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.









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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:









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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.  








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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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