BILL ANALYSIS Ó
SB 324
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Date of Hearing: August 26, 2015
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Jimmy Gomez, Chair
SB 324
(Pavley) - As Amended August 17, 2015
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|Policy |Revenue and Taxation |Vote:|9 - 0 |
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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.
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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.
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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
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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
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