BILL ANALYSIS
SB 641
Page 1
Date of Hearing: June 23, 2009
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
SB 641 (Corbett) - As Amended: May 20, 2009
SENATE VOTE : 39-0
SUBJECT : STATE BAR: ANNUAL AUTHORIZATION OF MEMBER DUES
KEY ISSUE : SHOULD THE LEGISLATURE AUTHORIZE THE BAR TO MAINTAIN
MEMBERSHIP DUES AT 2009 LEVELS FOR 2010, KEEPING ACTIVE MEMBER
DUES AT $410?
FISCAL EFFECT : As currently in print this bill is keyed
non-fiscal.
SYNOPSIS
This bill would authorize the State Bar of California (State
Bar) to collect active membership dues of up to $410 for the
year 2010, which would keep in place the current active member
dues limit. Consistent with existing law, those dues would fund
only mandatory programs of the State Bar, and members will
continue to be able to deduct $5 if they do not wish to support
lobbying and other legislative activities. Members are also
permitted to deduct an additional $5 if they do not wish to fund
access and elimination of bias programs. The bill would also
provide that the fees paid by limited liability partnerships
(LLPs) and law corporations to the State Bar shall be used for
its regulatory and disciplinary purposes. Under existing law,
the State Bar is prohibited from awarding a contract for goods
and/or services for more than $50,000 unless it complies with
specified public contracting requirements. The bill would
increase that amount from $50,000 to $100,000 for contracts for
information technology (IT) goods and/or services and would
further require the State Bar to report to the Judiciary
Committees of the Legislature by April 1, 2010, and annually
thereafter, on the impact of this IT contracts change. The bill
would also require the State Bar to have a preference for using
in-house employees for information technology projects. There
is no known opposition to the bill.
SUMMARY : Continues the State Bar's authority to assess and
collect dues from licensed attorneys in California in order to
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support the Bar's operations, including discipline.
Specifically, this bill :
1)Authorizes the State Bar to continue to collect active
membership dues of up to $410 for the year 2010, maintaining
2009 dues levels.
2)Provides that the State Bar shall have a preference for using
in-house employees for information technology (IT) projects,
whenever possible. Further provides that nothing in the bill
shall be read to be inconsistent with any memorandum of
understanding between the State Bar and the recognized
employee organizations or any relevant principles of labor
law.
3)Increases the State Bar's informal bid contracting authority
limits from $50,000 to $100,000 for contracts for information
technology goods and/or services, as specified.
4)Requires the State Bar to report to the Senate and Assembly
Judiciary Committees on or before April 1, 2010, and annually
thereafter, on the impact of the changes made per #3 above.
In addition to a description of the impact of those changes,
the report shall include, with specificity, the following: (1)
the projects that previously would have been required to
comply with Article 4 (commencing with Section 10335) of
Chapter 2 of Part 2 of Division 2 of the Public Contract Code,
but are no longer subject to that requirement because the
contract amount is between $50,000 and $100,000; and (2)
whether the changes have improved the efficiency of the
contracting process. This provision sunsets on January 1,
2014.
5)Provides that the fees paid by LLPs and law corporations to
the State Bar shall be used for its regulatory and
disciplinary purposes.
6)Provides that at the time of filing an Application for
Issuance of a Certificate of Registration as a LLP pursuant to
the Rules of the State Bar, an applicant for registration
shall also file with the State Bar a separate form stating
that the limited liability partnership has complied with the
security requirements described in paragraph (2) of
subdivision (a) of Section 16956 of the Corporations Code.
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EXISTING LAW :
1)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. and
Prof. Code Section 6000 et seq. All further statutory
references are to this Code.)
2)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 2009. (Sec. 6140.) The other $95 is pursuant to
statutory authorization to assess annually the following fees:
$40 for the Client Security Fund (Sec. 6140.55); $25 for
disciplinary activities (Sec. 6140.6); $10 to fund the Lawyer
Assistance Program (Sec. 6140.9); $10 special assessment to
fund information technology upgrades (expires January 1, 2011)
(Sec. 6140.35); and $10 for the Building Fund (expires January
1, 2014) (Sec. 6140.3).
3)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 2009. (Sec. 6141.) The other $50 is
pursuant to statutory authorization to assess annually the
following fees: $10 for the Client Security Fund (Sec.
6140.55); $25 for disciplinary activities (Sec. 6140.6); $5 to
fund the Lawyer Assistance Program (Sec. 6140.9); and $10 for
the Building Fund (expires January 1, 2014) (Sec. 6140.3).
4)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. (Section 6140.05, Keller v. State Bar
of California (1990) 496 U.S. 1.)
5)Requires LLPs and law corporations to register with the State
Bar. (Corp. Code Sections 16953(h), 13404.)
