Bill Text: MI SB1165 | 2015-2016 | 98th Legislature | Introduced
Bill Title: Individual income tax; other; Michigan parental choice in education program; create. Creates new act.
Spectrum: Partisan Bill (Republican 1-0)
Status: (Introduced - Dead) 2016-11-10 - Referred To Committee On Education [SB1165 Detail]
Download: Michigan-2015-SB1165-Introduced.html
SENATE BILL No. 1165
November 10, 2016, Introduced by Senator COLBECK and referred to the Committee on Education.
A bill to create the Michigan parental choice in education
program; to provide for education savings accounts; to prescribe
the powers and duties of certain state agencies, boards, and
departments; to allow certain tax credits or deductions; and to
provide for penalties and remedies.
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
Sec. 1. This act shall be known and may be cited as the
"Michigan parental choice in education program act".
Sec. 3. As used in this act:
(a) "Account" or "education savings account" means an account
established under this act.
(b) "Account owner" means the parent of the student.
(c) "Department" means the department of treasury.
(d) "Dependent" means an individual for whom the account owner
may claim a dependency exemption on his or her federal income tax
return pursuant to the internal revenue code of 1986, 26 USC 1 to
9834.
(e) "Eligible services" means any instructional services,
supplemental services, and back office services offered to students
by a public school that the department determines pursuant to this
act are qualified for payment from an education savings account.
Eligible services may include extracurricular services offered by a
public school.
(f) "Management contract" means the contract executed between
the treasurer and a program manager.
(g) "Michigan parental choice in education program agreement"
means the agreement between the program and the parent who
establishes an education savings account.
(h) "Parent" means a resident of this state who is a
biological or adoptive parent, legal guardian, legal custodian, or
other person with authority to act on behalf of the student.
(i) "Program" means the Michigan parental choice in education
program established pursuant to this act.
(j) "Program manager" means an entity selected by the
treasurer to act as a manager of 1 or more of the savings plans
offered under the program.
(k) "Public school" means that term as defined in the revised
school code, 1976 PA 451, MCL 380.1 to 380.1852.
(l) "Qualified withdrawal" means a distribution that is not
subject to a penalty under this act or taxation under the income
tax act of 1967, 1967 PA 281, MCL 206.1 to 206.713, and that meets
any of the following:
(i) A withdrawal from an account to pay for eligible services
provided by a public school to the student incurred after the
account is established.
(ii) A transfer of funds due to the termination of the
management contract as provided in section 9.
(iii) A transfer of funds as provided in section 15.
(m) "Savings plan" or "plans" means a plan that provides
different investment strategies and allows account distributions
for eligible services.
(n) "Student" means a pupil enrolled in at least 1 course in a
public school.
(o) "Treasurer" means the state treasurer.
Sec. 5. (1) The Michigan parental choice in education program
is established in the department of treasury. The program may
consist of 1 or more savings plans.
(2) The treasurer shall solicit proposals from entities to be
a program manager to provide the services described in subsection
(5).
(3) The purposes, powers, and duties of the Michigan parental
choice in education program are vested in and shall be exercised by
the treasurer or the designee of the treasurer.
(4) The state treasurer shall administer the Michigan parental
choice in education program and shall be the trustee for the funds
of the Michigan parental choice in education program. The treasurer
may use program revenues to maintain or enhance the state's
education programs.
(5) The treasurer may employ or contract with personnel and
contract for services necessary for the administration of each
savings plan under the program and the investment of the assets of
each savings plan under the program, including, but not limited to,
managerial, professional, legal, clerical, technical, and
administrative personnel or services.
(6) When selecting a program manager, the treasurer shall give
preference to proposals from single entities that propose to
provide all of the functions described in subsection (5) and that
demonstrate the most advantageous combination, to both potential
participants and this state, of the following factors and the
management contract shall address these factors:
(a) Financial stability.
(b) The safety of the investment instruments being offered.
(c) The ability of the investment instruments to track the
increasing costs of higher education.
(d) The ability of the entity to satisfy the record-keeping
and reporting requirements of this act.
(e) The entity's plan for marketing the savings plan and the
investment it is willing to make to promote the savings plan.
(f) The fees, if any, proposed to be charged to persons for
opening or maintaining an account.
(g) The ability of the entity to accept electronic
withdrawals, including payroll deduction plans.
(7) The treasurer shall enter into a contract with each
program manager, which shall address the respective authority and
responsibility of the treasurer and the program manager to do all
of the following:
(a) Develop and implement the savings plan or plans offered
under the program.
