BILL ANALYSIS Ó AB 2458 Page 1 Date of Hearing: April 5, 2016 ASSEMBLY COMMITTEE ON JUDICIARY Mark Stone, Chair AB 2458 (Obernolte) - As Amended March 29, 2016 PROPOSED CONSENT (As Proposed to be Amended) SUBJECT: TRIAL COURT RESERVES KEY ISSUE: IN ORDER TO ALLOW TRIAL COURTS TO BUILD UP THEIR RESERVES TO FUND PROJECTS OR PROGRAMS THAT PROVIDE THE PUBLIC WITH GREATER ACCESS TO COURT SERVICES aND JUSTICE, SHOULD THE LOCAL ONE PERCENT RESERVES LIMIT AND THE STATEWIDE TWO PERCENT SET-ASIDE BE ELIMINATED? SYNOPSIS The Lockyer-Eisenberg Trial Court Funding Act established by AB 233 (Escutia and Pringle, Chap. 850, Stats. 1997) shifted the responsibility of funding trial court operations from the counties to the state. The goal was to create a more uniform and equitable court system in order to increase access to justice for all Californians. Under the Lockyer-Eisenberg Act, the Judicial Council was authorized to allow trial courts to carry unexpended funds over from one fiscal year to the next. The Act did not limit the AB 2458 Page 2 amount of reserves that each court could maintain, nor did the Act proscribe how those reserves could be used. In 2012-13 in the midst of unprecedented cuts to the courts as the result of the recession, the Legislature changed this policy and limited trial courts reserves to up to one percent of its prior-year operating budget. In order to fund specific unforeseen emergencies, unanticipated expenses, and unavoidable shortfalls of the trial courts, the Legislature also required Judicial Council to set aside two percent of the Trial Court Trust Fund annually to help fund those emergencies. This bill essentially repeals that one percent reserves policy and reverts to the reserves policy prior to 2012, which allowed individual trial courts to maintain their own reserves year to year. As proposed to be amended, this bill also repeals the two percent set-aside. This bill has no opposition. SUMMARY: Eliminates the limit on the amount a trial court may hold in reserve, and repeals the two percent set-aside within the Trial Court Trust Fund. Specifically, this bill: 1)Authorizes the Judicial Council to allow a trial court to carry unexpended funds over from one fiscal year to the next, and repeals the provisions that limit the carryover amount currently to one percent of the trial court's prior-year budget. 2)Repeals the provisions that require the Judicial Council to set aside two percent of the total funds appropriated for trial court operations to be used for specific trial court allocations, including unforeseen emergencies, unanticipated expenses for existing programs, and unavoidable funding shortfalls. AB 2458 Page 3 3)Repeals the Judicial Council's reporting requirement to the Legislature and the Department of Finance on the two percent set-aside. 4)Makes technical and other conforming changes. EXISTING LAW: 1)Establishes that the state shall assume sole responsibility for the funding of court operations. (Government Code Section 77200 et seq. Unless stated otherwise, all further statutory references are to the Government Code.) 2)States that while it is the intent of the Legislature to transfer all fiscal responsibility for the support of the trial courts from the counties to the State, it is imperative that the activities of the State, the counties, and the trial courts be maintained in a manner that ensures that services to the people of California are not disrupted. (Section 77212.) 3)Provides that the Legislature shall make an annual appropriation to the Judicial Council for general trial court operations based on the request of the Judicial Council, as provided. (Section 77202.) 4)Requires the Judicial Council to report to the Legislature all approved allocations and reimbursements to the trial courts in each fiscal year, as specified. The report shall include a statement of the intended purpose for which each allocation or reimbursement was made, and the policy governing trial court reserves. (Section 77202.5.) AB 2458 Page 4 5)Requires trial courts to report to the Judicial Council all court revenues, expenditures, reserves, and fund balances from the prior fiscal year from all fund sources. The Judicial Council shall summarize this information and report this to the Legislature. (Section 77202.5.) 6)Provides that the Judicial Council shall retain the ultimate responsibility to adopt a budget and allocate funding for the trial courts and perform other activities, as specified, that best assure the trial courts' ability to carry out their functions, promote implementation of statewide policies, and promote the immediate implementation of efficiencies and cost saving measures in court operations, in order to guarantee equal access to the courts. (Section 68502.5.) 