BILL ANALYSIS                                                                                                                                                                                                    Ó




                                                                  AB 2421
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          Date of Hearing:  May 13, 2014


                     ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
                                Raul Bocanegra, Chair

                   AB 2421 (Nestande) - As Amended:  April 22, 2014


          Majority vote.  Fiscal committee.  Tax levy.

           SUBJECT  :  Corporation Tax Law:  credits:  Homeless and Foster  
          Youth Opportunities Investment Act

           SUMMARY  :   Enacts the Homeless and Foster Youth Opportunities  
          Investment Act.  Specifically,  this bill  :  

          1)Contains the following legislative findings and declarations:

             a)   Providing tax incentives to encourage private  
               investments for the common good is sound public policy.

             b)   Expanding educational opportunities and improving the  
               quality of, and access to, educational services within the  
               state are valid public purposes that the legislature may  
               promote using its sovereign power to determine tax policy.

             c)   Creative tax policy can inspire greater charitable  
               contributions and public-private partnership that ensure  
               additional resources for the education of all children in  
               California.

             d)   Encouraging voluntary support for education, without  
               prejudice for or against any state-sanctioned educational  
               enterprise promotes the state's interest and common good in  
               providing the highest quality education to all children in  
               the state.

             e)   At a time when fiscal realities challenging California  
               school communities demand innovative ways to deliver vital  
               education services to public private pupils in kindergarten  
               and grades 1 through 12, and in college, charitable giving  
               for educational purposes should be stimulated.

             f)   California benefits from ensuring accessibility and  









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               viability of strong public, as well as, private school  
               options in educating students, especially for those with  
               the greatest needs: our homeless and foster youth.

          2)Allows, for taxable years beginning on or after January 1,  
            2015, and before January 1, 2020, a credit under the  
            Corporation Tax (CT) Law equal to 50% of a taxpayer's monetary  
            contributions made during the taxable year, not to exceed  
            $200,000, to a "qualified education scholarship organization"  
            to fund qualified college or K-12 education scholarships for a  
            specified pupil to attend private school or to fund partial or  
            full payments of fees associated with the general costs of  
            transportation to attend a private, public, or charter school.

          3)Defines "qualified education scholarship organization" or  
            "ESO" to mean an organization that meets the following  
            requirements:

             a)   Is organized and operated with the purpose of providing  
               qualified college or K-12 education scholarships to pupils  
               attending a public or private school in California.   
               Organizations with three or more years of audited financial  
               statements must distribute at least 80 percent of  
               contributions for which a credit is claimed, and  
               Organizations with fewer than three years of audited  
               financial statements must distribute 90 percent of  
               contributions for which a credit is claimed;

             b)   Makes qualified college or K-12 education scholarships  
               available for specified pupils from more than one school.

             c)   Retains data on the progress of the specified pupils  
               participating in qualified college or K-12 education  
               scholarships on nationally available norm-referenced tests  
               to evaluate the programs efficacy.

             d)   Submits financial and compliance audit reports performed  
               by a certified public accountant to the Franchise Tax Board  
               (FTB).

             e)   Submits quarterly reports on the number of qualified  
               college or K-12 education scholarship recipients and the  
               schools that the recipients attend to the State Department  
               of Education.










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             f)   Applies to participate in this credit program with the  
               State Department of Education.

             g)   Is formed as any of the following:

               i)     A nonprofit public benefit corporation described in  
                 Corporations Code (CC) Section 5110 et seq.;

               ii)    A nonprofit religious corporation described in CC  
                 Section 9110 et seq.; 

               iii)   A duly authorized foreign nonprofit corporation that  
                 has complied with all registration requirements in the  
                 CC, as specified; or,

               iv)    Is an organization exempt from federal income tax as  
                 an organization described in Internal Revenue Code (IRC)  
                 Section 501(c)(3).

