BILL ANALYSIS Ó AB 1789 Page A Date of Hearing: April 11, 2016 ASSEMBLY COMMITTEE ON REVENUE AND TAXATION Sebastian Ridley-Thomas, Chair AB 1789 (Santiago) - As Amended March 17, 2016 Majority vote. Fiscal committee. SUBJECT: Personal income taxes: voluntary contributions: School Supplies for Homeless Children Fund SUMMARY: Extends the sunset date for the School Supplies for Homeless Children Fund (Fund). Specifically, this bill: 1)Provides that the Fund's statutory provisions shall remain in effect until January 1, 2022, and shall be repealed on December 1 of that year. 2)Allows the Fund to remain on the personal income tax (PIT) return through the 2021 taxable year, provided the Fund continues to meet its annual minimum contribution amount. EXISTING LAW: AB 1789 Page B 1)Allows taxpayers to contribute to one or more of 19 voluntary contribution funds (VCFs) on the 2015 PIT return. 2)Authorizes the Fund as a VCF on the PIT return. 3)Provides that all money transferred to the Fund, upon appropriation by the Legislature, shall be allocated as follows: a) To the Franchise Tax Board (FTB), the California Department of Social Services (CDSS), and the State Controller for reimbursement of all Fund-related administrative costs; and, b) To the CDSS. Funds transferred may be used for state operations or local assistance expenditures and for distribution to a nonprofit organization exempt from federal income tax under Internal Revenue Code Section 501(c)(3) for the sole purpose of assisting California pupils on a statewide basis under the federal McKinney-Vento Homeless Assistance Act by providing school supplies and health-related products to partnering local education agencies for distribution to homeless children, as defined. 4)Requires the nonprofit organization to provide a minimum 100% match for all funds received from the Fund. If the nonprofit organization provides in-kind materials towards the 100% match, then the value of the in-kind materials shall be verified by the donor donating the in-kind materials and cannot exceed the market value of the materials if sold at retail. 5)Requires the CDSS to enter into a subvention services agreement<1> with the nonprofit organization. --------------------------- <1> Committee staff is informed that this is the term used by the CDSS to describe a contract. AB 1789 Page C 6)Provides that the CDSS' first designation of a nonprofit organization shall be valid until January 1, 2017. On that date, and every three calendar years thereafter, the CDSS shall designate the same or a different nonprofit organization. 7)Authorizes the CDSS to revoke the designation should the nonprofit organization fail to comply with its specified responsibilities. If a designation is revoked, the CDSS shall designate a new nonprofit organization within three calendar months or as soon as administratively feasible. 8)Provides that funds shall be distributed by the CDSS only after evidence is presented to the CDSS demonstrating that the local education agencies or domestic violence shelters have received the materials. 9)Requires the CDSS to verify that the designated nonprofit organization procured school supplies and health-related products and provided matching funds or in-kind materials, as specified. 10)Provides that funds distributed to the nonprofit organization shall only be used for costs incurred to procure, assemble, and ship school supplies and health-related products. 11)Provides that funds shall not be used: a) For administrative purposes; b) To reimburse costs associated with administering grants of school supplies and health-related products to local education agencies or domestic violence shelters; or, c) For any purpose relating to the operation of the nonprofit organization. 12)Authorizes the nonprofit organization to provide school supplies and health-related products to children living in AB 1789 Page D domestic violence shelters. 13)Provides that the Fund's statutory authorization shall remain in effect only until January 1 of the fifth taxable year following the Fund's first appearance on the PIT return. FISCAL EFFECT: The FTB estimates that this bill would reduce General Fund revenues by $10,000 in fiscal year (FY) 2017-18 and by $15,000 in FY 2018-19. COMMENTS: 1)The author has provided the following statement in support of this bill: Homelessness is prevalent in urban and rural areas of California. The Los Angeles School District has the highest number of homeless students (14,323) and Sacramento ranks among the top six districts in overall number of homeless students and as a county has more homeless students than any other in Northern California. A significant barrier to success homeless students face is access to basic materials such as school supplies, hygienic and dental products and other basic necessities. Lack of basic material needs accompanied with low self-esteem lead AB 1789 Page E to absenteeism and truancy, which prevents homeless students from obtaining the education that is their best opportunity to escape poverty. 2)This bill is sponsored by K to College, which notes the following: K to College is a nonprofit public benefit corporation that operates the largest charitable school and dental supply program in California. Our mission is to ensure that every child identified as homeless or low-income in public schools, and adults working towards self-sufficiency have the basic materials they need to achieve. From the fall of 2010-2015, we have donated $20,500,000 of materials to more than 350,000 low-income children throughout California. Our organization's success stems from our innovative business model, which mirrors the systems food banks use to centralize resources, leverage the dollar and distribute through partnering organizations. In this instance this includes more than 300 county offices of education, school districts and domestic violence shelters throughout California. This enables us to distribute materials at approximately one-third of their regular cost. 3)This bill is supported by California State PTA, which notes the following: California State PTA has always supported the needs of vulnerable children. Certainly, homeless children are some of our most vulnerable youth. Many of them lack the basic necessities, leading to absence and truancy which impacts their ability to be successful in school. The School Supplies for Homeless Children Fund receives AB 1789 Page F upwards of $400,000 in contributions annually and has allowed for the distribution of $1.49 Million worth of school supplies, dental hygiene kits and backpacks to homeless school children due to the required 100% match of funds and in-kind materials from the designated nonprofit organization. 4)Committee staff comments: a) California's homeless children : According to the author, during the 2013-14 academic year, 297,617 children enrolled in local education agencies in California were identified as homeless under the federal definition. The author's office notes, "Currently, this population is greater in California than in any other state in the nation and averages out to one homeless student in every classroom." In addition to the many other challenges they face, homeless children often lack basic school supplies such as backpacks, binders, and pens and pencils. These children also often lack basic toiletries and supplies essential to good oral health. b) The Fund : The Fund was originally authorized by SB 1571 (DeSaulnier), Chapter 459, Statutes of 2012, to help provide essential school supplies to homeless children. To date, the Fund has established a successful record of generating taxpayer contributions. Specifically, the Fund received $337,949 in valid contributions in 2014, and $398,900 in 2015. c) K to College : K to College notes that it is a nonprofit, public benefit corporation that operates the largest charitable school and dental supply program in AB 1789 Page G California. K to College's mission is to ensure that every child attends school with the basic materials required to succeed. K to College's business model begins with raising funds from government agencies, corporations, foundations, and individuals. By purchasing bulk materials factory direct, K to College is then able to drive down costs. Pursuant to legislation K to College successfully sponsored, inmates within the California prison system are engaged, as part of their rehabilitation, to assemble purchased supplies into kits. Finally, K to College partners directly with school districts to ensure that materials reach students in need. REGISTERED SUPPORT / OPPOSITION: Support K to College (Sponsor) California Catholic Conference California State PTA California Teachers Association Common Sense Kids Action League of California Cities AB 1789 Page H Opposition None on file Analysis Prepared by:M. David Ruff / REV. & TAX. / (916) 319-2098