BILL ANALYSIS                                                                                                                                                                                                    �



                                                                  AB 2426
                                                                  Page  1

          Date of Hearing:   May 21, 2014

                        ASSEMBLY COMMITTEE ON APPROPRIATIONS
                                  Mike Gatto, Chair

                    AB 2426 (Nestande) - As Amended:  May 5, 2014

          Policy Committee:                              Revenue &  
          Taxation     Vote:                            6-0

          Urgency:     No                   State Mandated Local Program:  
          No     Reimbursable:              No

           SUMMARY  

          This bill provides, for taxable years beginning on or after  
          January 1, 2014, an "above-the-line" deduction for amounts  
          contributed to a Coverdell Education Savings Account (ESA) from  
          gross income, up to $750 per taxable year, and provides that the  
          basis for the ESA shall be reduced by an amount equal to the  
          deduction.

           FISCAL EFFECT  

          1)Insignificant impact to the Franchise Tax Board's costs. 

          2)Estimated GF revenue decreases of $900,000, $600,000, and  
            $700,000 in FY 2014-15, FY 2015-16, and FY 2016-17,  
            respectively.

           COMMENTS  

           1)Purpose.   According to the author, the rise in costs of  
            college tuition and student debt has become a major issue for  
            Californians.  One way to reduce those costs is better  
            preparation for incoming students, which lowers the time  
            needed to complete degrees and subsequently saves costs.  ESAs  
            allow parents to save for expenses like tutoring, college  
            preparation classes, and school supplies.  The author claims  
            by providing incentives for parents to invest in their  
            children's education during the K-12 years, California can  
            help ensure its students are adequately prepared when they  
            enroll in college. 

           2)Tax Incentive vs Investment in Education.   Opponents argue  








                                                                  AB 2426
                                                                  Page  2

            K-12 education has endured budget cuts of $20 billion over the  
            last few years, and that additional revenues should be spent  
            on restoring those budgets instead of being used for tax  
            incentives.  Furthermore, tax deductions tend to benefit  
            higher income earners.  According to a report by the  
            Government Accountability Office, families with 529 and ESA  
            plans had a median annual income of $142,000.  The committee  
            may wish to consider whether increased funding to existing  
            programs would be a more efficient approach to achieving these  
            goals.


           Analysis Prepared by  :    Joel Tashjian / APPR. / (916) 319-2081