          4)Defines "qualified college or K-12 education scholarship" to  
            mean any of the following:

             a)   An award of tuition assistance amounting to a least 65%  
               of the basic state per-pupil funding, or a private school's  
               actual tuition and fees, whichever is less.  The award must  
               meet the following requirements:

               i)     An initial college or K-12 education scholarship  
                 shall be awarded to a specified pupil in kindergarten  
                 through grade 12 or in college;

               ii)    May be renewed at the request of the specified pupil  
                 for each school year until graduation from high school or  
                 college;

               iii)   Shall be portable and follow the specified pupil  
                 from one school to another; and,

               iv)    Shall be provided to a private school of the  
                 specified pupil's choosing under the following  
                 conditions:

                  (1)       Each ESO shall establish criteria for granting  
                    scholarships that meet the requirements of this  
                    section;









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                  (2)       The pupil receiving the assistance shall  
                    remain a specified pupil; 

                  (3)       The specified pupil shall attend a private  
                    school;

                  (4)       The specified pupil shall remain enrolled and  
                    in attendance at the private school throughout the  
                    school year unless excused by the applicable program  
                    for illness or other good cause;

                  (5)       The specified pupil and the parent or legal  
                    guardian shall comply with all applicable policies of  
                    the private school; and,

                  (6)       A parent or legal guardian of the specified  
                    pupil shall ensure that the pupil has reliable  
                    transportation to and from the applicable program.

             b)   Financial assistance for a specified pupil to partially  
               or fully pay for the fees associated with the general costs  
               of transportation to attend a private, public, or charter  
               school or to attend school-related activities and other  
               educationally beneficial programs;

             c)   Financial assistance for a specified pupil to attend  
               college courses after graduation from high school provided  
               by any public or independent college where the specified  
               pupil has been admitted to attend; and,

             d)   Financial assistance for a specified pupil to purchase  
               books and other materials to support academic success,  
               including, but not limited to, computers and software,  
               tutoring, and other academic support.

          5)Defines "specified pupil" to mean an individual who has  
            applied for a college of K-12 education scholarship and who is  
            either within foster care or has been placed in a foster care  
            system within the State of California at any time prior to  
            graduating high school, or who was at any time prior to  
            graduating high school, or is currently a homeless youth as  
            defined by Government Code Section 11139.3.  A specified pupil  
            is not required to be previously enrolled in a public school  
            or charter school to participate.









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          6)Defines "private school" to mean a person, firm, association,  
            partnership, limited liability company, or corporation  
            offering or conducting private school instruction in the State  
            of California on the elementary or high school level, that  
            meets all of the following:

             a)   Is accredited by the Western Association of Schools and  
               Colleges or an affiliated organization;

             b)   Has filed a current private school affidavit with the  
               State Department of Education in accordance with Section  
               33190 of the Education Code;

             c)   Complies with applicable provisions of the Health and  
               Safety Code;

             d)   Complies with applicable provisions of the California  
               Fair Employment and Housing Act (Part 2.8 (commencing with  
               Section 12900) of Division 3 of Title 2 of the Government  
               Code);

             e)   Utilizes background checks in connection with hiring all  
               school employees, consistent with the standards set forth  
               in Education Code Section 44237(a);

             f)   Requires a specified pupil to take nationally available  
               norm-referenced test; and,

             g)   Has obtained, if it has been in operation for less than  
               three years, a surety bond or letter of credit in an amount  
               equal to the value of the education scholarship payment for  
               one quarter.

          7)Provides that "private school" also means an institution that  
            meets the definition of a "qualifying institution" in  
            Education Code Section 69432.7.  A "private school" does not  
            include program of instruction offered by a tutor or a  
            non-accredited private school to a pupil who is exempt from  
            compulsory full-time education as provided for in Education  
            Code (commencing with Section 48220).

          8)Provides that the taxpayer shall receive a certification by  
            the State Department of Education upon a determination that  
            the contribution meets the necessary requirements.









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          9)Provides that the scholarship tax credit shall be in lieu of  
            any other credit or deduction that the taxpayer may otherwise  
            claim pursuant to the CT law for the same monetary  
            contribution, as specified, and requires the credit to be  
            claimed on a timely filed original return.

          10)Limits the aggregate amount of the tax credits allowed to $50  
            million for each calendar year but authorizes the Legislature  
            to increase the amount.

          11)Provides that the FTB and the State Department of Education  
            shall administer the credit, and that the allocation of  
            credits be made on a first-come, first-serve basis.  

