BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                     SB 134  


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          Date of Hearing:  August 26, 2015


                        ASSEMBLY COMMITTEE ON APPROPRIATIONS


                                 Jimmy Gomez, Chair


          SB 134  
          (Hertzberg) - As Amended August 19, 2015


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          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.  








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          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  








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          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  








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            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  








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            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