BILL ANALYSIS Ó SENATE COMMITTEE ON GOVERNANCE AND FINANCE Senator Robert M. Hertzberg, Chair 2015 - 2016 Regular ------------------------------------------------------------------ |Bill No: |AB 2371 |Hearing |6/29/16 | | | |Date: | | |----------+---------------------------------+-----------+---------| |Author: |Frazier |Tax Levy: |No | |----------+---------------------------------+-----------+---------| |Version: |5/12/16 |Fiscal: |Yes | ------------------------------------------------------------------ ----------------------------------------------------------------- |Consultant|Bouaziz | |: | | ----------------------------------------------------------------- Voluntary contributions: Special Olympics Fund Requires the addition of the Special Olympics Fund (Fund) check-off to the personal income tax return. Background Existing state law allows taxpayers to contribute money to voluntary contribution funds (VCFs), by checking a box on their state income tax returns. California law requires contributions made through so-called "check-offs" to be made from taxpayers' own resources and not from their tax liability, as is possible on federal tax returns. Check-off amounts may be claimed as charitable contributions on taxpayers' tax returns in the subsequent year. Each VCF is individually added to the tax return by legislation. With a few exceptions, VCFs remain on the return until they are repealed by a sunset date or fail to generate a minimum contribution amount. In general, the minimum contribution amount is $250,000, beginning in the fund's second year, and is adjusted annualy for inflation. The following check-offs do not have a minimum contribution requirement: California Firefighters' Memorial Foundation Fund, California Peace Officer Memorial Foundation Fund, and AB 2371 (Frazier) 5/12/16 Page 2 of ? California Seniors Special Fund. When a taxpayer contributes to VCFs, the Franchise Tax Board (FTB) deposits the total of all contributions, less an administrative fee, into the fund created as part of the VCF's legislative authorization. For some VCFs, such as the Protect Our Coast and Ocean Fund, taxpayers' contributions are allocated to a state agency for use in a state administered grant program. Other VCFs' authorizing statutes direct administrative agencies to allocate donations to a private organization. For example, the Office of Emergency Services passes VCF funds to the American Red Cross. Other funds require the State Controller to send the funds directly to private organizations without passing through an administrative agency, such as the California Fire Foundation. The Controller and administrative agencies may deduct administration fees from the amount of donations each VCF receives. There are currently 19 check-offs listed on the tax return form. The tax check-off program typically collects $4-5 million in annual contributions for all VCFs. Proposed Law Assembly Bill 2371 adds the Special Olympics Fund (Fund) check-off, and allows a taxpayer to make a voluntary contribution to the Fund on the state personal income tax return, beginning once an existing check-off for charitable fund contribution has been removed, or as soon as space is available. The bill requires the Fund to meet a minimum contribution threshold of $250,000 in the second calendar year the Fund appears on the tax form, and the amount is indexed yearly for inflation. Additionally, the bill provides that all money transferred to the Fund, upon appropriation by the Legislature, be allocated as follows: To FTB and the State Controller for reimbursement of all AB 2371 (Frazier) 5/12/16 Page 3 of ? costs incurred in administering the VCF, To the State Department of Developmental Services where the balance shall be disbursed between the Special Olympics Northern California and Special Olympics Southern California based on the amount of donations provided by taxpayers in each organization's jurisdiction based on the county of the taxpayer contributing, for the purpose of supporting children and adults with intellectual disabilities. The bill prohibits funds to be used for administrative costs by the Special Olympics Northern California and the Special Olympics Southern California, and limits the State Department of Developmental Services to 3% of the moneys allocated to it for administrative costs. AB 2371 provides that the bill automatically sunsets on January 1 of the fifth taxable year following the Fund's first appearance on the personal income tax form. State Revenue Impact FTB estimates annual revenue losses of roughly $8,000 for every $250,000 contributed to the Fund by taxpayers who itemize. Comments 1. Purpose of the bill. According to the author, "The Special Olympics Northern California (SONC) and Southern California (SOSC) provide athletic opportunities to children and adults with intellectual disabilities, instilling the confidence they need to succeed in life. Through the power of sports, people with intellectual disabilities discover new strengths and abilities, skills and success. SONC and SOSC athletes find joy, confidence and fulfillment - on the playing field and in life. They also inspire people in their communities and elsewhere to open their hearts to a wider world of human talents and potential. The California Special Olympics divided into two chapters in 1995, SONC and SOSC. What started originally as a small grassroots organization has since become a powerful voice for athletes with intellectual disabilities. SONC and SOSC has provided athletic opportunities to over 40,000 athletes AB 2371 (Frazier) 5/12/16 Page 4 of ? throughout the state. AB 2371 will allow individuals to make a voluntary contribution in excess of their tax liability, if any, to the Special Olympics Fund. Contributions to the Special Olympics Fund shall be used to conduct activities of Special Olympics Northern California and Special Olympics Southern California." 2. Special Olympics Fund. The Special Olympics Northern California (SONC) and Southern California (SOSC) are chapters of Special Olympics, an organization founded by Eunice Kennedy Shriver in 1968 that provides year-round sports training and athletic competition for children and adults with intellectual disabilities. The Special Olympics' global reach is approximately 4.4 million athletes. According to the proponents of this bill, SONC and SOSC serve 59,000 athlete families, receive assistance from over 45,000 volunteers and 18,000 law enforcement volunteers, and benefit from 36,000 current donors. This wide base of support, coupled with a big social media push during tax season if the voluntary contribution designation is enacted, would help the Fund meet its minimum contribution requirement. 3. Is there a better way? The current tax check-off program generates a relatively small share of statewide contributions to charitable causes. In 2008, Californians donated more than $17 billion to charities. However, less than 1% of Californians use the tax check-off program to make donations to charitable organizations. FTB reports that in 2012, 89,335 out of 15 million taxpayers contributed a total of $4.8 million. In 2014, SB 1207 (Wolk) attempted to address this issue and help grow charitable giving by establishing the California Voluntary Contribution Program to promote charitable giving and collect donations. This would have allowed many more charities to participate in the program, would have screened potential participants before adding them onto the form, and eliminated the need for each organization to go through the legislative process. Under SB 1207, charities would instead apply to the office of California Volunteers for placement on the income tax form. However, SB 1207 (Wolk) was held on suspense in Assembly Appropriations. 4. Bills, bills, bills. Currently, tax check-offs must be added by the Legislature. In 2008, 11 VCFs appeared on the personal income tax return. Today, the return contains 19. AB 2371 (Frazier) 5/12/16 Page 5 of ? With legislation introduced every year to add new VCFs, there is little reason to expect this number to stop growing. It is estimated that FTB can only handle 8 or 9 more check-offs before FTB has to create a separate tax schedule. 5. Similar Legislation. SB 1476 (Committee on Governance and Finance) establishes general provisions for voluntary contribution funds. Specifically, the bill establishes a seven year sunset, requires a minimum contribution amount of $250,000 beginning in the fund's second year, and each year thereafter, requires funds to be continuously appropriated, and requires administering agencies to post information online about the use of the funds. SB 1476 is currently on the Assembly Floor. Assembly Actions Assembly Revenue and Taxation 9-0 Assembly Appropriations 20-0 Assembly Floor 75-0 AB 2371 (Frazier) 5/12/16 Page 6 of ? Support and Opposition (6/22/16) Support : Association of Regional Center Agencies; Special Olympics Northern California; Special Olympics Southern California; The Arc and United Cerebral Palsy California Collaboration. Opposition : California Department of Finance. - END -