BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SB 1207 HEARING: 4/9/14
AUTHOR: Wolk FISCAL: Yes
VERSION: 4/2/14 TAX LEVY: No
CONSULTANT: Urquiza
CALIFORNIA VOLUNTARY CONTRIBUTION PROGRAM
Creates an administrative process for charitable
organizations and state and local agencies to receive
taxpayers' voluntary contributions through the state income
tax form.
Background and Existing Law
Existing state law allows taxpayers to contribute money to
voluntary contribution funds (VCFs) by checking a box on
their state income tax return. California law requires
contributions made through so-called "check-offs" to be
made from taxpayers' own resources and not from their tax
liability, as is possible on federal tax returns.
Check-off amounts may be claimed as charitable
contributions on taxpayers' tax returns in the subsequent
year.
Each VCF is individually added to the tax return through
the legislative process. With a few exceptions, VCFs
remain on the return until they are repealed by a sunset
date or fail to generate a minimum contribution amount. In
general, the minimum contribution amounts are adjusted
annually for inflation. For most VCFs, the minimum
contribution amount is $250,000, beginning in the fund's
second year. The following check-offs do not have a
minimum contribution requirement:
California Firefighters' Memorial Foundation Fund,
California Peace Officer Memorial Foundation Fund,
and
California Seniors Special Fund.
When a taxpayer contributes to VCFs, the Franchise Tax
Board (FTB) deposits the total of all contributions into
the fund created as part of the VCF's legislative
authorization. For some VCFs, such as the Protect Our
SB 1207 -- 4/2/14 -- Page 2
Coast and Ocean Fund, taxpayers' contributions are
allocated to a state agency for use in a state administered
grant program. Other VCFs' authorizing statutes direct
administrative agencies to allocate donations to a private
organization. For example, the Office of Emergency
Services passes VCF funds to the American Red Cross. Other
funds require the State Controller to send the funds
directly to private organizations without passing through
an administrative agency, such as the California Fire
Foundation. The FTB, the Controller, and an administrative
agency may deduct from the amount of donations each VCFs
receives for direct costs of administering a fund.
There are currently 20 check-offs listed on the tax return
form. The tax check-off program typically collects $4-5
million in annual contributions for all VCFs. The following
list provides information on the current tax check-offs.
------------------------------------------------------------
|Voluntary | 2013 | Contribution Allotment |
|Contribution Fund |Contribution| |
| | s | |
|---------------------+------------+-------------------------|
|Alzheimer's | $405,080 | As many as apply and |
|Disease/Related | | receive contracts or |
|Disorders Fund | | grants provided by the |
| | | monies contributed. |
|---------------------+------------+-------------------------|
|CA Breast Cancer | $369,425 | As many as apply and |
|Research Fund | | receive grants provided |
| | | from the monies |
| | | contributed. |
|---------------------+------------+-------------------------|
|CA Cancer Research | $389,759 | As many as apply and |
|Fund | | receive grants provided |
| | | from the monies |
| | | contributed. |
|---------------------+------------+-------------------------|
|CA Firefighters' | $126,158 | California Fire |
|Memorial Fund | | Foundation. |
|---------------------+------------+-------------------------|
|CA Fund for Senior | $234,247 | California Senior |
|Citizens | | Legislature. |
|---------------------+------------+-------------------------|
SB 1207 -- 4/2/14 -- Page 3
|CA Peace Officer | $128,581 | California Peace |
|Memorial Foundation | | Officer Memorial |
|Fund | | Commission. |
|---------------------+------------+-------------------------|
|CA Sea Otter Fund | $307,544 | Department of Fish and |
| | | Wildlife, and as many |
| | | as apply for grants and |
| | | contracts provided for |
| | | by 50% of |
| | | contributions. |
|---------------------+------------+-------------------------|
|CA Seniors Special | $60,961 | The first $80K to the |
|Fund | | Area Agency on Aging |
| | | Advisory Council of |
| | | California and the rest |
| | | to area agencies as |
| | | allocated by the |
| | | California Department |
| | | of Aging. |
|---------------------+------------+-------------------------|
