BILL ANALYSIS �
SB 345
Page 1
Date of Hearing: August 15, 2013
ASSEMBLY COMMITTEE ON JUDICIARY
Bob Wieckowski, Chair
SB 345 (Evans) - As Introduced: February 20, 2013
As Proposed to be Amended
SENATE VOTE : 37-0
SUBJECT : Attorneys: annual membership fees
KEY ISSUE : SHOULD THE ANNUAL LAWYER LICENSE FEE BE REDUCED BY
$20
FISCAL EFFECT : As currently in print this bill is keyed
non-fiscal.
SYNOPSIS
This bill would authorize the State Bar of California to collect
active membership dues of up to $390 for the year 2014. This
reflects a reduction of $20 because of the scheduled sunset of
two temporary special assessments - one $10 fee to upgrade the
Bar's computer systems, and another $10 fee to purchase a
building in Los Angeles. The bill makes two other changes to
existing law; it allows the Bar's $2 million annual contribution
to legal aid to sunset, and it increases by $10 the amount that
members can voluntarily contribute to support legal aid for poor
Californians through the Temporary Emergency Legal Services
Voluntary Assistance Option. Assuming voluntary participation
in this program remains the same as in prior years, the combined
net result of these two changes is expected to be a diminution
in funding for legal aid next year. The impact of this
reduction may be mitigated somewhat in future years if the Bar
is able to recover unpaid fines and penalties under the FTB's
intercept program, as authorized by this bill. Unfortunately,
the legal aid funding crisis that prompted the Legislature to
create the voluntary assistance option and mandate the Bar's $2
million annual contribution has not abated.
SUMMARY : Establishes attorney license fees. Specifically, this
bill :
1)Authorizes the State Bar to collect active membership dues of
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up to $390 for the year 2014.
2)Extends the Emergency Legal Aid Voluntary Assistance Option at
a suggested rate of $30.
3)Allows the State Bar's $2 million financial support of legal
aid programs to sunset.
4)Authorizes and directs the State Bar to participate in the
FTB's interagency intercept collections program for unpaid
fines and penalties, with any potential receipts to be for the
support of legal aid programs.
EXISTING LAW :
1)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 Governors to pay for discipline and other
functions must be ratified by the Legislature. (Bus. & Prof.
Code Sec. 6000 et seq.)
2)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 2013. (Bus. & Prof. Code Sec. 6140.) The other
$95 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); $10 to fund the Lawyer
Assistance Program (Bus. & Prof. Code Sec. 6140.9); $10
special assessment to fund information technology upgrades
(expires January 1, 2014) (Bus. & Prof. Code Sec. 6140.35);
and $10 for the Building Fund (expires January 1, 2014) (Bus.
& Prof. Code Sec. 6140.3).
3)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 2013. (Bus. & Prof. Code Sec. 6141.) The
other $50 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. 6140.9); and
$10 for the Building Fund (expires January 1, 2014) (Bus. &
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Prof. Code Sec. 6140.3).
4)Under 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.)
5)Until January 1, 2014, directs $20 of membership dues to legal
services purposes unless a member elects not to support those
activities. (Bus. & Prof. Code Sec. 6140.01.)
COMMENTS : The author offers the following statement in
explanation of the bill: "This bill would continue 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." No statement of support or
explanation was received from the State Bar.
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
May 2013, the State Bar had 178,050 active members and 51,985
inactive members, which represents a slight annual increase in
both active members and inactive members. Total State Bar
membership is listed at 242,738, which includes 2,122 judge
members and 10,580 members who are "Not Eligible to Practice
Law." The Bar's programs are financed almost exclusively by
annual membership dues paid by attorneys as well as other fees
paid by applicants seeking to practice law.
Mandatory Bar Dues To Be Reduced By $20, With Optional $30 Fee
For Bar Members Who Wish To Support Legal Aid. This bill would
authorize the State Bar to collect active membership dues of up
to $390 for the year 2014, in addition to a $30 optional fee for
members who voluntarily choose to contribute to the support of
nonprofit legal aid organizations that make free legal services
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available to poor Californians. The mandatory fee of $390
reflects a $20 reduction from last year due to the sunset of
both a $10 assessment to fund information technology upgrades
and a $10 assessment for the Los Angeles Building Fund. The
optional legal aid fee continues the existing mechanism by which
members who choose to do so can help defray the cost of ensuring
that legal services are available without regard to ability to
pay market rates for, consistently with each lawyer's
professional responsibility. The amount would increase from $20
to $30.
