BILL ANALYSIS Ó SENATE GOVERNANCE & FINANCE COMMITTEE Senator Lois Wolk, Chair BILL NO: AB 754 HEARING: 6/26/13 AUTHOR: Muratsuchi FISCAL: Yes VERSION: 5/20/13 TAX LEVY: No CONSULTANT: Ewing VOLUNTARY CONTRIBUTIONS: CALIFORNIA BEACH AND COASTAL ENHANCEMENT ACCOUNT Creates the "Protect Our Coast and Oceans Fund" tax check-off on the income tax form. 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 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 With a few exceptions, VCFs remain on the return until they are repealed by a sunset date, or if they fail to meet a minimum contribution amount.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 If the FTB estimates that a fund will fail to meet its minimum contribution amount, that fund is repealed for the following calendar year.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 754 -- 5/20/13 -- 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 and how many groups are eligible to receive funding. Some of the funds have been repealed under the terms of their statutes. ------------------------------------------------------------ |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. | AB 754 -- 5/20/13 -- Page 3 |---------------------+------------+-------------------------| |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 754 -- 5/20/13 -- 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 754 -- 5/20/13 -- 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 754 creates the "Protect Our Coast and Oceans Fund" on the tax form, when space is available. Contributions would support eligible programs that receive grant funding through the California Coastal Commission Whale Tail Grants Program and related expenses. The bill maintains all existing requirements for the program, including the annual reporting by September 1st of each year to determine eligibility for the following year, and the $250,000 minimum contribution requirements, beginning in the second year, with annual adjustment for inflation and an automatic repeal after five years. 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 754 would establish a tax check-off program to support California's Whale Tail Competitive Grants Program, which was first established through California's Whale Tail License Plate program. The Whale Tail Competitive Grants Program provides funding for coastal and marine outreach and education for youth, beach and coastal habitat improvement activities with youth and AB 754 -- 5/20/13 -- Page 6 adults, and related innovative "adopt-a-beach" programs. Establishing a tax check-off program will facilitate charitable giving to this important state program. 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. 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 AB 754 -- 5/20/13 -- Page 7 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 for including a tax check-off in the new program Designate an administering agency to implement the program, enforce standards, and monitor program effectiveness. AB 754 -- 5/20/13 -- Page 8 3. Related legislation . AB 754 is not the only bill dealing with tax check-offs this legislative session: Assembly Bill 247 (Wagner) extends the repeal date from 2015 to 2020 for the California Fund for Senior Citizens tax check-off on the tax form. Assembly Bill 394 (Yamada) extends the repeal date of the California Alzheimer's Disease and Related Disorders Research Fund 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 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 from 2014 to 2019 for the Emergency Food Assistance Program check off on the tax form. Senate Bill 571 (Price) creates the Art for Kids Fund check-off on the tax form. Assembly Actions Assembly Revenue and Taxation Committee9-0 Assembly Appropriations 17-0 Assembly Floor 70-2 Support and Opposition (6/20/13) Support : Monterey Bay Aquarium. Opposition : Unknown.