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SB-1203 Education expenses: Education Flex Account Act of 2024.(2023-2024)

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Date Published: 02/15/2024 09:00 PM
SB1203:v99#DOCUMENT


CALIFORNIA LEGISLATURE— 2023–2024 REGULAR SESSION

Senate Bill
No. 1203

Introduced by Senator Grove

February 15, 2024

An act to add Article 19.1 (commencing with Section 69995) to Chapter 2 of Part 42 of Division 5 of Title 3 of the Education Code, and to add Section 17132.2 to the Revenue and Taxation Code, relating to education expenses, and making an appropriation therefor.


LEGISLATIVE COUNSEL'S DIGEST


SB 1203, as introduced, Grove. Education expenses: Education Flex Account Act of 2024.
(1) Existing law establishes a system of elementary and secondary education in this state. This system consists of the public and private schools that provide instruction in kindergarten and in grades 1 to 12, inclusive.
This bill would enact the Education Flex Account Act of 2024 and establish the Education Flex Account (EFA) Trust, to be known as the EFA Trust, as a fund within the State Treasury to be administered by the EFA Trust Board. During the first 4 school years following the operative date of the act, the bill would authorize certain children eligible to be enrolled in kindergarten, or in an elementary or secondary school, in any of grades 1 to 12, inclusive, to establish an EFA or Special Education Flex Account (SEFA), based on parent or guardian income. The bill would remove these income eligibility limits after 4 school years following the operative date of the act, thereby entitling every child eligible to be enrolled in kindergarten, or in an elementary or secondary school, in any of grades 1 to 12, inclusive, to establish an EFA or SEFA. The bill would specify that every child enrolled in an eligible school shall be entitled, pursuant to this act, to a credit to the child’s account for tuition and elementary and secondary eligible education expenses, as defined. Commencing with the first fiscal year following the operative date of the act, the bill would require the Department of Finance to determine, on July 1 of each year, the annual EFA and SEFA deposit amounts for the upcoming school year. The bill would specify the procedure for calculating the EFA and SEFA deposit amounts and would require the Controller to transfer an amount of money from the General Fund to the EFA Trust equal to the sum of (1) the EFA deposit amount multiplied by the number of EFAs established, and (2) the SEFA deposit amount multiplied by the number of SEFAs established, as provided. The bill would require any unused funds remaining in an EFA or SEFA account on June 30 to be returned to the state for the benefit of elementary and secondary education, upon appropriation by the Legislature.
The bill would require the EFA Trust Board to be composed of specified members and would vest the EFA Trust Board with certain powers and duties. The bill would establish 2 accounts within the EFA Trust, the EFA Trust Program Account and the EFA Trust Administrative Account, and would continuously appropriate the moneys in the program account to the EFA Trust Board for purposes of the bill, thereby making an appropriation.
The bill would require the Superintendent of Public Instruction to establish a procedure for the parents and legal guardians of eligible students to apply to establish an EFA or SEFA and submit an executed participation agreement. The bill would authorize the EFA Trust Board to disburse funds from EFAs or SEFAs to eligible schools, defined as full-time private schools. The bill would specify the procedures for participating eligible schools to receive funds disbursed by the EFA Trust Board.
(2) The Classroom Instructional Improvement and Accountability Act, an initiative approved by the voters as Proposition 98 at the November 8, 1988, statewide general election, amended the California Constitution to, among other things, set forth a formula for computing the minimum amount of revenues that the state is required to appropriate for the support of school districts and community college districts based on one of 3 tests in any given fiscal year, one of which is based on the percentage of General Fund revenues appropriated for school districts and community college districts, respectively, in the 1986–87 fiscal year, and 2 of which are based on, among other things, changes in enrollment.
This bill would require the Legislature to recalculate that minimum education funding guarantee by including eligible students not enrolled in a public elementary or secondary school before the operative date of the act in those minimum funding guarantee calculations based on average daily attendance, as provided. The bill would also require the costs of providing EFA and SEFA deposit amounts for eligible students to be apportioned between the General Fund and the public school district in which those eligible students reside in the same ratio of General Fund and local property tax revenue that would have been used to educate those eligible students in their public school district.
(3) The Personal Income Tax Law, in modified conformity with federal law, generally defines “gross income” as income from whatever source derived, except as specifically excluded, and provides various exclusions from gross income for purposes of computing tax liability.
This bill would, for taxable years beginning on or after January 1, 2025, exclude from gross income any amounts received as distribution from an EFA or SEFA, as defined, as part of a participation agreement.
Existing law requires a bill authorizing a new tax expenditure to contain, among other things, specific goals, purposes, and objectives the tax expenditure will achieve, detailed performance indicators, and data collection requirements.
This bill would include additional information required for any bill authorizing a new tax expenditure.
(4) These provisions would become operative on January 1, 2025, only if Senate Constitutional Amendment ____ of the 2023–24 Regular Session is approved by the voters at the statewide general election on November 5, 2024.
Vote: 2/3   Appropriation: YES   Fiscal Committee: YES   Local Program: NO  

