BILL ANALYSIS �
SENATE BANKING & FINANCIAL INSTITUTIONS COMMITTEE
Senator Juan Vargas, Chair
AB 597 (Eng) Hearing Date: July 6, 2011
As Amended: June 27, 2011
Fiscal: Yes
Urgency: No
SUMMARY Would establish the California Financial Literacy
Fund, administered by the State Controller, as specified.
DESCRIPTION
1. Would establish the California Financial Literacy Fund
(CFLF) in the State Treasury, administered by the
Controller, to support partnerships with the financial
services community and other stakeholders, to improve
Californians' financial literacy.
2. Would authorize the Controller to accept private donations
for deposit into the CFLF, and would make those funds
available, subject to appropriation in the annual Budget
Act. Would provide that donations may not be used to
promote or market the financial products of any contributor.
Monies not appropriated within 18 months of being
contributed to the CFLF would have to be returned in full to
the contributor.
3. Would authorize the Controller to convene a financial
literacy advisory committee to provide additional oversight
of the CFLF and develop strategies to improve financial
literacy. Would require that, if the committee is convened,
it must comply with the Bagley-Keene Open Meeting Act.
4. Would, beginning in 2013, require the Controller to submit
a brief annual summary by August 30th of each year,
regarding the use of the funds in the CFLF, to the
chairpersons of the Assembly Committee on Banking & Finance
and the Senate Committee on Banking and Financial
Institutions.
EXISTING LAW lacks any requirements regarding the provision of
instructional materials on financial matters to Californians.
AB 597 (Eng), Page 2
COMMENTS
1. Background and Discussion: Like many other similar bills
before it, this bill is based on the belief, supported by
numerous statistics, that many Californians do not
understand basic consumer finance, nor do they understand
the impacts of their financial actions. Many of the
mortgage problems currently plaguing California are due to
decisions of borrowers to take on mortgages whose terms they
did not understand, and whose debt they could not afford.
The author states, "The principal purpose of this bill is to
establish a mechanism for the State of California, under
specified conditions and with approval from the Legislature
and Administration, to partner financially with nonprofits
and private entities on solutions to the state's financial
literacy challenges. In the long run, partnering with the
state to educate people on financial literacy could benefit
the California economy by helping to prevent bankruptcies,
foreclosures, and job loss."
The author notes that four California cities are among the top
ten in the United States for credit card debt, measured as
the percentage of the city's median income being owed to
credit card companies. These cities include Los Angeles
(16.81%), Riverside (16.19%), San Diego (15.98%), and
Sacramento (15.11%). California also has one of the
nation's highest per capital bankruptcy rates, at 3.57% per
1000 people. The foreclosure rate in California is the
third worst in the nation, behind only Nevada and Arizona.
2. Other Financial Education Efforts: If enacted, this bill
would add the state and our State Controller to a much
larger effort that is already ongoing, and is aimed at
providing financial education to those who can benefit from
it. For example:
In January 2008, Governor Schwarzenegger announced the formation
of the Bank on California program, initially run through his
Office of Planning and Research and later moved to the State
and Consumer Services Agency by Governor Brown. The Bank on
California effort partners participating cities with
participating financial institutions, encourages the
unbanked to open starter accounts at these financial
institutions, and includes a financial education component
AB 597 (Eng), Page 3
to help Californians build their money management skills.
The California State Library, and public libraries throughout
the state, work regularly with financial advisors and banks
to help provide financial literacy resources to patrons.
Wells Fargo has an ongoing relationship with the Contra
Costa County Public Library system, and San Francisco Public
Library has developed a program called, "Project Money,"
which focuses on the four subject areas most requested by
patrons: savings, banking, credit, and taxes.
The California Society of Certified Public Accountants (CalCPA)
is also committed to increasing financial literacy.
Hundreds of CPA volunteers provide free financial education
"Dollars and Sense" seminars in communities and schools
throughout the state.
Citigroup has funded over 200 non-profit organizations annually
in California, as part of its ten-year, $200 million
commitment to fund financial education programs.
