BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 1476| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- UNFINISHED BUSINESS Bill No: SB 1476 Author: Committee on Governance and Finance Amended: 6/16/16 Vote: 21 SENATE GOVERNANCE & FIN. COMMITTEE: 7-0, 4/20/16 AYES: Hertzberg, Nguyen, Beall, Hernandez, Lara, Moorlach, Pavley SENATE FLOOR: 37-0, 4/28/16 AYES: Allen, Anderson, Bates, Beall, Berryhill, Block, Cannella, De León, Fuller, Gaines, Galgiani, Glazer, Hall, Hancock, Hertzberg, Hill, Hueso, Huff, Jackson, Lara, Leno, Leyva, Liu, McGuire, Mendoza, Mitchell, Monning, Moorlach, Morrell, Nguyen, Nielsen, Pan, Pavley, Roth, Stone, Wieckowski, Wolk NO VOTE RECORDED: Hernandez, Runner, Vidak ASSEMBLY FLOOR: 78-0, 8/15/16 - See last page for vote SUBJECT: Personal income taxes: voluntary contributions SOURCE: Author DIGEST: This bill establishes general requirements for all new or extended voluntary tax contribution funds. Assembly Amendments make technical changes, and clarifies that this bill only applies to new and extensions of voluntary tax contributions. SB 1476 Page 2 ANALYSIS: Existing law: 1)Allows taxpayers to contribute money to voluntary contribution funds (VCFs) by checking a box on their state income tax returns. 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. 2)Requires that each VCF is individually added to the tax return by legislation. With a few exceptions, VCFs remain on the return until they are repealed by a sunset date or fail to generate a minimum contribution amount.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: a) California Firefighters' Memorial Foundation Fund, b) California Peace Officer Memorial Foundation Fund, and c) California Seniors Special Fund. 3)Requires the Franchise Tax Board (FTB) to deposit 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 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 SB 1476 Page 3 deduct from the amount of donations each VCF receives for direct costs of administering a fund. This bill: 1)Establishes the following general provisions for all tax check-offs: a) Sets a minimum contribution amount of $250,000 beginning the second calendar year after the first appearance of the fund on the income tax return, and eliminates the inflation adjustment in subsequent years. b) Lengthens the current standard five year sunset to seven years. c) Requires the administering agency to post online the process for awarding money, the amount of money spent on administration, and an itemization of how program funds were awarded by the agency, including, but not limited to, information regarding recipients of funds. d) Provides that funds shall be continuously appropriated to the administering agency to be spent as prescribed in the bill that enacts the voluntary contribution. e) Includes the words "voluntary tax contribution" in the name of the fund. 2)Applies to all voluntary contribution funds established or extended after January 2, 2017. Background SB 1476 results from extensive research and an oversight hearing which identified best practices and reforms needed to ensure that taxpayers' voluntary contributions are being put toward charitable purposes in a transparent and timely fashion. The current tax check-off process starts with the Legislature enacting legislation. Next, a taxpayer contributes to an established tax check-off on the income tax form. The donation is collected by FTB and distributed to the State Controller by SB 1476 Page 4 June 15th each year. Contributions made after June are not distributed to the State Controller's Office until the following year. The State Controller then distributes the funds according to the enacting statute, which generally requires an appropriation by the Legislature. Next, the administering agency generally must submit a budget change proposal (BCP) to the Department of Finance. Once the Department of Finance approves the BCP, the appropriation is placed into a bill to be approved by the Legislature. After the Governor signs that bill, only then can the Controller transfer the donation to the administering agency. This process can take years. When a tax check-off is repealed, or fails to meet the minimum contribution limit, the check-off fund is removed from the income tax form. After four years of inactivity the tax check-off fund is abolished, and unused funds revert to the General Fund at the direction of the Department of Finance. Before the Department of Finance abolishes a tax check-off fund, the Department sends a letter to the Joint Legislative Budget Committee informing the Committee of all funds slated to be abolished. At that time, the Joint Legislative Budget Committee has the opportunity to object to the check-off fund's abolishment. The letter from the Department of Finance does not specify the type of fund being abolished; the letter only lists names of funds. Thus, it is unclear from the face of the letter if an abolished fund is a privately-funded taxpayer check-off fund or a government fund. SB 1476 will ensure timely use of tax check-off funds by eliminating the current requirement of "appropriation by the Legislature" of funds. Elimination of requiring an appropriation by the Legislature for each tax check-off will result in funds arriving to the administering agency at least a year earlier than under the current process. This bill also protects tax check-off funds from reverting to the General Fund by requiring tax check-off funds to include "voluntary contribution fund" in their names so that the Legislature, Department of Finance, and the Joint Legislative Budget Committee are aware when a tax check-off fund is slated for abolishment and reversion to the General Fund. Lastly, this bill includes reporting requirements by the administering agency. This serves as a safeguard against eliminating the SB 1476 Page 5 appropriation by the Legislature requirement. Instead of the intended use of the funds only being available to the Department of Finance in a BCP, the use of the funds will be online available to everyone. FISCAL EFFECT: Appropriation: No Fiscal Com.:NoLocal: No SUPPORT: (Verified8/15/16) Asian & Pacific Islander American Health Forum Breast Cancer Action Breast Cancer Fund California Breast Cancer Organizations K to College University of California West Fresno Family Resource Center OPPOSITION: (Verified8/15/16) None received ARGUMENTS IN SUPPORT: According to the author, On December 9, 2015 Senate Governance and Finance held an oversight hearing titled "California's Tax Check-off Program: Room for Improvement?" The hearing reviewed the current status of California's tax check-off funds and found a framework was needed to improve our current tax check-off system. Specifically, the Committee found that donated funds could take years to reach the intended recipient, or worse yet the money ends up in state coffers. The Legislature created California's tax check-off system in 1982 with a noble intention: to make it easier for Californians to donate to charitable causes. To date, tax check-offs have raised over $102 million for various charitable causes, including social services, public health, and environmental protection. SB 1476 seeks to streamline the tax check-off process to ensure all funds reach their intended SB 1476 Page 6 recipient as quickly as possible, and address administrative burdens tax check-off recipients have faced. ASSEMBLY FLOOR: 78-0, 8/15/16 AYES: Achadjian, Alejo, Travis Allen, Arambula, Atkins, Baker, Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Harper, Holden, Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Nazarian, Obernolte, O'Donnell, Patterson, Quirk, Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams, Wood, Rendon NO VOTE RECORDED: Roger Hernández, Olsen Prepared by:Myriam Bouaziz / GOV. & F. / (916) 651-4119 8/19/16 20:05:04 **** END ****