BILL ANALYSIS Ó
SB 134
Page 1
SENATE THIRD READING
SB
134 (Hertzberg)
As Amended September 3, 2015
Majority vote
SENATE VOTE: 37-0
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|Committee |Votes|Ayes |Noes |
| | | | |
| | | | |
| | | | |
|----------------+-----+-----------------------+---------------------|
|Judiciary |9-1 |Mark Stone, Wagner, |Maienschein |
| | |Alejo, Chau, Chiu, | |
| | |Gallagher, | |
| | | | |
| | | | |
| | |Cristina Garcia, | |
| | |Holden, O'Donnell | |
| | | | |
|----------------+-----+-----------------------+---------------------|
|Appropriations |17-0 |Gomez, Bigelow, Bloom, | |
| | |Bonta, Calderon, | |
| | |Chang, Gordon, Eggman, | |
| | |Gallagher, | |
| | | | |
| | | | |
| | |Eduardo Garcia, | |
| | |Holden, Jones, Quirk, | |
SB 134
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| | |Rendon, Wagner, Weber, | |
| | |Wood | |
| | | | |
| | | | |
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SUMMARY: Requires unclaimed property in Interest on Lawyers'
Trust Accounts (IOLTA), rather than escheating to the state, to
be deposited into a separate account, a portion of which may be
used, upon appropriation by the Legislature, to provide funding
for the existing Public Interest Attorney Loan Repayment
Program. Specifically, this bill:
1)Creates the Abandoned IOLTA Property Account within the State
Treasury into which funds from all IOLTA accounts that escheat
to the state are deposited, as well as the IOLTA Claims
Reserve Subaccount within that account.
2)Provides that 25% of all funds deposited into the Abandoned
IOLTA Property Account shall be available for the payment of
refunds, claims, and costs related to escheated IOLTA funds.
3)Requires the State Controller to transfer the balance of the
funds deposited into the Abandoned IOLTA Property Account in
excess of the funds transferred into the subaccount to the
existing Public Interest Attorney Loan Repayment Account.
4)Requires the State Controller to record the name and last
known address of each person appearing from the holders'
report to be entitled to the escheated property before making
this transfer and makes the record available for public
inspection at all reasonable business hours.
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EXISTING LAW:
1)Requires an attorney or law firm that receives or disburses
trust funds to establish an interest bearing demand trust
account and to deposit in the account all client deposits that
are nominal in amount or are on deposit or invested for a
short period of time.
2)Establishes the Public Interest Attorney Loan Repayment
Program for licensed attorneys who practice or agree to
practice in public interest areas of law in this state and
provides that participants are eligible for a maximum of
$11,000 in loan assistance over four years.
3)Provides, in the Unclaimed Property Law, or UPL, for the
escheat of property to the state and requires all property
that escheats to the state to be deposited into the Abandoned
Property Account in the Unclaimed Property Fund, which is
continuously appropriated for specified purposes, and
establishes procedures for submitting a claim for property
that has escheated.
4)Defines various relevant terms.
FISCAL EFFECT: According to the Assembly Appropriations
Committee, the State Controller's Office 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 a handful of
lawyers each year, but would not cover any of California Student
Aid Commission's (CSAC's) administrative costs, which are
estimated at $100,000 annually for one position. Since the
escheated monies, less any amount set aside to pay unclaimed
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property claims, would otherwise go to the General Fund, all of
the program and administrative costs are essentially a General
Fund cost.
COMMENTS: 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.
High Price of a Legal Education - Debt and Risk of Unemployment
or Underemployment After Law School. According to the American
Bar Association (ABA), the average yearly tuition at a private
law school in 2012 (the date of the ABA's most recent national
survey) was $40,634, and for residents at a public law school,
it was $23,214. Combined with living expenses, which often
exceed $20,000 a year, books and other fees, the typical private
law school student will pay in excess of $65,000 per year to get
a legal education, and a typical public law school student will
pay about $50,000 per year. (2014 ABA LSAC Official Guide to
ABA-Approved Law Schools (2013), available on the LSAC Web site
at
https://officialguide.lsac.org/release/OfficialGuide_Default.aspx
.)
