BILL ANALYSIS Ó
SENATE JUDICIARY COMMITTEE
Senator Hannah-Beth Jackson, Chair
2013-2014 Regular Session
AB 2746 (Committee on Judiciary)
As Amended June 18, 2014
Hearing Date: June 24, 2014
Fiscal: No
Urgency: No
BCP
SUBJECT
Attorneys: Annual Membership Fees
DESCRIPTION
This bill would authorize the State Bar of California (State Bar
or the Bar) to collect active membership dues of up to $397 for
the year 2015. 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.
This bill would increase the amount that members of the State
Bar may choose to contribute to free legal services for those
with limited means from $30 to $38.
This bill would add $7 to the annual membership fees for active
members to be allocated only for the purpose of paying the
administrative costs of the programs of the State Bar, and,
contingent on that $7 remaining in force and effect, remove
language authorizing the State Bar to deduct administrative
costs from funds received in support of legal services.
This bill would make conforming changes related to legal
services.
(This analysis reflects author's amendments to be offered in
Committee.)
BACKGROUND
(more)
AB 2746 (Committee on Judiciary)
Page 2 of ?
The State Bar of California is a public corporation. Attorneys
who wish to practice law in California generally must be
admitted and licensed in this state and must be a member of the
State Bar. (Cal. Const., art. VI, Sec. 9.) The State Bar of
California is the largest state bar in the country. As of June
2014, the State Bar had 182,746 active members and 53,573
inactive members, which represents a slight annual increase in
both active members and inactive members. Total State Bar
membership is listed at 249,578, which includes 2,144 judge
members and 11,114 members who are "Not Eligible to Practice
Law."
The Bar's programs are financed mostly by annual membership dues
paid by attorneys
as well as other fees paid by applicants seeking to practice
law.
CHANGES TO EXISTING LAW
1. 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 Board of Trustees to pay for
discipline and other functions must be ratified by the
Legislature. (Bus. & Prof. Code Sec. 6000 et seq.)
Existing law authorizes the State Bar to collect $315 in
annual membership fees from active members for a total annual
dues bill of $390 for the year 2014. (Bus. & Prof. Code Sec.
6140.) The other $75 is pursuant to statutory authorization
to assess annually the following fees: $40 for the Client
Security Fund (Bus. & Prof. Code Sec. 6140.55); $25 for
disciplinary activities (Bus. & Prof. Code Sec. 6140.6); and
$10 to fund the Lawyer Assistance Program (Bus. & Prof. Code
Sec. 6140.9).
Existing law authorizes the State Bar to collect $75 in annual
membership fees from inactive members for a total annual dues
bill of $115 for the year 2014. (Bus. & Prof. Code Sec.
6141.) The other $40 is pursuant to statutory authorization
to assess annually the following fees: $10 for the Client
Security Fund (Bus. & Prof. Code Sec. 6140.55); $25 for
disciplinary activities (Bus. & Prof. Code Sec. 6140.6); $5 to
fund the Lawyer Assistance Program (Bus. & Prof. Code Sec.
AB 2746 (Committee on Judiciary)
Page 3 of ?
6140.9).
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 are 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
members to deduct up to $5 from the mandatory dues if the
member does not wish to fund legislative activities and
non-Keller lobbying and activities with his or her dues.
(Bus. & Prof. Code Sec. 6140.05; Keller v. State Bar of
California (1990) 496 U.S. 1.)
Existing law authorizes the State Bar to increase the annual
membership fees by an additional $30, to be allocated only for
purposes of providing voluntary support for nonprofit
organizations that provide free legal services to persons of
limited means. Members have the option of deducting the $30
from the annual membership fee if they elect not to have the
amount allocated for the purposes of legal services. (Bus. &
Prof. Code Secs. 6140.03, 6033.)
This bill would authorize the State Bar to collect active
membership dues of up to $390 for the year 2014. This bill
would also increase the amount that members can voluntarily
contribute to legal services from $30 to $38.
2. Existing law provides that the State Bar's Board of
Trustees may aid in all matters pertaining to advancement of
the science of jurisprudence or to the improvement of the
administration of justice, as specified. (Bus. & Prof. Code
Sec. 6031(a).)
This bill would additionally provide that the board may
collect reasonable charges authorized by statute with respect
to all matters incident to licensing, regulation, and
discipline, including, as specified, the support and delivery
of legal services to indigent persons, including qualified
nonprofit legal aid organizations and pro bono, and the
advancement of equal access.