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


SECTION 1.

 The Legislature finds and declares all of the following:
(a) California’s civic, economic, and cultural future requires educational options that prepare every pupil and student for a worthwhile role in our vibrant state.
(b) For years, opponents have tried to undermine efforts to help struggling California pupils and students by stating that adjusting public funds to give pupils and students the best educational chance was wrong. Instead of lifting families out of poverty and inspiring the next generation of entrepreneurs, scientists, and leaders, we have trapped children into a one-size-fits-all system that encourages failure rather than success. Parents watch their children struggle, and our “democratically governed public schools” have stopped investing in our children’s futures and are leaving the most marginalized pupils and students behind.
(c) Educators are forced to “teach to the test” for the National Assessment of Educational Progress (NAEP), also known as “the Nation’s Report Card,” instead of identifying and cultivating their pupils’ and students’ potential. And yet California has been ranked significantly lower than the national average at least since 2000 and the latest reports show this state once again is not meeting the minimal education standards.
(d) Throughout the years, research has consistently shown that private school students tend to perform better on standardized tests. For example, grade 8 private school students averaged about 20 points higher than public school pupils on the reading assessment in 2022, and grade 4 students had nearly the same advantage in average scores. The most recent NAEP data shows that private school students score better in almost all subjects as well.
(e) Pupils, students, parents, and educators increasingly want a learning environment where each pupil and student is uniquely known and valued, with customized learning experiences focused on children’s interests and aptitudes, and trust and respect for the parents’ role in developing and educating their children.
(f) For special education in California, school districts must work with private schools and parents to create the most inclusive and thoughtful services for pupils in special education programs. School districts must spend a proportionate share of federal dollars for these programs, but there are no laws prohibiting school districts from spending additional state funds to help these pupils and parents.
(g) Even though private schools are not obligated to create an individualized education program (IEP), once a student with a disability is enrolled in a religious or other private school, the school district must conduct meetings to develop, review, and revise services that will benefit the child and the plan must go through the same process for procedures required in the development of an IEP.
(h) Yet financial barriers have many parents feeling that they have no options but to send their children to neighborhood schools. Private schools, charter schools, and home schools are achieving better educational results, but these options are unaffordable or unavailable for most pupils and students. ZIP Codes and lotteries determine the educational options available for most low- and middle-income pupils and students.
(i) Before the COVID-19 pandemic, around 10 percent of pupils and students in California were using alternative education options, but the pandemic required families to try alternatives. In 2023, a survey of 3,820 parents of schoolage children showed that more than half of them either considered or are considering a new school. In it, a majority of Hispanic, Latino, and Black parents, about 65 percent, said they were looking into or thinking about a new learning environment for their kids.
(j) California now spends around $23,000 per year for each child in public school, including around $17,000 from state funds. Spending more on the current and outdated system has not created better results, and many low- to middle-class taxpaying families are not given a choice but to send their pupils to one. Allowing parents to decide the school that offers the best options and learning experiences for their pupil or student is a better use of education funds. The increasing demand for alternatives will create a range of exciting educational opportunities that all pupils and students can enjoy.
(k) California is the fifth largest economy in the world, and needs to offer a world-class, individualized, and customized education to every K–12 pupil or student in our state in order to continue providing for a sustainable and vibrant economy. As such, the state needs to innovate its education system to encourage our children to discover their unique talents, turn those talents into skills, and use those skills to create value for themselves and for others.
(l) Therefore, the people hereby enact the Education Flex Account Act of 2024. The act includes the following provisions:
(1) During the first year after the act is operative, $8,000 will be available to each pupil and each student, and $16,000 will be available to each pupil and each student with special needs, to be used toward tuition and education expenses at an accredited private school of their choice. The annual amount shall be adjusted each year. An Education Flex Account or Special Education Flex Account will be established at the request of the pupil’s or student’s parent or legal guardian.
(2) The Education Flex Account and Special Education Flex Account will be available to the lowest income families the first two years after the act is operative, middle income families the next two years after the act is operative, and all families four years after the act is operative.
(3) All of this will be achieved at no additional cost to taxpayers.

