BILL ANALYSIS Ó SB 163 Page 1 SENATE THIRD READING SB 163 (Evans) As Amended September 2, 2011 Majority vote SENATE VOTE :39-0 JUDICIARY 8-1 JUDICIARY 8-1 ----------------------------------------------------------------- |Ayes:|Feuer, Wagner, Atkins, |Ayes:|Feuer, Wagner, Atkins, | | |Dickinson, Beth Gaines, | |Dickinson, Beth Gaines, | | |Huber, Monning, | |Huber, Monning, | | |Wieckowski | |Wieckowski | | | | | | |-----+--------------------------+-----+--------------------------| |Nays:|Jones |Nays:|Jones | | | | | | ----------------------------------------------------------------- SUMMARY : Implements major changes to the governance structure of the State Bar (Bar) to maximize the Bar's prioritization of public protection in all of its activities and makes other reforms to the Bar's governance structure. In addition, the measure provides a $10 reduction in dues for all Bar members in 2012 and increases the amount Bar members may voluntarily choose to contribute to help address the ongoing crisis in legal services for the next two years only. Specifically, this bill , among other things: 1)Provides a $10 reduction in dues for all Bar members in 2012 only. 2)Provides that protection of the public shall be the highest priority of the Bar. 3)Revises the composition and size of the board of trustees. 4)Phases in the transition to the smaller board. 5)Requires the board to ensure that its open meeting requirements are consistent with, and conform to, the Bagley-Keene Open Meeting Act. 6)Requires the board to complete and implement a five-year strategic plan. SB 163 Page 2 7)Increases from the current $10 to $20 for the next two years the amount that Bar members may voluntarily (but need not) choose to allocate to address the ongoing crisis in legal services for Californians of lesser means, unless any Bar member chooses not to support those activities, in which case the member shall receive a commensurate reduction of that amount in their membership dues. 8)Acknowledges that the Bar has also voluntarily committed to transferring $2 million in 2012 and $2 million in 2013 (unless the bar finds in 2013 that its general fund faces overriding extraordinary circumstances) from non-mandatory dues monies to nonprofit legal services organizations regulated by the Bar to similarly help ensure that all Californians have equal access to justice. 9)Places a one-year "pause" on the Governance in the Public Interest Task Force next year to await the new trustee appointments to be made the following year. 10)Clarifies that specified conflict of interest provisions apply to new public members appointed to the board after the enactment of this measure. FISCAL EFFECT : None COMMENTS : According to the current president of the State Bar, who supports this bill, this measure implements the most sweeping changes to the governance structure of the State Bar in decades. Among other reforms, the bill revises the composition and reduces the size of the Bar's governance board, adding for the first time a substantial component of attorney members selected by the Supreme Court. The bill reduces the size of the board from 23 to 19 members over a three-year period. The bill also, consistent with other professional statutes, specifies for the first time that the protection of the public is the highest priority for the Bar and its board of trustees (the new name for the members of the board). Last year, AB 2764 (Assembly Judiciary Committee), Chapter 476, Statutes of 2010, created within the Bar the Governance in the Public Interest Task Force (Task Force). The Task Force was created in response to concerns that actions by the State Bar Board of Governors did not sufficiently take into account the protection of the public. On May 11, 2011, the Task Force presented its work product to the Supreme Court, Governor, and Legislature in the form SB 163 Page 3 of both a majority report, largely supported by the attorney members of the Task Force, and a minority report, largely supported by the public members of the Task Force. This bill reflects provisions discussed in those reports to improve the Board's governance and other Bar programs. At the end of 2010, the State Bar had a surplus in its General Fund of almost $12 million ($11.9 million). That figure is understood to have grown since then. In addition to this substantial surplus in its General Fund, the Bar also has another $6.4 million in a "Public Protection Reserve Fund" it created which is designed to use as a "rainy-day" fund to allow the Bar to continue operations should its dues authority not be continued for a period of time. The Bar's Public Protection Reserve Fund of $6.4 million represents almost 11% (10.7%) of 2010 General Fund operating expenses, 6.4% of total agency-wide operating expenses, and 4.9% of total agency-wide operating revenues. While the Bar's representatives have stated that these percentages are consistent with the recommendations of the Government Finance Officers Association, they have acknowledged such surpluses are