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6)Prohibits the State Bar from awarding a contract for goods
and/or services for more than $50,000 unless it complies with
specified public contracting requirements. (Bus. and Prof.
Code Section 6008.6.)
COMMENTS : Authorizes the State Bar to collect annual membership
fees for 2010, keeping with the typical approach of an annual
dues authorization bill to ensure the Bar is appropriately
funded and provide helpful and appropriate legislative oversight
of the Bar's many important functions. The bill authorizes the
State Bar to continue to collect active membership dues of up to
$410 for the year 2010, maintaining 2009 dues levels. It would
also clarify that the Bar can deposit fees collected from law
corporations and limited liability companies in the Bar's
general fund to be used for regulatory and disciplinary
purposes. This change is intended to assist the Bar in its
non-dues revenue adjustments to help ensure that it can fulfill
its public protection and member services roles. This bill
would also increase the Bar's informal bid contracting authority
limits from $50,000 to $100,000 for IT contracts only. The
increased threshold for these contracts is intended to help
provide the Bar with greater flexibility.
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.)
Was Shakespeare Right ? As of May 1, 2009, the State Bar had
164,392 active members and 46,589 inactive members, which
represents a slight annual increase in both active members and
inactive members. Total Bar membership is listed at 222,146,
which includes 2,015 Judge members and 9,150 members who are
"Not Eligible to Practice Law." By any standard that is a lot
of lawyers.
Keller : Existing law prohibits the use by the 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 are 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. (Keller v. Bar of
California (1990) 496 U.S. 1.) Current law also allows members
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to deduct $5 from their current dues if they do not want their
dues used by the Bar to lobby on legislation outside the limits
of Keller, and limits the Bar's expenditures on non-Keller
lobbying and related activities to an amount raised by members
paying the "$5 voluntary dues," as specified by a formula.
Thus, consistent with existing law, the membership dues
authorized by this bill will fund only mandatory programs of the
Bar, and any member may deduct $5 from dues if the member does
not wish to fund "non-Keller" activities of the Bar.
Flat Dues Bill Being Proposed For This Year . This bill would
maintain the current $410 annual membership dues level for
active members for 2009. For several reasons, the author
believes that a flat dues bill for 2010 appears appropriate.
Following is data provided by the State Bar to assist the
Committee's consideration of the State Bar's current fiscal
health.
State Bar General Fund Projections . Thanks to the excellent
work of the counsel of the Senate Judiciary Committee, a rather
detailed snapshot of the current health of the State Bar is
available.
At the end of 2008, the State Bar had a fund balance of $9
million in its General Fund. This amount is projected by the
State Bar to decrease to $6.8 million by the end of this year,
and to $4.9 million at the end of 2010 (see chart below). 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. The following table
outlines the Bar's General Fund Gap Projections provided to
Senate Judiciary Committee staff:
---------------------------------------------------
| |Adjusted |Projected|Projected|
| |2009 | 2010 | 2011 |
|---------------------+---------+---------+---------|
|Revenues |$62.0* |$62.8 |$63.9 |
|---------------------+---------+---------+---------|
|Baseline |$64.2 |$64.7 |$65.3 |
|expenditures | | | |
|---------------------+---------+---------+---------|
|Gap (annual deficit) |($2.2) |($1.9) |($1.4) |
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|---------------------+---------+---------+---------|
|Ending retained |$6.8 |$4.9 |$3.5 |
|savings | | | |
---------------------------------------------------
*$ millions
The Bar has indicated to the Judiciary Committees 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. According to the Bar, the projects are
for "essential repairs and upgrades to the building's structure
and systems that are in poor condition and/or nearing the end of
their useful lives." The Bar estimates the cost of the major
maintenance at $1.6 million in 2009 and $2.1 million in 2010.
These amounts would reduce the ending retained savings balances
to $5.2 million in 2009 and $1.2 million in 2010.
The Bar notes, however, that "[t]here is some flexibility about
when to undertake some of these projects. In particular, the
major project to repair the building's masonry and window
frames, currently split into two phases in 2009 and 2010, could
be deferred to 2010 and 2011, if absolutely necessary. Elevator
upgrades could be deferred one year, or split into two years,
but this is not recommended." Should these repairs go forward
in 2009 and 2010, however, the Bar's projections indicate it
will deplete its retained savings amount and have a deficit of
$200,000 at the end of 2010. At that point, absent any other
cost savings or revenue adjustments, the Bar asserts that it
would have to begin using its Public Protection Fund which would
be depleted by the end of 2013, if current projections held. It
is important to note, however, that in the past capital
improvement costs have been financed and it may be possible to
do the same for these pending projects, rather than deplete the
retained savings entirely. The Bar notes that while this is
possible, it relied in the past on the Building Fund (no longer
in existence) as the source of revenue to repay the loan.