          12)Provides that the FTB is required to do all of the following:

             a)   Adopt rules and regulations as necessary or appropriate  
               to implement this credit;

             b)   Track credits claimed;

             c)   Post aggregate totals of the credits claimed on the  
               Internet Web site of the FTB; and,

             d)   Determine when the aggregate total of the credits  
               reaches $50 million for a calendar year.

          13)Provides that the State Department of Education is required  
            to do all of the following:

             a)   Adopt rules and regulations necessary to determine  
               whether an ESO and a contribution meet specified  
               requirements;

             b)   Submit a list of eligible ESOs that comply with  
               specified requirements to the FTB annually by March 15;

             c)   Establish application forms and procedures; and,

             d)   Certify that the contributions meet specified  
               requirements.

          14)Provides that this bill shall remain in effect only until  
            December 1, 2020, and as of that date is repealed.









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          15)Takes effect immediately as a tax levy.

           EXISTING LAW  :

          1)Provides various tax credits designed to provide tax relief to  
            taxpayers who incur certain expenses (e.g., child adoption) or  
            to influence behavior, i.e. to provide incentives for  
            taxpayers to perform various activities that they may not  
            otherwise undertake. 

          2)Allows individual and corporate taxpayers to deduct certain  
            expenses as itemized deductions. 

          3)Allows deductions for monetary charitable contributions,  
            gifts, or property to qualified organizations formed for  
            religious, charitable, educational, scientific, or literary  
            purposes.  A charitable contribution is defined as a  
            contribution or gift made exclusively for public purposes.   
            Individual taxpayers can claim charitable contributions as an  
            itemized deduction and can deduct the greater of the standard  
            deduction or itemized deductions from their adjusted gross  
            income (AGI) when computing taxable income.  Corporate  
            taxpayers can claim charitable contributions up to 10% of the  
            corporation's taxable income, without regard to the amount of  
            charitable contribution, but the amount in excess of the 10%  
            limitation may be carried over for five years.

          4)Imposes limitations on the amount of deduction for individual  
            charitable contributions, depending on the individual's AGI  
            and the amount of contributions, the types of organizations  
            that receive the donations, and the type of property donated.

           FISCAL EFFECT  :  The FTB estimates that this bill will reduce  
          general fund revenue by $9 million in fiscal year (FY) 2014-15,  
          $30 million in 2015-16, and $50 million in 2016-17

           COMMENTS  :   

           1)Author's Statement  .  The author has provided the following  
            statement in support of this bill:

               The use of tax policy to influence behavior is an important  
               tool for government.  AB 2421 presents a unique opportunity  
               to incentivize corporate donations to provide key resources  









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               for foster and homeless youth.  These vulnerable  
               populations face daunting challenges when striving to  
               receive a quality education and require support to achieve  
               their goals.  Working through non-profits, AB 2421 would  
               provide college scholarships to help bridge the gap between  
               the cost of attending school and currently available  
               financial aid.  It would also provide scholarships to cover  
               transportation costs so these students could be provided  
               the stability of remaining in their current K-12 school  
               when moving from home-to-home.  Lastly, if a student is  
               struggling in the classroom and would benefit from a  
               smaller school environment, scholarships would be available  
               to allow them to attend a K-12 school of their choice.   
               Foster and homeless youth tend to have drastically lower  
               college completion rates than traditional students.  It's  
               time for California to help change this. 

           2)Arguments in Support  .  Supporters of this measure state that  
            "creating tax incentives to encourage private investments for  
            the common good is sound public policy.  This bill would  
            inspire greater philanthropic contributions, and  
            public-private partnerships, to ensure new resources that  
            deliver vital education services to highly at-risk public and  
            private school students from kindergarten into college.  Such  
            charitable contributions would ensure accessibility and  
            viability of learning environments that best support students  
            in homeless situations to get to, stay in, and be successful  
            in school."  Furthermore, supporters believe that  
            "California's children have an inalienable right to a quality  
            education.  This principle extends from a students' elementary  
            education, through high school, and into opportunities for  
            postsecondary learning."   

