BILL ANALYSIS                                                                                                                                                                                                    Ó

                             Senator Ricardo Lara, Chair
                            2015 - 2016  Regular  Session

          SB 295 (De León) - College Access Tax Credit Fund
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          |Version: February 23, 2015      |Policy Vote: GOV. & F. 7 - 0    |
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          |Urgency: No                     |Mandate: No                     |
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          |Hearing Date: May 18, 2015      |Consultant: Robert Ingenito     |
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          This bill does not meet the criteria for referral to the  
          Suspense File.

          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.

                 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  


          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  

                 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  


          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,  

          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.

          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.

          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.

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