BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  SB 798
                                                                  Page  1

          Date of Hearing:   August 6, 2014

                        ASSEMBLY COMMITTEE ON APPROPRIATIONS
                                  Mike Gatto, Chair

                   SB 798 (De León) - As Amended:  January 6, 2014

          Policy Committee:                              Revenue &  
          Taxation     Vote:                            9-0

          Urgency:     Yes                  State Mandated Local Program:  
          No     Reimbursable:              No

           SUMMARY  

          This bill creates the College Access Tax Credit Fund (Fund) for  
          purposes of attracting private contributions to fund additional  
          Cal Grants to students, and allows an income tax credit equal to  
          60%, 55%, and 50% of the amount contributed by an individual or  
          corporate taxpayer to the Fund in each of the taxable years  
          beginning on January 1, 2014, 2015, and 2016, respectively.  In  
          summary, this bill:

          1)Requires the California Educational Facilities Authority  
            (CEFA) to administer the Fund, and requires that moneys  
            distributed from the Fund be used:

             a)   To reimburse the General Fund for the aggregate amount  
               of certified credits allowed, and specifies that such  
               reimbursements are to be considered GF revenues (for  
               purposes of preserving Proposition 98 funding).

             b)   Upon appropriation, to the CEFA, the Student Aid  
               Commission (SAC), and Franchise Tax Board (FTB) to  
               reimburse administrative costs associated with the program.

             c)   Upon appropriation, to the SAC for purposes of awarding  
               Cal Grants.

          2)Requires the CEFA to establish contribution and certification  
            procedures and regulations, allocate tax credits and certify  
            contribution amounts to taxpayers within 45 days of  
            contribution, and provide FTB a copy of each credit  
            certificate issued by March 1 following the year in which the  
            certificates were issued.








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          3)Limits the aggregate amount of credits that may be allowed to  
            $500 million per calendar year, plus any previously  
            unallocated and uncertified credits; requires contributions to  
            be made in cash; allows the taxpayer to carry forward any  
            unused credit for up to five years.

          4)Specifies that the bill takes effect immediately as an urgency  
            statute, becomes operative only if SB 174 (De León) is enacted  
            and takes effect on or before January 1, 2015, and sunsets the  
            credit provisions on December 1, 2017.

           FISCAL EFFECT  

          1)Administrative costs to CEFA in the range of $900,000 to $1.6  
            million over three years to administer the certification of  
            tax credits for contributions, reimbursable from Fund  
            proceeds; minor and absorbable costs to FTB and SAC.

          2)Estimated GF revenue decreases of $470 million, $310 million,  
            and $160 million in FY 2014-15, FY 2015-16, and FY 2016-17,  
            respectively, though this bill seeks to reimburse the GF for  
            those amounts.

          3)Potential additional contribution receipts of up to $500  
            million per year to fund Cal Grants.

           COMMENTS  

          1)  Purpose.   According to the author, this bill seeks to increase  
            Cal Grant B Access Award amounts for low income students to  
            improve academic achievement and graduation rates.  The tax  
            credit differs from most others in that it leverages federal  
            tax deductions for charitable contributions to incentivize  
            contributions while ensuring the state does not lose money.   
            The author contends the program would result in an extra $900  
            million over the first three years to increase Cal Grant  
            awards.  When the award was first established in 1969, the  
            amount granted per student for the year was $960.  Today, that  
            amount has grown to only $1,473, while an inflation adjusted  
            amount would be $5,900.

          2)  Interaction with Federal Charitable Contributions.   This bill  
            is inspired by a recent idea to "capture" federal dollars by  
            enacting a state charitable tax credit.  Based on recent IRS  








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            guidance that charitable contributions to a state fund are  
            eligible for the federal tax deduction in the same manner as  
            contributions to a charitable non-profit organization, the  
            structure allows a taxpayer to benefit from both the state tax  
            credit as well as a full deduction on the contribution amount  
            from federal taxes.  Such a favorable structure could result  
            in the state raising significant money for this Fund, serving  
            as a model for future programs.

            To the extent this bill generates $500 million of additional  
            charitable contributions per year, it could result in annual  
            federal revenue decreases of as much as $150 million.  Such an  
            impact could cause the IRS to reevaluate its guidance on state  
            fund deduction eligibility.

          3)  Generous Incentive.   This bill creates one of the most  
            generous tax credits ever allowed in California.  Under  
            existing law, taxpayers may only claim a deduction for  
            contributions to charitable organizations.  A tax credit,  
            however, may be much more valuable, particularly to corporate  
            taxpayers.  This bill may incentivize many corporate taxpayers  
            to redirect charitable contributions to the Fund, creating a  
            tax planning opportunity for corporate social responsibility  
            programs while not necessarily increasing overall corporate  
            giving.

          4)  Previous Legislation.  

             a)   SB 284 (De Leon) would have established a tax credit and  
               voluntary contribution fund to benefit Cal Grants with a  
               structure substantially similar to that contemplated here.   
               SB 284 was vetoed by the Governor because it would have  
               adversely impacted Proposition 98 funding.

             b)   AB 2107 (Gorell) would have established a tax credit and  
               voluntary contribution fund to benefit preschool education  
               with a structure similar to that contemplated here.  AB  
               2107 was held on the Suspense File of this Committee.

           Analysis Prepared by  :    Joel Tashjian / APPR. / (916) 319-2081