BILL ANALYSIS ------------------------------------------------------------ |SENATE RULES COMMITTEE | AB 2764| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ THIRD READING Bill No: AB 2764 Author: Assembly Judiciary Committee Amended: 8/2/10 in Senate Vote: 21 SENATE JUDICIARY COMMITTEE : 4-0, 6/29/10 AYES: Corbett, Harman, Hancock, Leno NO VOTE RECORDED: Walters ASSEMBLY FLOOR : 71-1, 5/13/10 - See last page for vote SUBJECT : State Bar Act: fees SOURCE : State Bar of California DIGEST : This bill authorizes the State Bar of California to collect active membership dues of up to $410 for the year 2011, which would continue the current active dues amount of $410. Consistent with existing law, those dues would fund only mandatory programs of the State Bar, and members can deduct $5 if they did not wish to support lobbying and other legislative activities. Members can also deduct an additional $5 if they did not wish to fund access and elimination of bias programs. ANALYSIS : Existing law requires all attorneys who practice law in California to be members of the State Bar and establishes the State Bar for the purpose of regulating the legal profession. Pursuant to the State Bar Act, the annual mandatory membership fee set by the State Bar's CONTINUED AB 2764 Page 2 Board of Governors (Board) to pay for discipline and other functions must be ratified by the Legislature. (Section 6000 et seq. of the Business and Professions Code [BPC]) Existing law authorizes the State Bar to collect $315 in annual membership fees from active members for a total annual dues bill of $410 for the year 2010. (BPC Section 6140) The other $95 is pursuant to statutory authorization to assess annually the following fees: $40 for the Client Security Fund (BPC Section 6140.55). $25 for disciplinary activities (BPC Section 6140.6). $10 to fund the Lawyer Assistance Program (BPC Section 6140.9). $10 special assessment to fund information technology upgrades (expires January 1, 2011) (BPC Section 6140.35). $10 for the Building Fund (expires January 1, 2014) (BPC Section 6140.3). Existing law authorizes the State Bar to collect $75 in annual membership fees from inactive members for a total annual dues bill of $125 for the year 2010. (BPC Section 6141) The other $50 is pursuant to statutory authorization to assess annually the following fees: $10 for the Client Security Fund (BPC Section 6140.55). $25 for disciplinary activities (BPC Section 6140.6). $5 to fund the Lawyer Assistance Program (BPC Section 6140.9). $10 for the Building Fund (expires January 1, 2014) (BPC Section 6140.3). Existing case law, Keller v. State Bar of California (1990) 496 U.S. 1, prohibits the use by the State Bar of mandatory dues to fund political and ideological activities, as a violation of a member's First Amendment freedom of speech rights, where such expenditures were not necessarily or reasonably incurred for the purpose of regulating the legal profession or improving the quality of the legal services available to the people of the state. Existing law allows AB 2764 Page 3 members to deduct up to $10 from the mandatory dues if the member does not wish to fund legislative activities and non- Keller lobbying and activities with his/her dues. (BPC Section 6140.05, Keller v. State Bar of California (1990) 496 U.S. 1) This bill authorizes the State Bar to collect active membership dues of up to $410 for the year 2011. Existing law provides that the Board may increase the annual membership fee fixed by Section 6140 by an additional amount not exceeding $10. This additional amount may be used only for the costs of upgrading the board's information technology system, including purchasing and maintenance costs and both computer hardware and software. This special assessment for information technology upgrades shall be separately listed and described in the annual membership fee invoice, which shall include notice of the repeal of this section on January 1, 2011. This bill extends that sunset until January 1, 2014, and, as of that date, is repealed. Existing law requires the Board to report to the Assembly Judiciary Committee and the Senate Judiciary Committee on or before April 1, 2009, and on or before April 1 of the succeeding two years, on the use of the funds authorized pursuant to Section 6140.35. This bill extends that date until 2011, and extends the sunset date from January 1, 2012, until January 1, 2014. Background Recent embezzlement and Bar's response . On April 6, 2009, the Attorney General filed embezzlement and tax evasion charges against Sharon Pearl, the Bar's former Director of Real Property (DRP). Pearl embezzled Bar funds over a period of eight years, and estimates of the loss ranged from $655,000 to $675,820. In response to the incident, Laura Chick, Chair of the State Bar Board of Governors' Audit Committee, submitted a six-page letter to the Chairs and Vice Chairs of the Senate and Assembly Judiciary AB 2764 Page 4 Committees explaining how the embezzlement occurred and describing the Bar's response to the incident. According to the letter: The [Bar's internal] investigation determined that the DRP diverted tenants' payments for rent and fees to a non-State Bar account over which she had control, and hid the non-receipt of those payments by manipulating information about expected rent revenue and falsifying documentation supporting rent credits for various tenant renovations or service interruptions due to the Bar's seismic retrofit project. . . . She used her position to become the single point of contact between the State Bar and its tenants; she verified the rent payment schedules prepared by the Office of Finance; and she was personally responsible for both issuing invoices to tenants and collecting rent checks from them. This, ultimately, was the point of failure in the internal controls over rent billing and collection, as the DRP was able to divert rent payments while providing plausible explanations for their absence to the Office of Finance, and to the Bar's independent auditors (Deloitte & Touche) during the annual financial audit. After the incident came to light, the State Bar hired a certified public accounting firm specializing in local governments to perform an independent forensic review and make recommendations for improvements to the internal controls relating to rent billing and collection procedures. As a result, according to the letter, the Bar has taken a number of actions to improve rent billing and collection procedures including: 1. The Office of General Counsel prepared a lease profile for each tenant, clearly outlining all lease terms and conditions. 