|CA YMCA Youth and | $72,435 | The first $300K to the |
|Government Fund | | CA YMCA Youth and |
| | | Government Program. |
| | | The rest is allocated |
| | | in $10K annual grants |
| | | to the: African |
| | | American Leaders for |
| | | Tomorrow Program, Asian |
| | | Pacific Youth |
| | | Leadership Project, |
| | | Chicano Latino Youth |
| | | Leadership Project. |
| | | Remaining funds |
| | | allocated to the CA |
| | | YMCA Youth and |
| | | Government Program, |
| | | whose board may award |
| | | additional $10K annual |
| | | grants to additional |
| | | nonprofit civic youth |
| | | organizations. |
|---------------------+------------+-------------------------|
|CA Youth Leadership | $55,505 | To the Department of |
|Fund | | Education to provide |
| | | for the CA Youth |
| | | Leadership Project. |
SB 1207 -- 4/2/14 -- Page 4
|---------------------+------------+-------------------------|
|Child Victims of | $220,119 | As many counseling and |
|Human Trafficking | | prevention centers that |
|Fund | | apply and receive |
| | | grants provided from |
| | | monies contributed. |
|---------------------+------------+-------------------------|
|Emergency Food for | $459,291 | To the Department of |
|Families Fund | | Social Services for the |
| | | Emergency Food |
| | | Assistance Program. |
|---------------------+------------+-------------------------|
|Municipal Shelter | $217,883 | As many as apply and |
|Spay-Neuter Fund | | receive grants provided |
| | | from the monies |
| | | contributed. |
|---------------------+------------+-------------------------|
|Rare & Endangered | $476,933 | Department of Fish and |
|Species Preservation | | Wildlife endangered |
|Program | |conservation programs. |
|---------------------+------------+-------------------------|
|School Supplies for | $367,868 | As many as apply and |
|Homeless Children | | receive grants provided |
|Fund | | for by the monies |
| | |contributed. |
|---------------------+------------+-------------------------|
|State Children's | $305,438 | To the Department of |
|Trust for the | | Social Services for |
|Prevention of Child | | prevention and |
|Abuse | | intervention programs. |
|---------------------+------------+-------------------------|
|State Parks | $396,921 | As many as purchase a |
|Protection | | parks pass that can be |
|Fund/Parks Pass | | provided from the |
|Purchase | | monies contributed. |
|---------------------+------------+-------------------------|
|Keep Arts in Schools |Initial Tax | To the Arts Council for |
|Fund | Return | grants to organizations |
| | 2013 | providing parts |
| | | programs in schools. |
|---------------------+------------+-------------------------|
|Protect Our Coast |Initial Tax | To the California |
|and Oceans Fund | Return | Coastal Commission to |
| | 2013 | provide grants to |
| | | organizations in |
| | | support of coastal |
SB 1207 -- 4/2/14 -- Page 5
| | | resource programs and |
| | | related educational |
| | | activities. |
|---------------------+------------+-------------------------|
|American Red Cross, |Initial Tax | To the Office of |
|California Chapter | Return | Emergency Services for |
| | 2013 | distribution to the |
| | | American Red Cross. |
| | | |
------------------------------------------------------------
Proposed Law
Senate Bill 1207 revises the process to allow charitable
organizations and state and local agencies to receive
taxpayers' voluntary contributions. The bill establishes
the California Voluntary Contribution Program to promote
charitable giving and collect donations through the
personal income tax return on behalf of qualified
applicants. The office of California Volunteers, or a
successor agency, is responsible for administering the
program.
The bill defines a "qualified applicant" as either a state
or local agency, or a 501 (c)(3) charitable organization
that meets the following requirements:
Was incorporated in California at least five years
prior to the date of application or qualified as a
foreign corporation;
Has registered with the Attorney General's Registry
of Charitable Trusts for each of the three years prior
to the date of application and has met the necessary
requirements of the Registry;
Has submitted required annual returns or statements
with the FTB for each of the three years prior to the
date of application;
Has average annual total revenues in excess of
$100,000, as calculated from each of the three years
prior to the date of application.
