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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          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














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