BILL ANALYSIS Ó
AB 1553
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CONCURRENCE IN SENATE AMENDMENTS
AB
1553 (Irwin)
As Amended August 10, 2016
2/3 vote. Urgency
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|ASSEMBLY: |79-0 |(May 5, 2016) |SENATE: |38-0 |(August 16, |
| | | | | |2016) |
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Original Committee Reference: REV. & TAX.
SUMMARY: Provides that a provision of the State Contract Act,
prohibiting the recipient of a consulting services contract from
bidding on a subsequent contract the recipient requires or
suggests, does not apply to a contract between the California
Achieving a Better Life Experience Act Board (ABLE Board) and a
program consultant for the ABLE program.
The Senate amendments:
1)Clarify that an "eligible individual" under the ABLE program
means an individual whose blindness or disability had onset
before age 26.
2)Recast provisions of this bill that exempt the ABLE Board from
a provision of the State Contract Act, as specified.
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3)Require any contract with a program consultant that would have
been otherwise prohibited under the State Contract Act to be
publicly disclosed, prior to entering the contract, in a
manner specified by the ABLE Board.
4)Provide that this bill goes into immediate effect as an
urgency statute.
EXISTING FEDERAL LAW:
1)Enacts the Stephen Beck, Jr., Achieving a Better Life
Experience Act of 2014 (ABLE Act), that assists individuals
and families to save private funds for the purpose of
supporting persons with disabilities to maintain their health,
independence, and quality of life by excluding from gross
income distributions used for qualified disability expenses by
a beneficiary of a qualified ABLE program established and
maintained by a state.
2)Provides that contributions to an ABLE account are not
deductible for federal income tax purposes, and aggregate
contributions during a taxable year may not exceed the annual
gift tax exclusion amount. For 2016, the annual gift tax
exclusion amount is $14,000.
3)Provides that distributions from an ABLE account are
excludable from income to the extent the total distribution
does not exceed the qualified disability expenses of the
beneficiary during the taxable year.
4)Defines "qualified disability expenses" as any expenses
related to an individual's blindness or disability, including
education, housing, transportation, employment training and
support, assistive technology and personal support services,
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health, prevention and wellness, financial management and
administrative services, legal fees, expenses for oversight
and monitoring, funeral and burial expenses, and other
approved expenses.
5)Specifies that the qualified ABLE program must limit a
designated beneficiary to one ABLE account.
6)Defines an "eligible individual" as an individual who meets
the requirements relating to blindness or disability under the
Supplemental Security Income (SSI) program. Generally, an
individual must be blind or disabled prior to age 26.
EXISTING STATE LAW
1)Conforms to federal income tax law provisions relating to the
ABLE Act under the Personal Income Tax (PIT) Law and the
Corporation Tax (CT) Law, allowing the creation of ABLE
accounts for beneficiaries in California and ensuring that
ABLE account earnings and distributions for qualified
disability expenses are not included in the eligible
individual's income for state tax purposes.
2)Establishes the California ABLE Program Trust (Trust) to
implement the federal ABLE Act.
3)Establishes the ABLE Board, chaired by the Treasurer and
consisting of the Director of Finance, the Controller, the
Director of Developmental Services, the Chairperson of the
State Council on Developmental Disabilities, the Director of
Rehabilitation, and the Chair of the State Independent Living
Council.
4)Authorizes the ABLE Board, in exercising the purposes, powers,
and duties of the Trust, amongst other duties, to do the
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following:
a) Make and enter into contracts necessary for the
administration of the Trust;
b) Enter into agreements with designated beneficiaries or
eligible individuals to establish and maintain an ABLE
account;
c) Set minimum and maximum investment levels; and,
d) Administer the funds of the Trust.
5)Requires the Treasurer to appoint an executive director who
may be authorized by the ABLE Board to enter into contracts on
behalf of the ABLE Board or conduct any business necessary for
the efficient operation of the ABLE Board.
6)Requires the ABLE Board to segregate moneys received by the
Trust into two funds, a program fund and an administrative
fund.
7)Authorizes moneys in the program fund to be invested or
reinvested by the Treasurer or under contract with an
investment manager determined by the ABLE Board.
8)Requires the ABLE Board annually to prepare and adopt a
written statement of investment policy in a public hearing,
and the investment manager to report publicly detailed
investment performance information no later than 30 days after
the close of each month.
