BILL ANALYSIS Ó
AB 1161
Page 1
ASSEMBLY THIRD READING
AB
1161 (Olsen and Atkins)
As Introduced February 27, 2015
Majority vote
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|Committee |Votes |Ayes |Noes |
| | | | |
| | | | |
|----------------+------+---------------------+---------------------|
|Revenue & |8-0 |Ting, Brough, | |
|Taxation | |Dababneh, Gipson, | |
| | |Mullin, Patterson, | |
| | |Quirk, Wagner | |
| | | | |
|----------------+------+---------------------+---------------------|
|Appropriations |17-0 |Gomez, Bigelow, | |
| | |Bonta, Calderon, | |
| | |Chang, Daly, Eggman, | |
| | |Gallagher, | |
| | | | |
| | | | |
| | |Eduardo Garcia, | |
| | |Gordon, Holden, | |
| | |Jones, Quirk, | |
| | |Rendon, Wagner, | |
| | |Weber, Wood | |
| | | | |
| | | | |
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AB 1161
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SUMMARY: Allows an income tax credit equal to 40% of the amount
contributed by a taxpayer to the newly established California
Preschool Investment Fund (Fund) and requires the California
Department of Education (CDE) to select five counties to
participate in the investor-funded preschool pilot program
(Program) for the purposes of subsidizing preschool services for
eligible families. Specifically, this bill:
1)Declares that, by providing an additional source of funding,
California can expand the number of preschool slots and
subsidies needed to reduce the waitlist for parents seeking
prekindergarten childcare assistance.
2)Creates the Program, which is a five-county investor funded
preschool program to be administered by the CDE and allows a
county to apply to the CDE, no later than June 1, 2016, for
consideration of inclusion in the Program. Requires a county's
local child care and development planning council to be
responsible for making the application.
3)Requires a county selected to participate in the Program to
annually report to the CDE's Early Education and Support
Division. The report shall contain the county's assessment of
how the program is performing.
4)Creates the Fund in the State Treasury to receive monetary
contributions.
5)Authorizes the CDE to accept monetary contributions made by a
person to the Fund for purposes of funding the Program.
6)Requires the CDE to do all of the following:
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a) Determine, no later than September 1, 2016, the five
counties to be included in the Program.
b) In making this determination, ensure that urban, suburban,
and rural counties are represented in the Program and give
priority to counties that meet any of the following factors:
i) The length of the county's waitlist of individuals
seeking public child care assistance;
ii) The ability to increase the number of preschool slots
available to children in the county;
iii) Whether the county received federal Race to the Top
funds authorized under the federal American Recovery and
Reinvestment Act of 2009 (Public Law 111-5), with favorable
consideration going to the counties that received the
funds.
c) Establishes a procedure for making monetary contributions
to the Fund and obtaining a receipt from the CDE indicating
the amount of contributions made by the person. A receipt,
at a minimum, must contain the date of the monetary
contribution and the contributor's name.
d) Subject to the prescribed annual cap, allocates tax
credits to taxpayers on a first-come, first-served basis.
e) Notifies the FTB of the credits allocated on at least a
monthly basis.
7)Requires that the money in the Fund be allocated as follows:
a) Be used first to reimburse the General Fund for the
aggregate amount of certified credits allowed;
b) Upon appropriation, to the CDE and Franchise Tax Board
(FTB) to reimburse administrative costs associated with the
Program; and,
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c) Last, upon appropriation, to support state preschools
located in the five participating counties.
8)Provides that the Program shall remain in effect only until
January 1, 2021, and as of that date is repealed unless a later
enacted statute deletes or extends that date.
9)Specifies that any moneys remaining in the Fund as of January 1,
2021, shall be transferred to any other state fund identified by
the CDE that provides funding for increased access to preschool
programs for low-income children.
10)Allows a tax credit for taxable years beginning on or after
January 1, 2016, and before January 1, 2020, under either the
Personal Income Tax (PIT) or the Corporation Tax (CT) Law, in an
amount equal to 40% of the amount contributed by the taxpayer
during the taxable year to the Fund.
