BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Senator Ellen M. Corbett, Chair
2009-2010 Regular Session
AB 2764 (Committee on Judiciary)
As Amended May 11, 2010
Hearing Date: June 29, 2010
Fiscal: No
Urgency: No
SK:jd
SUBJECT
State Bar Act
DESCRIPTION
This bill would authorize the State Bar of California (State
Bar) to collect active membership dues of up to $410 for the
year 2011, which would continue the current active dues amount
of $410. Consistent with existing law, those dues would fund
only mandatory programs of the State Bar, and members can deduct
$5 if they did not wish to support lobbying and other
legislative activities. Members can also deduct an additional
$5 if they did not wish to fund access and elimination of bias
programs.
(This analysis reflects amendments to be adopted in Committee.)
BACKGROUND
The State Bar of California is a public corporation. 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.) As of January 2010,
the State Bar had 170,000 active members and total Bar
membership was approximately 225,000. The State Bar of
California is the largest state bar in the country. The Bar's
programs are financed mostly by annual membership dues paid by
attorneys as well as other fees paid by applicants seeking to
practice law. The Bar's 2010 general fund budget totals $66.2
million, approximately 79 percent of which funds the Bar's
attorney disciplinary activities.
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CHANGES TO EXISTING LAW
Existing law 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.)
Existing law 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 2010. (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, 2011) (Bus. & Prof. Code Sec. 6140.35); and
$10 for the Building Fund (expires January 1, 2014) (Bus. &
Prof. Code Sec. 6140.3).
Existing law 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 2010. (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. &
Prof. Code Sec. 6140.3).
Existing 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 were 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 $10 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.)
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This bill would authorize the State Bar to collect active
membership dues of up to $410 for the year 2011.
COMMENT
1.Stated need for 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. The bill
would authorize the Bar to continue to collect active membership
dues of up to $410 for the year 2011, maintaining 2010 dues
levels. The author notes that, consistent with existing law,
those dues would fund only mandatory programs of the Bar, and
members will continue to be able to deduct $5 if they do not
wish to support lobbying and other legislative activities. This
bill would also extend the sunset on the $10 special assessment
to fund information technology upgrades which expires January 1,
2011. (See Comment 4 for additional detail.)
2.Governor's veto of SB 641 (2009)
Last year, the governor vetoed SB 641 (Corbett, 2009) which
would have authorized annual membership dues for 2010. The
governor's veto message stated:
I am returning Senate Bill 641 without my signature. This
bill would, among other provisions, authorize the State Bar to
collect annual bar dues from its members for 2010.
In 1997, Governor Pete Wilson vetoed the annual State Bar dues
bill, citing numerous concerns that the State Bar had become
overly political, unresponsive to its membership, and
inefficient. Unfortunately, twelve years later,
inefficiencies remain unaddressed and questions about the
State Bar's role in the evaluation of judicial nominees
suggest that the State Bar's political agenda continues.
In July, the State Auditor released a report critical of the
State Bar. Among the problems noted by the report: salaries
for staff have risen significantly over the past five years;
the costs of its disciplinary system have escalated by $12
million from 2004 to 2008 while the number of disciplinary
inquiries opened has declined; and a lack of internal controls
allowed the embezzlement of nearly $676,000 by a former
employee. As the organization charged with regulating the
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professional conduct of its members, the conduct of the State
Bar itself must be above reproach. Regrettably, it is not.
In addition, recent actions by the State Bar's Judicial
Nominees Evaluation Commission (JNE) also call into question
the State Bar's impartiality in considering judicial
appointments. All JNE Commission proceedings are required by
law to be confidential and qualification ratings are not to be
released to the public prior to the Governor considering an
appointment. Unfortunately, recent events have required the
State Bar to launch an official inquiry into the
confidentiality of such proceedings. Moreover, the Chief
Justice of the Supreme Court has recently questioned the
reliability of the Commission's recommendations by noting its
failure to follow statutory guidelines when considering
judicial nominees. By failing to follow the law, the JNE
Commission has damaged its reputation for impartiality and, in
turn, the State Bar's.
There is no question the State Bar has an essential role in
the state's justice system and must continue to oversee the
licensing, education, and discipline of California's lawyers.
