BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |SB 295 |Hearing |5/6/15 |
| | |Date: | |
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|Author: |De León |Tax Levy: |Yes |
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|Version: |2/23/15 |Fiscal: |Yes |
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|Consultant|Bouaziz |
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COLLEGE ACCESS TAX CREDIT FUND
Extends the College Access Tax Credit Fund sunset date to
January 1, 2018 and increases the credit percentage.
Background and Existing Law
State law allows taxpayers to receive an income or franchise tax
credit for a specified percentage of cash contributions made to
the College Access Tax Credit Fund (Fund). The yearly maximum
allocation amount is $500 million plus any carryover of unused
funds from the prior year.
The specified percentage used to calculate the credit is:
60 percent of the amount contributed during the 2014
taxable year,
55 percent of the amount contributed during the 2015
taxable year,
50 percent of the amount contributed during the 2016
taxable year.
The California Educational Facilities Authority is required to
allocate and certify the income tax credit to personal and
corporate taxpayers and provide the Franchise Tax Board (FTB) a
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copy of each credit certificate immediately following the year
of issue. The cash contributions are used to find the Cal Grant
B program.
State law precludes any deductions for amounts taken into
account in the calculation of the credit. Applications for the
tax credit are processed on a first come, first served basis.
There is no maximum contribution limit.
The credit would be repealed by its own terms as of December 1,
2017.
Proposed Law
Senate Bill 295 extends the College Access Tax Credit Fund
repeal date to December 1, 2018. SB 295 also increases the
credit percentage amounts as follows:
60 percent of the amount contributed during the 2015
taxable year,
55 percent of the amount contributed during the 2016
taxable year,
50 percent of the amount contributed during the 2017
taxable year.
State Revenue Impact
FTB estimates that the credit will result in a revenue loss of
$50 million in fiscal year 2015-16; $85 million in 2016-17 and
$65 million in 2017-18.
FTB notes that the estimate shows the impact on income and
corporation tax collections. SB 295 requires funds to be
transferred from the College Access Tax Credit Fund to the
General Fund, to fully offset the tax credit's impact on the
General Fund.
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Comments
1. Purpose of the bill. According to the author, "This bill
seeks to continue to increase Cal Grant B Access Award amounts
for California's lowest income students, to improve academic
achievement and graduation rates through $500 Million in
available tax credits in the College Access Tax Credit Fund by
leveraging federal tax deductions for charitable contributions.
This tax credit has been fully vetted by a University of
California Los Angeles report which concludes that the members
of legislature are custodians of California's welfare,
particularly in an era of state budgetary distress and should
take advantage of Internal Revenue Service (IRS) rules and
regulations to benefit the state. This tax credit differs from
most others in that the state does not lose money to incentivize
a behavior. Rather, the taxpayer makes a donation to the state
and then a credit is given. For every dollar donated to the
Fund in the first year, the individual taxpayer or the corporate
donor would receive 60 cents back from the state and the Fund
would receive 40 cents plus interest. The Franchise Tax Board
(FTB) predicts that the College Access Tax Credit Fund would be
fully subscribed due to the high incentive to taxpayers because
according to IRS rules the taxpayer would also be able to take a
donation deduction on their Federal Taxes. The taxpayer would
get back on every dollar donated a total of 80 cents to over 95
cents depending on how they file.
California is a so-called donor state, only receiving around
78-cents for every dollar state taxpayers send to Washington.
It's time to leverage Federal dollars to help offset
skyrocketing college tuition. For each of the three years of
the program, the California Student Aid Commission (CSAC) would
have on average an extra $300 Million, after the tax credits are
paid to taxpayers, and after all administrative costs are paid
for, to increase the underfunded Cal Grant B Access Awards for
over 170,000 California students at our for profit and
not-for-profit private institutions, and all three sectors of
our public institutions. College graduates are a critical part
of the engine that drives California's economy. They are the
future innovators; educators, engineers, lawyers, scientists,
doctors, architects, executives, and so on that help make
California the 9th largest economy in the world.
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The taxpayers of California make a tremendous investment in its
college graduates. There is not a single public college or
university student, whether they are on direct financial aid or
not, who doesn't have their education at least partially
underwritten by the taxpayers of California. We must make sure
that we are getting maximum benefit from that investment.
