BILL ANALYSIS                                                                                                                                                                                                    Ó

          |SENATE RULES COMMITTEE            |                        SB 295|
          |Office of Senate Floor Analyses   |                              |
          |(916) 651-1520    Fax: (916)      |                              |
          |327-4478                          |                              |

                                   THIRD READING 

          Bill No:  SB 295
          Author:   De León (D)
          Vote:     21  

           SENATE GOVERNANCE & FIN. COMMITTEE:  7-0, 5/6/15
           AYES:  Hertzberg, Nguyen, Beall, Hernandez, Lara, Moorlach,  

           AYES:  Lara, Bates, Beall, Hill, Leyva, Mendoza, Nielsen

           SUBJECT:   College Access Tax Credit Fund

          SOURCE:    Author

          DIGEST:  This bill extends the College Access Tax Credit Fund  
          sunset date to January 1, 2018, and increases the credit  


          Existing law:

          1)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).


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          2)Provides that the yearly maximum allocation amount is $500  
            million plus any carryover of unused funds from the prior  

          3)Specifies the percentages used to calculate the credit as  

                 60% of the amount contributed during the 2014 taxable  

                 55% of the amount contributed during the 2015 taxable  

                 50% of the amount contributed during the 2016 taxable  

          1)Requires the California Educational Facilities Authority to  
            allocate and certify the income tax credit to personal and  
            corporate taxpayers and provide the Franchise Tax Board (FTB)  
            a copy of each credit certificate immediately following the  
            year of issue.  The cash contributions are used to fund the  
            Cal Grant B program.

          This bill:

          1)Extends Fund repeal date to December 1, 2018.

          2)Increases the credit percentage amounts as follows:

                 60% of the amount contributed during the 2015 taxable  

                 55% of the amount contributed during the 2016 taxable  

                 50% of the amount contributed during the 2017 taxable  



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          1)Program to date.  In 2014, the 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.     

          2)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. 

          3)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 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 a federal Alternative Minimum Tax (AMT) taxpayer;  

               An AMT taxpayer making a $100,000 donation to the CATCF  
               [College Access Tax Credit Fund] 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  


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               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.  

          4)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 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.

          FISCAL EFFECT:   Appropriation:    No          Fiscal  
          Com.:YesLocal:   No


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          According to the Senate Appropriations Committee, FTB estimates  
          that this bill will result in an annual revenue loss of $50  
          million in 2015-16, $85 million in 2016-17, and $65 million in  
          2017-18.  This bill requires funds to be transferred from the  
          Fund 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 the Fund.

          SUPPORT:   (Verified5/20/15)

          The Institute for College Access & Success

          OPPOSITION:   (Verified5/20/15)

          None received

          Prepared by:Myriam Bouaziz / GOV. & F. / (916) 651-4119
          5/21/15 10:15:37

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