BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON APPROPRIATIONS
                             Senator Ricardo Lara, Chair
                            2015 - 2016  Regular  Session

          SB 324 (Pavley) - Income taxation:  savings plans:  Qualified  
          ABLE Program
          
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          |Version: April 15, 2015         |Policy Vote: GOV. & F. 7 - 0    |
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          |Urgency: No                     |Mandate: No                     |
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          |Hearing Date: April 27, 2015    |Consultant: Robert Ingenito     |
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          This bill meets the criteria for referral to the Suspense File.







          Bill  
          Summary:  SB 324 would (1) establish a California Achieving a  
          Better Life Experience (ABLE) program and (2) modify state  
          income tax law to generally conform to the federal income tax  
          treatment of ABLE accounts.


          Fiscal  
          Impact:  
           The Franchise Tax Board (FTB) indicates that this bill would  
            lead to a revenue loss (General Fund) of $100,000 in 2015-16,  
            $400,000 in 2016-17, and $900,000 in 2017-18. Additional, FTB  
            would incur minor costs to implement its provisions of the  
            bill.







          SB 324 (Pavley)                                        Page 1 of  
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           The State Treasurer's Office (STO), the entity that would  
            administer ABLE accounts on behalf of qualified Californians,  
            would incur annual costs in the hundreds of thousands of  
            dollars minimally. The precise amount would depend on how the  
            bill is implemented. 



          Background:  The federal ABLE Act of 2014 created a new type of tax-favored  
          savings program beginning in taxable year 2015 for individuals  
          who become blind or disabled before reaching age 26. ABLE  
          accounts generally follow the same rules as education savings  
          accounts allowed by Section 529 of the Internal Revenue Code  
          (529s). Specifically, individuals can make nondeductible cash  
          contributions to an ABLE account in the name of a specified  
          beneficiary, and account's earnings grow tax free.  ABLE account  
          distributions are also not included in the beneficiary's income  
          so long as they're used for qualified services, and  
          distributions don't exceed the cost of the qualified services.  
          The ABLE Act imposes a federal 10 percent tax on distributions  
          that exceed those costs.  Congress created ABLE accounts to  
          offer an alternative to Special Needs and Supplement Needs  
          Trusts.
          The ABLE Act directed states to establish one ABLE account for  
          each resident beneficiary. SB 324 implements the ABLE Act in  
          California, and directs the State Treasurer to administer ABLE  
          accounts on behalf of qualified Californians.  




          Proposed Law:  
          This bill would establish a California ABLE program, and would  
          generally conform to the federal income tax treatment of ABLE  
          accounts; STO would administer the program in compliance with  
          federal law. Neither federal nor state taxes would apply to ABLE  
          account earnings or distributions used for qualified services.  
          The additional federal contribution, rollover, and distribution  
          rules would apply-meaning the portion of any ABLE distribution  
          that is includible in income generally would be subject to a 2.5  
          percent tax for state purposes (in addition to the 10-percent  
          additional tax imposed for federal purposes).









          SB 324 (Pavley)                                        Page 2 of  
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          Related  
          Legislation:  AB 449 (Irwin) is substantially similar to this  
          bill, except that it would provide that ABLE account amounts  
          would be required to be disregarded for purposes of determining  
          eligibility for state and local means-tested programs that  
          provide assistance to disabled individuals. The bill is  
          currently in the Assembly Revenue and Taxation Committee.


          Staff  
          Comments:  The FTB revenue estimate for this bill is based on a  
          proration of the Joint Committee on Taxation's (JCT) estimate  
          for the federal ABLE Act. JCT's estimated losses, converted to  
          calendar years, for 2016 through 2019 are $5.5 million, $13.5  
          million, $30.3 million, and $57.3 million. 
          These estimated losses are attributable to projected earnings in  
          ABLE accounts that are exempt from taxation and distributions  
          that do not exceed qualified expenses that are excluded from  
          gross income. JCT estimated losses are reduced by approximately  
          88 percent based on Social Security Disability Insurance data to  
          reflect California's estimated share of the federal exclusion.  
          The results are then reduced an additional 70 percent to reflect  
          the difference between federal and state tax rates.


          JCT estimates that revenue losses are projected to continue to  
          increase, and prorating the last year included in the JCT  
          estimate would result in an estimated state loss of  
          approximately $10 million in 2025-26.