BILL ANALYSIS Ó SB 17 Page A Date of Hearing: June 22, 2015 ASSEMBLY COMMITTEE ON REVENUE AND TAXATION Philip Ting, Chair SB 17 (Monning) - As Introduced December 1, 2014 Majority vote. Fiscal committee. SENATE VOTE: 35-2 SUBJECT: California Sea Otter Fund SUMMARY: Extends, from January 1, 2016, to January 1, 2021, the sunset date for the statutory provisions authorizing the California Sea Otter Fund (Fund) as a voluntary contribution fund (VCF) on the Personal Income Tax (PIT) return. EXISTING LAW: SB 17 Page B 1)Allows taxpayers to contribute to one or more of 18 VCFs on the 2014 PIT return. 2)Provides a specific sunset date for each VCF, except for the California Seniors Special Fund and the State Parks Protection Fund. 3)Requires each VCF to meet an annual minimum contribution amount to remain in effect, except for the California Firefighters' Memorial Fund, the California Peace Officer Memorial Foundation Fund, and the California Seniors Special Fund. 4)Provides that all money transferred to the Fund, upon appropriation by the Legislature, shall first be allocated to the Franchise Tax Board (FTB) and the State Controller for reimbursement of all costs incurred in administering the Fund. The remaining moneys are divided equally between the: a) Department of Fish and Wildlife to establish a sea otter fund used for sea otter conservation, including for increased investigation, prevention, and enforcement actions related to sea otter mortality, and for public outreach activities that encourage taxpayers to make contributions to the Fund; and, b) State Coastal Conservancy for competitive grants and contracts to public agencies and nonprofit organizations for research, science, protection, projects, or programs related to the Federal Sea Otter Recovery Plan or improving the nearshore ocean ecosystem, including program activities to reduce sea otter mortality, and for public outreach activities that encourage taxpayers to make contributions to the Fund. 5)Allows a deduction for any contribution made to the Fund. FISCAL EFFECT: The FTB estimates that this bill would reduce SB 17 Page C General Fund revenues by $9,000 per year beginning in fiscal year 2016-17.<1> This estimate assumes that the Fund will meet its minimum contribution amount each year. COMMENTS: 1)The author notes the following in support of this bill: Given that the sea otter population remains in trouble, it is important to extend the tax check-off option on the state income tax form in order for Californians to be able to voluntarily assist in helping to protect this keystone species. The reauthorization of the California Sea Otter Fund will ensure that support for research to protect the sea otter will continue uninterrupted. 2)This bill is sponsored by Friends of the Sea Otter, which notes the following: The California Sea Otter Fund has been instrumental in supporting sea otter research, conservation, and education projects that are critical for sea otter recovery. The money raised from the California Sea Otter Fund has supported a long-term study to determine the impacts of toxic chemicals and disease-carrying pollution on sea otters living along the developed areas of the California coast. While some of these answers are known, researchers were looking for a deeper understanding of the relationships between sea otters and their habitat. In addition the money from the Fund has led to a project on ------------------------- <1> Approximately 56% of taxpayers who contribute to the VCF itemize their deductions. The FTB estimates that the average tax rate for these taxpayers is 6%, resulting in an estimated revenue loss of $9,000 annually. SB 17 Page D investigating the use of Elkhorn Slough by sea otters. Sea Otter Awareness Week and educational outreach programs to local schools in the Monterey Bay area have also been funded through the California Sea Otter Fund. 3)This bill is supported by Insurance Commissioner Dave Jones, who notes the following: The California Sea Otter Fund was created in 2006 through Assembly Bill 2485, which was jointly authored by me and Secretary (then Assemblymember) John Laird, in order to study and protect the threatened population of sea otters in California which had significantly declined in the early 1990s [sic] due to hunting and the emergence of diseases, parasites, and toxicants that kill sea otters. Today, California's sea otter population is still one-fifth of its historic population and the fund is the primary source of funding for sea otter research and conservation efforts. The Sea Otter tax fund check-off is the main source for all sea otter funding in California. The fund has raised more than $2.3 million in the past eight years enabling the Department of Fish and Wildlife and the California State Coastal Conservancy to study the threats sea otters face, promote awareness, and work on sea otter restoration. 4)Committee Staff Comments a) California's sea otters : California's southern sea otters (Enhydra lutris nereis) were thought to be extinct during the early 20th century. In 1938, however, a small population was discovered near Big Sur. In 1977, the species was listed as threatened under the federal Endangered Species Act. The animals are also protected by the federal Marine Mammal Protection Act and have California's fully protected species status. California's southern sea otter population gradually grew to roughly 2,000 animals, and has fluctuated between 2,000 SB 17 Page E and 3,000 since 1995. According to the Department of Fish and Wildlife, the population has plateaued and the animals are currently "stuck in recovery" largely due to the high death rate of prime-aged adults. Fund donations have, among other things, supported scientific research that has discovered that a substantial portion of sea otter mortality results from diseases, parasites, and toxins. For example, research has shown that various types of pollution are contributing to the premature deaths of otters that should live longer and produce more pups. b) Legislative history : The Fund first appeared on the 2006 PIT return. The original legislation provided for the Fund provisions' automatic repeal on January 1 of the fifth taxable year following the Fund's first appearance on the tax return. As such, the original Fund provisions were repealed by their own terms on January 1, 2011. AB 971 (Monning), Chapter 209, Statutes of 2011, then reauthorized the addition of the Fund checkoff to the PIT form beginning with the 2011 return. In the last three years alone, the Fund has generated nearly $1 million. Specifically, the Fund received valid contributions of $351,037 in 2012; $307,544 in 2013; and $304,005 in 2014. c) What would this bill do ? As noted by the FTB, this bill would allow the Fund to remain on the PIT returns filed for taxable years 2016 through 2020, provided contributions meet the annual minimum contribution threshold. The Fund's minimum contribution requirement for 2015 is $283,775, and the Fund has received a total of $228,661 in valid contributions through April of this year. The minimum contribution requirement is adjusted annually for inflation, with the annual inflation adjustment based on the percentage change in the California Consumer Price Index. SB 17 Page F d) So many causes, so little space : There are countless worthy causes that would benefit from the inclusion of a VCF on the state's income tax returns. At the same time, space on the returns is limited. Thus, it could be argued that the current system for adding VCFs to the form is subjective and essentially rewards organizations that can convince the Legislature to include their fund on the form. REGISTERED SUPPORT / OPPOSITION: Support Friends of the Sea Otter (Sponsor) Defenders of Wildlife (Co-Sponsor) California Association of Professional Scientists EarthEcho International Humane Society of the United States Insurance Commissioner Dave Jones Monterey Bay Aquarium SB 17 Page G National Wildlife Federation Natural Resources Defense Council Ocean Conservancy Oceana Planning and Conservation League Sierra Club California WILDCOAST Opposition None on file Analysis Prepared by:M. David Ruff / REV. & TAX. / (916) 319-2098 SB 17 Page H