11)Allows the credit only if the taxpayer has:
a) Contributed to the Fund and received a receipt from the
CDE indicating that the taxpayer has made the contribution;
and,
b) Claimed the credit on a timely filed original return.
12)Requires the taxpayer to provide the receipt to the FTB, upon
request.
13)Allows a carryover of the credit to reduce the taxpayer's tax
in the following tax year, and the succeeding four years if
necessary, until the credit is exhausted.
14)Reduces the amount of the charitable deduction, otherwise
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allowed to the taxpayer, for contributions made to the Fund by
the amount of the credit allowable for the same contribution.
15)Requires the FTB and CDE to place the information relating to
the tax credit on their respective Web sites, as provided.
16)Authorizes the FTB to prescribe rules, guidelines, or
procedures necessary or appropriate to carry out the purposes of
this section.
17)Exempts the FTB administrative pronouncements regarding the
credit and its implementation from the requirements of the
Administrative Procedures Act (Government Code Chapter 3.5
(commencing with Section 11340).)
18)Limits the aggregate amount of credits that may be allowed
under both the PIT and CT laws to $250 million for each calendar
year.
19)Specifies that, for purposes of California Constitution Article
XVI, Section 8(b), the total annual amount of the credit
claimed shall be included in the definition of "the General
Fund revenues that are the proceeds of taxes," as though they
were proceeds of taxes.
FISCAL EFFECT: According to the Assembly Appropriations
Committee:
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
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for these costs.
2)Estimated decrease to General Fund revenue of $0.7 million, $23
million, and $30 million in Fiscal Year (FY) 2015-16, FY
2016-17, and FY 2017-18, respectively, though this bill seeks to
reimburse the General Fund for those amounts, resulting in a
neutral or possible minor gain in revenue due to timing effects.
COMMENTS:
1)Author's Statement. The author has provided the following
statement in support of this bill:
"The benefits of an early education are not only seen in
classrooms - students, businesses, and the entire communities
profit when children participate in a preschool education.
"Although the state does provide access to early education
programs, our counties are struggling to meet the demands of
current enrollment trends. Due to understandable budget
constraints on preschool programs, there are too many families
vying for too few spots for their children. Something needs to
be done to ensure that families seeking to take advantage of the
benefits of early education for their children are access those
opportunities.
"AB 1161 seeks to provide a creative answer to the need to grow
early education opportunities by harnessing the power of the
private sector. It would create a self-supporting,
public/private funding partnership that would increase access to
early education for low-income families in order to put our
students on the right path in school and in life by preparing
them for academic success, ultimately ensuring they are better
prepared for the workforce."
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2)What Would this Bill Do? For years beginning on January 1,
2016, and before January 1, 2021, this bill would create the
California Preschool Investment Pilot Program, would establish
the Fund, and would authorize the CDE to administer the Program
and to accept monetary contributions made to the Fund. This
bill would also establish a process whereby an individual,
partnership, corporation, limited liability company,
association, or other group, however organized, may donate to
the Fund to subsidize preschool slots in five counties. The
moneys in the Fund would be disbursed by the CDE to provide for
the specific purpose of funding the California state preschool
programs and supporting state preschools locating in one of the
five counties selected by the CDE to participate in the Program.
In addition, this bill would allow taxpayers, upon the issuance
of the receipt by the CDE, to claim a credit for contributions
made to the Fund. This bill would cap the total aggregate
amount of credit that may be claimed by the taxpayers to $250
million for each calendar year. The percentage used to
calculate the credit would be 40% of the amount contributed
during any of the taxable years beginning on or after January 1,
2016, and before January 1, 2020.