When the Cal Grant B Access Award was first established in 1969,
the amount granted per student for the year was $960 to pay for
books, housing and transportation. 43 years later that amount
has grown to only $1,473 for the year - not even close to
keeping up with inflation-that figure should be $5,900. What
results is that many students must work one or even two jobs to
help pay the bills, which delays graduation and impacts the
students' ability to maximize their learning experience. This
not only shortchanges the students but it shortchanges the
California taxpayers, who are investing in their education for
much longer than the four years it should take students to
complete their degree and start contributing to the economy as
graduates."
2. Program to date. In 2014, the College Access Tax Credit Fund
received a total of $6,199,289 in donations. The California
Educational Facilities Authority allocated $3,719,573 in tax
credits. While receiving over $6 million in donations will help
many students fund the ever rising cost of college, the Fund's
yearly maximum allocation amount is $500 million. The program
may need more time to maximize incoming donations as the program
becomes more established.
3. No double dipping. The credit does not allow any deductions
for amounts taken into account in the calculation of the credit,
but a deduction may be made on a taxpayer's federal return. For
example, Jane Doe contributes $10,000 to the Fund, thus she is
entitled to a $6,000 credit (60% ? $10,000). Jane may claim a
$6,000 credit on her California tax return. She can also claim a
$10,000 charitable contribution on her federal return. However,
she will not be able to claim a charitable contribution on her
California return.
4. The research is in . Phillip Blackman (associate director of
development at the Penn State Dickinson School of Law) and Kirk
Stark (Professor and Vice Dean at the UCLA School of Law) wrote
a report "Capturing Federal Dollars with State Charitable Tax
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Credits" where they outline the extensive benefits of this type
of credit, with very little cost to the state. They use their
research to show a significant benefit to an AMT taxpayer;
specifically,
An AMT taxpayer making a $100,000 donation to the CATCF
special fund has a net out-of-pocket cost of only
$12,000-that is, $100,000 minus $28,000 (in federal tax
savings) minus $60,000 (in state tax savings). Clearly,
the tax savings for that type of donation are far more than
the tax savings normally arising from charitable gifts.
AMT payers willing to make a gross gift of $1 to Cal Grants
will be reimbursed a total of $0.88, consisting of $0.60
from the state of California and $0.28 from the federal
governments. As structured, S.B. 798 is a powerful
''matching grant'' program that if enacted is likely to
generate significant new funds for the Cal Grants program.
Indeed, the matching rates are so generous that it is also
likely to draw charitable dollars away from other worthy
causes. Even so, it is worth noting that the program could
be made even more attractive to potential donors. The most
obvious way to do that would be to increase the credit
percentage. Any credit percentage greater than 72 percent
would ensure that donors experience no out-of-pocket costs
for their donations. In states with charitable tax credit
programs already in place, tax planners are beginning to
catch on. One website describing Arizona's tax credit for
school tuition organizations notes that if you are subject
to the AMT, the tax benefits received exceed the
out-of-pocket cost.
The report considers that this "may be too good to be true," but
for the recent IRS ruling, and considers this tax credit a way
to increase federal funds that does not rely on Congressional
actions.
Mr. Blackman and Professor Stark go even farther, suggesting
that the credit would be more lucrative if it were transferable
or allowed against sales taxes.
5. Redirection or new money ? This bill encourages giving to the
state's Cal Grant program through a 60%, 55%, and 50% credit
against contributions, the most generous tax credit the state
has ever allowed. Such a credit is sure to entice taxpayers to
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contribute but the credit may be so great that it redirects
contributions from charities that currently receive them to this
program. Instead of making a donation to UCLA, for example, a
taxpayer may choose to use this tax credit instead therefore
creating a greater need for a public university which is at
partially funded by the general fund. Will this result in new
revenue or simply redirect charitable funds from some charities
to Cal Grants? The study's authors (comment 3) believe that
donations to schools are largely from alumni and that these
dollars will remain intact.
Support and
Opposition (4/30/15)
Support : Unknown.
Opposition : Unknown.
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