extraordinary compared to other government agencies at this time in state history, and they have worked with the chairs of the Judiciary Committees to start to address this continuing surplus in the General Fund through the approaches in this measure, including the $10 rebate for Bar members next year, the increases from the current $10 to $20 for the next two years that Bar members may voluntarily (but need not) choose to dedicate to the ongoing crisis in legal services, and the Bar's voluntary decision to transfer $2 million in 2012 and $2 million in 2013 from non-mandatory dues monies to the Bar's "IOLTA" (Interest On Lawyer Trust Accounts) fund to similarly help address the state's decimated legal services programs. Even with the bill's proposed changes, the Bar continues to project substantial surpluses through at least 2015 (a $12.4 million surplus this year, an $8.6 million surplus in 2012, a $7.2 million surplus in 2013, a $9.2 million surplus in 2014, and an $11.4 million surplus in 2015.) The Bar states that these surpluses do not reflect some anticipated expenditures pertaining to deferred maintenance, personnel costs, and other items. Nor do they reflect the $6 million plus of additional monies kept by the Bar for its "rainy day" fund. Over the past several years, the Bar has generally taken in SB 163 Page 4 substantially more money from its members than it has spent. The Bar indicates it is working to ensure that this tradition of substantial variance between its projected expenses and actual expenses - leading to potentially higher annual dues assessments than have been needed - is halted. The Bar notes that provisions in this legislation which provide Bar members with a reduction in their membership dues will help reduce the continuing surpluses that the Bar has traditionally been running. As the Assembly Judiciary Committee knows well, funding for nonprofit legal aid organizations that assist indigent Californians with basic legal needs has never been adequate to the task, generally addressing only about 20% of legal needs. Sadly this gap is increasing because of the hardships suffered by many poor people in the current economic downturn combined with budget cuts from both government and private sources. California commits proportionally less public support for legal aid than many other states, and this support has diminished as the result of state budget cuts. Federal funding through the Legal Services Corporation is also down significantly, and private giving has decreased as well. California has traditionally relied principally on the Interest On Lawyer Trust Accounts program to fund legal aid programs. Over the last three years, however, revenues from the trust fund program have decreased 75% from $20.1 million in 2007-2008 to approximately $5 million in the current year. These revenues are expected to remain at this historic low because interest rates are not predicted to increase for some time. Virtually every state has faced the same emergency. One of the most common and successful approaches has been to raise attorney license fees specifically for the purpose of funding legal aid programs. Ten states now have such fees, ranging from a low of $20 to a high of $75, with an average of $43. In many states these fees are actually mandatory, without an opportunity to opt-out, reflecting the special obligation members of the profession have to ensure that fundamental access to the legal process and the rule of law does not depend on income. However the approach taken in this measure is purely voluntary, giving each Bar member the option of deciding whether they wish to have $20 allocated in the next two years to help address California's struggling legal service programs, consistently with established practice, the professional obligations of lawyers, the broad mission for which the Bar has been established, and the careful guidance of pertinent case law. (See SB 163 Page 5 Keller v. State Bar, 496 U.S. 1 (1990); Chicago Teachers Union v. Hudson, 475 U.S 292 (1986); Abood v. Detroit Bd. of Ed., 431 U.S. 209 (1977).) In the event that any Bar member chooses not to support those activities, the member shall receive a commensurate reduction of that amount in their membership dues. On April 30, 2011, the Bar released its annual discipline report for the year ending December 31, 2010. The audit noted that the overall backlog at the end of 2010 is 4,193 cases, an increase of over 60% from the numbers for the previous year, under the adjusted methodology used in the report. The Bar indicates it is working hard to take critically-needed steps to improve this unacceptable professional discipline record. On June 18, 2011, at a special session, the current Bar board voted to support the measure. And on Friday, June 24, 2011, the Bar's Board Operations Committee, representing the full board at those times when the full board is not in session, voted unanimously to support this bill. Analysis Prepared by : Drew Liebert / JUD. / (916) 319-2334 FN: 0002731