BILL ANALYSIS Ó SB 324 Page 1 Date of Hearing: August 26, 2015 ASSEMBLY COMMITTEE ON APPROPRIATIONS Jimmy Gomez, Chair SB 324 (Pavley) - As Amended August 17, 2015 ----------------------------------------------------------------- |Policy |Revenue and Taxation |Vote:|9 - 0 | |Committee: | | | | | | | | | | | | | | ----------------------------------------------------------------- Urgency: No State Mandated Local Program: NoReimbursable: No SUMMARY: This bill establishes a state Achieving a Better Life Experience (ABLE) program, and generally conforms the personal income tax and corporation tax laws to the federal tax treatment of ABLE accounts. The ABLE program allows people to make contributions to an ABLE account for the purpose of paying certain disability expenses on behalf of eligible persons, based on blindness or disability under the federal Social Security Act, and provides that money in an ABLE account does not count towards determining eligibility for state and local means-tested programs, such as MediCal. SB 324 Page 2 The bill requires the Treasurer to administer the ABLE program, ensuring compliance with federal ABLE Act requirements, creates two ABLE Act funds for the program and administration, and establishes an ABLE Act Board for program implementation and administration. The bill authorizes the Board to assess administrative fees of up to 3% of incoming funds for the first 5 years of the program, and 1% of incoming funds thereafter. The bill further specifies funding for startup and first-year administrative costs will be loaned from the General Fund and repaid within 5 years with interest at the rate earned by the Pooled Money Investment Account. FISCAL EFFECT: 1)One-time costs likely in excess of $500,000 to the Treasurer to establish the ABLE Act program; annual administrative costs in the range of $300,000 to $400,000 to the Treasurer thereafter to administer the program. Initial funds will be provided by way of GF loan, potentially as high as $1.5 million, which will be repaid within 5 years. Thereafter, the program will be funded through administrative fees. 2)Potentially significant administrative costs to the Franchise Tax Board. 3)Estimated GF revenue decreases of $100,000, $400,000, and $900,000 in FY 2015-16, FY 2016-17, and FY 2017-18, respectively; additional decreases thereafter. 4)Substantial increase in MediCal costs as a result of exempting ABLE assets, thus expanding the population of eligible recipients. Each new MediCal participant results in annual costs of approximately $40,000, half of which is paid for with state funds and half federal. SB 324 Page 3 COMMENTS: 1)Purpose. According to the author, state and federal law provide many tax-advantaged financial tools that allow individuals to save for future expenses, including college savings accounts, health savings accounts, and individual retirement accounts, but no such savings tool is available for individuals with disabilities. At present, only those disabled individuals with less than $2,000 in assets can access state and federal benefits. As a result, disabled individuals on public benefits are discouraged from working and saving, as they cannot remain eligible if they save more than the means test allows. 2)ABLE Accounts. The federal ABLE Act is designed to recognize the significant costs of living with a disability, including raising children with disabilities and caring for adults with disabilities. Eligible individuals and families can establish and fund ABLE savings accounts with up to $100,000 without jeopardizing their eligibility for public benefits. The ABLE accounts are administered like federal 529 college savings accounts, and funds saved can be used only for disability-related expenses. If the account value exceeds $100,000, federal benefits are suspended. This bill provides access to federally-recognized ABLE accounts to eligible individuals with disabilities and provides similar shielding from state benefit eligibility tests. The program is administered by the Treasurer, who also administers 529 college savings accounts. 3)A Big Help. The new federal ABLE program provides disabled individuals and their families with a few key benefits. The SB 324 Page 4 program effectively eliminates the asset tests for many of means-tested federal benefits, excluding up to $100,000 from the qualification standard. The ABLE program also provides a useful alternative to more expensive and complicated special needs trusts, the only previous structure that could shield assets from the federal means test. Similar to 529 accounts, interest and income earned on funds in ABLE accounts, as well as distributions for qualifying disability expenses, are not taxed. Unlike 529 accounts, however, ABLE accounts are likely to be used to cover immediate expenses such as health care and housing. Most funds deposited in 529 accounts remain for years, earning significant tax-free income that will be used to pay for college. Tax-free growth in ABLE accounts will not provide a similar benefit unless the funds can be saved for long periods of time. 4)Conforming to AB 449. The author has expressed a desire to conform this bill to AB 449 (Irwin), which is currently on the Suspense File of the Senate Committee on Appropriations. Analysis Prepared by:Joel Tashjian / APPR. / (916) 319-2081 SB 324 Page 5