Amended in Senate June 30, 2016

Amended in Senate June 23, 2016

Amended in Senate June 6, 2016

Amended in Senate September 4, 2015

Amended in Senate June 18, 2015

California Legislature—2015–16 Regular Session

Assembly BillNo. 1463


Introduced by Assembly Member Gatto

February 27, 2015


An act to add Article 20.2 (commencing with Section 69996) to Chapter 2 of Part 42 of Division 5 of Title 3 of the Education Code, and to add Section 17131.12 to the Revenue and Taxation Code, relating to student financialbegin delete aid.end deletebegin insert aid, and declaring the urgency thereof, to take effect immediately.end insert

LEGISLATIVE COUNSEL’S DIGEST

AB 1463, as amended, Gatto. Student financial aid: California Covenants Program: tuition certificates: gross income exclusion.

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(1) Existing law establishes the California State University, under the administration of the Trustees of the California State University, and the University of California, under the administration of the Regents of the University of California, as 2 of the segments of public postsecondary education in this state.

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(1) Under existing law, the segments of postsecondary education in this state include the University of California, the California State University, the California Community Colleges, independent institutions of higher education, and private postsecondary educational institutions.

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This bill would establish the California Covenants Program, under the administration of the Treasurer. The program would be a prepaid college tuition program, under which an individual could purchase a fixed percentage of the tuition and mandatory systemwide fees for an academic year of full-time enrollment as an undergraduate at a campus of the California State University, the University of California, or an independent institution of higher education, as specified, for a beneficiary who meets specified criteria.

The bill would establish the California Covenants Program Fund. The bill would require that the moneys received by the Treasurer from the individuals who purchase tuition certificates under the program, as well as the proceeds from the sale of certain bonds authorized by the bill, be deposited in the fund. The bill would authorize the Treasurer, upon appropriation in the annual Budget Act, to allocate moneys deposited in the fund to the California State University, the University of California, or an independent institution of higher education to pay the tuition and mandatory systemwide fees of beneficiaries of the program during that fiscal year. The bill would require the Director of Finance to determine, at the commencement of each fiscal year, whether there are sufficient funds to implement the program in that fiscal year, and to communicate this determination to the Treasurer in a timely manner each fiscal year. The bill would specify that the California State University is required, and the University of California and independent institutions of higher education arebegin delete requested to,end deletebegin insert requested, toend insert comply with the bill’s provisions.

These provisions would become operative on January 1, 2018.

(2) The Personal Income Tax Law provides for various exclusions from gross income, including moneys received pursuant to specified grant programs.

This bill would, for taxable years beginning on or after January 1, 2018, also exclude from gross income amounts invested in, and disbursed from, the California Covenants Program, as provided.

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(3) This bill would declare that it is to take effect immediately as an urgency statute.

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Vote: begin deletemajority end deletebegin insert23end insert. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

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SECTION 1.  

Article 20.2 (commencing with Section 69996)
2is added to Chapter 2 of Part 42 of Division 5 of Title 3 of the 3Education Code, to read:

4 

5Article 20.2.  The California Covenants Program
6

 

7

69996.  

(a) The California Covenants Program is hereby
8established under the administration of the Treasurer. The
9California Covenants Program shall be a prepaid college tuition
10program established to help families plan, save, and pay for the
11undergraduate college education of family members at campuses
12of the California State University, the University of California,
13and independent institutions of higher education, as defined in
14Section 66010.

15(b) Under the program, the Treasurer shall issue tuition
16certificates in accordance with all of the following requirements:

17(1) (A) The tuition certificate shall be issued by the Treasurer
18for the prepaid purchase of a fixed percentage of the tuition and
19mandatory systemwide fees for an academic year of full-time
20enrollment as an undergraduate at a campus of the California State
21University, the University of California, or an independent
22institution of higher education, as defined in Section 66010. The
23tuition certificate shall specify the percentage of tuition and
24mandatory fees that have been purchased thereby. The certificate
25covers annual tuition and fee increases of 7.5 percent or less.

26(B) The Treasurer is authorized to determine the cost of the
27fixed percentage of tuition and mandatory systemwide fees for the
28participating institutions at the commencement of this program in
292018. The Treasurer shall have the discretion to periodically adjust
30the cost of the tuition certificates in light of changes in the cost of
31living, the economy of the state, and the levels of tuition and
32mandatory systemwide fees charged by the participating segments.