7)Provides that, prior to June 30, 2014, a trial court may carry over all unexpended funds from the courts operating budget from the prior fiscal year. (Section 77203.) 8)Provides that, commencing June 30, 2014, a trial court may carry over unexpended funds in an amount not to exceed one percent of the court's operating budget from the prior fiscal year. The calculation of the one percent authorized to be carried over from the previous fiscal year shall not include certain funds as specified. (Id.) 9)Requires the Judicial Council to set aside two percent of the total funds appropriated to Trial Court Trust Fund and to allocate those funds for unforeseen emergencies, unanticipated expenses for existing programs, or unavoidable funding shortfalls. Provides that any unexpended funds shall be distributed to the trial courts on a prorated basis. (Section 68502.5.) AB 2458 Page 5 10)Requires the Judicial Council to report to the Legislature and to the Department of Finance all requests and allocations made pursuant to the two percent set-aside. (Id.) FISCAL EFFECT: As currently in print, this bill is keyed non-fiscal. As proposed to be amended, this bill will be keyed fiscal. COMMENTS: The Lockyer-Eisenberg Trial Court Funding Act (the Act) was established by AB 233 (Escutia and Pringle, Chap. 850, Stats. 1997), and, among other things, shifted the responsibility of funding trial court operations from the counties to the State. This significant structural improvement was intended to create a more uniform and equitable court system in order to increase access to justice for all Californians. Under the Act, the Judicial Council was authorized to allow trial courts to carry unexpended funds over from one fiscal year to the next. The Act did not limit the amount of reserves that each court could maintain, nor did the Act proscribe how those reserves could be used. According to the Judicial Council, trial courts used their reserves funds to avoid cash-flow problems, address budget reductions, cover unanticipated cost increases, and plan for future projects. At the end of the 2011-12 fiscal year, trial courts had amassed $531 million in reserves statewide. New Reserves Policy Enacted in 2012-13 Budget. As part of the 2012-13 budget package under Senate Bill 1021 (Budget, Chap. 41, Stats. 2012), the Legislature approved legislation to change that liberal reserves policy. Beginning in 2014-15, each trial court may only retain reserves of up to one percent of its prior-year operating budget. If a trial court retains any amount above that one percent, current law requires the Judicial Council to subtract (or offset) that above-reserves-amount from AB 2458 Page 6 that trial court's annual budget allocation the next year. The 2012-13 budget also established a statewide court reserves that is managed by the Judicial Council. This statewide court reserves policy requires Judicial Council to set aside two percent of the total funds appropriated for trial court operations in a given year (approximately $27.8 in 2012-13 and $37.2 million in 2014-15). Trial courts can petition the Judicial Council for an allocation from this statewide court reserves to address unforeseen emergencies, unanticipated expenses for existing programs, or unavoidable funding shortfalls. Any unexpended funds in the statewide court reserves are to be distributed to the trial courts on a prorated basis at the end of each fiscal year. Changes to the Reserves Policy in 2013-14 Budget. In 2013-14, the Legislature modified the reserves policy to address concerns raised by various stakeholders. Among the changes, the Legislature specifically exempted certain amounts from being calculated as part of the one percent reserve limit. For example, funds set aside to establish and maintain a children's waiting room are now exempt from a trial court's one percent limit. Additionally, the 2013-14 Budget utilized $385 million of the trial court reserves to offset ongoing General Fund reductions. In support of the bill, the author writes: Trial courts across California continue to struggle due to a lack of resources and insufficient state funding. In San Bernardino County, for example, local courts face an ongoing judicial officer shortage of over 60% and are unable to reduce caseloads without the funds necessary to open additional courtrooms. This severely limits access to justice for over two million people who rely on those AB 2458 Page 7 services. Unlike state departments, courts need to have cash on hand to meet payroll, fulfill contractual obligations, pay bills, and manage other cash flow needs, many of which are outside a trial court's control. The current cap on court reserves restricts the ability of trial courts to make these