BILL ANALYSIS Ó
SB 284
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Date of Hearing: August 12, 2013
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Raul Bocanegra, Chair
SB 284 (De León) - As Amended: April 30, 2013
Majority vote. Fiscal committee.
SENATE VOTE : 39-0
SUBJECT : Income taxes: credit: contributions to education
funds
SUMMARY : Allows a credit, for taxable years beginning on or
after January 1, 2014, and before January 1, 2017, based on the
taxpayer's contribution to a newly established College Access
Tax Credit Fund (Fund), as specified. Specifically, this bill :
1)Provides that the credit shall be equal to the following:
a) For taxable years beginning on and after January 1,
2014, and before January 1, 2015, 60% of the amount
contributed by the taxpayer for the 2014 taxable year to
the Fund, as allocated and certified by the California
Educational Facilities Authority (CEF Authority);
b) For taxable years beginning on and after January 1,
2015, and before January 1, 2016, 55% of the amount
contributed by the taxpayer for the 2015 taxable year to
the Fund, as allocated and certified by the CEF Authority;
and,
c) For taxable years beginning on and after January 1,
2016, and before January 1, 2017, 50% of the amount
contributed by the taxpayer for the 2016 taxable year to
the Fund, as allocated and certified by the CEF Authority.
2)Specifies that contributions shall be made only in cash.
3)Provides that the aggregate amount of credit that may be
allocated and certified shall equal:
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a) $500 million in credits for the 2014 calendar year and
each calendar year thereafter; and,
b) The amount of previously unallocated and uncertified
credits.
4)Requires the CEF Authority to do all of the following:
a) On or after January 1, 2014, and before January 1, 2017,
allocate and certify tax credits to taxpayers;
b) Establish a procedure for taxpayers to contribute to the
Fund and to obtain from the CEF Authority a certification
for the credit; and,
c) Provide to the Franchise Tax Board (FTB) a copy of each
credit certificate issued for the calendar year by March 1
of the calendar year immediately following the year in
which those certificates are issued.
5)Directs the CEF Authority to adopt any necessary implementing
regulations. Specifies that the Administrative Procedures Act
shall not apply to such regulations.
6)Provides that, in cases where the credit amount exceeds the
tax owed, the excess credit amount may be carried over to
reduce the tax liability in the following year, and the
succeeding five years if necessary, until the credit is
exhausted.
7)Prohibits a deduction for amounts taken into account in
calculating the credit.
8)Establishes the Fund in the State Treasury.
9)Provides that all revenue in this Fund shall be allocated as
follows:
a) First, to the General Fund (GF) in an amount equal to
the aggregate amount of certified credits allowed for the
taxable year;
b) Second, upon appropriation by the Legislature, to the:
i) FTB, the CEF Authority, the State Controller, and
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the Student Aid Commission for reimbursement of all
administrative costs incurred in connection with their
duties under this bill, and Education Code Section
69432.7 (relating to the Cal Grant Program); and,
ii) To the Student Aid Commission for purposes of
awarding Cal Grants to students pursuant to Education
Code Section 69432.7.
10)Becomes operative only if SB 285 (De León) of the 2013-14
legislative session is enacted and takes effect on or before
January 1, 2014.
11)Sunsets the credit provisions on December 1, 2017.
EXISTING FEDERAL LAW treats contributions to a state government
fund, like an educational special fund, as charitable
contributions. As such, these contributions may be deducted as
itemized deductions.
EXISTING STATE LAW :
1)Allows various tax credits under both the Personal Income Tax
Law and the Corporation Tax Law. These credits are generally
designed to provide relief to taxpayers who incur specified
expenses or to encourage socially beneficial behavior,
including business practices.
2)Establishes the Cal Grant A and B Entitlement awards, the
California Community College Transfer Cal Grant Entitlement
awards, the Competitive Cal Grant A and B awards, the Cal
Grant C awards, and the Cal Grant T awards under the
administration of the Student Aid Commission, and establishes
eligibility requirements for awards under these programs for
participating students attending qualifying institutions.
FISCAL EFFECT : The FTB estimates that this bill would reduce GF
revenues by $190 million in fiscal year (FY) 2013-14, by $360
million in FY 2014-15, and by $330 million in FY 2015-16.