SEC. 2.

 Article 19.1 (commencing with Section 69995) is added to Chapter 2 of Part 42 of Division 5 of Title 3 of the Education Code, to read:
Article  19.1. Education Flex Account Act of 2024

69995.
 This article shall be known, and may be cited, as the Education Flex Account Act of 2024.

69995.1.
 For purposes of this article, the following definitions apply:
(a) “Account beneficiary” means the eligible student for whom an EFA or SEFA was established by the EFA Trust Board.
(b) “Administrative account” means the account established within the EFA Trust pursuant to subdivision (f) of Section 69995.2 from which the costs of administering the EFA Trust shall be paid.
(c) “Costs of administration” means the actual costs of the EFA Trust Board to administer EFAs and SEFAs, subject to the limit established in subdivision (d) of Section 69995.3.
(d) “EFA” means Education Flex Account, an account comprised of funds that may be used for elementary and secondary eligible education expenses for the applicable school year. Any funds deposited in an EFA that are unused, as of June 30, shall be returned to the state for the benefit of elementary and secondary education, upon appropriation by the Legislature.
(e) “EFA deposit amount” means the amount calculated pursuant to subdivision (d) of Section 69995.2.
(f) “EFA Trust” means the Education Flex Account Trust established by subdivision (a) of Section 69995.2.
(g) “EFA Trust Board” means the Education Flex Account Trust Board established by subdivision (a) of Section 69995.3.
(h) “Elementary and secondary eligible education expenses” means the expenses typically associated with the education of an eligible student enrolled in a public elementary or secondary school or enrolled in an eligible school, other than tuition, including, but not limited to, books, school supplies and equipment, academic tutoring, academic testing fees, special needs services of a special needs account beneficiary, transportation to and from school, and school functions. Expenses incurred by an eligible student to attend a community college before high school graduation, including tuition, shall be elementary and secondary eligible education expenses.
(i) “Eligible school” means a full-time private school, as described in Section 48222, operating in the state and accredited by a regional accrediting agency recognized by the state or the United States Department of Education, or a school that has applied for accreditation, but such application is pending, and the school has not been denied accreditation in the prior two years by the same accrediting agency.
(j) “Eligible student” means every child eligible to enroll in a public elementary or secondary school and enrolled in an eligible school, except as follows:
(1) During the first two school years following the operative date of this article, an eligible student is a child whose parent or guardian’s taxable income is less than fifty thousand dollars ($50,000) per year for a single filer and one hundred thousand dollars ($100,000) per year for dual filers.
(2) During the two school years following the period described in paragraph (1), an eligible student is a child whose parent or guardian’s taxable income is less than one hundred thousand dollars ($100,000) per year for a single filer and two hundred thousand dollars ($200,000) per year for dual filers.
(3) After the periods described in paragraphs (1) and (2), there shall be no income limitation on eligibility.
(k) “Individualized education program” has the same meaning as that term is described in Section 56345.
(l) “Participation agreement” means the uniform contract created by the EFA Trust Board that must be executed by the EFA Trust Board and the parent or legal guardian of an eligible student that directs the EFA Trust Board to disburse funds to an eligible school on behalf of the account beneficiary.
(m) “Program account” means the account created in the EFA Trust pursuant to subdivision (f) of Section 69995.2 from which moneys transferred from the General Fund, investment earnings, and other grants, gifts, or appropriations are maintained and segregated into EFAs and SEFAs for eligible students.
(n) “SEFA” means a Special Education Flex Account, an Education Flex Account for students with special needs, including students with an individualized education program (IEP) or any physical or mental disability. A student for whom funds are expended pursuant to an SEFA shall not also receive funds pursuant to an EFA. Any funds deposited in an SEFA that are unused, as of June 30, shall be returned to the state for the benefit of elementary and secondary education, upon appropriation by the Legislature.
(o) “SEFA deposit amount” means the amount calculated pursuant to subdivision (d) of Section 69995.2.
(p) “Tuition” means the amount charged by an eligible school to enroll a pupil or student at the school for a particular grade level and registration fees associated with application and enrollment.
(q) “Unclaimed funds” means funds remaining in an EFA or SEFA at the end of the applicable school year.

