The California Achieving a Better Life Experience (CalABLE) Program was established by Chapter 796, Statutes of 2015 (SB 324, Pavley) and Chapter 774, Statutes of 2015 (AB 449, Irwin). This program provides eligible individuals with disabilities the opportunity to create tax-advantaged accounts. The program is overseen by a board, which consists of the State Treasurer (Chair), the Director of Finance, the Controller, the Director of Developmental Services, the Chairperson of the State Council on Developmental Disabilities, the Director of Rehabilitation, and the Chair of the State Independent Living Council. The Governor’s budget proposes $900,000 for support of CalABLE in 2018‑19. This is an increase of about $250,000, or about 38 percent, from current-year estimated expenditures. This increase is a result of the proposal described below.
LAO Bottom Line. The Governor’s budget proposes $900,000 in 2018‑19 from a General Fund loan to support the continued implementation of CalABLE. While the proposal appears reasonable and we recommend its approval, we also recommend that the Legislature require CalABLE to provide a report that includes an evaluation of possible alternatives for reaching long-term financial self-sufficiency.
CalABLE allows individuals with disabilities (also known as beneficiaries) to create tax-advantaged accounts. Similar to 529 college savings accounts, contributions to CalABLE accounts are not deductible, but can grow tax-free. Distributions from accounts are generally not included in a beneficiaries income, as long as they are used for qualified services, such as education, housing, and healthcare.
Statute specifies that funding for startup and administrative costs for the first two years of implementing the program be funded by a General Fund loan. It further specifies that once revenues from fees charged by the program are sufficient to cover the board’s ongoing costs, the board shall repay, within five years, the amount loaned, plus interest. The 2016‑17 Budget Act appropriated $850,000 in 2016‑17 and $650,000 in 2017‑18 for startup activities for CalABLE. Consistent with statute, this funding was supported by a $1.5 million loan from the General Fund—to be repaid by 2022. The CalABLE Program is currently expected to launch in mid-2018. This represents a delay from the initial anticipated launch date of July 2017 and is the result of challenges that the program encountered in securing a vendor to manage the program. Many other states have similar programs, and several allow California residents to participate.
The Governor’s budget proposes $900,000 in 2018‑19 from a General Fund loan to support continued implementation of CalABLE. This includes $474,000 for staff and general operating expenses, $250,000 for marketing and outreach, and $176,000 for investment and industry consultants.
Budget-Year Request Appears Reasonable. The Governor’s proposal generally appears reasonable and consistent with the Legislature’s intent to establish a viable California program to promote private savings on behalf of disabled individuals. For example, the proposal provides significant funding for marketing and outreach, which is likely to be worthwhile—at least in the short term—to increase participation in the program.
CalABLE Not Projected to Reach Self Sufficiency in Coming Years. The statute that implemented CalABLE envisioned that the program would be self-sufficient and able to repay the General Fund loans for its startup activities within a five-year period. However, CalABLE currently projects that its expenditures will exceed its fee revenues by least $700,000 annually through 2021‑22. We note that this projection is based on a number of assumptions, such as the number of CalABLE enrollees, as well as their contribution levels and withdrawal rates. Since the program is in its infancy, actual program revenues and expenditures could be substantially higher or lower than currently projected. However, given the scale of the current projected shortfall, it appears highly likely that, absent further action, CalABLE’s expenditures will continue to exceed its revenues for the foreseeable future, and thus it will require ongoing General Fund support.
CalABLE’s current forecast assumes that its projected operating deficits through 2021‑22 will be covered by future General Fund loans. General Fund loans can be an important tool in various instances, such as to pay for short-term startup costs of a program if there is a reasonable expectation that future revenues will be sufficient to enable repayment. However, providing General Fund loans on a continued basis without a reasonable expectation of future repayment is not a viable long-term approach.
Approve Request and Require Report on Achieving Self-Sufficiency. In order to assist the Legislature in considering future proposals related to CalABLE, we recommend supplemental report language requiring CalABLE to provide the Legislature with a report along with the Governor’s 2019‑20 budget. We recommend that this report include an evaluation of alternatives for achieving self-sufficiency within a designated period of time, such as ten years. If the board determines that no feasible alternatives exist to achieve self-sufficiency and ongoing General Fund support will be required, the report should include such a determination. This report would help the Legislature monitor the implementation of this new program. Additionally, this report should help inform the Legislature’s deliberations about future budget proposals related to CalABLE. For example, informed by this report, the Legislature could begin to consider in 2019‑20 available alternatives such as (1) directing the board to raise fees or otherwise alter the fee structure, (2) approving more limited funding for the program, (3) implementing program changes such as partnerships with other states, or (4) providing General Fund support.