3. Existing law provides that, notwithstanding any other law,
the State Bar is authorized to facilitate the professional
responsibilities of members by collecting voluntary financial
AB 2746 (Committee on Judiciary)
Page 4 of ?
support for nonprofit organizations that provide legal
services to persons of limited means. (Bus. & Prof. Code Sec.
6033.)
This bill would additionally provide that all funds received
for programs related to the above provision shall be devoted
to the support of qualified legal services projects without
deduction for administrative fees, costs, or expenses by the
State Bar.
4. Existing law states that it has been the tradition of those
learned in the law and licensed to practice law in this state
to provide voluntary pro bono legal services to those who
cannot afford the help of a lawyer. (Bus. & Prof. Code Sec.
6073.)
This bill would, instead, provide that it has been the
"traditional obligation" of those learned in the law and
licensed to practice law in this state to provide voluntary
pro bono legal services to those who cannot afford the help of
a lawyer.
5. Existing law requires the State Bar to distribute all
moneys received under the program for the provision of legal
services to indigent persons and permits the State Bar to pay
the administrative costs of the program and a reasonable
reserve from those moneys. (Bus. & Prof. Code Sec. 6216.)
This bill would provide that $7 shall be added to the annual
membership fees to be allocated only for the purpose of paying
the administrative costs of the programs of the State Bar.
This bill would strike language authorizing the State Bar to
pay administrative costs from moneys received for legal
services, and, instead, provide that if the above $7
authorization ceases to be in force and effect, the State Bar
may deduct moneys received to pay the reasonable
administrative costs of performing its obligations.
COMMENT
1. Stated need for the bill
According to the author:
This bill re-authorizes the State Bar to continue collecting
annual dues from members licensed to practice law in
AB 2746 (Committee on Judiciary)
Page 5 of ?
California. It also seeks to address the continuing crisis
in the state's funding system for nonprofit legal aid
organizations that provide free legal services to the poor
by empowering the Bar to take additional steps reflecting
the Bar's longstanding commitment to addressing this issue
as part of its regulation of the profession.
For over 30 years, interest on lawyer trust accounts (IOLTA)
has been the primary mechanism on which the state has relied
to fund legal aid programs. It seems likely that when the
IOLTA program was instituted in 1981, no one anticipated
that bank interest rates would be virtually zero, as the
federal funds rate has been (.25%) since the 2009-10 IOLTA
grant cycle. The historic plunge in interest rates now
poses an unprecedented challenge to the premise that legal
aid programs can rely on IOLTA funding to help maintain
their essential mission. The collapse of bank interest rates
has caused IOLTA funding to drop over 75% to a record low.
The decimation of IOLTA funding would be bad enough if the
starting place had been equal access to justice. But
California has long suffered an overwhelming "justice gap"
in the availability of legal services, compounded by the
economic recession and significant increases in poverty.
Even in the best of times, legal aid providers have been
able to address only a fraction of the demand for help. . .
.
This bill would take modest steps towards staunching some of
the losses caused by the severe reductions in legal aid
funding. First, the bill allows members who wish to do so
to voluntarily contribute an additional $8 for the support
of nonprofit legal aid organizations that meet the robust
eligibility standards of the IOLTA program. Conforming
amendments ensure that members can make this voluntary
donation with the knowledge that the full value of their
contribution will go directly to the support of legal aid
organizations, consistently with the State Bar's current
practice. Related amendments clarify and conform the State
Bar's authority to collect charges authorized by statute,
including for the support of legal aid organizations,
consistently with existing practices, as well as reaffirming
the importance of pro bono services and support. Allowing
members to voluntarily contribute an additional $8 only if
they wish to do so is expected to generate approximately $1
million if current voluntary contribution rates remain
constant.
AB 2746 (Committee on Judiciary)
Page 6 of ?
The bill also allows legal aid programs to receive the full
benefit of IOLTA revenue that is currently used for expenses
of the State Bar, and provides for a modest $7 fee increase
for active members to cover increases in the administrative
costs of State Bar operations, largely due to routine salary
and benefit cost increases over time.
2. Mandatory membership dues
This bill would authorize the State Bar to collect active
membership dues of up to $397 for the year 2015. That amount
reflects a $7 increase from last year as a result of a proposed
fee of $7 to be allocated only for the purpose of paying the
administrative costs of the programs of the State Bar. Provided
that the number of active members remains constant, that $7 fee
would result in an additional $1.27 million to be used for
administering programs of the State Bar.