Sunset Of Assessment For LA Building And Information Technology
Upgrades. Under existing law, the Bar has collected an
additional $10 from members to be used for: (1) the costs of
financing, constructing, purchasing, or leasing facilities to
house State Bar staff; and (2) major capital improvement
projects related to facilities owned by the Bar. (Bus. & Prof.
Code Sec. 6140.3.) The authority to assess that fee sunsets on
January 1, 2014. This bill would allow that fee to sunset
reducing the maximum bar dues by another $10 next year. It
should be noted that the State Bar did, in fact, purchase a
building located at 845 South Figueroa Street in Los Angeles to
house its Southern California operations upon expiration of the
State Bar's current lease in 2014. The purchase price of the
five-story building was $50 million. Tenant improvements,
moving costs, broker's commissions and interim debt service are
estimated at $20 million. Funding sources for the total project
costs are: $28 million from the sale of the State Bar's Los
Angeles parking lot; $25.5 million in loan proceeds from Bank of
America; $10.2 million from the $10 dedicated building fee; and
approximately $6.3 million from available fund balances and
interfund loans." (2012 Financial Statement and Independent
Auditor's Report of the State Bar of California (Apr. 30, 2013)
State Bar [as
of May 5, 2013] at pg. 9.)
Accordingly, the current $10 assessment for the building will
sunset on January 1, 2014, reducing the dues for active members
by another $10 next year.
The Bar has also collected a separate $10 assessment for
information technology upgrades, which this bill will also allow
to sunset. In 2007, SB 686 (Corbett, Chapter 474, Statutes of
2007) authorized the State Bar to collect a special assessment
of up to $10 per year from active members in order to fund
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upgrades to the Bar's information technology system, including
purchasing and maintenance costs of both computer hardware and
software. The assessment, which originally would have sunset on
January 1, 2011, was extended to January 1, 2014 by AB 2764
(2010). The State Bar's April 1, 2013 report on Information
Technology-Technology Improvement Update notes that: "From 2008
through 2012, the State Bar has expended a total of $4.1 million
for upgrades to its personal computers, desk top software,
servers, printers, network infrastructure, and
telecommunications. Additionally, the State Bar has improved
its web hosting and begun the process of replacing its legacy
prosecutorial case management, State Bar Court case management
and Admissions systems. For 2013 through 2015, $6.5 million is
budgeted to pay for the total costs of the Bar's legacy system
replacements identified above as well as the cost of replacing
the Member Records and Billing system. Initiation of the Member
Records and Billing is scheduled for 2014 with a planned
completion date of 2015." The report further notes that the
assessment has generated an average of $1.6 million per year
(thus, over a six year period, the total amount generated
appears to be around $10 million).
Fiscal condition of the State Bar : The following information
was reported to the Legislature in the 2012 Financial Statement
and Independent Auditor's Report of the State Bar of California:
Assets - As of December 31, 2012, the State Bar's total
assets were $196.2 million, up by $49.8 million, or 34.0
[percent] compared to $146.4 million last year. The
increase is due to a combination of (1) a net $44 million
increase in capital assets due to the Los Angeles building
acquisition and the sale of the Los Angeles parking lot,
partially offset by normal depreciation, (2) an $11.3
million increase in cash and investments, and (3) a $5.5
million decrease in other assets and grant receivables.
Liabilities - The 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, 2012, State Bar's total liabilities were $61.2 million,
up by $22.1 million, or 51 [percent] compared to last year.
The increase is mainly due to a combination of (1) a $25.4
million mortgage loan obligation obtained for the Los
Angeles building acquisition, (2) a $3.2 million increase
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in accounts payable to vendors due to the timing of
payments, (3) a $0.8 million increase in unearned member
dues collected in advance, and (4) offset by a $7.3 million
net decrease in grants payables due to the timing of
quarterly grant distribution to grantees.
Net Position - The State Bar's net position as of
December 31, 2012, was $135.0 million, which is up by $27.7
million, or 25.8 [percent] compared to 2011. The increase
in net position is due largely to the $24.6 million gain
generated from the disposal of a parking lot in Los
Angeles.
Operating Revenues - For the fiscal year ended December
31, 2012, the State Bar's total operating and non-operating
revenues were $158.1 million.