The California Bankers Association has created a Financial
Empowerment Program to provide financial education tools for
adults, with an emphasis on basic personal finances and
household money management skills.
Operation HOPE, whose national partners for economic literacy
include the Federal Deposit Insurance Corporation, Federal
Reserve System, America's Community Bankers, E*TRADE
FINANCIAL, the William Jefferson Clinton Foundation in
Harlem, New York, the Bush-Clinton Katrina Fund, the New
York Bankers Association, and others, runs a Banking on Our
Future program, which it calls the leading urban delivery
system for financial literacy education across America.
Banking on Our Future, which is supported by more than 6,000
professional HOPE Corps volunteers from private and public
sector companies, is operational in more than 700 schools
and community-based organizations across the U.S., and has
educated more than 280,000 low-wealth youth about financial
literacy.
3. Summary of Arguments in Support:
a. Controller John Chiang is sponsoring AB 597, to
enable strategic partnerships with the private and
nonprofit sectors that are already working on financial
AB 597 (Eng), Page 4
education. AB 597 would allow the Controller to convene
an advisory committee made up of nonprofit organizations,
financial institutions, and other state agencies, and
devise strategies for improving financial literacy in
California. The Controller also observes that AB 597
will ensure that the Legislature is notified of all
sources and uses of the donated funds, allowing it to
make more timely and informed decisions on financial
literacy issues. "As the state's Chief Fiscal Officer, I
firmly believe this legislation constitutes a prudent
investment by the State in its citizens' long-term
financial viability."
b. The California Chamber of Commerce writes that
financial literacy and the consequences for uninformed
financial decisions are a growing problem in California.
In the long run, educating Californians would result in
benefits to the economy by helping to prevent
bankruptcies, foreclosures, and job loss. Providing
access to financial literacy tools is an important part
of the solution.
c. Visa believes that the public, private, and
non-profit sectors must all work together to tackle the
problem of financial illiteracy in California. For over
a decade, Visa has provided free financial education
materials to millions of parents, teachers, and students
through its Practical Money Skills for Life and What's My
Score programs. Visa has also worked with the California
Department of Education to distribute free copies of the
educational video game "Financial Football," developed
with the NFL, to every high school in the state.
d. The California Bankers Association (CBA) and
California Credit Union League (CCUL) both observe that
the lack of financial literacy in California has been a
major concern of the financial services industry for
several years. Individual banks have established
individual programs to increase the financial literacy
levels of students across the state. CBA also created a
Financial Empowerment Program, which provides financial
education tools to adults, with an emphasis on basic
personal finances and household money management skills.
CCUL has long worked to encourage state efforts to raise
the profile of financial literacy and make resources
readily available to all Californians.
AB 597 (Eng), Page 5
4. Summary of Arguments in Opposition: This year, for the
first time since measures similar to AB 597 have been
proposed, there is organized opposition to the measure.
Writing in opposition, the California Alliance For Consumer
Protection and www.TheCaliforniaIndex.org observe that they
have previously supported similar, prior measures. This
year, however, the organizations are opposed. Among their
concerns: 1) AB 597 begs the public versus private
question. With resources dwindling at all levels of
government, should government be taking on this role? Can't
this be done in the private sector? 2) AB 597 contains no
substantive requirements; all of its requirements are
permissive, and the bill has an optional start date. 3) The
bill fails to provide any detail regarding the advisory
committee whose creation it authorizes. For example, the
bill is silent on the size of the committee, its membership
size, its budget, who will staff it, how long it will exist,
when it will meet, and whether private entities that donate
to the Financial Literacy Fund will be eligible to sit on
the committee. 4) AB 597 is also missing definitions,
goals, and themes. The bill fails to clearly express or
provide a long-term goal and theme upon which to operate,
other than to teach financial literacy, a term that is
undefined. 5) It is also unclear what will happen if one
Controller raises money and convenes the financial literacy
advisory committee, but the next Controller decides not to
convene the committee. Will the monies raised be returned?
