The people of the State of California do enact as follows:


SECTION 1.
Article 20.2 (commencing with Section 69996) is added to Chapter 2 of Part 42 of Division 5 of Title 3 of the Education Code, to read:
Article  20.2. The California Covenants Program
69996.
(a) The California Covenants Program is hereby established under the administration of the Treasurer. The California Covenants Program shall be a prepaid college tuition program established to help families plan, save, and pay for the undergraduate college education of family members at campuses of the California State University, the University of California, and independent institutions of higher education, as defined in Section 66010.
(b) Under the program, the Treasurer shall issue tuition certificates in accordance with all of the following requirements:
(1) (A) The tuition certificate shall be issued by the Treasurer for the prepaid purchase of a fixed percentage of the tuition and mandatory systemwide fees for an academic year of full-time enrollment as an undergraduate at a campus of the California State University, the University of California, or an independent institution of higher education, as defined in Section 66010. The tuition certificate shall specify the percentage of tuition and mandatory fees that have been purchased thereby. The certificate covers annual tuition and fee increases of 7.5 percent or less.
(B) The Treasurer is authorized to determine the cost of the fixed percentage of tuition and mandatory systemwide fees for the participating institutions at the commencement of this program in 2018. The Treasurer shall have the discretion to periodically adjust the cost of the tuition certificates in light of changes in the cost of living, the economy of the state, and the levels of tuition and mandatory systemwide fees charged by the participating segments.
(2) The purchaser of a tuition certificate shall specify its intended beneficiary. The intended beneficiary may be any person who has not yet commenced grade 11 or its equivalent. A tuition certificate shall be valid for up to 30 years from the date that it is purchased.
(3) At the time the tuition certificate is used, the beneficiary shall either be a California resident or a student who is exempt from nonresident tuition pursuant to Section 68130.5.
(4) An individual may purchase an initial tuition certificate, or additional tuition certificates, for a beneficiary only between May 1 and June 30 of calendar years commencing in 2018. The minimum amount of tuition certificates that an individual may purchase in a calendar year shall be three hundred dollars ($300).
(5) A tuition certificate shall be used only to cover the cost of undergraduate tuition and mandatory systemwide fees at the California State University, the University of California, or independent institutions of higher education, as defined in Section 66010. A tuition certificate shall not be used to cover the cost of textbooks, supplies, or living expenses, including, but not necessarily limited to, food, housing, and transportation.
(6) If the intended beneficiary of a tuition certificate is unable to, or chooses not to, attend the institution issuing the certificate, the initial investment shall be returned to the individual who purchased the certificate, with interest equal to that earned by the Pooled Money Investment Fund, and shall not be subject to a tax penalty pursuant to Section 17131.12 of the Revenue and Taxation Code.
(c) The Treasurer, in collaboration with the Trustees of the California State University and the Regents of the University of California, may establish administrative guidelines and other requirements for purposes of implementing this article.
69996.3.
(a) The California Covenants Program Fund is hereby established. The moneys received by the Treasurer from the individuals who purchase tuition certificates under the program, and from the sale of bonds as authorized under subdivision (b), shall be deposited in the fund. Upon appropriation by the Legislature in the annual Budget Act, the moneys in the fund may be allocated by the Treasurer to the California State University, the University of California, and participating independent institutions of higher education, as defined in Section 66010, to pay the tuition and mandatory systemwide fees of beneficiaries of the program during that fiscal year.
(b) The Treasurer is authorized to issue bonds backed by the tuition certificate revenues. The proceeds of any bonds sold pursuant to this subdivision shall be deposited in the California Covenants Program Fund established by subdivision (a).
(c) The Director of Finance shall determine, at the commencement of each fiscal year, whether there are sufficient funds to implement the program in that fiscal year. The Director of Finance shall communicate this determination to the Treasurer in a timely manner each fiscal year.
(d) The California State University shall, and the University of California and independent institutions of higher education, as defined in Section 66010, are requested to, comply with the requirements of this article.
69996.5.
This article shall become operative on January 1, 2018.
SEC. 2.
Section 17131.12 is added to the Revenue and Taxation Code, to read:
17131.12.
For taxable years beginning on or after January 1, 2018, gross income does not include:
(a) Moneys invested by the taxpayer, including interest accrued by that investment, in the California Covenants Program established pursuant to Article 20.2 (commencing with Section 69996) of Chapter 2 of Part 42 of Division 5 of Title 3 of the Education Code.
(b) (1) Disbursements to the taxpayer from the California Covenants Program for use by a beneficiary at an educational institution that participates in the program.
(2) Tax, additions to tax, and penalties shall not apply to an amount disbursed to a taxpayer where the beneficiary does not attend an educational institution that participates in the California Covenants Program if the full amount, including interest, is returned to the taxpayer.
SEC. 3.
This act is an urgency statute necessary for the immediate preservation of the public peace, health, or safety within the meaning of Article IV of the Constitution and shall go into immediate effect. The facts constituting the necessity are:
In order to immediately address heightened concerns about the rising costs of obtaining a postsecondary degree in this state, it is necessary for this bill to take effect immediately.
(1)Existing law establishes the California State University, under the administration of the Trustees of the California State University, and the University of California, under the administration of the Regents of the University of California, as 2 of the segments of public postsecondary education in this state.
(1) Under existing law, the segments of postsecondary education in this state include the University of California, the California State University, the California Community Colleges, independent institutions of higher education, and private postsecondary educational institutions.
This bill would establish the California Covenants Program, under the administration of the Treasurer. The program would be a prepaid college tuition program, under which an individual could purchase a fixed percentage of the tuition and mandatory systemwide fees for an academic year of full-time enrollment as an undergraduate at a campus of the California State University, the University of California, or an independent institution of higher education, as specified, for a beneficiary who meets specified criteria.
The bill would establish the California Covenants Program Fund. The bill would require that the moneys received by the Treasurer from the individuals who purchase tuition certificates under the program, as well as the proceeds from the sale of certain bonds authorized by the bill, be deposited in the fund. The bill would authorize the Treasurer, upon appropriation in the annual Budget Act, to allocate moneys deposited in the fund to the California State University, the University of California, or an independent institution of higher education to pay the tuition and mandatory systemwide fees of beneficiaries of the program during that fiscal year. The bill would require the Director of Finance to determine, at the commencement of each fiscal year, whether there are sufficient funds to implement the program in that fiscal year, and to communicate this determination to the Treasurer in a timely manner each fiscal year. The bill would specify that the California State University is required, and the University of California and independent institutions of higher education are
requested to,
requested, to
comply with the bill’s provisions.
These provisions would become operative on January 1, 2018.
(2) The Personal Income Tax Law provides for various exclusions from gross income, including moneys received pursuant to specified grant programs.
This bill would, for taxable years beginning on or after January 1, 2018, also exclude from gross income amounts invested in, and disbursed from, the California Covenants Program, as provided.
(3) This bill would declare that it is to take effect immediately as an urgency statute.
An act to add Article 20.2 (commencing with Section 69996) to Chapter 2 of Part 42 of Division 5 of Title 3 of the Education Code, and to add Section 17131.12 to the Revenue and Taxation Code, relating to student financial
aid.
aid, and declaring the urgency thereof, to take effect immediately.