BILL ANALYSIS Ó
SB 798
Page 1
Date of Hearing: August 6, 2014
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
SB 798 (De León) - As Amended: January 6, 2014
Policy Committee: Revenue &
Taxation Vote: 9-0
Urgency: Yes State Mandated Local Program:
No Reimbursable: No
SUMMARY
This bill creates the College Access Tax Credit Fund (Fund) for
purposes of attracting private contributions to fund additional
Cal Grants to students, and allows an income tax credit equal to
60%, 55%, and 50% of the amount contributed by an individual or
corporate taxpayer to the Fund in each of the taxable years
beginning on January 1, 2014, 2015, and 2016, respectively. In
summary, this bill:
1)Requires the California Educational Facilities Authority
(CEFA) to administer the Fund, and requires that moneys
distributed from the Fund be used:
a) To reimburse the General Fund for the aggregate amount
of certified credits allowed, and specifies that such
reimbursements are to be considered GF revenues (for
purposes of preserving Proposition 98 funding).
b) Upon appropriation, to the CEFA, the Student Aid
Commission (SAC), and Franchise Tax Board (FTB) to
reimburse administrative costs associated with the program.
c) Upon appropriation, to the SAC for purposes of awarding
Cal Grants.
2)Requires the CEFA to establish contribution and certification
procedures and regulations, allocate tax credits and certify
contribution amounts to taxpayers within 45 days of
contribution, and provide FTB a copy of each credit
certificate issued by March 1 following the year in which the
certificates were issued.
SB 798
Page 2
3)Limits the aggregate amount of credits that may be allowed to
$500 million per calendar year, plus any previously
unallocated and uncertified credits; requires contributions to
be made in cash; allows the taxpayer to carry forward any
unused credit for up to five years.
4)Specifies that the bill takes effect immediately as an urgency
statute, becomes operative only if SB 174 (De León) is enacted
and takes effect on or before January 1, 2015, and sunsets the
credit provisions on December 1, 2017.
FISCAL EFFECT
1)Administrative costs to CEFA in the range of $900,000 to $1.6
million over three years to administer the certification of
tax credits for contributions, reimbursable from Fund
proceeds; minor and absorbable costs to FTB and SAC.
2)Estimated GF revenue decreases of $470 million, $310 million,
and $160 million in FY 2014-15, FY 2015-16, and FY 2016-17,
respectively, though this bill seeks to reimburse the GF for
those amounts.
3)Potential additional contribution receipts of up to $500
million per year to fund Cal Grants.
COMMENTS
1) Purpose. According to the author, this bill seeks to increase
Cal Grant B Access Award amounts for low income students to
improve academic achievement and graduation rates. The tax
credit differs from most others in that it leverages federal
tax deductions for charitable contributions to incentivize
contributions while ensuring the state does not lose money.
The author contends the program would result in an extra $900
million over the first three years to increase Cal Grant
awards. When the award was first established in 1969, the
amount granted per student for the year was $960. Today, that
amount has grown to only $1,473, while an inflation adjusted
amount would be $5,900.
2) Interaction with Federal Charitable Contributions. This bill
is inspired by a recent idea to "capture" federal dollars by
enacting a state charitable tax credit. Based on recent IRS
SB 798
Page 3
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 for future programs.
To the extent this bill generates $500 million of additional
charitable contributions per year, it could result in annual
federal revenue decreases of as much as $150 million. Such an
impact could cause the IRS to reevaluate its guidance on state
fund deduction eligibility.
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. This bill may incentivize many corporate taxpayers
to redirect charitable contributions to the Fund, creating a
tax planning opportunity for corporate social responsibility
programs while not necessarily increasing overall corporate
giving.
4) Previous Legislation.
a) SB 284 (De Leon) would have established a tax credit and
voluntary contribution fund to benefit Cal Grants with a
structure substantially similar to that contemplated here.
SB 284 was vetoed by the Governor because it would have
adversely impacted Proposition 98 funding.
b) AB 2107 (Gorell) would have established a tax credit and
voluntary contribution fund to benefit preschool education
with a structure similar to that contemplated here. AB
2107 was held on the Suspense File of this Committee.
Analysis Prepared by : Joel Tashjian / APPR. / (916) 319-2081