Operating Expenses - For fiscal year 2012, the State
Bar's total operating expenses were $130.4 million, which
were down by $7.0 million or 5.1 [percent] compared to
$137.4 million last year. The decrease is a result of cost
savings from operations and lower personnel costs. (2012
Financial Statement and Independent Auditor's Report of the
State Bar of California (Apr. 30, 2013).)
Does This Bill Adequately Address The Crisis in Legal Aid
Funding And Properly Reflect Legislative Priorities? Under this
bill, funding for legal aid is expected to diminish next year,
despite significantly greater needs for legal services and
dramatically lower funding from other sources. While the
continuation of the voluntary contribution option, increased by
$10, is expected to help prevent further deterioration of
funding, it is not expected to compensate for the loss of the $2
million the Legislature has required the Bar to contribute
toward the support of legal aid over the past two years.
The Collapse Of Bank Interest Rates Since Has Caused IOLTA
Funding To Drop Over 75% To A Record Low . 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
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premise that legal aid programs can rely on IOLTA funding to
help maintain their essential mission.
California Continues To Suffer Under An Overwhelming "Justice
Gap" In the Availability of Legal Services, Compounded By the
Economic Recession And Significant Increases In Poverty . There
has long been a dire need for civil legal services for poor
Californians - especially underserved groups, such as elderly,
disabled, children and people needing assistance with English.
By many measures, California suffers from an overwhelming
"justice gap" between the legal needs of low-income people and
the legal help they receive. It has been estimated that the cost
of closing the gap would amount to $400 million. Even in the
best of times, legal aid providers have been able to address
only a fraction of the demand for help. Because of insufficient
resources, legal services programs can offer assistance in only
a few types of cases; many poor and moderate-income Californians
do not qualify for services; and most of those who meet the
strict eligibility limits and seek assistance regarding problems
for which a legal services office provides service are
nevertheless turned away, simply for lack of staff. Even those
who receive services are frequently under-served with brief
advice and consultation, rather than full and fair
representation.
Despite Repeated Calls For Substantial Additional Funding, The
Problem Has Gotten Far Worse - Further Diminishing Legal Aid
Services. Five years ago 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. In its 2007 study, the
State Bar Access Commission reported that legal aid
organizations were able to meet only about one-quarter of the
legal needs of poor people who meet the rigid eligibility and
service criteria. The funding gap was estimated to be
approximately $400 million. 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 only worsened. Next year IOLTA
revenues are expected to be only $4.5 million. The Bar plans to
take more than 25 % of that revenue off the top for its own
internal purposes (mostly salaries), leaving just $3.2 million
for legal aid organizations. If the Bar effectively exhausts
virtually all remaining reserve funds, it predicts it can
distribute $9.6 million to legal aid next year. In other words,
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rather than increasing since the Bar's 2007 report, legal aid
funding has fallen. Moreover, need has increased both as a
result of problems caused by the economic recession and because
of increased poverty. In light of the evident legal aid funding
crisis discussed below, the justice gap is growing.
The Access Commission of the State Bar recently reported the
following highlights in a Legal Services Funding Fact Sheet
dated May 21, 2013:
o At a time of increasing demand, funding is eroding.
o Total IOLTA grants were reduced by 30% in the last 6
years, while the number of eligible clients has increased
by nearly the same percentage since 2000. Some of the
revenue in the higher-income years was maintained in a
reserve fund to help cushion the leaner years, keeping
grants more stable - the total revenue from IOLTA dropped
over 75% since 2007-2008 while grants were reduced by 30%.
However, those reserve funds were depleted by 2011-2012.
o Eligible clients have increased 28% in California
between 2000 and 2011, from 6.3 million to 8.1 million.
With only approximately 961 legal aid attorneys for the 8.1
million eligible clients, there are over 8,430 clients per
legal aid attorney, and in some areas of the state, the
ratio is much higher.
o Sequestration has resulted in reductions in all federal
funding for legal services programs. This has meant a loss
of approximately $3.5 million this calendar year, and the
impact was made more difficult because it occurred part-way
through the year, making it a higher percentage of the
remaining grant.
o Since the number of eligible clients in other states has
increased at a higher percentage than in California, there
will be a significant drop in funding from the Legal
Services Corporation - see the details below.
o The lingering economic downturn continues to impact
IOLTA revenues and the Legal Services Trust Fund Program
faces a possible 40% reduction in IOLTA grants for
2014-2015.
