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APPROVAL OF SEPTEMBER MINUTES
Sue asked whether any corrections need to be made to the September minutes. Amy noted that she'd already corrected the spelling of John Scibek's name. Dale moved that the minutes be approved with that correction made. Dennis seconded the motion. All approved by voice vote.
UPDATE ON CHARITABLE GIFT ANNUITIES LEGISLATION
None of the members present knew about the status of the legislation being drafted by the State Auditor's office. Sharen said that she would call Christina Goe during the lunch break.
WEB SITE UPDATE
Sue noted that she was very pleased with the revised web site; others agreed. Steve offered some suggestions for further improvement:
- Adding buttons to the left side of the home page - the same topic buttons that are on other pages - to make it easier to navigate. Galen said he would add these to the home page.
- On that list of topics, add "Task Force members" and "Task Force minutes" to every page. Galen noted that he is almost done with the task of uploading the archive of minutes to the current web site.
- Before January, post the full statute for the endowment tax credit, as well as the administrative rules, since they were changed in the special legislative session. Steve will forward these to Galen.
- Before the next regular legislative session in January, we should have spent more time on the Task Force's message for the website vis-à-vis the legislature.
One other web site improvement discussed was the idea of having more cross links: the Task Force web site linked to other relevant sites, and those sites linking back to ours. Many of the current visitors to the Task Force web site come from the Yellowstone Boys and Girls Ranch web site.
Sue asked all Task Force members to think through what organizations in their community should be cross-linked with the Task Force web site. This will be on the November agenda.
FEDERAL LEGISLATION UPDATE
Steve reported that although much of the focus in Congress right now is on Iraq, there is a lot of legislation going on as well. He thought that the IRA rollover bill proposed by Task Force members still has a good chance of passage as part of a larger package.
Jonathan Selib, who works with Sen. Baucus and the Senate Finance Committee on tax issues, joined the Task Force by phone with an update on the "CARE Act," specifically the charitable IRA rollover for planned gifts.
Jon said that for the past few weeks Sens. Baucus, Lott, Daschle, and Lockley have been working with the White House on a "unanimous consent agreement" to get the CARE Act considered. There are concerns on both sides of the aisle. Some Republicans are concerned about the conservation-related elements; some Democrats are concerned about the non-tax pieces of the bill (e.g. the "charitable choice" provisions in which government monies could go to religious charities, which some Senators feel is unconstitutional). These Senators generally don't want the bill to pass at all, he said.
In the absence of the CARE Act moving, Jon said there has been some discussion of moving the IRA rollover provision to the pension bill. Steve said he understood that the pension bill wasn't going anywhere. Jon replied that because there are no "budget points of order" left, any bill that spends money is subject to a 60-vote point of order. He said that Daschle doesn't want to add anything to the pension bill. He said that if there is a lame duck session - if they come back after the November elections - primarily appropriations bills will be considered, not tax bills.
Steve asked if we might know the status of the bill in two weeks' time. Jon said it's not clear when Congress will be getting out. Until November 5 they will be in "pro forma" session, which means the Majority Leader can call them back for a vote at any time. Jon thought that we wouldn't really know, but that things tend to move very quickly in the end of the session.
Steve asked about the bill in the House. Jon thought that they were supportive of the IRA rollover, but suspicious of the corporate tax shelters and incentives, which are a priority for Baucus in raising money to pay for the bill. He said that the bill costs $11 billion, and the shelters and inversions raise $11 billion, which makes the bill revenue neutral. The IRA rollover portion costs about $3 billion (over 10 years). Jon said that one thought was to separate it from the non-tax pieces. The White House is not interested in doing that, but Jon thought it would be the most efficient way to move the bill.
Steve asked about the status of the non-itemizer deduction piece of the bill. Jon replied that it is still in the package, and is important to Bush. Its cost is $2.5 to $3 billion over two years (it is only a two-year provision). Jon said that, from a tax perspective, it is basically rewarding people for what they are already doing, and won't do much to encourage giving. But because it is important to the President, Baucus thought we should give it a shot for two years.
Steve informed Jon that he'd been asking Task Force members to get the editorial boards of their local newspapers to write in support of the bill. Jon said that he is available to answer questions any time: his direct telephone line is (202) 224-5884.
DISCUSSION ABOUT THE IMPACTS OF THE TAX CREDIT
Legislative Fiscal Analyst Jim Standaert joined the Task Force to discuss the impacts of the Montana Endowment Tax Credit and the 2001 tax returns, which should be available by the first week in November. He is assigned the task of estimating the revenue impact of the tax credit, which will be presented to the 2003 Legislature.
Dale asked if there is a line item for income from charitable gift annuities (CGAs) on Montana tax forms. Jim said no. Dale said that many people are converting money that had been sitting in savings accounts into CGAs that generate new taxable income, and it would be good to be able to track that. Steve explained to Jim that we have been trying to find a way to quantify that new taxable income being generated by the planned gifts created by tax credit recipients. Aidan asked whether other states track it on their tax returns? Jim doubted it.
Aidan suggested we look at the endowments of organizations like the Salvation Army, and show how many new gifts are being generated in the community. Sue agreed, and thought it would be helpful if we could find out that information from all of the major organizations in the state. Jim thought it could be helpful in terms of talking to legislators, but it's not the sort of information he needs, because it only comprises a small piece of the "Income Interest" line on the tax form.