Nevertheless, the FTB notes that this estimate reflects the
direct impact on tax collections. Because this bill would
require funds to be transferred from the Fund to the GF, the FTB
states that, "the net impact of College Access Tax Credits on
the [GF] would be zero."
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COMMENTS :
1)The author has provided the following statement in support of
this bill:
Senate Bill 284 seeks to increase Cal Grant B Access Award
amounts for California's lowest income students to improve
academic achievement and graduation rates through $500
Million in available tax credits. SB 284's College Access
Tax Credit Fund works by leveraging federal tax deductions
for charitable contributions to the state. This tax credit
has been fully vetted by a University of California Los
Angeles report which concludes that the members of the
Legislature are custodians of California's welfare,
particularly in an era of state budgetary distress and
should take advantage of Internal Revenue Service (IRS)
rules and regulations to benefit the state.
This tax credit differs from most others in that the state
does not lose money to incentivize a behavior. Rather, the
taxpayer makes a donation to the state and then a credit is
given. For every dollar donated to the Fund in the first
year, the individual taxpayer or the corporate donor would
receive 60-cents back from the state and the Fund would
receive 40-cents plus interest. The Franchise Tax Board
(FTB) predicts that the College Access Tax Credit Fund
would be fully subscribed due to the high incentive to
taxpayers because according to IRS rules the taxpayer would
also be able to take a donation deduction on their Federal
Taxes. The taxpayer would get back on every dollar donated
a total of 80 cents to over 95 cents depending on how they
file.
California is a so-called donor state, only receiving
around 78-cents for every dollar state taxpayers send to
Washington. It's time to leverage Federal dollars to help
offset skyrocketing college costs. For each of the three
years of the program, the California Student Aid Commission
(CSAC) would have on average an extra $300 Million, after
the tax credits are paid to taxpayers, and after all
administrative costs are paid for, to increase the
under-funded Cal Grant B Access Awards for over 170,000
California students at our for profit and not-for-profit
private institutions, and all three sectors of our public
institutions.
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College graduates are a critical part of the engine that
drives California's economy. They are the future
innovators, educators, engineers, lawyers, scientists,
doctors, architects, executives, and so on that help make
California the 9th largest economy in the world.
The taxpayers of California make a tremendous investment in
its [sic] college graduates. There is not a single public
college or university student, whether they are on direct
financial aid or not, who doesn't have their education at
least partially underwritten by the taxpayers of
California. We must make sure that we are getting maximum
benefit from that investment.
When the Cal Grant B Access Award was first established in
1969, the amount granted per student for the year was $960
to pay for books, housing and transportation. 43 years
later that amount has grown to only $1,473 for the year -
not even close to keeping up with inflation-that figure
should be $5,900. What results is that many students must
work one or even two jobs to help pay the bills, which
delays graduation and impacts the students' ability to
maximize their learning experience. This not only
shortchanges the students but it shortchanges the
California taxpayers, who are investing in their education
for much longer than the four years it should take students
to complete their degree and start contributing to the
economy as graduates.
2)Proponents state:
Since 1969, the Cal Grant program has helped millions of
low-income Californians afford college. The Cal Grant B,
awarded primarily to low-income, under-represented
students, provides crucial "access awards" to help these
students pay for non-tuition related expenses such as
textbooks, transportation, and living expenses.
Unfortunately, the purchasing power of the Cal Grant B
award has stagnated in recent years, while college costs
have rapidly escalated. This year's $1,473 award
represents just a quarter of the original Cal Grant B
purchasing power.
It is imperative that we increase the value of the Cal
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Grant B award in order to help our neediest students
succeed in higher education. Increasing the award amount
would enable students to limit the number of hours they
work, and enroll in more credit hours, both of which
contribute to greater completion rates.
At a time when California needs to dramatically increase
the number of college educated workers it produces in order
to meet workforce demands, we believe that increasing
financial aid awards for the lowest income students will
not only contribute to their own success, but to helping
our state remain economically competitive as well.
3)The FTB noted the following policy concerns in its original
staff analysis of this bill:
a) "This bill could create differences between federal and
California tax law if a taxpayer chooses to utilize this
credit, instead of taking the charitable deduction for
state purposes, thereby increasing the complexity of
California tax return preparation."
b) "This bill would create a credit for certain charitable
contributions that are currently deductible. As a result,
because the credit's dollar-for-dollar reduction of tax is
a more generous tax benefit than a deduction, there could
be a redirection of existing, planned charitable giving to
obtain the tax credit allowed under this bill."