69995.2.
 (a) There is hereby established an instrumentality of the State of California to be known as the Education Flex Account Trust.
(b) Every child eligible to be enrolled in kindergarten, or in an elementary or secondary school, in any of grades 1 to 12, inclusive, and whose parent or guardian desires to enroll their child in an eligible school, may establish an EFA, or, if applicable, an SEFA, pursuant to this article.
(c) Every child enrolled in an eligible school shall be entitled, pursuant to this article, to a credit to the child’s EFA or SEFA for tuition and elementary and secondary eligible education expenses.
(d) Commencing with the first fiscal year following the operative date of this article, on July 1 of each year, the Department of Finance shall determine the annual EFA and SEFA deposit amount for the upcoming school year. The EFA deposit amount for the 2025–26 school year shall be eight thousand dollars ($8,000). The SEFA deposit amount for the 2025–26 school year shall be sixteen thousand dollars ($16,000). For subsequent school years, the Department of Finance shall adjust the annual EFA and SEFA deposit amount by the same percentage increase or decrease in the total amount required to be applied by the state for the support of school districts in the current fiscal year, as required by Section 8 of Article XVI of the California Constitution.
(e) (1) Each school year the Controller shall transfer an amount of moneys from the General Fund to the EFA Trust equal to the sum of the following:
(A) The EFA deposit amount determined pursuant to subdivision (d) multiplied by the number of EFAs established pursuant to subdivision (b).
(B) The SEFA deposit amount determined pursuant to subdivision (d) multiplied by the number of SEFAs established pursuant to subdivision (b).
(2) The EFA or SEFA deposit amount may be adjusted for an EFA or SEFA established after the start of the applicable school year and for a partial school year pursuant to an application submitted under subdivision (b) of Section 69995.4. The Controller shall make at least three transfers to the EFA Trust in each fiscal year, with the first transfer occurring on August 1 and the last transfer occurring on or before June 15. The Controller shall adjust the amount of moneys transferred from the General Fund to the EFA Trust to ensure that the total amount of moneys transferred in a school year equals exactly the amount required to be transferred pursuant to this article. The Controller shall report to the Department of Finance and the Legislature the total amount of moneys transferred from the General Fund to the EFA Trust pursuant to this article on or before June 15 of each year. This article does not prohibit the Legislature from appropriating additional funds to the EFA Trust.
(f) The EFA Trust is hereby established as a fund in the State Treasury. The EFA Trust Program Account and the EFA Trust Administrative Account are hereby established as accounts within the EFA Trust. Notwithstanding Section 13340 of the Government Code, the program account is hereby continuously appropriated, without regard to fiscal years, to the EFA Trust Board for purposes of this article. Moneys in the administrative account shall be available for expenditure, upon appropriation, for the purposes specified in this article. Moneys in the EFA Trust shall only be used for purposes of this article and shall not be taken, used, borrowed, or collateralized for any other purpose.
(g) Any unit of federal, state, or local government, or any other person, firm, partnership, or corporation, may make a grant, gift, or other appropriation for deposit into the administrative account or the program account.