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o Other sources of legal aid funding such as foundation
funding, private giving, government grants and contracts
have all been negatively affected by the economic downturn.
o Overview of LSC Funding: The funding from the Legal
Services Corporation, traditionally the backbone of funding
for legal services in California, is as follows:
" 2012 LSC funding in California was
$41,835,226;
" 2013 LSC funding is $39,876,156, with
sequestration and partial census adjustments;
" The net loss in LSC funding in CA is a loss of
nearly $2 Million.
" The 2014 funding will be dramatically lower
because of full census implementation.
o Staffing reductions. In the Bay Area alone, there was a
22% reduction of staff in legal services programs between
2009 and 2011, and there have been significant funding
reductions since that time which, in turn, led to more
layoffs. On a national basis, during last year alone, there
was an 8% loss of legal aid advocates across the country.
o Service reductions. These staff reductions have a direct
impact on the level of legal services that can be provided
to the eligible low-income population. Even as far back as
2005, when legal aid funding was at a much higher level
than it is now, a study by the Legal Services Corporation
indicated that over 50% of all those who seek help from a
legal aid office must be turned away due to lack of
resources.
A resolution adopted by the State Bar Board of Trustees on
February 28, 2013 states: Because of the recession, legal aid
advocates report that five to ten times more clients began
showing up at clinics. One hotline reported that their wait time
increased from 7 minutes to 45 minutes. And low-income persons
seeking help with visa applications can wait a year and a half
for assistance at free legal aid programs.
Funding levels since 2006-07 are shown in the table below. This
table does not reflect federal funding cuts or the increased
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needs brought about by the economic recession and higher poverty
rates.
---------------------------------------------------------------
|Reduced IOLTA Funds FY 2006-07 to FY 2014-15 |
| |
| |
|** 13/14 grant distribution projected based upon 10% decrease |
|from 12/13. Forecasted reserves/fund balances at July 1, 2013 |
|are higher than originally projected due to State Bar |
|Temporary Emergency Fund contributions being $1.3 million |
|higher than forecast and unanticipated Cy Pres funds received. |
|---------------------------------------------------------------|
|*** 14/15 Revenue, distribution, and federal funds rates are |
|estimates. No specific distribution level has been |
|approved. |
---------------------------------------------------------------
The Lack of Legal Services Has Negative Consequences For The
Administration of Justice . The legal aid funding deficit is
even more urgent in relation to the ongoing court budget
struggle because the two problems are related. Legal aid
programs help the courts manage caseloads, both by assisting
parties who would otherwise be unrepresented and cause further
drain on scarce court resources, and by working to solve
problems outside of court so that disputes can be avoided.
Courts are facing an ever increasing number of parties who
appear without legal counsel, largely because they cannot afford
it. The unavailability of civil legal services not only
disadvantages people with legal problems, it also burdens the
system and impairs the administration of justice. Unrepresented
litigants typically are unfamiliar with court procedures and
forms as well as with their rights and obligations, which
impedes their proceedings and consumes significant court
resources. By requiring greater judicial resources,
unrepresented parties also exacerbate the shortage of court
personnel and judicial officers. Moreover, a lack of
representation detracts from public confidence in the justice
system when the financial situation of a party is more likely
than the merits of an issue to determine the outcome. Opinion
surveys show that public trust and confidence are negatively
affected by impressions of procedural unfairness, and that the
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opportunity for people to be heard in a meaningful way is the
biggest impediment to improved sense of procedural fairness.
Disturbingly, opinion surveys show that more than two-thirds of
Californians believe low-income people usually receive worse
outcomes in court than others.
Legal aid programs are also particularly hurt by court budget
reductions. As the Committee heard at its February hearing on
court budget struggles, service reductions have been especially
dangerous for poor people - because the neediest are the most
vulnerable to loss of their legal rights and most require the
courts' protection, and because the burden of court budget cuts
in some counties may fall most heavily on services that are
disproportionately used by low-income parties.
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.
The IOLTA funding cuts are compounded by reductions in federal
funding from the Legal Services Corporation (LSC) which forms
the bulk of non-IOLTA funding for California legal aid as well
as private foundation and other charitable giving.
California has lost over $8.6 million in LSC funding since 2010,
yet the number of Californians needing legal assistance
continues to rise, causing ever-greater number of needy
individuals to be turned away due to a lack of resources.
Worse, California will lose an additional $2.9 million over the
next year due to census reallocation of federal poverty dollars.