Qualified applicants may apply to California Volunteers to
receive voluntary contributions through the income tax
form. The applicant must submit evidence to California
Vounteers to show qualifications and an application fee, as
established by the administering agency, to cover costs of
SB 1207 -- 4/2/14 -- Page 6
the application process.
The minimum contribution amount for each approved qualified
applicant is set at $100,000. California Volunteers may
adjust the minimum contribution every five calendar years.
A qualified applicant may no longer receive voluntary
contributions if:
The average amount of contribution received during
three calendar years did not equal the minimum
contribution requirement;
The designee no longer meets the definition of
"qualified applicant."
A qualified applicant that loses eligibility for the
program may reapply after 5 years.
Any taxpayer may designate on the personal income tax
return that a contribution in excess of the tax liability,
if any, be made to a specific qualified applicant. If the
payments and credits on a return do not exceed a taxpayer's
liability, the return is treated as if no designation was
made.
SB 1207 establishes in the State Treasury the California
Voluntary Contribution Fund that would receive all
voluntary taxpayer contributions made to any qualified
applicant. All money transferred to the California
Voluntary Contribution Fund will be allocated as follows:
To the FTB, the Controller, and California
Volunteers for reimbursement of costs; and
To California Volunteers for distribution to each
qualified applicant designated by a taxpayer.
On and after January 1, 2020, no more than 5% of money from
the fund, exclusive of fee revenues, can be used for
administrative purposes. If a taxpayer fails to specify a
designee, the contribution is transferred to California
Volunteers after reimbursing FTB and the Controller for the
actual costs for collection and administration of
contributions. If a taxpayer designates more than one
fund, but the amount available exceeds the total amount
designated, the contribution is distributed among the
designees on a pro rata basis.
No later than January 1, 2017, California Volunteers must:
Develop application and related materials;
SB 1207 -- 4/2/14 -- Page 7
Establish reasonable and necessary application and
renewal fees;
Develop procedures and adopt regulations to inform
taxpayers on how to contribute directly to a
charitable organization or state or local agency that
no longer is eligible to participate in the program
after not meeting the required minimum contribution
amount;
Develop policies and procedures to ensure that
qualified applicants are in compliance with relevant
statutes affecting those applicants;
Develop a plan to transition the remaining funds on
the tax return form to the program and submit the plan
to the relevant committees of the Legislature by 2020.
OCV may also:
Form an advisory body or related bodies as deemed
necessary;
Contract with other agencies, public or private, as
deemed necessary;
Adopt regulation necessary for the administration
of the program;
Establish policies that limit the number of
participating qualified applicants for the first five
years of the program based on capacity and
appropriation.
The office must annually provide to the Legislature, and
make publicly available, a report of the program, including
goals, a baseline, metrics, and targets to track the
effectiveness of efforts to encourage charitable giving.
No later than January 1, 2017, the FTB must revise the tax
form and other related materials to allow an individual to
designate a contribution to any one of the qualified
applicants.
SB 1207 sunsets on January 1, 2030.
State Revenue Impact
No estimate.
Comments
SB 1207 -- 4/2/14 -- Page 8
1. Purpose of the bill . The current tax check-off system
limits charitable organizations' participation due to
limited space on the tax form, a high annual minimum
donation requirement, and the need for legislative
approval. Since 2003, 15 VCFs have fallen off the form due
to failure to meet the annual minimum donation threshold.
Previous committee analyses also have expressed concern
that there are many worthy causes that could be funded by
the tax check-off system, but the current system is
subjective and requires the Legislature to choose between
charities for a spot on the tax return form. SB 1207
expands access to taxpayers' donations to all eligible
charities, streamlines the process for charitable
organizations and donors, establishes clear standards, and
designates an administering agency to implement the
program, enforce standards, and monitor effectiveness.
2. Are we in the right business ? The current tax
check-off program generates a relatively small share of
statewide contributions to charitable causes. In 2008,
Californians donated more than $17 billion to charities.
However, less than 1% of Californians are utilizing the tax
check-off program to make donations to charitable
organizations. FTB reports that in 2012, 89,335 out of 15
million taxpayers contributed a total of $4.8 million to 18
check-offs. The committee may wish to consider whether the
tax return form is an effective or appropriate way to
collect donations for charitable causes.