It should be noted that while this bill does reauthorize the
ability of the State Bar to collect its annual dues from
members, the remainder of its provisions seek to address the
funding crisis for nonprofits that provide free legal services
to the indigent. Accordingly, the bill proposes to increase the
amount that attorneys can voluntarily donate to legal services
and remove the ability for the State Bar to use moneys received
in support of legal services to indigent persons to pay for
administrative costs.
a. Increasing voluntary donation
Last year, SB 345 (Evans, Chapter 681, Statutes of 2013)
authorized the board to increase the annual membership fees
for active and inactive members by an additional $30 to
support legal services. For members that did not want to
support legal services, SB 345 required that the invoice give
the member the option of deducting $30 from his or her dues
amount. As a result, members had the option, but were not
required, to support the provision of free legal services to
the indigent persons by contributing $30. In recognition of
the continuing funding crisis for those who provide free legal
services, this bill would increase the voluntary contribution
amount from $30 to $38.
The author, in further support of the need to increase the
voluntary donation amount, notes that this increase could
AB 2746 (Committee on Judiciary)
Page 7 of ?
bring in an additional $1 million and asserts that: "[d]espite
repeated calls for substantial additional funding, the problem
has gotten far worse - further diminishing legal aid services.
In 2007, the Access Commission of the State Bar expressed
alarm at the size of the 'justice gap' resulting from
inadequate funding for legal aid and called for substantial
funding increases to address the needs. At that time, revenue
from the IOTLA program - the principal source of state
funding, generated by interest on lawyer trust accounts -
totaled $20 million. Since then, the problem has worsened.
Next year IOLTA revenues are expected to be only $4.7 million.
State support for legal aid is even more urgently needed
because of sharp declines in federal funding as the result of
federal sequestration and other congressional actions despite
a significant increase in the number of Californians who meet
federal poverty guidelines. California has lost over $10
million in [legal services] funding since 2010, yet the number
of Californians needing legal assistance continues to rise,
causing an ever-greater number of needy individuals to be
turned away due to a lack of resources."
b. Administrative costs no longer deducted from Legal
Services Trust Fund
The Legal Services Trust Fund Program of the State Bar makes
grants to nonprofit organizations that provide free legal
services to indigent persons. In 2013, that program had total
revenues of $11.2 million, consisting of $4.98 million in
IOLTA revenue (interest earned on client trust accounts),
$3.28 million from the Temporary Emergency Legal Services
Voluntary Assistance Option, $2 million from the
Administration of Justice Fund, $933,000 from the Justice Gap
Fund, and $13,000 in interest. Under existing law, after
deducting administrative costs, the State Bar is required to
distribute 85 percent of those funds to qualified legal
services projects, and, 15 percent to qualified support
centers.
In an effort to secure additional funding for legal services,
this bill would remove the ability for the State Bar to deduct
its administrative costs from funds received to support free
legal services, provided that the proposed $7 fee (discussed
in Comment 2) remains in effect. Since the State Bar will
necessarily continue to incur costs for administering the
program, this bill would essentially require the bar to pay
for those costs with funds not dedicated for legal services.
AB 2746 (Committee on Judiciary)
Page 8 of ?
Considering that those costs resulted in a deduction of $1.27
million from legal services last year, the proposed shift
could result in over $1 million in additional funding for
legal services.
3. Fiscal condition of the State Bar
The following information was reported to the Legislature in the
2013 Financial
Statement and Independent Auditor's Report of the State Bar of
California:
Assets - As of December 31, 2013, the State Bar's total
assets were $198.0 million, up slightly by $1.8 million, or
0.9% compared to $196.2 million last year. Cash,
investments, and restricted cash consist of balances in
demand deposit accounts, money market accounts, the State
Bar's share of California's Local Agency Investment Fund,
and investment securities. For the year ended December 31,
2013, the combined cash and investment balance was $85.5
million, down by $24.1 million or 21.9% from $109.6 million
last year. The lower cash balance is due primarily to the
capital spending on the new facility in Los Angeles. . . .
Net capital assets balance as of December 31, 2013, is
$102.2 million, a $26.5 million increase compared to $75.7
million last year. The increase is due to additional
capital expenditures for the new facility in Los Angeles,
partially offset by the normal depreciation.
