BILL ANALYSIS Ó
AB 1161
Page 1
Date of Hearing: May 6, 2015
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Jimmy Gomez, Chair
AB
1161 (Olsen) - As Introduced February 27, 2015
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|Policy |Revenue and Taxation |Vote:|8 - 0 |
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Urgency: No State Mandated Local Program: NoReimbursable: No
SUMMARY:
This bill creates the California Preschool Investment Pilot
Program (Program) to incentivize private contribution to state
preschools through a tax credit. The bill establishes the
California Preschool Investment Fund (Fund) and allows an income
tax credit equal to 40% of the amount contributed by an
individual or corporate taxpayer to the Fund. The bill requires
the California Department of Education (CDE) to use the
contributions to fund state preschool programs in five select
counties after reimbursing the General Fund for credits issued
and reimbursing costs to CDE and the Franchise Tax Board (FTB).
In summary, this bill:
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1)Requires the CDE to select, no later than September 1, 2016,
the five counties to be included in the Program, ensuring that
urban, suburban, and rural counties are all represented.
Applications shall be made by county child care and
development planning councils.
2)Requires the CDE to establish a procedure for making
contributions to the Fund and issuing receipts to contributors
indicating the amount contributed, the name of the
contributor, the date the contribution is made, and whether
the person has been allocated a tax credit.
3)Allows the taxpayer to claim the credit only if the taxpayer
provides the receipt from CDE to the FTB and claims the credit
on a timely filed original return. The bill allows the
taxpayer to carry forward any unused credit for up to four
years.
4)Requires that moneys distributed from the Fund be used first
to reimburse the General Fund for the aggregate amount of
certified credits allowed; second, upon appropriation, to the
CDE and FTB to reimburse administrative costs associated with
the Program; and last, upon appropriation, to support state
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preschools located in the five participating counties.
5)Limits the aggregate amount of credits that may be allowed to
$250 million per calendar year; specifies that credits will be
allocated to contributors on a first come, first served basis.
6)Requires the CDE to notify the FTB of the credits allocated on
a monthly basis, and requires the CDE and FTB to post that
information quarterly on their respective websites, together
with the amount of remaining credits and an indication of
whether the cap on credits may be reached at least every
calendar quarter.
7)Requires that any moneys remaining in the Fund as at January
1, 2021, be transferred to any other state fund identified by
the CDE that provides funding for increased access to
preschool programs for low-income children.
8)Specifies that, for purposes of Article XVI, Section 8(b) of
the California Constitution, the total annual amount of the
credit claimed shall be included in the definition of General
Fund revenues as though they were proceeds of taxes,
effectively maintaining Proposition 98 funding as if this tax
credit were not in place.
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FISCAL EFFECT:
1)Significant costs, likely in the hundreds of thousands of
dollars, to CDE to administer the Fund and provide
contribution receipts; potentially significant costs to FTB to
administer the tax credit, though the bill seeks to reimburse
the departments for these costs.
2)Estimated decrease to GF revenue of $0.7 million, $23 million,
and $30 million in FY 2015-16, FY 2016-17, and FY 2017-18,
respectively, though this bill seeks to reimburse the GF for
those amounts, resulting in a neutral or possible minor gain
in revenue due to timing effects.
COMMENTS:
1)Purpose. According to the author, demand for early learning
programs outstrips supply, with many families on waitlists for
state programs. The author indicates that several studies
have shown the beneficial impact to students of early
learning, and that early investment in child learning yields
long-term economic benefit to the state. The author contends
the program will create a self-supporting public-private
funding partnership for the state's early learning programs,
allowing more families to send their children to preschools.
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2)Interaction with Federal Charitable Contributions. This bill
is based on an idea to "capture" federal dollars by enacting a
state charitable tax credit. Based on IRS 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 to
future programs.
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. Furthermore, this bill contains no individual cap
on contributions or credits, and a few contributions from
large corporate taxpayers could reach the total cap. As a
result, this bill could incentivize many corporate taxpayers
to redirect charitable contributions to the Fund, creating a
tax planning opportunity for corporate social responsibility
programs without necessarily increasing total corporate
giving.
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4)Previous Legislation. This bill is substantially similar to
AB 2107 (Gorell and Olsen) of 2014. AB 2107 was held on the
Suspense File of this committee.
Analysis Prepared by:Joel Tashjian / APPR. / (916)
319-2081