69995.3.
 (a) The purposes, powers, and duties of the EFA Trust are vested in, and shall be exercised by, the Education Flex Account Trust Board, which is hereby established.
(b) The EFA Trust Board shall consist of the following members:
(1) The members of the Scholarshare Investment Board as provided in subparagraph (B) of paragraph (2) of subdivision (a) of Section 69984.
(2) The Superintendent.
(3) One member representing private elementary and secondary schools, appointed by the Governor.
(4) One member representing parochial and religious elementary and secondary schools, appointed by the Governor.
(c) The EFA Trust Board shall have all the necessary powers and duties provided to the Scholarshare Investment Board under Article 19 (commencing with Section 69980), including, but not limited to, all of the following:
(1) The power to invest moneys in the EFA Trust for the benefit of the EFA Trust and account beneficiaries.
(2) The duty to report publicly investments and investment performance.
(3) The duty to distribute funds from EFAs and SEFAs and audit the EFAs and SEFAs to ensure that all funds disbursed to eligible schools are used by and for the account beneficiary and in furtherance of the act.
(4) The power to accept any grants, gifts, appropriations, and other moneys from any unit of federal, state, or local government or any other person, firm, partnership, or corporation for deposit into the administrative account or the program account.
(5) The duty to return unclaimed funds to the state for the benefit of elementary and secondary education, upon appropriation by the Legislature.
(6) The power to adopt regulations to implement this article.
(d) Moneys transferred by the Controller pursuant to subdivision (e) of Section 69995.2 shall be allocated by the EFA Trust Board to the program account and administrative account. All moneys allocated to the program account shall be promptly invested and accounted for separately for each individual EFA and SEFA. All costs of administration, including investment management fees, of the EFA Trust shall be paid out of the administrative account, which shall not exceed, on an annual basis, 1 percent of the total amount of moneys in the program account.

69995.4.
 (a) The Superintendent shall create an online application for a parent or legal guardian to request that an EFA or SEFA be established for an eligible student and submit an executed participation agreement pursuant to this article. The Superintendent shall also accept applications and executed participation agreements submitted by mail.
(b) The deadline for submitting an application and executed participation agreement for the next succeeding school year shall be April 1. The Superintendent shall establish at least one additional opportunity and deadline for a parent or legal guardian to submit an application and executed participation agreement during the school year. The EFA and SEFA deposit amounts for EFAs or SEFAs established during a school year shall be less than the full EFA or SEFA deposit amount established pursuant to subdivision (d) of Section 69995.2.
(c) The parent or legal guardian of an eligible student shall identify the eligible student as the account beneficiary of the EFA or SEFA and execute the participation agreement.
(d) Once an application and participation agreement have been submitted, the Superintendent shall confirm that the child is enrolled in an eligible school and the participation agreement shall be transmitted to the eligible school.
(e) So long as the account beneficiary remains eligible to receive the EFA or SEFA deposit amount and to direct the expenditure of funds pursuant to this article, no additional application or participation agreement shall be required. However, an application and participation agreement shall be amended by the parent or legal guardian if the account beneficiary enrolls in a different eligible school.
(f) The Superintendent shall create an online process for a parent or legal guardian, public school district, eligible school, or any other person to report that a child is no longer eligible or no longer enrolled in an eligible school. Upon receipt of a report, the Superintendent shall inquire and confirm the eligibility status of the child by providing adequate notice to the parent or legal guardian of the child and the school and an opportunity for both to be heard. If the Superintendent determines that a child is no longer eligible, that determination may be appealed by the parent or legal guardian on behalf of the child pursuant to the administrative adjudication procedures described in Chapter 4.5 (commencing with Section 11400) of Part 1 of Division 3 of Title 2 of the Government Code.

