BILL ANALYSIS Ó SENATE GOVERNANCE & FINANCE COMMITTEE Senator Lois Wolk, Chair BILL NO: AB 1765 HEARING: 6/11/14 AUTHOR: Jones-Sawyer FISCAL: Yes VERSION: 6/4/14 TAX LEVY: No CONSULTANT: Ewing VOLUNTARY CONTRIBUTIONS: HABITAT FOR HUMANITY FUND Creates the Habitat for Humanity Fund tax check-off on the Income Tax Form Background and Existing Law Existing law allows taxpayers to contribute to one or more of 20 voluntary contribution funds, known as VCFs or check-offs, by checking a box on their state income tax return. California law requires check-off 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 forms 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 With a few exceptions, VCFs remain on the tax form until they either are repealed by a sunset date or fail to meet a minimum contribution amount.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 If the FTB estimates that a fund will fail to meet its minimum contribution amount, that fund is repealed for the following calendar year.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 1765 -- 6/4/14 -- 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 current tax check-offs and how contributions are administered. This list does not reflect tax contributions that have been repealed under the terms of their statutes. ------------------------------------------------------------ |Voluntary | 2013 | Contribution Allotment | |Contribution Fund |Contribution| | | | s | | |---------------------+------------+-------------------------| |Alzheimer's | $405,080 | As many as contract or | |Disease/Related | | receive grants provided | |Disorders Fund | | by the monies | | | | contributed. | |---------------------+------------+-------------------------| |American Red Cross, |Initial Tax | To the Office of | |California Chapter | Return | Emergency Services for | | | 2013 | distribution to the | | | | American Red Cross. | | | | | |---------------------+------------+-------------------------| |CA Breast Cancer | $369,425 | As many as apply and | |Research Fund | | receive grants provided | | | | from the monies | | | | contributed. | |---------------------+------------+-------------------------| |CA Cancer Research | $389,759 | As many as apply and | |Fund | | receive grants provided | | | | from the monies | | | | contributed. | |---------------------+------------+-------------------------| |CA Firefighters' | $126,158 | California Fire | |Memorial Fund | | Foundation. | |---------------------+------------+-------------------------| |CA Fund for Senior | $234,247 | California Senior | |Citizens | | Legislature. | |---------------------+------------+-------------------------| AB 1765 -- 6/4/14 -- Page 3 |CA Peace Officer | $128,581 | California Peace | |Memorial Foundation | | Officer Memorial | |Fund | | Commission. | |---------------------+------------+-------------------------| |CA Sea Otter Fund | $307,544 | Department of Fish and | | | | Wildlife, and as many | | | | as apply for grants and | | | | contracts provided for | | | | by 50% of | | | | contributions. | |---------------------+------------+-------------------------| |CA Seniors Special | $60,961 | 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 | $72,435 | The first $300K to the | |Government Fund | | 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. | | | | Remaining funds | | | | allocated to the CA | | | | YMCA Youth and | | | | Government Program, | | | | whose board may award | | | | additional $10K annual | | | | grants to additional | | | | nonprofit civic youth | | | | organizations. | |---------------------+------------+-------------------------| |CA Youth Leadership | $55,505 | To the Department of | |Fund | | Education to provide | | | | for the CA Youth | | | | Leadership Project. | AB 1765 -- 6/4/14 -- Page 4 |---------------------+------------+-------------------------| |Child Victims of | $220,119 | As many counseling and | |Human Trafficking | | prevention centers that | |Fund | | apply and receive | | | | grants provided from | | | | monies contributed. | |---------------------+------------+-------------------------| |Emergency Food for | $459,291 | To the Department of | |Families Fund | | Social Services for the | | | | Emergency Food | | | | Assistance Program. | |---------------------+------------+-------------------------| |Keep Arts in Schools |Initial Tax | To the Arts Council for | |Fund | Return | grants to organizations | | | 2013 | providing parts | | | | programs in schools. | |---------------------+------------+-------------------------| |Municipal Shelter | $217,883 | As many as apply and | |Spay-Neuter Fund | | receive grants provided | | | | from the monies | | | | contributed. | |---------------------+------------+-------------------------| |Protect Our Coast |Initial Tax | To the California | |and Oceans Fund | Return | Coastal Commission to | | | 2013 | provide grants to | | | | organizations in | | | | support of coastal | | | | resource programs and | | | | related educational | | | |activities. | |---------------------+------------+-------------------------| |Rare & Endangered | $476,933 | Department of Fish and | |Species Preservation | | Wildlife endangered | |Program | | conservation programs. | |---------------------+------------+-------------------------| |School Supplies for | $367,868 | As many as apply and | |Homeless Children | | receive grants provided | |Fund | | for by the monies | | | | contributed. | |---------------------+------------+-------------------------| |State Children's | $305,438 | To the Department of | |Trust for the | | Social Services for | |Prevention of Child | | prevention and | |Abuse | | intervention programs. | |---------------------+------------+-------------------------| |State Parks | $396,921 | As many as purchase a | |Protection | | parks pass that can be | |Fund/Parks Pass | | provided from the | |Purchase | |monies contributed. | ------------------------------------------------------------ Proposed Law Assembly Bill 1765 adds the "Habitat for Humanity Fund" on the tax form for voluntary contributions, when space is available. Contributions received through the fund would be allocated to the Department of Housing and Community Development for distribution to the Habitat for Humanity through a competitive grant process. AB 1765 maintains existing requirements for tax check-offs, including the annual reporting by September 1st of each year by the Franchise Tax Board to determine eligibility for the following year, and the $250,000 minimum contribution requirement, beginning in the second year, with annual adjustments for inflation. AB 1765 includes an automatic repeal after five years or 2021, whichever comes first. AB 1765 -- 6/4/14 -- Page 9 State Revenue Impact No estimate. Comments 1. Purpose of the bill . Assembly Bill 1765 would establish a tax check-off program, consistent with existing tax check-off programs, to support home construction and related programs offered by Habitat for Humanity. Including this fund on state tax forms will increase awareness of the need for affordable housing and enhance charitable giving for housing programs operated by this charity. 