3)The Child Care and Development Services Act. The CDE
administers a child care and development system, maintaining
1,401 service contracts with approximately 758 public and
private agencies supporting and providing services to children
from birth through 12 years of age. The California State
Preschool Program (CSPP) offers part-day and full-day preschool
programs through contracts with local educational agencies,
private contractors, and colleges. These programs are required
to comply with not just health and safety standards under Title
22 regulations, but also higher developmental and teacher
qualification standards under Title 5 regulations adopted by the
CDE. Priority for enrollment goes to four- or three-year-old
neglected or abused children who are recipients of Child
Protective Services or recipients who are at risk of being
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neglected or abused, without regard to income. Second priority
goes to four-year-old children who were enrolled in CSPP as a
three-year-old, followed by four-year-old children with the
lowest income ranking. Three-year-old children may be enrolled
after four-year-olds are enrolled. Income eligibility is 70% of
the SMI ($46,896 for a family of four).
4)County Waitlist. This bill requires the CDE to give priority to
counties based on the length of the county's waitlist of
individuals seeking public child care assistance, the ability to
increase the number of preschool slots, and whether the county
received federal Race to the Top funds, with favorable
consideration given to counties that received the funds. With
regard to a waitlist, each contractor maintains a list, but
there is no longer a centralized list in each county. From 2005
to 2011, funds were provided to establish centralized
eligibility lists in each county, but were terminated in 2011.
It is unclear how CDE will determine the waitlist in each
county.
5)Have We Seen this Idea Before? SB 798 (De Leon), Chapter 367,
Statutes of 2014, established an income tax credit for cash
contributions made to a state fund with an aggregate credit cap
of $500 million per calendar year. Specifically, SB 798 created
a California College Access Tax Fund (CCATF), in the State
Treasury, to receive cash contributions from taxpayers and to
allow taxpayers making the contributions to receive a state
income or franchise tax credit in a specified percentage. The
credit is effective for taxable years beginning on or after
January 1, 2014 and until January 1, 2017. The amounts
contributed to the CCATF would be used first to make the General
Fund whole for each taxable year in which the credit was allowed
and then would have been awarded, upon appropriation by the
Legislature, to the California Student Aid Commission for
purposes of awarding Cal Grants to students.
6)How Different is this Bill? While based on the same tax concept
as SB 798, this bill proposes to leverage federal funds for a
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very different purpose - preschool education. The credit
percentage, while still very generous, would be lower - 40%
versus 60%. Furthermore, similarly to SB 798, it would
compensate the General Fund for the lost revenues and reimburse
the CDE and the FTB for their administrative costs. Finally, it
appears that this bill is intended to alleviate a negative
impact on Proposition 98 (1988) funding guarantee by providing
that the annual amount of the credits claimed would be counted
as "proceeds of taxes" for purposes of Proposition 98
calculations.
7)New Money for Preschool Programs? This bill encourages
taxpayers to make charitable donations to the state's preschool
program through a 40% income and franchise tax credits. If
enacted, this credit would be one the most generous tax credits
California allows. Such a credit is sure to entice taxpayers to
contribute to the Fund instead of a regular non-profit
organization. Under existing law, taxpayers may only claim a
charitable deduction for contributions to qualified charitable
organizations. A deduction is generally more valuable to
high-income taxpayers because the "value" of a deduction varies
with the marginal tax rate (or tax bracket) of the taxpayer.
Thus, assuming the same level of charitable contributions,
high-income taxpayers, presumably with a greater ability to pay
taxes, would receive a greater tax benefit from the charitable
deduction than the lower income taxpayer.
The value of a tax credit, on other hand, is the same,
regardless of the tax rate. Thus, it is generally more
appealing to taxpayers. Furthermore, charitable deductions
allowed to corporate taxpayers are limited to 10% of the
taxpayer's net income. As such, this bill would greatly benefit
corporate taxpayers willing to contribute to the Fund. In fact,
the credit proposed by this bill may be so great that it would
redirect contributions from charities that currently receive
them to the preschool program. Instead of making a donation to
a non-profit university or school, for example, a taxpayer may
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choose to use this tax credit instead. Furthermore, in light of
the new program created by SB 798, it is unclear how many
taxpayers will forgo an opportunity to receive a 60% tax credit
in favor of a 40% tax credit offered by this bill.
Analysis Prepared by:
Oksana Jaffe / REV. & TAX. / (916) 319-2098 FN:
0000666