9)Specifies that administrative costs will be available to the
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ABLE Board upon appropriation and are capped at 3% of incoming
funds each fiscal year for the first five fiscal years, and at
1% of incoming funds each fiscal year thereafter.
10) Specifies that funding for startup and administrative costs
for the ABLE Board will be loaned from the General Fund for
the first two years, and will be repaid when revenues from the
program are sufficient to cover the ABLE Board's ongoing
costs.
AS PASSED BY THE ASSEMBLY, this bill:
1)Authorized the ABLE Board to enter into a long-term multistate
contract with an account servicer.
2)Allowed the account servicer to recoup costs from
administering ABLE accounts in the first years of
administration.
3)Specified that a provision of the Public Contract Code (PCC),
prohibiting the recipient of a consulting services contract
from bidding on a subsequent contract the recipient requires
or suggests, does not apply.
FISCAL EFFECT: According to the Senate Appropriations
Committee, pursuant to Senate Rule 28.8, negligible state costs.
COMMENTS:
1)ABLE Accounts Model Scholarshare Accounts: The California
ABLE Act allows Californians with disabilities to access
federally recognized ABLE tax-free savings accounts to save
for future disability-related expenses. ABLE accounts
generally follow the same rules as 529 Qualified Tuition
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Programs, administered in California as the Golden State
Scholarshare College Savings Trust (Scholarshare) -
individuals can make nondeductible cash contributions to an
ABLE account in the name of a specified beneficiary, and
earnings can grow tax-free. ABLE account distributions are
also not included in the beneficiary's income, so long as they
are used for qualified services for the beneficiary and
distributions do not exceed the cost of those services.
Both programs are also administered by boards chaired by the
State Treasurer with similar authorizing powers. The ABLE
Board and Scholarshare Investment Board (SIB) have authority
to enter into contracts necessary for administration of their
respective trusts. Any investment manager contracted with the
ABLE Board or SIB must follow investment level guidelines set
by the boards and publicly report detailed investment
performance information each month.
2)Implementation of the ABLE Act: The ABLE Board has not yet
met in a formal capacity and has not entered into any
contracts for administration of the program or beneficiary
accounts.
Aside from California, 41 other states have successfully
passed ABLE Act legislation. The United States (U.S.)
Department of Treasury issued proposed regulations for the
federal ABLE Act in June 2015, with states awaiting final
guidance for program implementation. As a result, all states
are still in the process of developing their ABLE programs,
with most states aiming to offer ABLE accounts by 2017.
3)Exemption from the State Contract Act: Scholarshare is
currently managed by Teachers Insurance and Annuity
Association of America - College Retirement Equities Fund
(TIAA-CREF) Tuition Financing, Inc., which operates 10 other
distinct state-sponsored 529 college savings plans in addition
to California's. Although ABLE accounts provide similar
preferential tax treatment as Scholarshare accounts, they may
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not realize the same level of investment growth because
distributions are intended to support immediate and ongoing
expenses for an individual with disabilities, such as housing,
health, transportation, and personal support services,
compared to Scholarshare accounts intended to remain untapped
until the beneficiary is ready to enter college. It is also
likely that there is a larger beneficiary pool for
Scholarshare accounts than for ABLE accounts, allowing better
estimation of demand for Scholarshare accounts than ABLE
accounts. Accordingly, the State Treasurer believes that
entering into a multistate consortium for administration of
ABLE accounts may help minimize implementation costs. Other
states that have passed ABLE Act legislation are also
considering multistate consortiums to administer their trusts.
Existing law authorizes the ABLE Board to enter into contracts
necessary for the efficient operation of the Trust. While
this bill does not exempt the ABLE Board from existing
competitive bid requirements, this bill would exempt any ABLE
Board contract with a program consultant for the ABLE program
from a provision of the State Contract Act prohibiting
"follow-on" contracts in which a recipient of a consulting
services contract bids on a subsequent contract it requires or
suggests. The intent of this exemption language is to avoid
discouraging a potential vendor from bidding on a potential
contract to design Trust regulations as he or she would then
otherwise be prohibited from subsequently bidding to
administer the Trust. Although any contract with a program
consultant that would have been otherwise prohibited without
the exemption must be publicly disclosed by the ABLE Board
prior to entering the contract, this exemption may be
premature since the market for program managers is still
undetermined.
Analysis Prepared by:
Irene Ho / REV. & TAX. / (916) 319-2098 FN:
0004085
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