2. The Office of Operations prepared a rent income schedule for each tenant, listing the expected rent, by month, for the entire term of the lease. 3. Leases, lease profiles, rent income schedules, and all relevant supporting documents related to tenants have been jointly verified and signed-off by the State Bar's AB 2764 Page 5 Offices of Operations, Finance, and General Counsel and are jointly accessible to all three in a secure location on the State Bar's network. This change ensures appropriate checks and balances, as no single department or individual employee has a monopoly on information; lease terms and expected revenues are verifiable and any deviations are transparent. 4. The Office of Finance now invoices tenants directly, based on the rent schedules that have been loaded into the accounting system. Tenants have been instructed to mail rent checks directly to the Office of Finance. The Bar is also exploring the possibility of collecting rent payments via electronic funds transfer from tenants. 5. The State Bar will explore the possibility of engaging a professional property management company. Prior legislation . SB 641 (Corbett), 2009-10 Session, which would have authorized annual State Bar membership dues for 2010, passed the Senate (39-0) on May 26, 2009, but was vetoed. In his veto message, the Governor stated: "I am returning Senate Bill 641 without my signature. This bill would, among other provisions, authorize the State Bar to collect annual bar dues from its members for 2010. "In 1997, Governor Pete Wilson vetoed the annual State Bar dues bill, citing numerous concerns that the State Bar had become overly political, unresponsive to its membership, and inefficient. Unfortunately, twelve years later, inefficiencies remain unaddressed and questions about the State Bar's role in the evaluation of judicial nominees suggest that the State Bar's political agenda continues. "In July, the State Auditor released a report critical of the State Bar. Among the problems noted by the report: salaries for staff have risen significantly over the past five years; the costs of its disciplinary system have escalated by $12 million from 2004 to 2008 while the number of disciplinary inquiries opened has declined; and AB 2764 Page 6 a lack of internal controls allowed the embezzlement of nearly $676,000 by a former employee. As the organization charged with regulating the professional conduct of its members, the conduct of the State Bar itself must be above reproach. Regrettably, it is not. "In addition, recent actions by the State Bar's Judicial Nominees Evaluation Commission (JNE) also call into question the State Bar's impartiality in considering judicial appointments. All JNE Commission proceedings are required by law to be confidential and qualification ratings are not to be released to the public prior to the Governor considering an appointment. Unfortunately, recent events have required the State Bar to launch an official inquiry into the confidentiality of such proceedings. Moreover, the Chief Justice of the Supreme Court has recently questioned the reliability of the Commission's recommendations by noting its failure to follow statutory guidelines when considering judicial nominees. By failing to follow the law, the JNE Commission has damaged its reputation for impartiality and, in turn, the State Bar's. "There is no question the State Bar has an essential role in the state's justice system and must continue to oversee the licensing, education, and discipline of California's lawyers. However, I am returning this bill without my signature because the State Bar cannot continue with business as usual. It must take the time to reexamine the problems noted by the State Auditor and continue its investigation into the JNE Commission. I urge the State Bar to resolve these issues as soon as possible so the Legislature can reintroduce this measure early next year." In response to the veto, State Bar President Howard Miller stated, "The Governor's veto of the State Bar dues bill is regrettable, but we must take the Governor's concerns seriously. Many of them are justified. There have been serious management and financial issues at the State Bar, starting with the embezzlement by a single employee over an eight-year period of $675,000. The State Auditor, and others, have also criticized with precision the management of the Office of Chief Trial Counsel. We will look closely AB 2764 Page 7 at these and all other issues raised by the Governor. Events such as his veto message can challenge the State Bar to renew itself as an institution and its service to the public and the legal profession. I am confident the Board of Governors is up to that challenge." In January 2010, the Legislature passed and the Governor signed SB 55 (Corbett), Chapter 2, Statutes of 2010, authorizing the State Bar to collect annual membership dues for 2010. FISCAL EFFECT : Appropriation: No Fiscal Com.: No Local: No SUPPORT : (Verified 7/8/10) State Bar of California (source) ARGUMENTS IN SUPPORT : According to the California State Bar, this bill continues the State Bar's authority to assess and collect dues from licensed attorneys in California in order to support the Bar's operations, including discipline. This bill authorizes the Bar to continue to collect active membership dues of up to $410 for the year 2011, maintaining 2010 dues levels. The author's office notes that, consistent with existing law, those dues would fund only mandatory programs of the Bar, and members will continue to be able to deduct $5 if they do not wish to support lobbying and other legislative activities. This bill also extends the sunset on the $10 special assessment to fund information technology upgrades which expires January 1, 2011. ASSEMBLY FLOOR : AYES: Adams, Ammiano, Arambula, Bass, Beall, Bill Berryhill, Tom Berryhill, Blakeslee, Block, Blumenfield, Bradford, Brownley, Buchanan, Charles Calderon, Carter, Chesbro, Conway, Cook, Coto, Davis, De La Torre, De Leon, Emmerson, Eng, Evans, Feuer, Fletcher, Fong, Fuentes, Fuller, Furutani, Gaines, Galgiani, Garrick, Gilmore, Hall, Harkey, Hayashi, Hernandez, Hill, Huber, Huffman, Jeffries, Jones, Knight, Lieu, Logue, Bonnie Lowenthal, AB 2764 Page 8 Ma, Mendoza, Monning, Nava, Nestande, Niello, Norby, V. Manuel Perez, Portantino, Ruskin, Salas, Saldana, Smyth, Solorio, Audra Strickland, Swanson, Torlakson, Torres, Torrico, Tran, Villines, Yamada, John A. Perez NOES: Anderson NO VOTE RECORDED: Caballero, DeVore, Hagman, Miller, Nielsen, Silva, Skinner, Vacancy RJG:mw 7/9/10 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END ****