However, I am returning this bill without my signature because
the State Bar cannot continue with business as usual. It must
take the time to reexamine the problems noted by the State
Auditor and continue its investigation into the JNE
Commission. I urge the State Bar to resolve these issues as
soon as possible so the Legislature can reintroduce this
measure early next year.
In response to the veto, State Bar President Howard Miller
stated, "The Governor's veto of the State Bar dues bill is
regrettable, but we must take the Governor's concerns seriously.
Many of them are justified. There have been serious management
and financial issues at the State Bar, starting with the
embezzlement by a single employee over an eight-year period of
$675,000. The State Auditor, and others, have also criticized
with precision the management of the Office of Chief Trial
Counsel. We will look closely at these and all other issues
raised by the Governor. Events such as his veto message can
challenge the State Bar to renew itself as an institution and
its service to the public and the legal profession. I am
confident the Board of Governors is up to that challenge."
In January 2010, the Legislature passed and the governor signed
SB 55 (Corbett, Ch. 2, Stats. 2010), authorizing the State Bar
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to collect annual membership dues for 2010.
3.Flat dues bill
This bill would maintain the current $410 annual membership dues
level for active members for 2011. The following information is
helpful to understanding the State Bar's fiscal picture.
a. State Bar General Fund projections
At the end of 2009, the State Bar had a fund balance of $9
million in its General Fund. This amount is projected to
decrease to $5.5 million by the end of 2010 and to $4.91
million at the end of 2011 (see below chart). The Bar also
has another $6.4 million in the "Public Protection Reserve
Fund" which is designed as its "rainy-day" fund to allow the
Bar to continue operations should its dues authority not be
continued, as occurred in 1998 and 1999 when Governor Wilson
vetoed the Bar's dues bill in 1997 and in 2009 (See Comment
2). The following table outlines the Bar's General Fund Gap
Projections:
---------------------------------------------------
| |Amended |Projected|Projected|
| |Budget | 2011 | 2012 |
| |2010 | | |
|---------------------+---------+---------+---------|
|Revenues |$63.9* |$64.4 |$65.3 |
|---------------------+---------+---------+---------|
|Baseline |$67.4 |$65.8 |$66.2 |
|expenditures | | | |
|---------------------+---------+---------+---------|
|Gap (annual deficit) |($3.5) |($1.4) |($0.9) |
|---------------------+---------+---------+---------|
|Ending retained |$5.5 |$4.1 |$3.2 |
|savings | | | |
---------------------------------------------------
*$ millions
The Bar indicates that the ending retained savings amounts
detailed in the chart above will be reduced to address major
maintenance at the Bar's 180 Howard Street Building in San
Francisco if various capital improvement projects are
undertaken. The Bar notes, however, that "[t]here is some
flexibility about when to undertake some of these projects."
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At the end of 2009, the Bar's Public Protection Fund contained
$6.4 million. That amount represents 10 percent of 2009
General Fund operating expenses, six percent of total
agency-wide operating expenses, and five percent of total
agency-wide operating revenues. These percentages are
consistent with the recommendations of the Government Finance
Officers Association which suggests a "minimum GF reserve of
5% to 15% of operating revenues." The Bar states that the
Public Protection Fund is needed because it is "exposed to an
unusual financial risk not experienced by most state and local
governments: the risk of an abrupt 100% loss of its dominant
source of operating revenue-mandatory member dues . . .
Mandatory member dues account for over 90% of the State Bar's
General Fund revenues, financing operating costs exceeding
$1.0 million per week. If the State Bar were to lose the
authority to collect mandatory dues, the Public Protection
Reserve would provide a small but crucial window of time for
the organization to react in a manner that best protects the
interests of the public."
Active member dues levels have increased slightly over the
years as follows: $250 (1999); $395 (2000); $345 (2001); $390
(2002); $395 (2006); $400 (2007); and $410 (2009) (the 2009
amount includes a $10 building fund assessment to be used for
the construction, purchase, or lease of a facility in southern
California).
b. History of General Fund activity
Bar documents indicate the history of the Bar's General Fund
activity. Over the past few years, the Bar has generally
taken in more money than it has spent. As illustrated below,
2006 and 2007 revenues were higher than expenditures. In
2008, however, expenditures outpaced revenues. For 2009,
revenues and expenditures were essentially equal.