           3)Arguments in Opposition  .  Opponents believe that public  
            education should be financed directly from public funds  
            instead of educational funding systems like vouchers,  
            scholarships, or tuition tax credits.  Furthermore, opponents  
            are against "any reduction in revenue to the State's General  
            Fund which would reduce Proposition 98 funding.  In the last  
            several years, K-12 education alone has taken over $20 billion  
            in cuts.  This does not include cuts that have hit the  
            California Community Colleges, [California State University]  
            and [University of California] systems.  Likewise, we must not  
            forget the cuts that have also hit our social and health  
            services, safety programs, and many other essential services."  









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             Additionally, opponents along with a number of organizations  
            "worked hard in the fall of 2012 to add revenues to the  
            General Fund via the tax initiative, Proposition 30.  Why  
            would the Legislature consider a measure that will take away  
            from the General Fund, when so many people worked so hard to  
            increase those General Fund revenues?"  Finally, opponents  
            argue that "[b]ecause private religious schools are not 'under  
            the exclusive control of the officers of the public schools'  
            and furthermore provide religious teachings during the school  
            day, providing tax credits for funding these schools violates  
            provisions of the California Constitution.  Article IX,  
            Section 8 of the state Constitution provides:  'No public  
            money shall ever be appropriated for the support of any  
            sectarian or denominational school, or any school not under  
            the exclusive control of the officers of public schools?'  In  
            addition, Article XVI, Section 5 prohibits the use of tax  
            funds 'to support or sustain any school? controlled by any  
            religious creed, church, or sectarian denomination  
            whatever?.'"

           4)What does this bill do  ?  As pointed out by the author, public  
            and private schools have been struggling to provide high  
            quality education to children in California.  This bill would  
            provide a tax incentive for contributions to pay for tuition  
            of foster youth students in a K-12 or college program.   
            Specifically, this bill would allow a corporation to claim a  
            tax credit for monetary contributions to a nonprofit  
            organization that gives scholarships for foster youth to  
            attend public or private K-12 schools or universities.

          The amount of credit is limited to 50% of the amount of the  
            monetary contribution made during the taxable year, and may  
            not exceed $200,000.  Unlike many other tax incentives, the  
            proposed tax credit is capped and allocated.  The credit is  
            effective only for five taxable years, from 2015 until 2020;  
            and the annual aggregate amount of the credit may not exceed  
            $50 million (although this bill authorizes the Legislature to  
            increase this amount).  The Department of Education and the  
            FTB are required to allocate and certify the credits on a  
            first-come, first-serve basis, up to $50 million for each  
            taxable year.  The credit is not refundable and, in many  
            respects, is similar to a grant program.

           1)Do Scholarship Tax Credit Programs Provide Educational  
            Benefits  ?  The proposed scholarship tax credit program is  









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            intended to encourage corporate contributions to fund  
            scholarships for foster youth to attend private schools.  It  
            is presumed that the proposed tax incentive will not only  
            result in a significant increase in the amount of private  
            monetary support for the schools, but also will lead to some  
            substantial educational benefits to students in both public  
            and private schools.  While it is challenging to quantify the  
            impact or effectiveness of a tax incentive, several studies  
            have attempted to do just that with respect to scholarship and  
            tuition tax credits.   

          One of these studies was conducted by the U.S. Department of  
            Education to determine the effectiveness of the District of  
            Columbia School Choice Incentive Act of 2003, passed by  
            Congress in January 2004.  This Act established the first  
            federally funded, private school voucher program in the United  
            States - the DC Opportunity Scholarship Program (OSP).<1>   
            According to the U.S. Department of Education report, the  
            purpose of the new scholarship program was to provide  
            low-income residents, particularly those whose children attend  
            schools in need of improvement or corrective action under the  
            Elementary and Secondary Education Act, with expanded  
            opportunities to attend higher performing schools in the  
            District of Columbia.  The scholarship, worth up to $7,500,  
            could be used to cover the costs of tuition, school fees, and  
            transportation to a participating private school.  It should  
            be noted that, as part of this legislation, Congress mandated  
            a rigorous evaluation of the impacts of the program.  

