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Millions in Donations Made on State Tax Returns Go Unspent

Published 01/27/2016

Are you one of the many across the nation that has donated to charity by using the check-off boxes on your state income tax form? If not, perhaps you recall seeing the option to do so the last time you filed? Although it’s hard to argue with the convenience of donating to charity in this way, in CharityWatch’s opinion, it’s better to donate directly to a charity instead. Why? The $25 million in unspent donations from California and New York taxpayers, which has been left sitting in government bank accounts over several years, is a very strong reason to avoid giving to charity via your state tax form.

The specific charitable funds included in such voluntary tax contribution programs differ by state, but almost every state now gives taxpayers an option to make a charitable donation when filing their tax returns. Some of the most common types of state income tax check-off funds found nationwide support causes such as child abuse and neglect prevention, political campaigns, U.S. Olympic committees, and wildlife preservation, according to Colorado LegiSource, which notes that the very first state income tax check-off fund was the Colorado Nongame and Endangered Wildlife Fund that started in 1977. Since then, tax check-off funds have grown in popularity and now are offered in every state where residents pay state income taxes. Over $115 million combined has been raised through tax check-off programs in just the states of California, Colorado and New York.

California’s state tax check-off program, however, came under fire in an August 2015 Associated Press (AP) report: “Nearly $10 million in charitable donations by California taxpayers sat unspent in government accounts at the end of last year, […] and the Senate Governance and Finance Committee chairman said […] that he wants a review of state accounts and will hold a hearing to find out why the money hasn’t been spent.” The AP’s findings are based on its review of ten years of financial records for 29 funds included on California’s tax forms that collected a total of $35 million since 2005. “Lawmakers like the voluntary donations because they can say they helped good causes without committing state dollars but they have left distribution up to state agencies that sometimes don’t know what to do,” according to the AP report. State agencies have distributed less than half of the taxpayer contributions available in a dozen of the 29 funds, the AP found. The AP report notes that one fund created for colorectal cancer screenings that was promoted by a Californian who lost her husband to colon cancer in 2003 raised $237,000 from taxpayers, none of which has been spent for cancer prevention by state health agencies even though the unspent money could have paid for more than 200 colonoscopies and is more than double the amount distributed to clinics by the California Colorectal Cancer Coalition over the last three years.

The state of New York (NY) is in a similar position to California as detailed in a January 2014 NY State Comptroller’s report titled “New York’s Tax Check-Off Funds: Good Intentions on Hold.” The report found that over the ten-year period from 2003-2012, NY taxpayers contributed over $23.7 million to six tax form check-off funds, while the spending out of those funds totaled only about $13.8 million, which is just 58% of the total contributions received. Over $14.6 million in unspent contributions had accumulated in the six funds as of the end of NY’s 2012-13 state fiscal year (SFY), and no spending at all had occurred from two of the funds (a prostate cancer fund and the “Volunteer Firefighting and EMS” fund), according to the report. Since the 2014 NY Comptroller’s report, the accumulated amount in unspent taxpayer contributions for the six funds examined has actually grown to over $15.4 million as of the end of SFY 2014-15, according to an April 2015 news release by the Office of the NY State Comptroller (NY OSC), with about 90% of the unspent money being in health-related dedicated funds for research, detection and education for breast and prostate cancer, as well as for Alzheimer’s disease. The April 2015 news release by the NY OSC announced that in light of the findings of the 2014 report, NY’s Comptroller has proposed legislation that would require the entities administering tax form check-off funds to improve efforts to spend dedicated contributions within the year that they were made, and to create more standardized and comprehensive reporting to help ensure full transparency and accountability for the use of the check-off funds.

Given the popularity of voluntary tax contribution programs across the country and the millions of dollars that are sitting unspent in the California and New York check-off funds, it’s probably likely that many other states also have check-off funds that have accumulated large balances of unspent taxpayer contribution dollars. Since each state is responsible for the rules and regulations that govern how its own tax form check-off funds are run, if you are thinking about participating, CharityWatch advises that you find out how accountable and transparent your state is with the activity of its voluntary tax contribution program. For example, to look more into your state’s tax form check-off program, try checking with either your state’s Department of Revenue or Comptroller’s Office. Can you find publicly available information describing the purpose of each tax check-off fund and how each fund spends the contributions received? Does your state make available reports that show the receipts, disbursements, and accumulated balances for each of its tax check-off funds, at least on an annual basis? Is there legislation in your state that requires tax check-off contributions be used within one or two years?

As noted in the NY OSC April 2015 news release concerning the NY Comptroller’s proposed check-off fund legislation, “Requiring greater efforts to ensure that tax check-off funds are being spent would provide increased assurance to taxpayers that their contributions were providing the intended benefits as quickly as possible.” CharityWatch believes it is much easier for donors to have such assurances by choosing to donate directly to a charity. If, however, you are committed to contributing through the check-off funds on your state income taxes, be sure that you’re confident that your state will use your contribution as intended on a timely basis.