BILL ANALYSIS                                                                                                                                                                                                    Ó

                         Senator Robert M. Hertzberg, Chair
                                2015 - 2016  Regular 

          |Bill No:  |SB 295                           |Hearing    |5/6/15   |
          |          |                                 |Date:      |         |
          |Author:   |De León                          |Tax Levy:  |Yes      |
          |Version:  |2/23/15                          |Fiscal:    |Yes      |
          |Consultant|Bouaziz                                               |
          |:         |                                                      |

                           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,  

           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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           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  

          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;  

               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  

          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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