Steve proposed we assume that CGA income falls under "Income Items" under the "Interest Income" category on the tax form. It occurred to him that it is equally preposterous to say that ALL of that income is coming from CGAs as it is to say that NONE of it is. If would be helpful to come up with solid assumptions about how many gifts are given, what percentage of them are CGAs, and how much income is being generated by them.
Sue pointed out that we'd really need to ask the individuals, and not the charities, to find out information about money converted from savings to planned gifts. She thought a charity wouldn't know that money had been earning 3% and now in the gift annuity it is earning 7%. Dennis disagreed, and said that they pretty much do know that information about their clients.
Sharen thought it would be much simpler for a charity to take the 1099s they file, figure out which are Montana taxpayers, and report the income paid out. The same could be done with trusts from the K-1 forms. Jim pointed out that you'd still need the first number - what people were earning on that money before converting it into a planned gift. Sharen said that is very hard to do. Steve suggested it would be better than nothing if we simply make some assumptions - and err on the side of assuming high, that the money had been earning 2 or 3% (most savings accounts now are earning closer to 1%).
Dale noted that the Salvation Army this year is seeing more cash gifts than stock. Dennis said they are seeing the same at Benefis.
Steve said that we're going to have to hire someone to collect and massage the information gathered. Jim needs to arrive at his estimate for the fiscal impact of the tax credit by the end of the first week in November. Steve told Jim that the Task Force would provide him with the best information we can by that date.
Steve asked that all Task Force members who write planned gifts to e-mail him the answers to the following questions, and that he would compile the information and forward it to Jim Standaert (jstandaert@state.mt.us):
- How many planned gifts and outright gifts do you expect to receive from your list of potential gifts for the above three periods? [Please express the quantity of gifts in terms of the total number of planned gifts and the total value of those gifts.]
- In total, how much tax credit do you project will be claimed for the gifts you are projecting to receive for the above three periods?
- How does your answer to the previous question compare to last year? [That is, do you think that the total amount of tax credit claimed by planned givers and outright givers to your charity's endowment will be going up or down during the next few years as compared to the gifts you received last year?]
In answering the following three questions, you are encouraged to consider the effect that the current economy will have on the contribution levels that your charity can expect to receive. Further, if there are other factors besides the economy that you believe will impact giving levels, please fee free to consider those factors, as well. Finally, if you think that it will help explain how much and why such factors as the economy will affect giving levels, please feel free to add that explanation along with your projections.
Jim posed a question to the group: What would you (as a financial planner) recommend to someone who comes to you in December wanting to set up a CGA? Do you take the money or tell them to wait until June 1, when they can get a 50% credit rather than the current 30%? Dale said that, in his experience, the importance of the tax credit is minimal in people's decision to make planned gifts. Steve thought that Dale's experience was the exception, that CPAs and trust companies are looking primarily at the tax impacts of financial decisions.
Sue pointed out that it is a gamble, because we don't know what the 2003 Legislature is going to do with the tax credit. Clark agreed, and thought that most CPAs would be conservative, given that we don't know what the Legislature is going to do. Clark would advise someone to give now, before the credit changes. Steve reminded that we are talking about retirement money, and people tend to move away from risky investments with that money.
Jim asked the group another question: Assume we're in the 50% period. You come across some people who shay they're going to wait until December 2004 to make a planned gift. Do you tell them to do it sooner - by April 2004 (in order to qualify for the 50% credit)? Sharen said that at UM they have a significant number of people who make annual gifts. Many people still have taxable income. The charity may end up getting more money with less credit taken, which is a win-win situation for everyone except perhaps the donor. Sharen thought that the stock market will have a huge impact. She said that most of their annuities are coming in the form of cash rather than stock right now. Her experience does not match Dale's: some people simply want to make gifts, but most are paying attention to the tax consequences.
Dennis said that he would advise a client about what is coming down the road, but basically tell people to give now. He agreed with Sharen that a lot of people are annual donors, so it doesn't matter as much to them.
Sharen asked Jim what numbers he thought would be most helpful for his task. Jim said that, on the income side, the 1099 and K-1 income paid to Montana taxpayers would be helpful. Steve asked Sharen how difficult it would be to get the 2000 numbers. She thought that it wouldn't be too hard, that it would be a matter of going through a lot of files, as they are filed by recipient rather than by year.
Jim explained that he asked these questions to help him determine whether or not to assume a change in behavior due to the change in the tax credit percentage. Sharen thought that he should, as well as make assumptions about the economy. Aidan thought he should also take into consideration the fact that the average size of gifts is going down.
The group thanked Jim for taking the time to join the meeting.
LEGISLATIVE STRATEGY
There was discussion about the upcoming legislative session, and what could happen to the tax credit given that it had been cut both in the 2001 session and in the 2002 special session. Steve suggested that between now and November 21, all members think about what that scenario might be and be prepared to discuss at the November meeting what our message to the 2003 legislature should be. Sue suggested that the Technical Advisors subcommittee also serve as the Legislative subcommittee for now and come up with a proposal for the group to discuss at the November meeting. Sharen said she would host a conference call with Steve, Jim Soft, Alberta Rivera, Dale, Dennis, and Aidan on October 21.
NEXT MEETING
It was agreed that the next meeting would be held on Thursday, November 21, at 11:00 a.m. in the basement meeting room of the Livestock Building (across the street from the Northwest Power Planning Council, on the southeast corner of the capitol grounds). NOTE THAT THIS IS A CHANGE FROM THE REGULAR TIME, PLACE, AND DATE.
Meeting adjourned at 2:15 p.m.
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