69995.5.
 The Superintendent shall do all of the following:
(a) Create an online application for a school to become eligible to receive funds from an EFA or SEFA established pursuant to this article.
(b) Publish on its internet website, and periodically update, a list of eligible schools by name and address.
(c) Provide contact information for each eligible school on its internet website.
(d) Post the tuition and other eligible education expenses charged for each grade level at an eligible school on its internet website.

69995.6.
 (a) The EFA Trust Board shall establish an EFA or SEFA within the program account for each eligible student who has requested an account from the Superintendent, shall enter into participation agreements pursuant to this article, shall credit each EFA or SEFA with the appropriate EFA or SEFA deposit amount for that eligible student, and shall credit investment earnings of the program account to each EFA or SEFA, as appropriate.
(b) The EFA Trust Board shall provide parents and legal guardians of account beneficiaries with the ability to securely review online EFA or SEFA activity, including EFA or SEFA deposits or credits, EFA or SEFA investment earnings, and EFA or SEFA disbursements to an eligible school on behalf of the account beneficiary. The EFA Trust Board shall protect the privacy of parents, legal guardians, and account beneficiaries.
(c) (1) Pursuant to the terms of an executed participation agreement, and except as provided in paragraph (2), the EFA Trust Board shall disburse funds on behalf of an account beneficiary to an eligible school on a monthly basis.
(2) Notwithstanding paragraph (1), the EFA Trust Board may enter into an agreement with an eligible school to provide for a different disbursement schedule.
(d) The EFA Trust Board shall randomly audit funds disbursed from EFAs and SEFAs to ensure student eligibility, student enrollment, student attendance, and school eligibility.
(e) The EFA Trust Board shall withhold any ineligible disbursement made to an eligible school from any future disbursements.
(f) The EFA Trust Board shall create a uniform participation agreement for use by the Superintendent, the EFA Trust Board, and the parents and legal guardians of eligible students. An eligible school identified in a participation agreement shall be a third-party beneficiary of an executed participation agreement.

69995.65.
 The EFA Trust Board shall adopt regulations to implement this article.

69995.7.
 (a) The EFA Trust Board shall only disburse funds from an EFA or SEFA to an eligible school.
(b) The state shall not limit the number of eligible schools or the number of students enrolled in an eligible school. The state shall not impose conditions on the eligibility of a private school to receive funds, other than conditions based on any of the following:
(1) Periodic certification that an eligible student is enrolled and attending the eligible school.
(2) Periodic certification that the amount disbursed from an EFA or SEFA is only used for tuition and eligible education expenses.
(3) Accreditation required to obtain status as an eligible school pursuant to paragraph (2) of subdivision (i) of Section 69995.1.
(4) Public disclosure of the receipt and expenditure of EFA or SEFA funds as required by the EFA Trust Board.
(5) The general health and safety standards applicable to the facilities of all private schools operating in the state.

69995.8.
 A full-time private school may become an eligible school by filing an application with the Superintendent. A full-time private school that becomes an eligible school may accept funds from an EFA or SEFA for the tuition and eligible educational expenses of an account beneficiary who is admitted to the eligible school.

69995.9.
 (a) Notwithstanding Section 69995.2, and except as provided in subdivision (b), the child of a parent or legal guardian who chooses to educate their child at home pursuant to an affidavit filed pursuant to Section 33190 and in lieu of enrolling in an eligible school shall not be entitled to establish an EFA or SEFA pursuant to this article. This article does not prohibit the state from offering financial aid for education-related expenses to the parents or legal guardians of homeschooled children ineligible for an EFA or SEFA.
(b) Notwithstanding subdivision (a), the parent or legal guardian of a child enrolled in an eligible school to facilitate homeschooling may establish an EFA or SEFA pursuant to this article.

