BILL ANALYSIS                                                                                                                                                                                                    Ó




           SENATE COMMITTEE ON EDUCATION
                              Senator Carol Liu, Chair
                                2015 - 2016  Regular 

           Bill No:             SB 791             
            ----------------------------------------------------------------- 
           |Author:    |Hertzberg                                            |
           |-----------+-----------------------------------------------------|
           |Version:   |February 27, 2015                      Hearing Date: |
           |           |    April 8, 2015                                    |
            ----------------------------------------------------------------- 
            ----------------------------------------------------------------- 
           |Urgency:   |No                     |Fiscal:     |Yes             |
            ----------------------------------------------------------------- 
            ----------------------------------------------------------------- 
           |Consultant:|Olgalilia Ramirez                                    |
           |           |                                                     |
            ----------------------------------------------------------------- 
           
           Subject:  Student financial aid:  Golden State Scholarshare  
           Trust Act

             SUMMARY
           
           This bill requires the Scholarshare Investment Board (Board)  
           to enter into an agreement with a card issuer for the purposes  
           of accumulating awards that are automatically deposited into  
           the designated Scholarshare trust account. 

             BACKGROUND
           
           Existing law establishes the Golden State ScholarShare Trust  
           Program, administered by the State Treasurer's Office, offers  
           California families a tax-advantaged college tuition savings  
           plan that allows them to invest and save for a college  
           education with state tax-deferred and federal tax-free  
           benefits. Under this program, a participant opens an account  
           on behalf of a designated named beneficiary.  The money  
           contributed by the participant to the account is placed in a  
           trust, and invested in special investment portfolios designed  
           to meet the needs of differently aged beneficiaries, and  
           different kinds of investors. The program offers federal and  
           California income tax-free treatment for qualified withdrawals  
           from a ScholarShare account.  A qualified withdrawal is one  
           that is used to pay for qualified higher education expenses at  
           any eligible postsecondary educational institution throughout  








           SB 791 (Hertzberg)             Page 2 of ?
           
           
           the U.S. (and even some outside the U.S.) including many  
           vocational schools.  (Education Code § 69980 et. seq.)

           To oversee the trust program, existing law, establishes the  
           Scholarshare Investment Board, comprised of seven members  
           including the Treasurer, the Director of Finance, executive  
           director of the State Board of Education and representative  
           from postsecondary institutions, as specified.  Among other  
           things, the Board is required to aggressively market the trust  
           program and develop strategies designed to educate California  
           residents about the benefits of saving for higher education  
           and information to help them decide the level of Scholarshare  
           participation and savings strategies that may be appropriate  
           for them.  Under its current powers the Board is also  
           authorized to enter into an agreement with participants  
           including an individual, trust estate, partnership  
           association, company or corporation and several other entities  
           on behalf of beneficiaries.  (EC § 69980 et. seq.)



             ANALYSIS
           
           This bill:

           1.   Requires, the Board to enter into an agreement with a  
                card issuer, as defined in Section 1747.02 of the Civil  
                Code, for the purposes of, but not limited to, allowing  
                credit card users to accumulate reasonable awards or  
                points leading to an award, that are automatically  
                deposited into the designated Scholarshare trust account.

           2.   Requires the agreement to provide for the accumulation of  
                awards by using a credit card as defined in Section  
                1747.02 of the Civil Code.  

           STAFF COMMENTS
           
           1.   Need for the bill:  According to the author many families  
                fail to make regular contributions to their 529 college  
                saving accounts.  At the same time, students with as  
                little as $500 or less in a college savings account are  
                more likely to enroll and graduate from college.  There  
                are many options available for contributing to a college  








           SB 791 (Hertzberg)             Page 3 of ?
           
           
                savings account including automatic payroll deduction and  
                electronic transfer from a designated bank account. This  
                bill creates a new method for automating contributions  
                through cash rewards associated with credit card  
                transactions.  

           2.   Similar programs.  There are currently six states with  
                programs similar to that proposed in this bill including  
                Illinois, Alabama, Delaware, Massachusetts, New Hampshire  
                and Arizona. The Bright Directions program in Illinois,  
                and CollegeCounts in Alabama, both managed by Union Bank  
                and Trust Company, offer a 529 savings Visa card.  Card  
                holders can earn a 1.529% reward on purchases that  
                accrues and is automatically contributed into the linked  
                account. Like most credit card programs, consumers need  
                to apply and receive approval before the card is issued.   
                Arizona, Delaware, Massachusetts and New Hampshire,  
                through Fidelity Investment program, offer a slightly  
                higher reward rate at 2% which, according to the Arizona  
                website, translates into $50 for every $2,500 spent.   
                Depending upon the consumers' spending habits and the  
                life of the account, the program may produce meaningful  
                savings.

                Of the six states that offer a credit card rewards  
                program in their State 529 plan, none are statutorily  
                mandated.  


           3.   Is this the right approach?  Under its current duties and  
                powers, the Board already has the authority to enter into  
                an agreement with a card issuer and did in fact offer a  
                program similar to that described in the bill under its  
                previous investment management entity, Fidelity  
                Investments.  The Board has since contracted with a new  
                management company and according to the Executive  
                Director, the credit card program has not been reinstated  
                due to a lack of consumer demand.  Although there is  
                growing awareness of 529 savings plans, participation in  
                them is relatively low within California, as well as  
                throughout the country.  If the intent is to motivate  
                contributions into these accounts, is requiring the Board  
                to take specific action the right approach?  Or should  
                discretion as to how to motivate greater participation be  








           SB 791 (Hertzberg)             Page 4 of ?
           
           
                left to the Board?  
                
                This bill proposes a convenient method for encouraging  
                families to grow their college saving accounts.  At the  
                same, requiring the Board to enter into an agreement may  
                have unintended effects of positioning the Board at a  
                competitive disadvantage for negotiating a favorable  
                program on behalf of beneficiaries.  For this reason,  
                Staff recommends the bill be amended to:

                A.        Require that the Board consider entering into  
                     an agreement with a card issuer.

                B.        Report on their decision and rationale at a  
                     regular meeting of the Board by January 1, 2017. 

                C.        Delete the requirement that the Board enter  
                     into an agreement with a card issuer.   

             SUPPORT
           
           California Communities United Institute
           California State University
           Faculty Association of California Community Colleges (FACCC)

             OPPOSITION
            
            None received.

                                      -- END --