33(2) The purchaser of a tuition certificate shall specify its intended
34beneficiary. The intended beneficiary may be any person who has
35not yet commenced grade 11 or its equivalent. A tuition certificate
36shall be valid for up to 30 years from the date that it is purchased.

P4    1(3) At the time the tuition certificate is used, the beneficiary
2shall either be a California resident or a student who is exempt
3from nonresident tuition pursuant to Section 68130.5.

4(4) An individual may purchase an initial tuition certificate, or
5additional tuition certificates, for a beneficiary only between May
61 and June 30 of calendar years commencing in 2018. The
7minimum amount of tuition certificates that an individual may
8purchase in a calendar year shall be three hundred dollars ($300).

9(5) A tuition certificate shall be used only to cover the cost of
10undergraduate tuition and mandatory systemwide fees at the
11California State University, the University of California, or
12independent institutions of higher education, as defined in Section
1366010. A tuition certificate shall not be used to cover the cost of
14textbooks, supplies, or living expenses, including, but not
15necessarily limited to, food, housing, and transportation.

16(6) If the intended beneficiary of a tuition certificate is unable
17to, or chooses not to, attend the institution issuing the certificate,
18the initial investment shall be returned to the individual who
19purchased the certificate, with interest equal to that earned by the
20Pooled Money Investment Fund, and shall not be subject to a tax
21penalty pursuant to Section 17131.12 of the Revenue and Taxation
22Code.

23(c) The Treasurer, in collaboration with the Trustees of the
24California State University and the Regents of the University of
25California, may establish administrative guidelines and other
26requirements for purposes of implementing this article.

27

69996.3.  

(a) The California Covenants Program Fund is hereby
28established. The moneys received by the Treasurer from the
29individuals who purchase tuition certificates under the program,
30and from the sale of bonds as authorized under subdivision (b),
31shall be deposited in the fund. Upon appropriation by the
32Legislature in the annual Budget Act, the moneys in the fund may
33be allocated by the Treasurer to the California State University,
34the University of California, and participating independent
35institutions of higher education, as defined in Section 66010, to
36pay the tuition and mandatory systemwide fees of beneficiaries of
37the program during that fiscal year.

38(b) The Treasurer is authorized to issue bonds backed by the
39tuition certificate revenues. The proceeds of any bonds sold
P5    1pursuant to this subdivision shall be deposited in the California
2Covenants Program Fund established by subdivision (a).

3(c) The Director of Finance shall determine, at the
4commencement of each fiscal year, whether there are sufficient
5funds to implement the program in that fiscal year. The Director
6of Finance shall communicate this determination to the Treasurer
7in a timely manner each fiscal year.

8(d) The California State University shall, and the University of
9California and independent institutions of higher education, as
10defined in Section 66010, are requested to, comply with the
11requirements of this article.

12

69996.5.  

This article shall become operative on January 1,
132018.

14

SEC. 2.  

Section 17131.12 is added to the Revenue and Taxation
15Code
, to read:

16

17131.12.  

For taxable years beginning on or after January 1,
172018, gross income does not include:

18(a) Moneys invested by the taxpayer, including interest accrued
19by that investment, in the California Covenants Program
20established pursuant to Article 20.2 (commencing with Section
2169996) of Chapter 2 of Part 42 of Division 5 of Title 3 of the
22Education Code.

23(b) (1) Disbursements to the taxpayer from the California
24Covenants Program for use by a beneficiary at an educational
25institution that participates in the program.

26(2) Tax, additions to tax, and penalties shall not apply to an
27amount disbursed to a taxpayer where the beneficiary does not
28attend an educational institution that participates in the California
29Covenants Program if the full amount, including interest, is
30returned to the taxpayer.

31begin insert

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This act is an urgency statute necessary for the
32immediate preservation of the public peace, health, or safety within
33the meaning of Article IV of the Constitution and shall go into
34immediate effect. The facts constituting the necessity are:

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35
In order to immediately address heightened concerns about the
36rising costs of obtaining a postsecondary degree in this state, it is
37necessary for this bill to take effect immediately.

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