7) Finally, the bill is unclear regarding whether donations
to the Fund are political donations (and if so, what
reporting requirements attach to them), tax-deductible
charitable contributions, or whether they should be treated
as ordinary and necessary business expenses, if made by a
corporation. As drafted, the bill also fails to limit the
amount of money that could be contributed by any single
entity.
To address their concerns, the opponents suggest several
specific amendments to the bill. These amendments identify
three specific goals for the fund: 1) Establish a positive,
state oriented financial literacy policy that benefits this
state's consumers, businesses, and the products and services
they produce; 2) Educate Californians about what it means to
be financially literate; and 3) Develop a series of
financial literacy policies that teach and educate
Californians about financial issues and their impact on
AB 597 (Eng), Page 6
California.
The opposition's amendments also propose that donations not
exceed $25,000 per entity. Although the opposition's letter
was unclear regarding whether this cap is intended to be an
annual limit or a lifetime aggregate limit, or whether it is
intended to apply to single donations per source or to all
donations, in the aggregate, from that source, a
representative for the opposition indicated in an e-mail to
Committee staff that they wish to cap individual donations
at $12,500 per year and $125,000 lifetime per donor, and
corporate donations at $25,000 per year and $250,000
lifetime per donor). The opposition also proposes that the
financial literacy advisory committee commence operations on
January 1, 2014 or once at least $1 million is raised,
whichever is earlier.
5. Amendments:
a. As noted above, the opposition has asked for
clarification regarding how private donations to the CFLF
will be treated for tax purposes. Staff sought out an
answer to that question, in hopes of recommending an
amendment to clarify this aspect of the bill. According
to available information, donations to the state, which
are made for a public purpose, are treated as charitable
contributions under state and federal tax law, and are
subject to the same rules and limitations as are other
tax-deductible charitable contributions. The author's
office has agreed to take an amendment clarifying this
point. This amendment has been reviewed by staff of the
Franchise Tax Board, to ensure it is technically correct.
Add an uncodified section to the bill, as follows: It is
the intent of the Legislature that contributions made to
the fund are made for a public purpose and will be
eligible to be claimed as deductible charitable
contributions to the extent otherwise allowable under
federal income tax law and California income and
franchise tax law.
6. Prior and Related Legislation:
a. AB 2457 (Salas), 2009-10 Legislative Session:
Virtually identical to this bill. Vetoed by the
Governor.
AB 597 (Eng), Page 7
b. AB 550 (Lieu), 2009-10 Legislative Session:
Substantially similar to this bill, but did not call for
the creation of an advisory committee. Held in the
Assembly Appropriations Committee.
c. AB 2123 (Lieu), 2007-08 Legislative Session:
Substantially similar to, but more expansive than, this
bill. Would have required the Controller to convene a
Financial Literacy Advisory Committee and establish and
oversee a California Financial Services Corps, as
specified. Vetoed by the Governor.
d. AB 150 (Lieu), 2007-08 Legislative Session: Would
have required the Superintendent of Public Instruction to
administer a California Financial Literacy Initiative as
a program for improving pupil financial literacy. Vetoed
by the Governor.
e. AB 1950 (Lieu), 2005-06 Legislative Session:
Substantially similar to AB 2435 from the 2004
Legislative Session. Vetoed by the Governor.
f. AB 2435 (Wiggins), 2003-04 Legislative Session:
Would have permitted school districts to provide
instruction in economics courses related to the
understanding of personal finances including budgeting,
savings and credit. Vetoed by the Governor.
LIST OF REGISTERED SUPPORT/OPPOSITION
Support
Controller John Chiang (co-sponsor)
New America Foundation (co-sponsor)
American Federation of State, County, and Municipal Employees,
AFL-CIO
California Bankers Association
California Chamber of Commerce
California Coalition for Rural Housing
California Credit Union League
California Library Association
California School Boards Association
CalSTRS
Consumer Federation of California
AB 597 (Eng), Page 8
VISA
Opposition
California Alliance For Consumer Protection
www.TheCaliforniaIndex.org
Consultant: Eileen Newhall (916) 651-4102