Colorado Legislative Council Staff

STATE

FISCAL IMPACT

Drafting Number:

Prime Sponsor(s):

LLS 99-0186

Rep. Dean

Sen. Owen

Date:

Bill Status:

Fiscal Analyst:

February 6, 1999

House Education

Harry Zeid (866-4753)

 

TITLE:            CONCERNING THE CREATION OF A COLLEGE SAVINGS PROGRAM.



Fiscal Impact Summary

FY 1999/2000

FY 2000/2001

State Revenues

General Fund

Cash Fund Exempt


Possible Future G.F. Revenue Reduction

State Expenditures

General Fund

Cash Fund Exempt



 



 

FTE Position Change

0.0 FTE

0.0 FTE

Other State Impact: TABOR Impact

Effective Date: July 1, 1999

Appropriation Summary for FY 1999-2000: None

Local Government Impact: None



Summary of Legislation


            This bill creates a new college savings program within the Colorado Student Obligation Bond Authority (CSOBA). Moneys in the savings program would not be insured by the state, and an investment return would not be guaranteed by the state. The State Treasurer would be responsible for designing the college savings program, and approving any plan for promoting the program developed by a financial institution under contract with CSOBA.


            The program responsibilities for the Colorado Student Obligation Bond Authority would include:

 

               implement the program in a manner consistent with the program design and policies;

               select the financial institution or institutions to serve as program manager;

               establish rules regarding the withdrawal of funds;

               retain the professional services of accountants, auditors, consultants, and other experts;

               seek rulings and other guidance, as necessary for implementation of the program; and

               charge, impose, and collect administrative fees and services charges.

            CSOBA would be authorized to contract with one or more financial institutions to act as managers for the investment of moneys contributed to the college savings program in stocks, bonds, mutual funds, and other investments. Moneys in the program would not be subject to any limitations on the investment of public funds, and would not be subject to the revenue limitations imposed in Section 20 of Article X of the State Constitution (the TABOR amendment).


            An account may be opened by any resident or nonresident individual desiring to save for the qualified higher education expenses of a potential beneficiary. Distributions to a designated beneficiary, as defined in Section 529 (e)(1) of the Internal Revenue Code, from an account established under the plan would be exempt from state income taxation to the extent that the income is used to pay qualified higher education expenses of the designated beneficiary.



State Revenues


            The bill provides that distributions to a designated beneficiary, as defined in Section 529 (e)(1) of the Internal Revenue Code, from an account established under the plan would be exempt from state income taxation to the extent that the income is used to pay qualified higher education expenses of the designated beneficiary. This tax exemption is similar to the treatment of distributions from the pre-paid college savings plan currently offered by CSOBA. It is expected that the addition of a new choice of investment instruments will increase the total number of individuals who choose to invest in a college savings program through CSOBA. This will impact the total amount of college savings funds that will be exempt from state income tax in the future as withdrawals from these college savings plans begin to be made. Some individuals who would otherwise invest in the tax exempt pre-paid college savings plan, or other taxable investment options, will choose the college savings program offered by CSOBA that has greater investment risk, and also offers greater potential earnings appreciation. This fiscal note cannot assess the amount of exempt interest earnings that will be earned in the future, or the years in which the withdrawals will occur from individual plans.



State Expenditures


            The bill will not have an expenditure impact on the State Treasury, or the Department of Revenue. The State Treasurer will be responsible for designing the college savings program, and for approving any plan for promoting the program developed by a financial institution under contract to CSOBA. These functions will be provided within existing staff resources of the Treasurer’s office. The interest exemption would be included on the “other subtraction” line on the state income tax form, and would not be tracked separately by the Department of Revenue. Therefore, no additional expenditures would be necessary by the Department of Revenue.


            CSOBA is authorized to charge and collect administrative fees and services charges in administering the program in amounts not to exceed the cost of establishing and maintaining the program. Actual administrative costs will not be known until the program is actually designed by the State Treasurer. The expenditures incurred by CSOBA are cash funds exempt.



State Appropriations


            The fiscal note would imply that no appropriations or spending authority are required in FY 1999-00 to implement the provisions of the bill.



Departments Contacted

 

            Revenue          State Treasury            Colorado Commission on Higher Education