BILL ANALYSIS Ó SENATE COMMITTEE ON APPROPRIATIONS Senator Ricardo Lara, Chair 2015 - 2016 Regular Session SB 295 (De León) - College Access Tax Credit Fund ----------------------------------------------------------------- | | | | | | ----------------------------------------------------------------- |--------------------------------+--------------------------------| | | | |Version: February 23, 2015 |Policy Vote: GOV. & F. 7 - 0 | | | | |--------------------------------+--------------------------------| | | | |Urgency: No |Mandate: No | | | | |--------------------------------+--------------------------------| | | | |Hearing Date: May 18, 2015 |Consultant: Robert Ingenito | | | | ----------------------------------------------------------------- This bill does not meet the criteria for referral to the Suspense File. Bill Summary: SB 295 would (1) extend the College Access Tax Credit Fund (CATCF) sunset date to January 1, 2018, and (2) increase the credit percentage. Fiscal Impact: The Franchise Tax Board (FTB) estimates that the bill would result in General Fund revenue losses of $50 million in 2015-16, $85 million in 2016-17, and $65 million in 2017-18. SB 295 (De León) Page 1 of ? Estimated revenue gains beyond current law in the hundreds of millions of dollars over the three-year period, to be deposited into CATCF. Costs to the California Educational Facilities Authority (CEFA) in the range of $108,000 in 2017-18, and $126,000 in 2018-19 to administer the certification of tax credits for contributions. FTB administrative costs would be minor and absorbable. The bill would require funds to be transferred from CATCF to the General Fund such that the net impact of College Access Tax Credits on the General Fund would be zero. Administrative expenses of all affected state entities would be backfilled by CATCF. Background: Current state law allows taxpayers to receive a tax credit for a specified percentage of cash contributions made to CATCF. The yearly maximum allocation amount is $500 million plus any carryover of unused funds from the prior year, and 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. CEFA is required to allocate and certify the income tax credit to personal and corporate taxpayers and provide FTB a copy of each credit certificate immediately following the year of issue. The cash contributions are used to find the Cal Grant B program. SB 295 (De León) Page 2 of ? 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. Under current law the credit would be repealed as of December 1, 2017. Proposed Law: This bill would (1) extend the CATCF repeal date to December 1, 2018, and (2) increase 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. Related Legislation: SB 798 (De Leon, Chapter 367, Statutes of 2014) created the College Access Tax Credit, an income tax credit for cash contributions made to an education special fund with an aggregate credit cap of $500 million per calendar year. Staff Comments: SB 295 would encourage taxpayers to contribute to the state's Cal Grant program through a generous tax credit against SB 295 (De León) Page 3 of ? contributions. Depending on the credit amount available in each of the years in which it is available, and depending on how a taxpayer files taxes and the tax bracket that applies, a taxpayer could receive close to 90 percent of his or her donation back in state tax credits and federal tax deductions combined. For example, if a taxpayer subject to the Federal Alternative Minimum Tax (AMT) donates $1,000 to CATCF in 2015, he or she would receive a $600 state tax credit. The taxpayer would also receive a federal tax deduction for the $1,000 contribution, reducing federal tax liability by $280 (assuming a 28% marginal rate). AMT filers are not eligible for state tax deductions related to charitable contributions. On balance, the taxpayer would receive $880 in reduced tax liability for a $1,000 contribution, and only be out of pocket a net $120. The tax benefit related to this bill could result in reduced contributions directly to education institutions, such as the University of California and others, and could result in decreased charitable giving to other causes. As such, this credit could result in a redirection of charitable giving, rather than providing "new" money for Cal Grants. The extent of this potential substitution effect is unknown. -- END --