The law school debt burden is particularly heavy for both women
and minorities. Because of the gender and race pay gap, these
groups spend a larger proportion of their earnings on repaying
loans and have less money to put toward other investments.
(Brand, How Student Debt Affects Women and Minorities, Equal
Justice Works, May 9, 2013,
http://www.equaljusticeworks.org/news/blog/studentloanranger-wome
n-minorities .)
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Legislative History Regarding Law School Loan Forgiveness. In
2001, 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. The CSAC, 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.
Unfortunately, the program was never funded.
Background - IOLTA. In the course of their legal practice,
attorneys are frequently required to hold clients' funds for
various lengths of time. It has long been recognized that
attorneys have a professional and fiduciary obligation to avoid
commingling their clients' money with their own. Before 1980,
client funds were typically held in non-interest-bearing
federally insured checking accounts. Because of federal banking
regulations in effect since the Great Depression, banks were
prohibited from paying interest on checking accounts. As a
result, the value of the use of the clients' money in such
accounts inured to the banking institutions.
Florida adopted the first IOLTA program in 1981 authorizing the
use of NOW accounts for the deposit of client funds, and
providing that all of the interest on such accounts be used for
charitable purposes. Every state in the nation and the District
of Columbia has followed Florida's lead and adopted an IOLTA
program, either through their legislatures or their highest
courts. The result is that, whereas before 1980 the banks
retained the value of the use of the money deposited in
non-interest-bearing client trust accounts, today, because of
the adoption of IOLTA programs, that value is transferred to
charitable entities providing legal services for the poor. The
aggregate value of those contributions in 2001 apparently
exceeded $ 200 million. (Brown v. Legal Found. (2003) 538 U.S.
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216, 221-223.)
Similar Legislation in Oregon. Oregon is the only state in the
nation in which unclaimed or abandoned client funds held in
lawyer trust accounts are used to fund legal aid programs as a
result of 2009 legislation, SB 687, which amended Oregon's
Uniform Disposition of Unclaimed Property Act (ORS 98.302 to
98.436). SB 687 requires unclaimed client money in lawyer trust
accounts to be used to fund the Oregon State Bar's Legal
Services Program (OSB LSP). The OSB LSP is charged with
managing the state funds appropriated to legal aid and providing
ongoing oversight and evaluation to ensure compliance and
further the program's goals.
Since the Oregon program's inception in 2010, the state has
received approximately $530,000 in unclaimed property from
lawyer trust accounts. The amount received each year has ranged
from $54,000 to $140,000. The Oregon State Bar maintains a
reserve fund for owners who claim their property. The Oregon
State Bar keeps a minimum of $100,000 in the fund to pay claims.
Only 16 claims have been made since 2010, totaling just
$32,500. When a large amount of money is delivered to the Bar
Association from one account, the entire amount is placed in the
reserve because it is assumed the owner will eventually claim
the funds.
There are significantly more licensed attorneys in the State of
California (over 163,000, according to the ABA, in 2013) than
the State of Oregon (12,273 in 2013, according to the ABA).
Therefore, there should be considerably more IOLTA accounts in
California (at least ten times as many, if the number of IOLTA
accounts is proportionate to the number of attorneys in
California and compared to the numbers of attorneys in Oregon)
that escheat to the state each year. If approximately $50,000
in unclaimed IOLTA accounts escheat to the State of Oregon
annually, and there are likely at least ten times as many IOLTA
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accounts in California, it is possible that at least $500,000 in
unclaimed IOLTA funds escheat to the State of California each
year.
Analysis Prepared by:
Alison Merrilees / JUD. / (916) 319-2334 FN:
0002065