          The evaluation study found that there "was no conclusive  
            evidence that the OSP affected student achievement."<2>   
            Specifically, "after at least four years students who were  
            offered (or used) scholarships had reading and math test  
            scores that were statistically similar to those who were not  

          ---------------------------
          <1> Wolf, Patrick, Babette Gutmann, Michael Puma, Brian Kisida,  
          Lou Rizzo, Nada Eissa, and Matthew Carr. Evaluation of the DC  
          Opportunity Scholarship Program: Final Report (NCEE 2010-4018).  
          Washington, DC: National Center for Education Evaluation and  
          Regional Assistance, Institute of Education Sciences, U.S.  
          Department of Education.
          <2> Ibid., Executive Summary.












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            offered scholarships."<3>  At the same time, it was determined  
            that the OSP significantly improved students' chances of  
            graduating from high school.  Thus, students graduated at  
            higher rates even though they may not have raised their test  
            scores in reading and math as a result of the OSP.<4>   
            Finally, the report concluded that the OSP raised parents' -
            but not students' - ratings of school safety and  
          satisfaction.<5> 

            Another study reviewed the effectiveness of the Milwaukee  
                                               Parental Choice Program (MPCP).<6>  The MPCP, which began in  
            1990, provides government-funded vouchers for low-income  
            children to attend private schools in the City of Milwaukee.   
            The maximum voucher amount in 2010-11 was $6,442, and 20,996  
            children used a voucher to attend either secular or religious  
            private schools.  The MPCP is the oldest and largest urban  
            school voucher program in the United States.<7>  The study  
            found that, for the 2010-11 school year, the students in the  
            MPCP sample exhibited larger growth (from the base year of  
            2006) in reading achievement than the students in the matched  
            Milwaukee Public Schools (MPS) sample.<8>  However, the  
            authors of the study note that these results should be  
            interpreted with some caution because they "represent  
            differences that were not present in earlier years" and a  
            --------------------------
            --------------------------
          <3> Ibid., "The same pattern of results holds for students who  
          applied from schools in need of improvement (SINI), the group  
          Congress designated as the highest priority for the Program.  
          Although some other subgroups of students appeared to have  
          higher levels of reading achievement if they were offered or  
          used a scholarship, those findings could be due to chance. They  
          should be interpreted with caution since the results were no  
          longer significant after applying a statistical test to account  
          for multiple comparisons of treatment and control group members  
          across the subgroups."
          <4> Ibid., "The offer of an OSP scholarship raised students'  
          probability of completing high school by 12 percentage points  
          overall (figure ES-3)."
          <5> Ibid., Parents were more satisfied and felt school was safer  
          if their child was offered or used an OSP scholarship. The  
          Program had no effect on students' reports on school conditions.
          <6> Witte, Wolf, et al., MCPC Longitudinal Educational Growth  
          Study Third Year Report (April 2010).  
          <7> Ibid.
          <8> Ibid., "This is the first year such an achievement growth  
          advantage has been observed for either group in our study.  Some  
          analyses indicate that the students in the MPCP sample also  
          exhibit larger growth in math achievement, but the results are  
          not conclusive."








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            "significant program change took place in the final year."<9>   
            The report suggests that "there is some evidence that the  
            larger achievement growth of the MPCP students ? is  
            attributable to the introduction of the accountability  
            policy."

            Furthermore, there is some evidence to suggest that voucher  
            and tuition tax credit programs do not necessarily offer  
            special needs students greater support programs.  For example,  
            the U.S. Department of Education report showed that students  
            participating in the OSP were actually less likely than  
            students not participating in the program to have access to  
            programs such as English language learners, special needs  
            programs, tutors, counselors, etc.<10>  As pointed out by the  
            opponents of this bill, reduced access to such programs by  
            special needs students and foster youth "is especially  
            problematic, given that the intention of AB 943 is to benefit  
            special needs children and children in foster care  
            programs."<11>  Students attending public schools are  
            protected under the Individuals with Disabilities Act and it  
            is unclear whether they would continue receiving those  
            protections and services once they accept a scholarship and  
            transfer to a private school.

