic youth              |
          |                     |            |organizations. The funds |
          |                     |            |distributed to the CA    |
          |                     |            |YMCA Youth and           |
          |                     |            |Government Program are   |
          |                     |            |to be used for           |
          |                     |            |program-related          |
          |                     |            |expenses.                |
          |---------------------+------------+-------------------------|
          |CA Youth Leadership  |Initial Tax |1 group: Department of   |
          |Fund                 |Return 2012 |Education to provide for |
          |                     |            |the CA Youth Leadership  |
          |                     |            |Project.                 |
          |---------------------+------------+-------------------------|
          |CA Veterans Homes    |  $210,078  |The number of            |
          |Fund                 |            |established veteran's    |
          |                     |            |homes (7).               |
          |---------------------+------------+-------------------------|
          |Child Victims of     |  $35,317   |As many counseling and   |
          |Human Trafficking    |            |prevention centers that  |
          |Fund                 |            |apply and receive grants |
          |                     |            |provided from monies     |
          |                     |            |contributed.             |
          |---------------------+------------+-------------------------|
          |Emergency Food for   |  $551,515  |1 group: Department of   |
          |Families Fund        |            |Social Services for the  |
          |                     |            |Emergency Food           |
          |                     |            |Assistance Program.      |
          |---------------------+------------+-------------------------|
          |Municipal Shelter    |  $244,701  |As many as apply and     |
          |Spay-Neuter Fund     |            |receive grants provided  |
          |                     |            |from the monies          |
          |                     |            |contributed.             |
          |---------------------+------------+-------------------------|
          |Rare & Endangered    |  $558,681  |1 group: Department of   |
          |Species Preservation |            |Fish and Wildlife        |
          |Program              |            |endangered conservation  |
          |                     |            |programs.                |
          |---------------------+------------+-------------------------|
          |Safely Surrendered   |  $158,645  |1 group: Department of   |
          |Baby Fund            |            |Social Services for      |
          |                     |            |Safely Surrender Baby    |
          |                     |            |Law awareness programs.  |
          |---------------------+------------+-------------------------|
          |School Supplies for  |Initial Tax |As many as apply and     |





          AB 394 -- 4/18/13 -- Page 5



          |Homeless Children    |Return 2012 |receive grants provided  |
          |Fund                 |            |for by the monies        |
          |                     |            |contributed.             |
          |---------------------+------------+-------------------------|
          |State Children's     |  $376,243  |1 group: Department of   |
          |Trust for the        |            |Social Services for      |
          |Prevention of Child  |            |prevention and           |
          |Abuse                |            |intervention programs.   |
          |---------------------+------------+-------------------------|
          |State Parks          |Initial Tax |As many as purchase a    |
          |Protection           |Return 2012 |parks pass that can be   |
          |Fund/Parks Pass      |            |provided from the monies |
          |Purchase             |            |contributed.             |
           ------------------------------------------------------------ 


                                   Proposed Law  

          Assembly Bill 394 extends from January 1, 2015, the current  
          expiration date, until January 1, 2020 the California  
          Alzheimer's Disease and Related Disorders Research Fund  
          check off on the tax form.  The bill maintains all the  
          existing requirements for the program including the annual  
          reporting by September 1st of each year, and the minimum  
          contribution requirements adjusted for inflation.  


                               State Revenue Impact
           
          The Franchise Tax Board estimates that this bill will  
          result in about $10,000 in lost revenue annually.





                                     Comments  

          1.  Purpose of the bill  .  Assembly Bill 394 would extend,  
          for five years, the sunset deadline for the tax check off  
          in support of the "California Alzheimer's Disease and  
          Related Disorders Research Fund."  Established in 1987,  
          this tax check-off has raised $11.3 million dollars from  
          1.3 million tax payers, averaging $14.18 per person, to  
          fund 122 research studies on the cause, diagnosis,  
          treatment, prevention and care of people living with  





          AB 394 -- 4/18/13 -- Page 6



          Alzheimer's and related dementias.  The Alzheimer 's  
          Disease Program in the Department of Public Health  
          distributes tax check-off funds to California researchers  
          through a competitive grant process, which enables them to  
          gain creditability, funding, and competitive position to  
          receive further funding from other entities.  AB 394 would  
          temporarily extend the fund's lifespan on the tax check-off  
          form.  

          2.  Is there a better way  ?  Each year, the Committee  
          considers several bills relating to tax check-offs.   
          Previous committee analyses expressed concern over  
          establishing new tax check-offs or adopting special  
          legislation for a specific charity or program.  The  
          Legislature has chosen to encourage charitable giving by  
          allowing organizations to receive funding through  
          check-offs and taxpayers to receive credit for charitable  
          giving on their tax return.  The current design and  
          administration of the existing tax check-off program raises  
          a number of concerns that suggest the need for a different  
          approach to tax check-offs.  
                 The current program generates a relatively small  
               share of statewide contributions.