adjustments and pay for upgrades, which has a dramatic impact on access to justice in California. AB 2458 would repeal the 1% cap on reserves and the 2% set-aside that was implemented in 2014 and authorize Judicial Council to allow individual trial courts to carry unexpended funds over from one fiscal year to the next. This will give trial courts the ability to better manage ongoing budget shortfalls and invest in technology that will improve efficiency. These technology advancements make court operations more cost-effective and improve customer service. Additionally, eliminating the cap provides trial courts an incentive to operate more efficiently because court savings could be used for future purposes. This bill would repeal the one percent cap reserves policy, and as proposed to be amended, repeal the two percent set-aside. Essentially, the bill as proposed to be amended would revert to the reserves policy that was in place before Senate Bill 1021 (Budget, Chap. 41, Stats. 2012). According to the LAO, Reserves Policy Continues to Present Unintended Challenges. In its analysis of the 2012-13 Budget's reserves policy, the LAO stated the following: The Legislature enacted the new reserves policy to ensure AB 2458 Page 8 greater consistency with state departments and agencies, which generally are not authorized to retain reserves. However, the ability to retain unlimited reserves provided trial courts with a great deal of financial autonomy in the past. Thus, the limitation of reserves to 1 percent of prior-year operating budgets, as well as the withholding of trial court operation funding to create a two percent statewide reserves, presents a number of unintended challenges which require new judicial branch policies and procedures. (Legislative Analyst Office, 2013-14 Budget: Governor's Criminal Justice Proposals, p. 20 (Feb. 15, 2013) [emphasis added].) Indeed, the LAO suggested that the one percent reserves policy and two percent set-aside could lead to cash shortfalls, create difficulties with employee payroll, limit the ability for courts to plan for future projects, and reduce incentives and the ability of individual trial courts to implement efficiencies. By eliminating these reserves policies, this bill would appear to mitigate the concerns raised above. By Authorizing Judicial Council to Allow Trial Courts to Build Up Reserves, This Bill Would Appear to Promote Access to Justice. Historically, trial courts built up their reserves to fund projects or programs that: (1) provide the public with greater access to court services-such as document management, collections, electronic filing, and electronic access technologies; (2) support additional workload; or (3) help improve efficiency. By eliminating the one percent reserves limit (and repealing the two percent set-aside), this bill would allow trial courts the ability to fund those projects and programs that promote access to justice. Of course, trial courts should not be cutting access to services and programs in order to advantageously re-build trial court reserves. However, to the extent that courts are able to AB 2458 Page 9 simultaneously maintain access to justice and increase their reserves, this bill could improve access to our courts, and create investments in long-term projects, programs, and services that benefit Californians. In Addition to Repealing the One Percent Reserves Cap, the Author Has Also Proposed to Eliminate the Statewide Two Percent Set-Aside. Although the current two percent set-aside does allow additional funds to trial courts, the funds in the two percent set-aside can only be used to address unforeseen emergencies, unanticipated expenses for existing programs, or unavoidable funding shortfalls. Although this funding may assist state courts for certain instances, the specific parameters around these funds probably make it difficult for courts to invest in long-term projects that promote programming innovation that increases access to justice. Given that this bill eliminates the one percent reserve, it seems logical for this bill to also eliminate the two percent set-aside, which is specifically earmarked for trial courts. This Bill Goes Farther Than What The Legislature Has Historically Supported. In 2013, both the Assembly and Senate Budget Committees voted to raise the one percent reserves limit to 12 percent. While this action was ultimately taken out of the budget during Budget Conference Committee, the goal of allowing trial courts the opportunity to maintain more reserves for long-term projects is consistent with this bill and prior legislative action. REGISTERED SUPPORT / OPPOSITION: Support AB 2458 Page 10 None on file Opposition None on file Analysis Prepared by:Eric Dang / JUD. / (916) 319-2334