BILL ANALYSIS                                                                                                                                                                                                    Ó




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                                   THIRD READING 


          Bill No:  SB 1476
          Author:   Committee on Governance and Finance   
          Amended:  4/14/16  
          Vote:     21 

           SENATE GOVERNANCE & FIN. COMMITTEE:  7-0, 4/20/16
           AYES:  Hertzberg, Nguyen, Beall, Hernandez, Lara, Moorlach,  
            Pavley

           SUBJECT:   Income taxation:  voluntary contributions


          SOURCE:    Author

          DIGEST:  This bill establishes general provisions for voluntary  
          contribution funds.

          ANALYSIS:  
          
          Existing law:

          1)Allows taxpayers to contribute money to voluntary contribution  
            funds (VCFs) by checking a box on their state income tax  
            returns.  California law requires contributions made through  
            so-called "check-offs" to be made from taxpayers' own  
            resources and not from their tax liability, as is possible on  
            federal tax returns.  Check-off amounts may be claimed as  
            charitable contributions on taxpayers' tax returns in the  
            subsequent year. 

          2)Requires that each VCF is individually added to the tax return  
            by legislation.  With a few exceptions, VCFs remain on the  
            return until they are repealed by a sunset date or fail to  
            generate a minimum contribution amount.  In general, the  
            minimum contribution amounts are adjusted annually for  








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            inflation.  For most VCFs, the minimum contribution amount is  
            $250,000, beginning in the fund's second year.  The following  
            check-offs do not have a minimum contribution requirement:


             a)   California Firefighters' Memorial Foundation Fund,

             b)   California Peace Officer Memorial Foundation Fund, and 

             c)   California Seniors Special Fund.

          3)Requires the Franchise Tax Board (FTB) to deposit the total of  
            all contributions into the fund created as part of the VCF's  
            legislative authorization.  For some VCFs, such as the Protect  
            Our Coast and Ocean Fund, taxpayers' contributions are  
            allocated to a state agency for use in a state administered  
            grant program.  Other VCFs' authorizing statutes direct  
            administrative agencies to allocate donations to a private  
            organization.  For example, the Office of Emergency Services  
            passes VCF funds to the American Red Cross.  Other funds  
            require the State Controller to send the funds directly to  
            private organizations without passing through an  
            administrative agency, such as the California Fire Foundation.  
             The FTB, the Controller, and an administrative agency may  
            deduct from the amount of donations each VCF receives for  
            direct costs of administering a fund.  

          This bill:

          1)Establishes the following general provisions for all tax  
            check-offs:

             a)   Sets a minimum contribution amount of $250,000 beginning  
               the second calendar year after the first appearance of the  
               fund on the income tax return, and eliminates the inflation  
               adjustment in subsequent years.

             b)   Lengthens the current standard five year sunset to seven  
               years.

             c)   Requires the administering agency to post online the  
               process for awarding money, the amount of money spent on  








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               administration, and an itemization of how program funds  
               were awarded by the agency, including, but not limited to,  
               information regarding recipients of funds,

             d)   Provides that funds shall be continuously appropriated  
               to the administering agency to be spent as prescribed in  
               the bill that enacts the voluntary contribution.

             e)   Includes the words "voluntary tax contribution" in the  
               name of the fund,

          2)Applies to all voluntary contribution funds established or  
            extended after January 1, 2017.

          Background
          
          SB 1476 results from extensive research and an oversight hearing  
          which identified best practices and reforms needed to ensure  
          that taxpayers' voluntary contributions are being put toward  
          charitable purposes in a transparent and timely fashion.  
          The current tax check-off process starts with the Legislature  
          enacting legislation. Next, a taxpayer contributes to an  
          established tax check-off on the income tax form.  The donation  
          is collected by FTB and distributed to the State Controller by  
          June 15th each year.  Contributions made after June are not  
          distributed to the State Controller's Office until the following  
          year.  The State Controller then distributes the funds according  
          to the enacting statute, which generally requires an  
          appropriation by the Legislature.  Next, the administering  
          agency generally must submit a budget change proposal (BCP) to  
          the Department of Finance.  Once the Department of Finance  
          approves the BCP, the appropriation is placed into a bill to be  
          approved by the Legislature.  After the Governor signs that  
          bill, only then can the Controller transfer the donation to the  
          administering agency.  This process can take years. 

          When a tax check-off is repealed, or fails to meet the minimum  
          contribution limit, the check-off fund is removed from the  
          income tax form.  After four years of inactivity the tax  
          check-off fund is abolished, and unused funds revert to the  
          General Fund at the direction of the Department of Finance.   
          Before the Department of Finance abolishes a tax check-off fund,  








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          the Department sends a letter to the Joint Legislative Budget  
          Committee informing the Committee of all funds slated to be  
          abolished.  At that time, the Joint Legislative Budget Committee  
          has the opportunity to object to the check-off fund's  
          abolishment.  The letter from the Department of Finance does not  
          specify the type of fund being abolished; the letter only lists  
          names of funds.  Thus, it is unclear from the face of the letter  
          if an abolished fund is a privately-funded taxpayer check-off  
          fund or a government fund.

          SB 1476 will ensure timely use of tax check-off funds by  
          eliminating the current requirement of "appropriation by the  
          Legislature" of funds.  Elimination of requiring an  
          appropriation by the Legislature for each tax check-off will  
          result in funds arriving to the administering agency at least a  
          year earlier than under the current process.  This bill also  
          protects tax check-off funds from reverting to the General Fund  
          by requiring tax check-off funds to include "voluntary  
          contribution fund" in their names so that the Legislature,  
          Department of Finance, and the Joint Legislative Budget  
          Committee are aware when a tax check-off fund is slated for  
          abolishment and reversion to the General Fund.  Lastly, this  
          bill includes reporting requirements by the administering  
          agency.  This serves as a safeguard against eliminating the  
          appropriation by the Legislature requirement. Instead of the  
          intended use of the funds only being available to the Department  
          of Finance in a BCP, the use of the funds will be online  
          available to everyone.


          FISCAL EFFECT:   Appropriation:    No          Fiscal  
          Com.:NoLocal:    No


          SUPPORT:   (Verified4/27/16)


          Breast Cancer Action
          Breast Cancer Fund 
          California Breast Cancer Organizations
          K to College
          University of California








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          West Fresno Family Resource Center


          OPPOSITION:   (Verified4/27/16)


          None received


          ARGUMENTS IN SUPPORT:     According to the author, On December  
          9, 2015 Senate Governance and Finance held an oversight hearing  
          titled "California's Tax Check-off Program: Room for  
          Improvement?"  The hearing reviewed the current status of  
          California's tax check-off funds and found a framework was  
          needed to improve our current tax check-off system.   
          Specifically, the Committee found that donated funds could take  
          years to reach the intended recipient, or worse yet the money  
          ends up in state coffers.  The Legislature created California's  
          tax check-off system in 1982 with a noble intention: to make it  
          easier for Californians to donate to charitable causes.  To  
          date, tax check-offs have raised over $102 million for various  
          charitable causes, including social services, public health, and  
          environmental protection.  SB 1476 seeks to streamline the tax  
          check-off process to ensure all funds reach their intended  
          recipient as quickly as possible, and address administrative  
          burdens tax check-off recipients have faced.

          Prepared by:Myriam Bouaziz / GOV. & F. / (916) 651-4119
          4/27/16 15:57:35


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