           2)Tax Credits vs Vouchers  .  In recent years, certain education  
            analysts have advocated for nonrefundable education tax  
          ---------------------------


          <9> Ibid., Beginning with the 2010-11 school year, the MPCP  
          schools were subjected to a test-based accountability policy for  
          the first time, i.e. they were required to administer a test to  
          all voucher students in Grades 3-8 and 10 and publicly report  
          the results by named schools.  "Because the test-based  
          accountability policy was introduced after we carefully matched  
          our sample of MPCP students to MPS students, this study is no  
          longer solely evaluating the effectiveness of the MPCP.  Rather,  
          it is evaluating the effectiveness of both MPCP and the  
          accountability policy that was introduced in 2010-11."
          <10> Wolf, Patrick, Babette Gutmann, Michael Puma, Brian Kisida,  
          Lou Rizzo, Nada Eissa, and Matthew Carr. Evaluation of the DC  
          Opportunity Scholarship Program: Final Report (NCEE 2010-4018).  
          Washington, DC: National Center for Education Evaluation and  
          Regional Assistance, Institute of Education Sciences, U.S.  
          Department of Education, pp. 56, 57, 60.  
          <11> Americans United for Separation of Church and State, Letter  
          in Opposition to AB 943, signed by Carol Velarde, President,  
          Sacramento Chapter, January 8, 2014.






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            credits as a means of promoting "educational freedom."  Some  
            researchers view such tax credits as a more viable alternative  
            to school vouchers.  In a report published by the Cato  
            Institute, Adam B. Schaeffer argues that "tax credits enjoy  
            practical, legal, and political advantages over school  
            vouchers."  (The Public Education Tax Credit, Adam B.  
            Schaeffer, Cato Institute, Policy Analysis, No. 605, December  
            5, 2007, p. 1.)  Specifically, Schaeffer maintains that "the  
            pursuit of highly regulated and targeted voucher programs  
            impedes the rise of a competitive education industry and  
            creates unnecessary political disadvantages for school choice  
            supporters."  (Id. at 2.)  Moreover, Schaeffer points out that  
            tax credits are "more popular with the public and politicians,  
            less likely to be challenged in court, and more likely to  
            survive most court challenges."  (Id.)  Finally, Schaeffer  
            argues that "tax credits are a viable option in many states  
            where effective voucher programs are likely to be struck down  
            on state constitutional grounds."  (Id. at 3.)


           3)Potential Constitutional Challenges  .  The California  
            Constitution specifically prohibits the state from helping "to  
            support or sustain any school, college, university, hospital,  
            or other institution controlled by any religious creed,  
            church, or sectarian denomination whatever."  (California  
            Constitution, Article XVI, Section 5.)  However, this section  
            has never been interpreted to prohibit a religious institution  
            from receiving indirect, remote, and incidental benefits from  
            a statute which has a secular primary purpose.  (Woodland  
            Hills Homeowners v. Los Angeles Community College District,  
            (1990) 218 Cal. App. 3d. 79.)  Clearly, the state would be  
            prohibited from directly allocating funds to privately owned  
            religious organizations, but the question is whether a  
            subsidy, in this case a tax credit to corporations making  
            donations to an ESO that then provides scholarships for  
            payments to religious schools, is an indirect subsidy with  
            incidental benefits or a direct subsidy through an indirect  
            appropriation.  In deciding the constitutionality of this  
            bill, it is important to understand the bill's intent.  It is  
            technically possible, under the provisions of this bill, for a  
            foster youth to use scholarship funds for the payment of  
            tuition costs of a private, non-religious school, but the  
            reality is that roughly 68% of all private schools have some  
            religious orientation.  (U.S. Department of Education,  
            Characteristics of Private Schools in the United States:  









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            Results From the 2007-08 Private School Universe Survey, March  
            2009)  Therefore, even if not directly stated, this bill  
            appears to provide a substantial benefit that  
            disproportionately favors religious organizations.  By  
            establishing an indirect subsidy program for private schools,  
            this bill may be challenged under this provision for  
            inappropriately using public funds to support private,  
            sectarian institutions.  


           4)The Not-so-Dormant Commerce Clause  :  The credits this bill  
            proposes apply only in connection with California-based  
            schools.  By limiting the credits to in-state activity, this  
            bill could arguably be susceptible to challenge under the  
            dormant commerce clause of the U.S. Constitution.  


