BILL ANALYSIS Ó
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THIRD READING
Bill No: SB 798
Author: De León (D)
Amended: 1/6/14
Vote: 27 - Urgency
SENATE GOVERNANCE & FINANCE COMMITTEE : 6-0, 1/15/14
AYES: Wolk, Knight, Beall, DeSaulnier, Hernandez, Liu
NO VOTE RECORDED: Vacancy
SENATE APPROPRIATIONS COMMITTEE : 6-0, 1/23/14
AYES: De León, Gaines, Hill, Lara, Padilla, Steinberg
NO VOTE RECORDED: Walters
SUBJECT : Income taxes: credits: contributions to education
funds
SOURCE : Author
DIGEST : This bill establishes a tax credit under Personal
Income Tax law and Corporate Tax law equal to 60%, 55%, and 50%
of contributions to a special education fund for the purposes of
providing Cal Grants.
ANALYSIS : Existing federal and state laws provide various tax
credits designed to provide tax relief for taxpayers who incur
certain expenses (child adoption, for example) or to influence
behavior, including business practices and decisions (research
credits or economic development area hiring credits, for
example). These credits are designed to provide incentives for
taxpayers to perform various actions or activities that they may
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not otherwise undertake. Currently, neither federal nor state
law provides a credit for contributions to a special education
fund.
Existing federal and state laws allow individuals to deduct
certain expenses, such as medical expenses, charitable
contributions, interest, and taxes, as itemized deductions. For
example, if a taxpayer making $100,000 annually makes a $100
contribution to UCLA, he/she would receive a state deduction for
the amount that reduces income subject to the tax at the 9.3%
rate for the state and a federal deduction of about 35%
representing state and federal tax rates. Therefore, the
taxpayer would receive a $10 benefit from the state, and about
$30 from the federal government for a total out of pocket
expense of $60, thus creating a charitable giving incentive for
taxpayers. Existing federal and state law allows a corporation
and S-corporation to deduct charitable contributions up to 10%
of its net income. Contributions in excess of 10% may be
carried over to five succeeding taxable years.
This bill, for taxable years beginning on or after January 1,
2014, and before January 1, 2017, allows taxpayers, upon receipt
of the California Educational Facilities Authority's (Authority)
certification, to receive an income or franchise tax credit for
a specified percentage of cash contributions made to the College
Access Tax Credit Fund (Fund).
The maximum aggregate amount of credit that could be allocated
and certified by the Authority for any calendar year would be
$500 million.
The specified percentage used to calculate the credit will be:
60% of the amount contributed during the 2014 taxable year.
55% of the amount contributed during the 2015 taxable year.
50% of the amount contributed during the 2016 taxable year.
The Authority will be required to do all of the following:
1.Allocate and certify the income tax credit to personal and
corporate taxpayers from January 1, 2014 to December 31, 2016.
2.Establish a procedure for taxpayers to contribute to the Fund
and obtain certification for the credit.
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3.Provide to the Franchise Tax Board (FTB) a copy of each credit
certificate immediately following the year of issue.
4.Preclude any deductions for amounts taken into account in the
calculation of the credit.
The credit will be repealed by its own terms as of December 1,
2017.
This bill clarifies that revenues for this program are subject
to Proposition 98 consistent with the Constitution and subject
to all requirements.
Amounts contributed to the Fund will, upon appropriation by the
Legislature, be allocated to the Student Aid Commission for the
purpose of awarding Cal Grants. The funds will be used for Cal
Grant B programs contingent on the passage of
SB 174 (De León).
Comments
In 2013, Governor Brown vetoed nearly identical legislation
authored by Senator De León (SB 284 and SB 285) when the
Department of Finance noticed that even though the tax credit
created by the legislation reimburses the General Fund (GF)
making it budget neutral it does so with private donations which
cannot be counted toward Proposition 98. The Governor's veto
message contained a request to fix this technical error so as
not to inadvertently hurt K-12. SB 174 and this bill contain
the language from these vetoed bills, plus the technical
clean-up.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee:
Estimated revenue losses of $190 million in 2014-15, $360
million in 2015-16, and $330 million in 2016-17 (GF).
Estimated revenue gains of $750 million in 2014, $700 million
in 2015, and $600 million in 2016 (deposited in the Fund,
created by this bill).
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Costs to the Authority in the range of $900,000 to $1.6
million over three years to administer the certification of
tax credits for contributions.
Unknown administrative costs to FTB related to changes in tax
forms and instructions. Specifically, this bill impacts the
FTB's printing, processing and storage costs for tax returns.
The amount of the increase will likely exceed $50,000 (GF).
The net gain from the above four factors, in the hundreds of
millions of dollars, will be applied to Cal Grants.
SUPPORT : (Verified 1/27/14)
AFSCME
American Career College
Associated Students of UC Davis
Association of Independent California Colleges and Universities
California Catholic Conference
California Community College Association of Student Trustees
California Competes
California Faculty Association
California State Student Association
California Student Aid Commission
Community College League of California
Faculty Association of California Community Colleges
Los Angeles Area Chamber of Commerce
Los Angeles Community College District
NAACP California
NAACP Los Angeles
National Council of La Raza
Public Advocates
Southern California College Access Network
Student Senate for California Community Colleges
The Campaign for College Opportunity
The Education Trust - West
The Institute for College Access and Success
University of California Student Association
West Coast University
Young Invincibles
ARGUMENTS IN SUPPORT : Supporters state that "Since 1969, the
Cal Grant program has helped millions of low-income Californians
afford to go to college. Importantly, the Cal Grant B 'access
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awards' are critical to helping students succeed once they are
enrolled. They enable recipients - many with incomes well below
the poverty line and few resources of their own to pay for
college - to limit their work hours, so they have more time to
spend in class and studying."
"While Cal Grant B access awards remain a crucial resource for
students, their value - and therefore their effectiveness in
promoting college success - has decreased dramatically over
time. Adjusted for inflation, the 1969 access award would be
worth over $6,000 today, but this year's access award is worth
just a quarter of that: $1,473. Meanwhile, college costs have
increased at a far greater clip than inflation."
AB:e 1/27/14 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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