BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
AB 449 (Irwin) - Income taxation: savings plans: Qualified ABLE
Program.
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|Version: July 1, 2015 |Policy Vote: GOV. & F. 7 - 0 |
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|Urgency: No |Mandate: No |
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|Hearing Date: July 13, 2015 |Consultant: Robert Ingenito |
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This bill meets the criteria for referral to the Suspense File.
Bill Summary: AB 449 would establish a California Achieving a
Better Life Experience (ABLE) program.
Fiscal Impact:
The Franchise Tax Board (FTB) indicates that this bill
would result in a General Fund revenue loss of $100,000 in
2015-16, $400,000 in 2016-17, and $900,000 in 2017-18. FTB
would incur minor costs to implement its provisions of the
bill.
AB 449 (Irwin) Page 1 of
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The State Treasurer's Office (STO), the entity that
would administer ABLE accounts on behalf of qualified
Californians, would incur annual costs of $330,000 (General
Fund).
Background: The federal ABLE Act of 2014 created a new type of
tax-favored savings program beginning in taxable year 2015 for
individuals who become blind or disabled before reaching age 26.
ABLE accounts generally follow the same rules as education
savings accounts allowed by Section 529 of the Internal Revenue
Code (529s). Specifically, individuals can make nondeductible
cash contributions to an ABLE account in the name of a specified
beneficiary, and account's earnings grow tax free. ABLE account
distributions are also not included in the beneficiary's income
so long as they're used for qualified services, and
distributions don't exceed the cost of the qualified services.
The ABLE Act imposes a federal 10 percent tax on distributions
that exceed those costs. Congress created ABLE accounts to
offer an alternative to Special Needs and Supplement Needs
Trusts.
The ABLE Act directed states to establish one ABLE account for
each resident beneficiary. AB 449 implements the ABLE Act in
California, and directs the State Treasurer to administer ABLE
accounts on behalf of qualified Californians.
Proposed Law: This bill would establish a California ABLE
program, and would generally conform to the federal income tax
treatment of ABLE accounts; STO would administer the program in
compliance with federal law. Neither federal nor state taxes
would apply to ABLE account earnings or distributions used for
qualified services. The measure provides that any moneys in an
ABLE account, contributions to, and distributions for qualified
disability services from, that don't exceed $100,000 don't count
toward determining eligibility for any state or local
means-tested program.
Additionally, the bill as currently drafted would do the
following:
AB 449 (Irwin) Page 2 of
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Create a board composed of the State Treasurer, State
Controller, Director of Finance, Executive Director of the
California Department of Developmental Services, and the
Chair of the State Council on Developmental Disabilities,
or their designees.
State that the start-up and first-year administrative
costs for implementing ABLE accounts must be appropriated
from the General Fund in the State Budget Act, but
requiring the board to repay these costs within five years,
and
Create the ABLE Act trust fund, and divide amounts it
receives into an administrative fund and a program fund.
Provide that both the program fund and the
administrative fund would be continuously appropriated.
Related Legislation: SB 324 (Pavley) is substantially similar
to this bill, and is currently in the Assembly Revenue and
Taxation Committee.
Staff Comments: The FTB revenue estimate for this bill is based
on a proration of the Joint Committee on Taxation's (JCT)
estimate for the federal ABLE Act. JCT's estimated losses,
converted to calendar years, for 2016 through 2019 are $5.5
million, $13.5 million, $30.3 million, and $57.3 million.
These estimated losses are attributable to projected earnings in
ABLE accounts that are exempt from taxation and distributions
that do not exceed qualified expenses that are excluded from
gross income. JCT estimated losses are reduced by approximately
88 percent based on Social Security Disability Insurance data to
reflect California's estimated share of the federal exclusion.
AB 449 (Irwin) Page 3 of
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The results are then reduced by an additional 70 percent to
reflect the difference between federal and state tax rates.
JCT estimates that revenue losses are projected to continue to
increase; consequently, FTB estimates the revenue loss resulting
from the bill would increase to $3.4 million by 2020-21.
Staff notes that the current version of the bill does not
correctly reflect the amendments taken by the Author in the
Governance and Finance Committee. Specifically, the accepted
amendments provide that only the program fund would be
continuously appropriated. Consequently, Staff recommends
removing the continuous appropriation for the administrative
fund that exists in the current version of the bill.
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