Local programs supported by LSC funding provide civil legal
services to individuals at or below 125 percent of the federal
poverty guidelines. Approximately 2.3 million Americans are
assisted each year by LSC grantees; these include veterans
returning from war, domestic violence victims, individuals
undergoing foreclosure or other housing issues, those coping
with the after-effects of natural disasters, and families
involved in child custody disputes. Nearly one in six Americans
currently qualifies for civil legal assistance from the LSC
grantees. California has had a 28 percent increase in the
number of residents qualifying for legal aid since 2000.
Unfortunately, The Legislature's Historic Commitment To Maintain
Legal Aid Funding Is Now Threatened Because IOLTA Rates Have Not
Rebounded And The Legislature's Directive To The Bar To Support
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Legal Aid Programs Is Scheduled To Sunset This Year . The
Legislature and the State Bar have long been partners in an
ongoing effort to ensure that basic legal needs of poor
Californians are addressed - starting with the creation of the
IOLTA program in 1981 and continuing through AB 2764 (Judiciary)
of 2010 (establishing the Temporary Emergency Legal Services
Voluntary Assistance Option until 2014) and SB 163 (Evans) of
2011 (amended in this Committee to enlarge the Temporary
Emergency fund and obligate the State Bar to contribute $2
million to the support of legal aid programs in both the 2012
and 2013 fiscal years from non-mandatory dues funds generated by
the Bar's affinity and insurance programs).
These recent efforts to staunch the loss of legal aid funding
have apparently been the key to avoiding greater catastrophe.
According to the State Bar, nearly half of the $10.6 million
approved for distribution in 2013-2014, is based on
contributions generated by the Legislative actions described
above.
Increased Efforts To Collect Outstanding Fines and Penalties May
Help Address The Shortfall In Legal Aid Funding in Future Years,
But Will Not Mitigate The Current Problem Next Year. The Bar
has imposed substantial fines and penalties against members that
it has not collected for many years. As proposed to be amended,
this bill would direct the Bar to participate in the FTB's
Interagency Intercept Collections (IIC) program in an effort to
see if any of these outstanding assessments can be collected,
with any potential proceeds going to the qualified legal aid
providers affected by the reduction in the IOLTA program (after
paying off higher priority creditors such as tax and child
support obligations). Because many of these outstanding
assessments are quite old, the potential for collection is
speculative. Nevertheless, it would appear to be a worthy
effort. If any monies can be collected, however, the earliest
recovery would apparently occur in 2015.
In These Circumstances, The Committee May Wish To Explore With
The Author Whether It Is Appropriate To Allow Should The State
Bar Cut Off The Funding It Has Contributed For The Past Two
Years From Discretionary Sources To Keep Legal Aid Programs From
Suffering Further Reductions? In the face of this crisis, the
Legislature may wish to consider whether it is appropriate that
the Bar end its contribution to support of legal aid, as
proposed in this bill. Although the voluntary legal services
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fee would continue under this bill, the Bar's $2 million
contribution from its affinity and insurance programs will be
cut off. According to the Bar, it cannot afford to continue
this - or any - level of support for legal aid. It should be
noted, however, that the Bar will continue to receive these
affinity and insurance revenues without any predicted
diminution. The question is simply whether the Bar will
continue to support legal aid, or whether these funds will be
used for other purposes. For example, it appears that the Bar
has chosen to divert some existing affinity and insurance
revenues to other purposes, including a $4.3 million "loan" of
these funds to the new Los Angeles building for "tenant
improvements" for the Bar. The Bar also plans to increase
spending on its annual conference, outside consultants, salary
increases and a supplemental medical benefit plan it provides
only to its executive staff above and beyond the CalPERS medical
benefits provided to other Bar employees, or to other state
employees.
Author's Proposed Amendments. In order to reauthorize the
existing voluntary assistance option, the author proposes to
eliminate the current 2014 sunset. In addition, the author
proposes to facilitate the Bar's participation in the FTB
intercept program as follows:
Section 6034 is added to the Business and Professions Code, to
read:
6034. The State Bar is authorized and directed to participate
as a state agency in the interagency collection program
established under Government Code section 12419.2 for the
collection of any unpaid and delinquent amounts owed to the
State Bar, including any fine, penalty, assessment, cost or
reimbursement under sections 6086.10, section 6140.5(c), and any
other applicable provision. All funds received by the State Bar
shall be used for the purposes established pursuant to Section
6033.
REGISTERED SUPPORT / OPPOSITION :
Support
None on file
Opposition
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None on file
Analysis Prepared by : Kevin G. Baker / JUD. / (916) 319-2334