BILL ANALYSIS Ó SENATE COMMITTEE ON GOVERNANCE AND FINANCE Senator Robert M. Hertzberg, Chair 2015 - 2016 Regular ------------------------------------------------------------------ |Bill No: |AB 2430 |Hearing |6/29/16 | | | |Date: | | |----------+---------------------------------+-----------+---------| |Author: |Beth Gaines |Tax Levy: |No | |----------+---------------------------------+-----------+---------| |Version: |4/27/16 |Fiscal: |Yes | ------------------------------------------------------------------ ----------------------------------------------------------------- |Consultant|Bouaziz | |: | | ----------------------------------------------------------------- Voluntary contributions: Type 1 Diabetes Research Fund Requires the addition of the Type 1 Diabetes Research 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 With a few exceptions, VCFs remain on the return until they are repealed by a sunset date or fail to generate a minimum contribution amount.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, adjusted annually 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 2430 (Beth Gaines) 4/27/16 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 2430 adds the Type 1 Diabetes Research 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 costs incurred in administering the VCF, AB 2430 (Beth Gaines) 4/27/16 Page 3 of ? To the University of California (UC) for distribution of grants to authorized diabetes research organizations. Both the UC and the authorized research organizations may also use up to 5% of the grant moneys for administrative cost. The bill allows the UC and the authorized research organizations to use up to 5% of the grant money for administrative costs. AB 2430 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, "Diabetes has reached epidemic levels in California. As of 2012, about one in seven adult Californians have diabetes and as many as one in three will be diagnosed in the near future. The total cost for treatment of diabetes in California exceeds $24.5 billion dollars. This dollar amount includes hospitalization, outpatient treatment, disability payments, loss of individual productivity, and more. As the number of those affected increases, so too will the cost. A January 2015 audit, requested by our office, of the Department of Public Health indicated that, at a funding level of three cents per capita, California has the lowest per capita funding for diabetes prevention in the nation. As California and its Legislature debates how to address this shortfall in diabetes funding, diabetics are seeing their costs skyrocket on a daily basis. Recently, a lot of attention has been given to the study coming out of UCLA in March of 2016 on prediabetes, which generally could result in a diagnosis of Type 2 diabetes. However, little to no attention is given to Type 1 diabetes, which used to be referred to as 'juvenile diabetes' given its high incidence in children. In California, there is an estimated 190,000 people diagnosed as type 1 diabetic. While it certainly seems to be a small percentage compared to the 8 million+ of the diabetic population, the costs associated with Type AB 2430 (Beth Gaines) 4/27/16 Page 4 of ? 1 diabetes are immensely disproportionate. Because Type 1 diabetes is an autoimmune disease in which a person's pancreas stops producing insulin, Type 1 diabetics have to have to carefully balance insulin doses (either by injections multiple times a day or continuous infusion through a pump) with eating and other activities throughout the day and night on a daily basis. They must also measure their blood-glucose level by pricking their fingers for blood six or more times a day. These tools (the pump, the sharps, the blood glucose meters, the testing strips, etc.) are not cheap and as technology evolves, they get more expensive. AB 2430 seeks to create a voluntary tax contribution designation on a state income tax deduction form so that taxpayers can directly donate to the Juvenile Diabetes Research Foundation (JDRF), who is the leading global organization funding Type 1 diabetes research. JDRF is the only global organization with a strategic plan to bring those living with Type 1 diabetes a continuous flow of life-changing therapies and, ultimately, a cure for the disease." 2. 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. 3. 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. With legislation introduced every year to add new VCFs, there is little reason to expect this number to stop growing. It is AB 2430 (Beth Gaines) 4/27/16 Page 5 of ? estimated that FTB can only handle 8 or 9 more check-offs before FTB has to create a separate tax schedule. 4. 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 Taxation9-0 Assembly Appropriations 20-0 Assembly Floor 76-0 Support and Opposition (6/22/16) Support : Unknown. Opposition : California Department of Finance. -- END --