(b) Invest the money received in 1 or more investment
instruments.
(c) Engage the services of consultants on a contractual basis
to provide professional and technical assistance and advice.
(d) Determine the use of financial organizations as account
depositories and financial managers.
(e) Charge, impose, and collect annual administrative fees and
service in connection with any agreements, contracts, and
transactions relating to individual accounts, exclusive of initial
sales charges, which shall not exceed 2.0% of the average daily net
assets of the account.
(f) Develop marketing plans and promotional material.
(g) Establish the methods by which funds are allocated to pay
for administrative costs.
(h) Provide criteria for terminating and not renewing the
management contract.
(i) Address the ability of the program manager to take any
action required to keep the savings plan or plans offered under the
program in compliance with requirements of this act and its
management contract.
(j) Keep adequate records of each account and provide the
treasurer with information that the treasurer requires related to
those records.
(k) Compile the information contained in statements required
to be prepared under this act and provide that compilation to the
treasurer in a timely manner.
(l) Hold all accounts for the benefit of the account owner.
(m) Provide for audits at least annually by a firm of
certified public accountants.
(n) Provide the treasurer with copies of all regulatory
filings and reports related to the savings plan or plans offered
under the program made during the term of the management contract
or while the program manager is holding any accounts, other than
confidential filings or reports except to the extent those filings
or reports are related to or are a part of the savings plan or
plans offered under the program. It is the responsibility of the
program manager to make available for review by the treasurer the
results of any periodic examination of the program manager by any
state or federal banking, insurance, or securities commission,
except to the extent that the report or reports are not required to
be disclosed under state or federal law.
(o) Ensure that any description of the savings plan or plans
offered under the program, whether in writing or through the use of
any media, is consistent with the marketing plan developed by the
program manager.
(p) Take any other necessary and proper actions to carry out
the purposes of this act.
Sec. 7. The treasurer shall be responsible for the ongoing
supervision of each management contract.
Sec. 9. (1) A management contract shall be for a term of years
specified in the management contract.
(2) The treasurer may terminate a management contract based on
the criteria specified in the management contract.
Sec. 11. (1) The treasurer may enter into contracts that it
considers necessary and proper for the implementation of this
program.
(2) From the information received from each public school
pursuant to section 1210 of the revised school code, 1976 PA 451,
MCL 380.1210, the department shall determine which services offered
by each public school are eligible services that may be purchased
using an education savings account and shall determine the maximum
allowable cost for each of those eligible services.
Sec. 13. (1) No later than August 1, 2017, the department, in
consultation with the department of education, shall establish and
maintain an internet website dedicated to this program. The website
shall serve as the portal for information about education savings
accounts and the eligible services offered by each public school in
this state. The website shall include at least all of the
following:
(a) A breakdown of the minimum requirements for annual course
loads and course descriptions.
(b) A mechanism for the enrollment of students into services
and to allow for the payment of those eligible services from each
student's education savings account by the parent.
(c) A default selection for eligible services based on the
grade level of the student for parents who elect not to choose the
courses and subject areas for their students.
(2) Beginning with the 2017-2018 school year, parents shall
open an education savings account for each dependent who is a
student to allow for the enrollment in and payment for eligible
services offered by a public school for that student. A parent
shall open only 1 account for each dependent. If an account has not
been opened for a student seeking enrollment into eligible services
offered by a public school, the department shall open an account
for that student and send a written notification to the parent.
(3) To open an education savings account, the parent shall
enter into a Michigan parental choice in education program
agreement with the program. The Michigan parental choice in
education program agreement shall be in the form prescribed by a
program manager and approved by the treasurer and contain all of
the following:
(a) The name, address, and social security number of the
parent.
(b) The name, address, and social security number of the
student.
(c) Any other information that the treasurer or program
manager considers necessary for the enrollment of the student and
related to the eligible services.
(4) Any individual or entity may make contributions to an
account.
(5) From the amounts levied pursuant to sections 625a, 681,
705, 1211, and 1724a of the revised school code, 1976 PA 451, MCL
380.625a, 380.681, 380.705, 380.1211, and 380.1724a, and collected
under the general property tax act, 1893 PA 206, MCL 211.1 to
211.155, the state treasurer shall deposit those funds into the
education savings accounts of each student as provided under
section 43(14) of the general property tax act, 1893 PA 206, MCL
211.43. Any other contributions to an education savings account
must be made in cash, by check, by credit card, or by any similar
method as approved by the state treasurer but shall not be
property.
