BILL ANALYSIS Ó SB 134 Page 1 Date of Hearing: August 26, 2015 ASSEMBLY COMMITTEE ON APPROPRIATIONS Jimmy Gomez, Chair SB 134 (Hertzberg) - As Amended August 19, 2015 ----------------------------------------------------------------- |Policy |Judiciary |Vote:|9 - 1 | |Committee: | | | | | | | | | | | | | | |-------------+-------------------------------+-----+-------------| | | | | | | | | | | | | | | | |-------------+-------------------------------+-----+-------------| | | | | | | | | | | | | | | | ----------------------------------------------------------------- Urgency: No State Mandated Local Program: NoReimbursable: No SUMMARY: This bill directs unclaimed property that escheats to the state from Interest on Lawyers' Trust Accounts (IOLTA accounts) to fund an existing but never-funded college loan repayment program for lawyers working in public interest occupations. SB 134 Page 2 Specifically, this bill: 1)Directs funds in IOLTA accounts that escheat to the state, pursuant to current law, into the newly-established Abandoned IOLTA Property Account. 2)Requires the State Controller to determine an amount in the Abandoned IOLTA Property Account to be placed in an IOLTA Claims Reserve Account, which, upon appropriation by the Legislature, is to be used to be paid any unclaimed property claims for escheated IOLTA funds. 3)Requires that the balance of funds from (2) be transferred into the newly-established Public Interest Attorney Loan Repayment Account, for use by the California Student Aid Commission (CSAC) to fund loan repayment assistance and program administrative costs. 4)Requires the Controller, prior to making the transfer in (3), to record the name and last known address of each person appearing on the holders' report and thus entitled to the escheated property. FISCAL EFFECT: The State Controller's Office (SCO) has identified a total of $255,000 in 263 IOLTA accounts that have escheated to the state over the last 10 to 20 years, or an average of about $12,000 to $25,000 annually. This level of revenue would be sufficient to provide loan repayment assistance for only a handful of lawyers each year, and would not cover any of CSAC's administrative costs, which are estimated at $100,000 annually for one position. Since the escheated monies, less any amount set aside SB 134 Page 3 to pay unclaimed property claims, would otherwise go to the General Fund, all of the program and administrative costs are essentially a General Fund cost. [The author's believes that the small amount of escheat revenue identified by the SCO is in part because banks and other holders of unclaimed property accounts do not consistently identify inactive accounts specifically as IOLTA accounts, and no mechanism to do so is currently required in the bill. As a comparison, a program in Oregon that funds legal aid services from escheated IOLTA funds has generated about $105,000 annually on average since its inception in 2010. If the program in California under SB 134 was to generate a proportionate amount of revenue, there could be up to $1 million annually for this program. At this level of funding, CSAC would require additional administrative positions at a cost of up to $300,000 annually.] COMMENTS: 1)Purpose. This bill is intended to address the high cost of a legal education and to encourage law students and new attorneys to pursue careers in public service. According to the author, "Public interest law offices must retain talented attorneys to ensure that their clientele consistently receive an acceptable level of service and equal access to justice. However, the increasingly high levels of debt accrued while obtaining a law degree, make it difficult for attorneys to serve in public interest areas of law since the average pay is lower than it is in private practice." As an example of the costs faced by law students, tuition, housing, and other expenses for such students at USC are estimated to be $82,300 in 2015-16. The estimated costs to attend UC Berkeley's Boalt Hall are not much less, at $75,900 for California residents and $79,800 for residents of other SB 134 Page 4 states. 2)Legislative History. AB 935 (Hertzberg)/Chapter 881, Statutes of 2001, created the Public Interest Attorney Loan Repayment Program to help repay educational loans for participating California attorneys who practice, or agree to practice, in public interest areas of law. Participants in the program are eligible for a maximum of $11,000 in loan assistance over four years. CSAC, which was charged with administering the program, was required to establish eligibility criteria for the program based upon need and merit. Initial regulations were to be adopted within one year of the effective date of the initial appropriation funding the program. The program has never been funded, however. 3)IOLTA. Current law requires attorneys to place their clients' funds (advances for attorney expenses, etc.) in a special IOLTA account on which interest earnings are remitted to the California State Bar in order to fund indigent legal services. The state's Unclaimed Property Law (UPL) also provides that if there is no activity for a specified time (generally three years) on an account held by a bank or financial institution, the property in the account escheats to the state and the bank or financial institution (or "holder") is required to relinquish any unclaimed property in the account to the SCO. The Controller deposits all unclaimed funds, including funds from abandoned IOLTA accounts, into the Abandoned Property Account in the Unclaimed Property Fund, which is continuously appropriated as needed to the state's General Fund. However, an owner of the escheated funds, or even the owner's heirs, can always make a claim for the funds. When a claim is approved by the Controller, the state issues a check to the claimant. This bill, in effect, creates an exception to the UPL for IOLTA funds that escheat to the state. Instead of being SB 134 Page 5 deposited in the Abandoned Property Account for use by the state's General Fund until and unless the owners file claims for their return, abandoned IOLTA funds would instead be deposited into the Public Interest Attorney Loan Repayment Account for the purpose of providing, upon appropriation by the Legislature, additional funding for the Public Interest Attorney Loan Repayment Program and administering the program. Analysis Prepared by:Chuck Nicol / APPR. / (916) 319-2081