               The Franchise Tax Board reports that in 2012, 89,335  
               taxpayers contributed around $4.7 million to  
               California's tax check-off programs.  Out of  
               approximately 15 million tax filers, less than 1% of  
               Californians are utilizing the tax check-off program  
               to make donations to charitable organizations.  Data  
               from 2008, as analyzed by the Chronicle of  
               Philanthropy, indicate that in that year Californians  
               donated more than $17 billion to charities, ranking  
               the state first in the nation for sources of  
               charitable contributions and accounting for $1 in  
               every $8 donated in the U.S.  In light of the low  
               participation rate among tax filers, and relatively  
               small level of funds contributed through tax  
               check-offs it is not clear that the tax check-off  
               program, as currently administered, is an efficient  
               and effective strategy to connect donors with  
               charitable organizations.

                 Increasing demand from charitable organizations  
               that want to participate in the program may soon  
               generate significant costs.





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               Prior to a redesign of tax forms, and movement toward  
               greater use of electronic filings, there were more tax  
               check-off programs that could be accommodated on the  
               tax forms.  While changes to the tax forms has  
               accommodated more tax check-offs, the FTB reports that  
               it can accommodate 12-15 additional tax check-offs  
               before its information technology system will need to  
               be redesigned, at a cost of between $800,000 and $1  
               million.  Depending on the number of additional tax  
               check-offs approved by the Legislature each year, it  
               could be two-five years before the FTB's systems must  
               be upgraded.  

                 The current tax check-off program lacks monitoring  
               to ensure that charities comply with state  
               requirements.

               In authorizing tax check-offs, with some exceptions,  
               the Legislature has   required that check-offs must  
               generate contributions that exceed a specified minimum  
               to remain on the tax form.  This policy decision was  
               largely driven by competition for limited space on the  
               tax form.  Other than the requirements to meet the  
               minimum contribution threshold, there are no specific  
               requirements in the tax code that govern participation  
               in a tax check-off program.  For instance, charitable  
               organizations are required to meet numerous reporting  
               and filing requirements consistent with their  
               charitable status.  SB 1262 (Sher, 2004) established  
               requirements for charitable organizations making  
               contracts for fundraising, including requirements for  
               those charities, register with the Office of the  
               Attorney General.  There is no requirement under the  
               tax check-off statutes that the FTB or other agencies  
               administering tax check-off funds confirm that  
               recipient charities comply with these and other state  
               rules and regulations.   

          The Committee may wish to consider directing committee  
          staff to develop and submit proposals to revise the design  
          and administration of the tax check-off program to:
                 Continue to encourage charitable giving
                 Streamline the process for charitable organizations  
               and donors 
                 Establish clear and consistent standards in statute  





          AB 394 -- 4/18/13 -- Page 8



               for including a tax check-off in the new program
                 Designate an administering agency to implement the  
               program, enforce standards, and monitor program  
               effectiveness. 

          3. Related legislation  .  AB 394 is not the only bill  
          dealing with tax check-offs this legislative session:
           Assembly Bill 247 (Wagner) extends the repeal date for  
            the California Fund for Senior Citizens tax check-off on  
            the tax form from 2015 to 2020.
           Assembly Bill 511 (Pan) creates the American Red Cross,  
            California Chapters Fund check-off on the tax form.  
           Assembly Bill 754 (Muratsuchi) creates the Protect Our  
            Coast and Oceans Fund check-off on the tax form. 
           Assembly Bill 1286 (Skinner) temporarily suspends the  
            annual inflation adjustment for minimum contribution  
            levels for the California Breast Cancer Research Fund  
            check-off on the tax form. 
           Senate Bill 116 (Liu) extends the repeal date for the  
            Emergency Food Assistance Program check off on the tax  
            form from 2014 to 2019.  
           Senate Bill 571 (Price) creates the Art for Kids Fund  
            check-off on the tax form.  





                                 Assembly Actions  

           Assembly Revenue and Taxation Committee  9-0
          Assembly Appropriations                 17-0
          Assembly Floor                          78-0


                        Support and Opposition  (06/20/13)

           Support  :  Alzheimer's Association (sponsor); California  
          Assisted Living Association; California Association of Area  
          Agencies on Aging; California Association for Health  
          Services at Home; Leading Age California; California  
          Association for Health Services at Home (CASAH), The  
          University of California, California Long Term Care  
          Ombudsman Association; On Lock Senior Health Services.

           Opposition  :  Department of Finance.   





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