Liabilities - The State Bar's total liabilities
consisted of accounts payable to vendor accounts, unearned
fees collected in advance, grants payable, loans payable,
and employee vacation and sick leave accruals. As of
December 31, 2013, the State Bar's total liabilities were
$67.1 million, up by $5.9 million, or 9.6% compared to
$61.2 million last year. The increase is due to a
combination of (1) a $3.4 million increase in accounts
payable to vendor due to the timing of payments for the Los
Angeles building construction costs; (2) a $3.3 million
increase in grant payable due to timing of grant
disbursement; (3) a $0.4 million increase in unearned
member dues collected in advance; partially offset by (4) a
$1.4 million reduction in loan payable due to repayments
made to the Los Angeles building mortgage loan obligation.
Net Position - This component of net position consists
of restricted net position, net investments in capital
AB 2746 (Committee on Judiciary)
Page 9 of ?
assets, and unrestricted net position. The State Bar's net
position as of December 31, 2013, was $130.9 million,
slightly down by $4.1 million or 3.0% compared to $135.0
million in 2012.
Operating Revenues - For the fiscal year ended December
31, 2013, the State Bar's total operating and non-operating
revenues were $137.4 million. Total operating revenues for
all programs for 2013 were $136.2 million, up by $3.8
million or 2.9% compared to $132.4 million last year. The
increase is due to a combination of (1) a $2.1 million
increase in membership revenues as a result of the
expiration of the one-time rebate of $10 to members in 2012
and overall growth in the membership for new admittees; (2)
a $0.9 million increase in examination and legal
specialization fees due to increase of applicants; and (3)
a $0.7 million net increase in other programs, including
grant revenue, and seminar and workshop revenues. Total
nonoperating revenues were $1.3 million, down significantly
by $24.2 million or 94.9% from last year. The nonoperating
revenues in 2012 consisted of a $24.5 million nonrecurrent
revenue generated from the gain on disposal of land.
Operating Expenses - For fiscal year 2013, the State
Bar's total operating expenses were $141.5 million, up by
$11.2 million or 8.6% compared to $130.3 million last year.
The increase is due to a combination of (1) a $4.3 million
increase in Client Security Fund application payouts as a
result of a Board's decision to devote additional financial
resources to mitigate the pending application waiting time;
and (2) a $2.4 million increase in personnel costs due to
the resumption of step and merit increases for existing
staff, and filling of vacant positions; (3) a $1 million
increase in examination costs due to increase of exam
applicants; and (4) a $3.5 million increase in general and
administration costs due largely to the San Francisco
building repair and maintenance projects.
4. Author's amendment
The author offers the following amendment to clarify the
authority of the State Bar to use funds for the support of its
administrative costs:
Author's amendment:
AB 2746 (Committee on Judiciary)
Page 10 of ?
On page 5, line 38, insert:
(a) If the authorization for fees pursuant to section 6140.04
to fund the administration of programs under this Article
ceases to be in force and effect, the State Bar may deduct
moneys received under this Article to pay the reasonable
administrative costs of performing its obligations under this
Article.
Support : State Bar of California
Opposition : None Known
HISTORY
Source : Author
Related Pending Legislation : None Known
Prior Legislation :
SB 345 (Evans, Chapter 691, Statutes of 2013)
AB 2685 (Committee on Judiciary, Chapter 348, Statutes of 2012)
SB 163 (Evans, Chapter 417, Statutes of 2011)
AB 2764 (Committee on Judiciary, Chapter 476, Statutes of 2010)
SB 55 (Corbett, Chapter 2, Statutes of 2010)
SB 641 (Corbett, 2009) was vetoed by the Governor.
AB 3049 (Committee on Judiciary, Chapter 165, Statutes of 2008)
SB 686 (Corbett, Chapter 474, Statutes of 2007)
AB 1529 (Jones, Chapter 341, Statutes of 2005)
SB 1490 (Committee on Judiciary, Chapter 384, Statutes of 2004)
AB 1708 (Judiciary, Chapter 334, Statutes of 2003)
SB 352 (Kuehl, Chapter 24, Statutes of 2001)
AB 2746 (Committee on Judiciary)
Page 11 of ?
SB 1367 (Schiff, Chapter 118, Statutes of 2000)
SB 144 (Schiff, Chapter 342, Statutes of 1999)
Prior Vote :
Assembly Floor (Ayes 76, Noes 0)
Assembly Judiciary Committee (Ayes 10, Noes 0)
**************