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          VCFs remain on the tax form until they either are repealed  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          its minimum contribution amount, that fund is repealed for  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. 





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          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.            |
          |---------------------+------------+-------------------------|





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          |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.     |





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          |---------------------+------------+-------------------------|
          |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.





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                               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  





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               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  





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               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  





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               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.   









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