BILL ANALYSIS �
AB 2107
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Date of Hearing: May 7, 2014
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
AB 2107 (Gorell) - As Amended: April 30, 2014
Policy Committee: Revenue &
Taxation Vote: 9-0
Urgency: No State Mandated Local Program:
No Reimbursable: No
SUMMARY
This bill creates the California Preschool Investment Pilot
Program (Program) to incentivize private contribution to state
preschools through a tax credit. The bill establishes the
California Preschool Investment Fund (Fund) and allows an income
tax credit equal to 40% of the amount contributed by an
individual or corporate taxpayer to the Fund. The bill requires
the California Department of Education (CDE) to use the
contributions to fund state preschool programs after reimbursing
the General Fund for credits issued and reimbursing costs to CDE
and the Franchise Tax Board (FTB). In summary, this bill:
1)Requires the CDE to select, no later than September 1, 2015,
the five counties to be included in the Program, ensuring that
urban, suburban, and rural counties are all represented.
Applications shall be made by county child care and
development planning councils.
2)Requires the CDE to establish a procedure for making
contributions to the Fund and issuing receipts to contributors
indicating the amount contributed, the name of the
contributor, the date the contribution is made, and whether
the person has been allocated a tax credit.
3)Allows the taxpayer to claim the credit only if the taxpayer
provides the receipt from CDE to the FTB and claims the credit
on a timely filed original return. The bill allows the
taxpayer to carry forward any unused credit for up to four
years.
4)Requires that moneys distributed from the Fund be used first
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to reimburse the General Fund for the aggregate amount of
certified credits allowed; second, upon appropriation, to the
CDE and FTB to reimburse administrative costs associated with
the Program; and last, upon appropriation, to support state
preschools located in the five participating counties.
5)Limits the aggregate amount of credits that may be allowed to
$250 million per calendar year; specifies that credits will be
allocated to contributors on a first come, first served basis.
6)Requires the CDE to notify the FTB of the credits allocated on
a monthly basis, and requires the CDE and FTB to post that
information quarterly on their respective websites, together
with the amount of remaining credits and an indication of
whether the cap on credits may be reached at least every
calendar quarter.
7)Specifies that any moneys remaining in the Fund as at January
1, 2020 shall be transferred to any other state fund
identified by the CDE that provides funding for increased
access to preschool programs for low-income children.
FISCAL EFFECT
1)Potential costs, likely in the hundreds of thousands of
dollars, to CDE in the hundreds of thousands to administer the
Fund and provide contribution receipts; additional minor costs
to FTB to administer the tax credit.
2)Estimated decrease to GF revenue of $2.2 million in FY
2014-15, $17.0 million in FY 2015-16, and $19.0 million in FY
2016-17, though this bill seeks to reimburse the GF for those
amounts.
COMMENTS
1) Purpose. According to the author, demand for early learning
programs outstrips supply, with many families on waitlists for
state programs. The author indicates that several studies
have shown the beneficial impact to students of early
learning, and that early investment in child learning yields
long-term economic benefit to the state.
The author contends the Program will provide incentives for
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private sector businesses to contribute to the state's current
early learning programs and allow more families to send their
children to preschools. The author claims other states have
demonstrated evidence of significant interest from large
corporations in contributing to early education.
2) Interaction with Federal Charitable Contributions. This bill
is based on a recent idea to "capture" federal dollars by
enacting a state charitable tax credit. Based on recent IRS
guidance that charitable contributions to a state fund are
eligible for the federal tax deduction in the same manner as
contributions to a charitable non-profit organization, the
structure allows a taxpayer to benefit from both the state tax
credit as well as a full deduction on the contribution amount
from federal taxes. Such a favorable structure could result
in the state raising significant money for this Fund, serving
as a model to future programs.
3) Generous Incentive. This bill creates one of the most
generous tax credits ever allowed in California. Under
existing law, taxpayers may only claim a deduction for
contributions to charitable organizations. A tax credit,
however, may be much more valuable, particularly to corporate
taxpayers, which are limited to 10% of the taxpayer's net
income. As a result, this bill could incentivize many
corporate taxpayers to redirect charitable contributions to
the Fund, creating a tax planning opportunity for corporate
social responsibility programs.
4) Previous Legislation. SB 284 (De Leon) in 2013 would have
established a similar tax credit and voluntary contribution
fund with a structure similar to that contemplated here. SB
284 was vetoed by the Governor because it would have adversely
impacted Proposition 98 funding guarantee.
Analysis Prepared by : Joel Tashjian / APPR. / (916) 319-2081