BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
AB 1161 (Olsen) - Preschool: privately funded pilot program: tax
credits.
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|Version: July 2, 2015 |Policy Vote: GOV. & F. 6 - 0 |
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|Urgency: No |Mandate: No |
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|Hearing Date: August 17, 2015 |Consultant: Robert Ingenito |
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This bill meets the criteria for referral to the Suspense File.
Bill
Summary: AB 1161 would (1) establish an income tax credit equal
to 40 percent of the amount contributed by a taxpayer to the
newly established California Preschool Investment Fund, and (2)
require the California Department of Education (CDE) to select
five counties to participate in the funded preschool pilot
program.
Fiscal
Impact:
CDE would likely incur significant General Fund costs,
potentially in the hundreds of thousands of dollars
annually, to administer the Fund and provide contribution
AB 1161 (Olsen) Page 1 of
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receipts.
FTB also would potentially experience significant
General Fund costs administer the tax credit.
FTB estimates that the bill would result in General Fund
revenue losses of $0.7 million in 2015-16, $23 million in
2016-17, and $30 million 2017-18.
Contributions to the Fund would be used to hold the
General Fund harmless for all noted costs.
Background: State law allows taxpayers to claim tax credits designed as
incentives for taxpayers to incur certain expenses, such as
child adoption, or to influence behavior, including business
practices and decisions, such as research and development
credits and Geographically Targeted Economic Development Area
(GTEDA) credits. The Legislature typically enacts such tax
incentives to encourage taxpayers to do something that, absent
the credit, they would not do on the natural.
State law authorizes an individual taxpayer to deduct certain
expenses as itemized deductions, such as medical expenses,
charitable contributions, interest, and taxes. Also, a
corporate taxpayer may deduct charitable contributions but state
law limits the amount of those deductions to 10 percent of the
taxpayer's net income. Contributions in excess of this amount
can be carried forward to the following five succeeding taxable
years.
Federal law treats contributions to a state government fund,
such as an educational special fund, as charitable
contributions. These contributions may be deducted as itemized
deductions.
This bill would establish a similar tax credit program to the
College Access Tax Credit (CATC) established by SB 798 (De Leon,
2014). The CATC allows a specified percentage of cash
contributions made to the College Access Credit Fund. The
specified percentage is 60 percent for taxable year 2014, and
declines by 5 percentage points during each of the remaining two
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years the credit is available. The maximum aggregate amount of
credit that may be allocated and certified for each calendar
year is $500 million plus any previously unallocated and
uncertified amounts. In 2014, the College Access Tax Credit
Fund received a total of $6.2 million in donations.
Proposed Law:
This bill would, among other things, do the following:
Require CDE to select, no later than September 1, 2016, the
five counties to be included in the Program, as specified.
Require CDE to establish a procedure for making contributions
to the Fund and issuing receipts to donors containing
specified information.
Allow the taxpayer to claim the credit only if the taxpayer
provides the receipt from CDE to FTB and claims the credit on
a timely filed original return. The bill would allow the
taxpayer to carry forward any unused credit for up to four
years.
Require 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 CDE
and FTB to reimburse administrative costs; and finally, upon
appropriation, to support state preschools located in the five
participating counties.
Limit the aggregate amount of credits that may be allowed to
$250 million per calendar year, and specify that credits would
be allocated to contributors on a first come, first served
basis.
Require CDE to notify FTB of the credits allocated on a
monthly basis, and require both entities to post that
information quarterly on their respective websites, together
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with the amount of remaining credits and an indication of
whether the cap on credits may be reached, as specified.
Specify 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.
Related
Legislation: This bill is substantially similar to AB 2107
(Gorell and Olsen) of 2014. AB 2107 was held on the Suspense
File of the Assembly Appropriations Committee.
Staff
Comments: 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.
For example, for every $1 that a taxpayer donates to the Fund,
60 cents (less administrative costs), would be used for State
Preschool, and 40 cents will be used to backfill the General
Fund. The leveraging of federal dollars is achieved since a
charitable contribution to a state agency can be deductible for
federal tax purposes. Consequently, the actual cost to donate
for a taxpayer is considerably less than typical donations where
a taxpayer only receives a federal and state deduction.
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Based on California public school donation data from the Public
Policy Institute, FTB estimated that there would be $194 million
in preschool donations in 2016. This amount was then (1) split
between personal income and corporate donations based on ratios
of 2012 return contribution data (90 percent and 10 percent,
respectively), and (2) grown through 2019.
This bill would amend the same statute (Education Code Section
41202) as AB 104 (the Education Omnibus Trailer Bill for the
2015 Budget Act). AB 104 defines fullday State Preschool funding
as a qualifying Proposition 98 General Fund appropriation.
Chaptering this bill would repeal AB 104 amendments and result
in the State having to backfill approximately $177 million in
Proposition 98 General Fund with a like amount of
non-Proposition 98 General Fund.
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