----------------------------------------------------------
| |Actual |Actual |Actual |Actual |Amended |
| |2006 |2007 |2008 |2009 |Budget |
| | | | | |2010 |
|-------------+--------+--------+--------+--------+--------|
|Revenues |$58.0* |$61 |$61.5 |$62.7 |$63.9 |
|-------------+--------+--------+--------+--------+--------|
|Expenditures |$54 |$58 |$62.3 |$62.7 |$67.4 |
| | | | | | |
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----------------------------------------------------------
*$ millions
c.Budget initiatives
The Bar's 2010 Proposed Budget contained a number of budget
intiatives. For example, the Bar transitioned the CalBar
Journal to become an online-only publication. Budget
documents stated that the change "results in a substantial
reduction in operating expense for printing and postage,
partly offset by a reduction in advertising and related
revenues. The net savings to the General Fund is estimated at
$240,000 in 2010 (the transition year), rising to $500,000 per
year in 2011-12."
The Bar also made changes to the Lawyers Assistance Program
(LAP). Budget documents provide that in 2008:
the LAP reduced its costs by approximately $330,000 by
ending the Bar's contract with The Other Bar. The Proposed
2010 Budget takes another step toward reducing the LAP
budget to levels consistent with the dedicated portion of
mandatory member dues by eliminating two currently vacant
positions and reducing the financial assistance budget by
$125,000 per year. The subsidy to the LAP from the
Affinity & Insurance Fund is reduced to $500,000 per year,
down from the $1.0 million budgeted in 2009. By 2011, the
program is expected to fully reach its goal of matching its
expenditures to the dedicated portion of mandatory member
dues, thereby achieveing $1.3 million in savings over four
years.
1.Information technology
In 2007, SB 686 (Corbett, Ch. 474, Stats. 2007) authorized the
State Bar to assess and collect a special assessment of up to
$10 per year from active members in order to fund upgrading the
Bar's information technology system, including purchasing and
maintenance costs of both computer hardware and software. The
assessment, which sunsets on January 1, 2011, has generated an
average of $1.5 million per year, according to the Bar.
In its annual report on the special assessment, Information
Technology: Technology Improvement Update, April 1, 2010, the
Bar indicates that "[t]hese funds are being used to modernize
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the State Bar's obsolete computer systems and networking
infrastructure, improve [the Bar's] ability to move information
and data within and between [its] facilities and to the
Internet, thereby ensuring continued access and availability of
services for the public, State Bar members, and Bar employees."
The Bar's 2010 Proposed Budget indicated that "[m]ajor projects
slated for 2010 include upgrading the Bar's network
infrastructure, servers, and network printers. These
initiatives are prerequisites to supporting the planned projects
related to new application development and improving the quality
of IT services provided to the Bar, its members and the public."
Several of these projects were temporarily affected by the veto
of SB 641, however. The April 2010 report indicated that
"[d]uring the fourth quarter of 2009, following the October veto
of the State Bar's 2010 Fee Bill, all assets were frozen and all
IT projects were suspended. Funding was restored in late
January 2010, allowing IT to resurrect previously identified
projects."
Because the costs for improving IT are ongoing, the author has
agreed to take the following amendment to extend the sunset for
another three years and to provide that the annual report
provided to the Legislature contain detailed information
concerning a review of how any upgrades have modernized the
State Bar's data collection system and improved the tracking of
disciplinary cases:
Amendments :
1. Amend Business and Professions Code Section 6140.35 to
read:
6140.35. (a) The board may increase the annual membership fee
fixed by Section 6140 by an additional amount not exceeding
ten dollars ($10). This additional amount may be used only for
the costs of upgrading the board's information technology
system, including purchasing and maintenance costs and both
computer hardware and software. This special assessment for
information technology upgrades shall be separately listed and
described in the annual membership fee invoice, which shall
include notice of the repeal of this section on January 1,
2011 2014.
(b) This section shall remain in effect only until January 1,
2011 2014, and, as of that date, is repealed.