(6) Distributions from an account to pay for eligible services
shall be paid directly to the public school in which the eligible
services are to be provided.
(7) Each savings plan under the program shall provide separate
accounting for each student.
Sec. 15. (1) An account owner may designate another individual
as a successor owner of the account in the event of the death of
the account owner.
(2) An account owner may transfer all or a portion of an
account to another education savings account. The student of the
account to which the transfer is made must be a dependent of the
account owner.
(3) Upon graduation from a public school, an account owner may
transfer the money left in the account to another education savings
account or may elect to have the money deposited pursuant to
section 13(5) transferred back to the school aid fund created in
section 11 of article IX of the state constitution of 1963.
(4) Upon the death of the student, the account shall be closed
and that portion of the money in the account that was deposited
pursuant to section 13(5) shall be transferred back into the school
aid fund created in section 11 of article IX of the state
constitution of 1963. After the disbursement to the school aid fund
under this subsection, the department shall issue a check to the
account owner for the balance that remains in the account.
Sec. 17. (1) Except as otherwise provided in this section, an
account owner shall not direct the investment of any contributions
to an account or the earnings on an account.
(2) An account owner may select among different investment
strategies designed by a program manager to the extent allowed
under this act.
(3) The program may allow board members or employees of the
program, or the board members or employees of a contractor hired by
the program to perform administrative services, to make
contributions to an account.
(4) An interest in an account shall not be used by an account
owner as security for a loan. Any pledge of an interest in an
account has no force or effect.
Sec. 19. (1) Each program manager shall report distributions
from an account to a public school for the benefit of the student
during a tax year to the Internal Revenue Service and the account
owner or, to the extent required by federal law or regulation, to
the distributee.
(2) Each program manager shall provide statements that
identify the contributions made during the tax year, the total
contributions made to the account for the tax year, the value of
the account at the end of the tax year, distributions made during
the tax year, and any other information that the treasurer requires
to each account owner on or before the January 31 following the end
of each calendar year.
Sec. 21. Each program manager shall disclose the following
information in writing to each account owner of an education
savings account and any other person who requests information about
an education savings account:
(a) The terms and conditions for establishing an education
savings account.
(b) Restrictions on the substitutions of students and transfer
of account funds.
(c) The person entitled to terminate a Michigan parental
choice in education program agreement.
(d) The period of time during which a student may receive
benefits under the Michigan parental choice in education program
agreement.
(e) The terms and conditions under which money may be
withdrawn from an account or the program, including, but not
limited to, any reasonable charges and fees and penalties that may
be imposed for withdrawal.
(f) The potential tax consequences associated with
contributions to and distributions and withdrawals from accounts.
(g) Investment history and potential growth of account funds
and a projection of the impact of the growth of the account funds
on the maximum amount allowable in an account.
(h) All other rights and obligations under Michigan parental
choice in education program agreements and any other terms,
conditions, and provisions of a contract or an agreement entered
into under this act.
Sec. 23. This act and any agreement under this act shall not
be construed or interpreted to do any of the following:
(a) Guarantee that a student will be admitted to a public
school of his or her choice or, upon admission to a public school,
will be permitted to continue to attend or will receive a degree
from the public school.
(b) Guarantee that amounts contributed to an account will be
sufficient to cover the eligible services of a student.
Sec. 25. (1) This act does not create and shall not be
construed to create any obligation upon this state or any agency or
instrumentality of this state to guarantee for the benefit of an
account owner or student any of the following:
(a) The rate of interest or other return on an account.
(b) The payment of interest or other return on an account.
(2) The contracts, applications, deposit slips, and other
similar documents used in connection with a contribution to an
account shall clearly indicate that the account is not insured by
this state and that the money deposited into and investment return
earned on an account are not guaranteed by this state.
Sec. 27. Each program manager shall file an annual report with
the treasurer and the board that includes all of the following:
(a) The names and identification numbers of account owners and
students. The information reported pursuant to this subdivision is
not subject to the freedom of information act, 1976 PA 442, MCL
15.231 to 15.246.
(b) The total amount contributed to all accounts during the
year.
(c) All distributions from all accounts.
(d) Any information that the program manager or treasurer may
require regarding the taxation of amounts contributed to or
withdrawn from accounts.
Sec. 29. (1) Contributions to and interest earned on an
education savings account are exempt from taxation as provided in
section 30 of the income tax act of 1967, 1967 PA 281, MCL 206.30.
(2) Withdrawals made from education savings accounts are
exempt from taxation as provided in section 30 of the income tax
act of 1967, 1967 PA 281, MCL 206.30.