4)Committee Staff Comments:
a) What is a "tax expenditure"? : Existing law provides
various credits, deductions, exclusions, and exemptions for
particular taxpayer groups. In the late 1960s, U.S.
Treasury officials began arguing that these features of the
tax law should be referred to as "expenditures," since they
are generally enacted to accomplish some governmental
purpose and there is a determinable cost associated with
each (in the form of foregone revenues).
b) How is a tax expenditure different from a direct
expenditure? : As the Department of Finance notes in its
annual Tax Expenditure Report, there are several key
differences between tax expenditures and direct
expenditures. First, tax expenditures are reviewed less
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frequently than direct expenditures once they are put in
place. This can offer taxpayers greater certainty, but it
can also result in tax expenditures remaining a part of the
tax code without demonstrating any public benefit. Second,
there is generally no control over the amount of revenue
losses associated with any given tax expenditure. Finally,
it should be noted that, once enacted, it generally takes a
two-thirds vote to rescind an existing tax expenditure
absent a sunset date. This effectively results in a
"one-way ratchet" whereby tax expenditures can be conferred
by majority vote, but cannot be rescinded, irrespective of
their efficacy, without a supermajority vote.
c) What would this bill do? : For taxable years beginning
on or after January 1, 2014, and before January 1, 2017,
this bill would allow taxpayers, upon certification by the
CEF Authority, to receive a credit for contributions made
to the Fund. This bill caps the aggregate amount of credit
that may be allocated and certified at $500 million for
each calendar year. The specified percentage used to
calculate the credit would be 60% of the amount contributed
during the 2014 taxable year, 55% of the amount contributed
during the 2015 taxable year, and 50% of the amount
contributed during the 2016 taxable year.
Amounts contributed to the Fund would be allocated first to
the GF in an amount equal to the certified credits this
bill would allow, and then, upon legislative appropriation,
to the:
i) FTB, the CEF Authority, the State Controller, and
the Student Aid Commission for reimbursement of
administrative costs; and,
ii) To the Student Aid Commission for the awarding of
Cal Grants to eligible students.
d) The CEF Authority : The CEF Authority was established in
1973, and operates pursuant to the California Education
Facilities Authority Act. According to its website:
[The CEF Authority] was created for the purpose of
issuing revenue bonds to assist private non-profit
institutions of higher learning, in the expansion and
construction of educational facilities. Because it is
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authorized to issue tax-exempt bonds, the [CEF
Authority] may provide more favorable financing to
such private institutions than might otherwise be
obtainable.
Financing proceeds may be used for specified
project-related costs, including construction, remodeling,
land acquisition, and the refinancing or refunding of prior
debt.
e) Suggested technical amendments :
i) On page 2, in line 4, insert "as" after "allowed";
ii) On page 3, in line 3, strike "Education" and insert
"Educational";
iii) On page 4, in line 2, insert "of the Education Code"
after "Section 69432.7";
iv) On page 4, in line 12, insert "as" after "allowed";
and,
v) On page 5, in line 7, strike "Education" and insert
"Educational".
f) Contingencies : As noted above, this bill would become
operative only if SB 285 (De León), of the current
legislative session, is also enacted. SB 285 would provide
a mechanism for the distribution of Fund moneys to students
to supplement Cal Grant B access cost awards, as specified.
g) Related legislation : SB 1356, of the 2011-12
legislative session, would have allowed a credit for
taxable years beginning on or after January 1, 2013, and
before January 1, 2016, based on a taxpayer's contribution
to a newly established Higher Education Investment Tax
Credit Program Special Fund, as specified. SB 1356 was
held in the Assembly Committee on Appropriations.
REGISTERED SUPPORT / OPPOSITION :
Support
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California Community College Association of Student Trustees
California Competes
California State Student Association
Los Angeles Area Chamber of Commerce
Los Angeles Community College District
NAACP California
National Council of La Raza
Public Advocates Inc.
Southern California College Access Network
Student Senate for California Community Colleges
The Campaign for College Opportunity
The Institute for College Access & Success
University of California Student Association
Young Invincibles
Opposition
None on file
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098