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 a deduction for charitable giving on their tax return. However, 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 since 1982, tax check-offs have raised more than $109 million for charitable causes. Donations have averaged $4.3 million per year since 2000 and brought in $4.7 million in 2013. Yet only a small percentage California's 15 million tax filers, less than 400,000, are utilizing the tax check-off program to donate to charitable causes. Federal tax return data from 2010, as reported by the Urban Institute, National Center for Charitable Statistics, indicates that Californians donated more than $21 billion to charities, as reflected on their tax returns. In light of the low AB 1765 -- 6/4/14 -- Page 10 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 is an efficient and effective strategy to connect donors with charitable organizations. Charities struggle to comply with the requirements of the tax check-off program. Since 1982 the Legislature has authorized 45 individual tax check-offs on the tax form. Among those, more than one-third failed to remain on the tax form beyond its initial year. Just 10 of the 45 have met their statutory standards to remain on the tax form for 10 years or more. The Legislature has authorized 20 tax check-offs since 2005. Half of those recently enacted tax check-offs failed to meet statutory minimum contribution levels to remain on the tax form. 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 than could be accommodated on the tax forms. While changes to the tax forms have 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. Depending on the number of additional tax check-offs approved by the Legislature each year, it could be between two and 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 was largely driven by competition for limited space on the tax form. Other than the requirements to meet the minimum AB 1765 -- 6/4/14 -- Page 11 contribution threshold, there are no specific requirements in the tax code that govern participation in a tax check-off program. For instance, SB 1262 (Sher, Chapter 1262, 2004) established requirements for charitable organizations to register with the Office of the Attorney General, if they contract for fundraising services. 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. 3. Related legislation . AB 1765 is not the only bill dealing with tax check-offs this legislative session: Assembly Bill 247 (Wagner, Chapter 670, 2013) 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, Chapter 671, 2013) 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, Chapter 451, 2013) creates the American Red Cross, California Chapters Fund check-off on the tax form. Assembly Bill 1286 (Skinner, Chapter 664, 2013) temporarily suspends the annual inflation adjustment for minimum contribution levels for the California Breast Cancer Research Fund check-off on the tax form. Assembly Bill 1561 (Rodriguez, 2014) extends the repeal date from 2016 to 2026 for the California firefighters' and peace officer memorial funds. Assembly Bill 1833 (Garcia, 2014) eliminates the minimum contribution requirement for the California Fund for Senior Citizens. Assembly Bill 2012 (Morrell, 2014) eliminates the minimum contribution requirement for the California Fund for Senior Citizens. Senate Bill 116 (Liu, Chapter 222, 2013) extends the repeal date from 2014 to 2019 for the Emergency Food Assistance Program check off on the tax form. Senate Bill 571 (Liu, Chapter 430, 2013) creates the Art for Kids Fund check-off on the tax form. Senate Bill 761 (DeSaulnier, 2014) modifies state AB 1765 -- 6/4/14 -- Page 12 administration of funds received through the School Supplies for Homeless Children Fund. Senate Bill 761 (DeSaulnier, 2014) modifies state administration of funds received through the School Supplies for Homeless Children Fund. Senate Bill 782 (DeSaulnier, 2014) creates the California Sexual Violence Victim Services Fund tax check-off. Senate Bill 987 (Monning, 2014) requires that the cost incurred by the Department of Fish and Wildlife in taking measures to encourage taxpayers to make contributions on their tax return be paid for with money allocated to the California Sea Otter Fund. Senate Bill 1207 (Wolk, 2014) establishes an administrative procedure for qualified charities to apply and receive donations through a tax check-off. Assembly Actions Assembly Revenue and Taxation Committee:8-0 Assembly Appropriations Committee: 17-0 Assembly Floor: 74-0 Support and Opposition (6/5/14) Support : Habitat for Humanity California; Habitat for Humanity East Bay/Silicon Valley; Habitat for Humanity Fresno County; Habitat for Humanity Hemet / San Jacinto; Habitat for Humanity Santa Cruz County; Habitat for Humanity of Coachella Valley; Habitat for Humanity of Orange County; Habitat for Humanity of Southern Santa Barbara County; Habitat for Humanity of Tulare County; Habitat for Humanity of Ventura County; Habitat for Humanity San Gorgonio Pass Area; Habitat for Humanity Riverside; Habitat for Humanity Santa Cruz County; Jerome E. Horton, Chair, Board of Equalization; Nevada County Habitat for Humanity; Pomona Valley Habitat for Humanity; San Gabriel Valley Habitat for Humanity. Opposition : Unknown. AB 1765 -- 6/4/14 -- Page 13