            The U.S. Constitution authorizes Congress to regulate commerce  
            with foreign nations, and among the several states.  (U.S.  
            Constitution, Article I, Section 8, Clause 3.)  While the  
            commerce clause is phrased as a positive grant of regulatory  
            power, it "has long been seen as a limitation on state  
            regulatory powers, as well as an affirmative grant of  
            congressional authority."  [Fulton Corp. v. Faulkner (1996)  
            516 U.S. 325, 330.]  This negative aspect, commonly referred  
            to as the dormant commerce clause, prohibits economic  
            protectionism in the form of state regulation that benefits  
            "instate economic interests by burdening out-of-state  
            competitors."  (Ibid.) 


            Both the U.S. Supreme Court and the California courts have  
            addressed challenges to various state tax provisions on  
            dormant commerce clause grounds.  Most recently, the Court of  
            Appeal struck down a California statute that allowed taxpayers  
            a deferral for income received from the sale of stock in  
            corporations maintaining assets and payroll in California,  
            while providing no such deferral for income from the sale of  
            stock in corporations maintaining assets and payroll  
            elsewhere.  [Cutler v. Franchise Tax Board (2012) 208  
            Cal.App.4th 1247, 1250.]  Specifically, the court held that  
            "the deferral provision discriminates on its face on the basis  
            of an interstate element in violation of the commerce clause."  
             (Ibid.)  










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            Thus, while no court decision has yet invalidated, as a  
            general matter, a state income tax credit that provides an  
            incentive for in-state activity, such credits may be subject  
            to constitutional challenge.  Any potential constitutional  
            infirmity could be remedied by expanding this bill's  
            definition of public, private, and charter schools to include  
            schools located outside of California.  While such a proposal  
            would be geographically neutral, it is hard to argue that  
            California should subsidize contributions that end up  
            benefiting schools located in other states.


           5)Related Legislation  :

             a)   AB 2422 (Nestande) would enact similar legislation by  
               creating the STEAM Investment and Incentive Act.  AB 2422  
               will be heard by this Committee today.

             b)   AB 943 (Nestande) would have enacted similar legislation  
               by creating the Education Investment Incentives Act.  AB  
               943 was held on this Committee's Suspense file.

           6)Prior Legislation  :

             a)   AB 2582 (Nestande), of the 2012 Legislative Session,  
               would have provided a tax credit for contributions to  
               public school co-curricular activities, to an educational  
               improvement organization that supports innovative programs  
               in public schools, as specified, or to an educational  
               scholarship organization.  AB 2582 was never heard by this  
               Committee. 

             b)   SB 1542 (Negrete-McLeod), of the 2011-12 Legislative  
               Session, would have created an income tax credit for  
               contributions made to a local educational advancement  
               program organization.  SB 1542 was never by this Committee.  
                

             c)   AB 279 (Duvall), of the 2009-10 Legislative Session,  
               would have allowed a tax credit for taxable years beginning  
               on and after January 1, 2010, equal to the amount of the  
               total contribution made by a qualified taxpayer to a  
               scholarship granting organization during the taxable year.   
               AB 279 was held on this Committee's Suspense File. 









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             d)   AB 2605 (Nakanishi), of the 2007-08 Legislative Session,  
               would have allowed a personal income tax credit to  
               qualified taxpayers for each dependent attending a  
               nonpublic school.  AB 2605 was held on this Committee's  
               Suspense File. 

             e)   AB 2561 (Niello), of the 2007-08 Legislative Session,  
               would have provided an income tax credit for costs paid or  
               incurred for private school tuition.  AB 2561 was on this  
               Committee's Suspense File. 

             f)   SB 1768 (Hollingsworth), of the 2005-06 Legislative  
               Session, would have provided an income tax credit for  
               contributions made to a school tuition organization or a  
               public school.  SB 1768 died in the Senate Revenue and  
               Taxation Committee


           REGISTERED SUPPORT / OPPOSITION  :   

           Support 
           
          California Association of Private School Organizations
          California Catholic Conference
          National Association for the Education of Homeless Children and  
          Youth

           Opposition 
           
          American Civil Liberties Union
          Americans United for the Separation of Church and State,  
          Sacramento Chapter
          California Teachers Association
           
          Analysis Prepared by  :  Carlos Anguiano / REV. & TAX. / (916)  
          319-2098