BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 295|
|Office of Senate Floor Analyses | |
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THIRD READING
Bill No: SB 295
Author: De León (D)
Introduced:2/23/15
Vote: 21
SENATE GOVERNANCE & FIN. COMMITTEE: 7-0, 5/6/15
AYES: Hertzberg, Nguyen, Beall, Hernandez, Lara, Moorlach,
Pavley
SENATE APPROPRIATIONS COMMITTEE: 7-0, 5/18/15
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
percentage.
ANALYSIS:
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
year.
3)Specifies the percentages used to calculate the credit as
follows:
60% of the amount contributed during the 2014 taxable
year,
55% of the amount contributed during the 2015 taxable
year,
50% of the amount contributed during the 2016 taxable
year.
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
year,
55% of the amount contributed during the 2016 taxable
year,
50% of the amount contributed during the 2017 taxable
year.
Comments
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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;
specifically:
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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