69995.10.
 (a) An eligible school shall not share, refund, or rebate any funds received from an EFA or SEFA with or to the parent, legal guardian, or eligible student in any manner.
(b) The EFA Trust Board may terminate and suspend an EFA or SEFA, as applicable, and participation agreement if the parent, legal guardian, or eligible student fails to comply with the terms of the participation agreement with the intent to defraud or misuse the funds distributed on behalf of an account beneficiary upon notice to the parent or legal guardian and an opportunity to be heard. If the EFA Trust Board terminates or suspends an EFA or SEFA, that determination may be appealed by the parent, legal guardian, or eligible student pursuant to the administrative adjudication procedures described in Chapter 4.5 (commencing with Section 11400) of Part 1 of Division 3 of Title 2 of the Government Code.

69995.11.
 The Legislature shall provide for the allocation of costs associated with this article as follows:
(a) For the cost of providing an EFA or SEFA deposit amount for an eligible student not enrolled in a public elementary or secondary school before the operative date of this article, the Legislature shall rebase, as necessary, the minimum funding guarantee for school districts, as provided in Section 8 of Article XVI of the California Constitution, to include such eligible students in the definition of “average daily attendance” as defined in Section 8.1 of Article XVI of the California Constitution.
(b) For the costs of providing an EFA or SEFA deposit amount for an eligible student, the cost for that EFA or SEFA deposit amount shall be apportioned between the General Fund and the public school district in which the eligible student resides, in the same ratio of General Fund and local property tax revenue that would have been used to educate that eligible student in the student’s public school district. The Legislature shall provide for the transfer of funds from a school district to the state as necessary to carry out this provision.

69995.12.
 This article shall become operative on January 1, 2025, only if Senate Constitutional Amendment ____ of the 2023–24 Regular Session is approved by the voters at the statewide general election on November 5, 2024.

SEC. 3.

 Section 17132.2 is added to the Revenue and Taxation Code, to read:

17132.2.
 (a) For taxable years beginning on or after January 1, 2025, gross income shall not include distributions from an Education Flex Account or Special Education Flex Account pursuant to a participation agreement.
(b) For purposes of this section, the following definitions shall apply:
(1) “Education Flex Account” means an Education Flex Account established under the Education Flex Account Act of 2024 (Article 19.1 (commencing with Section 69995) of Chapter 2 of Part 42 of Division 5 of Title 3 of the Education Code).
(2) “Participation agreement” has the same meaning as that term is defined in subdivision (l) of Section 69995.1 of the Education Code.
(3) “Special Education Flex Account” means a Special Education Flex Account established under the Education Flex Account Act of 2024 (Article 19.1 (commencing with Section 69995) of Chapter 2 of Part 42 of Division 5 of Title 3 of the Education Code).
(c) (1) For purposes of complying with Section 41, as it pertains to the exclusions from income provided by this section, the Legislature finds and declares the following:
(A) The goal, purpose, and objective of the exclusion from income is to encourage parents and legal guardians to participate in the Education Flex Account or Special Education Flex Account and to maximize the value of the Education Flex Account or Special Education Flex Account.
(B) The performance indicators used to determine whether the exclusion from income is achieving its stated purpose shall be the number of taxpayers receiving distributions from an Education Flex Account or Special Education Flex Account that, but for this section, would have been included in income, and the average dollar value of income so excluded.
(2) (A) No later than July 1, 2026, and annually thereafter, the Franchise Tax Board shall submit a report to the Legislature, in compliance with Section 9795 of the Government Code, that details the number of taxpayers that received distributions from an Education Flex Account or Special Education Flex Account that, but for this section, would have been included in income, and the average dollar value of income so excluded.
(B) The disclosure provisions of this paragraph shall be treated as an exception to Section 19542.
(d) This section shall become operative on January 1, 2025, only if Senate Constitutional Amendment ____ of the 2023–24 Regular Session is approved by the voters at the statewide general election on November 5, 2024.