3. Impact on existing check-offs . The existing check-offs
provide a critical source of funding for a range of
important causes and programs. SB 1207 does not directly
affect the existing check-offs. However, California
Volunteers must present a plan to the Legislature by 2020
to transition the remaining funds listed on the tax return
form to the new program. Some organizations that benefit
from the current program fear that a greater pool of
charities competing for taxpayers' donations may reduce
donation amounts they are currently receiving.
4. Necessary oversight . The current check-off structure
requiring legislative and gubernatorial approval of the tax
check-offs provides some vetting of charitable
organizations and programs before they appear on the tax
form. SB 1207 requires California Volunteers to develop
policies and procedures to ensure that applicants are in
SB 1207 -- 4/2/14 -- Page 9
good standing with state laws and regulations, such as
having submitted returns and statement to the FTB. This
oversight is necessary since SB 1207 does not use a
legislative approach and expands the pool of charitable
organization that may receive taxpayers' donations. With a
larger pool of charities, it is possible that
"illegitimate" charities might find a way to join SB 1207's
program and collect donations through the tax form.
5. Financial risk . The increasing demand from charitable
organizations that want to participate in the check-off
program may soon generate significant costs. Prior to a
redesign of the tax forms, there were more tax check-offs
than could be accommodated on the tax form. While changes
to the tax forms have accommodated more tax check-offs, the
FTB reports that it can accommodate 12-15 additional tax
check-offs before it has to redesign its information
technology system, at a cost of between $800,000 and $1
million. Depending on the number of additional tax
check-offs the Legislature elects to put on the tax form,
it could be between two and five years before the FTB's
system must be upgraded. The committee may wish to consider
the financial risks SB 1207 poses compared to the future
financial risks of the existing check-off program.
6. Avoiding a constitutional problem . In 2004, a U.S.
District Court in California ruled in Women's Resource
Network v. Department of Motor Vehicles that the state's
process for awarding special interest license plates was
unconstitutional in that it violates freedom of speech.
The court determined that the law giving the Legislature
"unfettered discretion" to decide which private nonprofit
groups would be able to use special-interest license plates
to raise money is unconstitutional because "the First
Amendment does not allow the government to use a
standardless forum to select private speakers." The court
specifically ruled that all existing plates could continue,
but there could be no new programs. It is important to
note that the same objection could be raised against the
state's existing tax check-off system because of the way
the Legislature and the Governor are allowed to decide
which groups should be allowed to use the state tax return
to raise money.
7. Related legislation . SB 1207 is not the only bill
dealing with tax check-offs this legislative session:
SB 1207 -- 4/2/14 -- Page 10
Assembly Bill 1561 (Rodriguez, 2014) extends the
repeal date from 2016 to 2026 for the California
firefighters' and peace officer memorial funds.
Assembly Bill 1765 (Jones-Sawyer, 2014) creates the
Habitat for Humanity Fund check-off on the tax form.
Assembly Bill 1833 (Garcia, 2014) eliminates the
minimum contribution requirement for the California
Fund for Senior Citizens.
Assembly Bill 2012 (Morell, 2014) eliminates the
minimum contribution requirement for the California
Fund for Senior Citizens.
Assembly Bill 2326 (Dickinson, 2014) creates the
Pet Adoption Cost Deduction Fund check-off on the tax
form.
Senate Bill 761 (DeSaulnier, 2014) modifies state
administration of funds received through the School
Supplies for Homeless Children Fund.
Senate Bill 782 (DeSaulnier, 2014) creates the
California Sexual Violence Victim Services Fund tax
check-off.
Senate Bill 987 (Monning, 2014) requires that the
cost incurred by the Department of Fish and Wildlife
in taking measures to encourage taxpayers to make
contributions on their tax return be paid for with
money allocated to the California Sea Otter Fund.
Support and Opposition (4/3/14)
Support : Acci�n Latina; ALS (Amyotrophic Lateral
Sclerosis) Association Golden West Chapter; American Lung
Association in California; California Association of
Nonprofits; Lupus Foundation of America.
Opposition : California Association of Food Banks;
California Professional Firefighters.
SB 1207 -- 4/2/14 -- Page 11