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2. Amend Business and Professions Code Section 6140.36 to
read:
6140.36. (a) The board shall report to the Assembly Committee
on Judiciary and the Senate Committee on Judiciary on or
before April 1, 2009 2011, and on or before April 1 of the
succeeding two years, on the use of the funds authorized
pursuant to Section 6140.35.
(b) This section shall remain in effect only until January 1,
2012 2014, and as of that date is repealed, unless a later
enacted statute, that is enacted before January 1, 2012 2014,
deletes or extends that date.
2.Recent embezzlement and Bar's response
On April 6, 2009, the Attorney General filed embezzlement and
tax evasion charges against Sharon Pearl, the Bar's former
Director of Real Property (DRP). Pearl embezzled Bar funds over
a period of eight years, and estimates of the loss ranged from
$655,000 to $675,820. In response to the incident, Laura Chick,
Chair of the State Bar Board of Governors' Audit Committee,
submitted a six-page letter to the Chairs and Vice Chairs of the
Senate and Assembly Judiciary Committees explaining how the
embezzlement occurred and describing the Bar's response to the
incident. According to the letter:
The [Bar's internal] investigation determined that the DRP
diverted tenants' payments for rent and fees to a non-State
Bar account over which she had control, and hid the
non-receipt of those payments by manipulating information
about expected rent revenue and falsifying documentation
supporting rent credits for various tenant renovations or
service interruptions due to the Bar's seismic retrofit
project. . . . She used her position to become the single
point of contact between the State Bar and its tenants; she
verified the rent payment schedules prepared by the Office of
Finance; and she was personally responsible for both issuing
invoices to tenants and collecting rent checks from them.
This, ultimately, was the point of failure in the internal
controls over rent billing and collection, as the DRP was able
to divert rent payments while providing plausible explanations
for their absence to the Office of Finance, and to the Bar's
independent auditors (Deloitte & Touche) during the annual
financial audit.
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After the incident came to light, the State Bar hired a
certified public accounting firm specializing in local
governments to perform an independent forensic review and make
recommendations for improvements to the internal controls
relating to rent billing and collection procedures. As a
result, according to the letter, the Bar has taken a number of
actions to improve rent billing and collection procedures
including:
the Office of General Counsel prepared a lease profile
for each tenant, clearly outlining all lease terms and
conditions;
the Office of Operations prepared a rent income schedule
for each tenant, listing the expected rent, by month, for
the entire term of the lease;
leases, lease profiles, rent income schedules, and all
relevant supporting documents related to tenants have been
jointly verified and signed-off by the State Bar's Offices
of Operations, Finance, and General Counsel and are jointly
accessible to all three in a secure location on the State
Bar's network. This change ensures appropriate checks and
balances, as no single department or individual employee
has a monopoly on information; lease terms and expected
revenues are verifiable and any deviations are transparent;
the Office of Finance now invoices tenants directly,
based on the rent schedules that have been loaded into the
accounting system. Tenants have been instructed to mail
rent checks directly to the Office of Finance. The Bar is
also exploring the possibility of collecting rent payments
via electronic funds transfer from tenants; and
the State Bar will explore the possibility of engaging a
professional property management company.
Support : None Known
Opposition : None Known
HISTORY
Source : State Bar of California
Related Pending Legislation : None Known
Prior Legislation :
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SB 55 (Corbett, Chapter 2, Statutes of 2010)
SB 641 (Corbett) of 2009, vetoed, (See Comment 2)
AB 3049 (Judiciary, Chapter 165, Statutes of 2008)
SB 686 (Corbett, Chapter 474, Statutes of 2007)
AB 1529 (Jones, Chapter 341, Statutes of 2005)
SB 1490 (Judiciary, Chapter 384, Statutes of 2004)
AB 1708 (Judiciary, Chapter 334, Statutes of 2003)
SB 352 (Kuehl, Chapter 24, Statutes of 2001)
SB 1367 (Schiff, Chapter 118, Statutes of 2000)
SB 144 (Schiff, Chapter 342, Statutes of 1999)
Prior Vote :
Assembly Judiciary Committee (Ayes 10, Noes 0)
Assembly Floor (Ayes 71, Noes 1)
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