Without that fund as the source, the interest rate charged for
any loan may be higher.
At the end of 2008, the Bar's Public Protection Fund contained
$6.4 million. That amount represents 10 percent of 2008 General
Fund operating expenses, six percent of total agency-wide
operating expenses, and six percent of total agency-wide
operating revenues. These percentages are consistent with the
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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).
The Bar had initially requested a $10 dues increase which would
fund full step increases for eligible employees, but the Senate
Judiciary Committee concluded that it does not appear a dues
increase is required this year, and the Bar has concurred. As
the numbers in the above table further demonstrate, the Bar
still has a retained savings amount that would not be depleted
until the end of 2010, if certain capital projects are
undertaken. If those projects are delayed, or modified in some
way, the retained savings amounts would likely be less impacted.
Cost Reduction Measures And Possible Revenue Enhancements . The
Bar has indicated to the Judiciary Committees that it is
planning to implement the following cost reduction measures: (1)
defund 46 vacant positions totaling a nine percent workforce
reduction (saves $4 to $5 million annually); (2) end General
Fund subsidy of the Lawyer's Assistance Fund and implement plans
to reduce funding to the statutory minimum (saves approximately
$300,000 in 2010 and increasing in future years); and (3) end
the print edition of the CalBar Journal in 2010 (saves
approximately $1.1 million annually).
In addition, this bill would clarify that fees paid by Law
Corporations and LLPs are to be allocated to the General Fund
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and used for regulatory purposes. This clarification permits
the transfer of $1.2 million annually into the Bar's General
Fund. The Bar has also indicated that it is "currently
evaluating potential additional sources of revenues including
increases in State Bar Court filing fees and the implementation
of new State Bar Court-related fees." At this time, it is not
clear how much revenue such changes would raise.
History Of Bar General Fund Revenues and Expenditures .
Documents provided to Judiciary Committee counsel from the Bar
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
outpace revenues. The same is true for the 2009 adjusted
figures.
-----------------------------------------------------------
| |Actual |Actual |Actual |Adjusted |
| |2006 |2007 |2008 |2009 |
|---------------+----------+----------+----------+----------|
|Revenues |$58.0* |$61 |$61.5 |$62 |
|---------------+----------+----------+----------+----------|
|Expenditures |$54 |$58 |$62.3 |$64.2 |
| | | | | |
-----------------------------------------------------------
*$ millions
When Senate Judiciary Committee counsel inquired as to the
reason for the increase in expenditures, Bar officials explained
that much of the increase was due to increased personnel costs
(for example, rising health care costs and a change in CalPers
calculations which will take effect in 2010). In addition,
costs for "buildings and equipment" have nearly doubled over the
last three years.
Delay Of State Auditor's Biennial Report On State Bar's
Performance . The State Auditor is required by law to conduct a
performance audit every two years of the State Bar's operations
during the prior fiscal year. This year, the audit was due to
the Legislature on April 30, 2009, however the State Auditor
determined that it was necessary to conduct a more in-depth
review of the Bar's attorney discipline process. As a result,
the audit will not be completed until July 2009.
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In the past, the State Auditor's biennual report has helped to
inform this Committee's oversight responsibilities. For
example, in 2007 the report raised questions regarding how the
Bar prepared its budget. The State Auditor noted that the Bar's
"budget preparation methodology does not ensure that all
resources are identified and properly allocated so that the
State Bar effectively and efficiently accomplishes its statutory
mandates." In particular, the State Auditor raised concerns
that the Bar's budget process focused primarily on estimating
the costs of current staff and other resources using known or
anticipated price increases. As a result, the State Auditor
recommended that the Bar instead align its budgets with the
results of its strategic planning process in order to
"effectively allocate its resources and justify its membership
fees." The Bar agreed with this recommendation and indicated
that it was "currently developing a budget preparation system
that will enable it to align budgets with functional areas as
defined in the strategic plan." The Bar's 2009 Proposed Budget
provided to Committee staff appears intended to align the budget
"with the Bar's strategic direction and management structure."
As a result, it will be especially helpful over the next two
years to have the benefit of the expertise and reporting of the
State Auditor's report, due in July.
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
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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.
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.
Bill Would Clarify Ability Of Bar To Deposit Fees Collected From
Law Corporations And Limited Liability Partnerships Into The
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General Fund . This bill, by providing that the Bar can deposit
fees collected from law corporations and limited liability
partnerships into the Bar's General Fund for regulatory and
disciplinary purposes, is intended to assist the Bar in its
non-dues revenue adjustments. This change will enable the Bar
to transfer $1.2 million into its General Fund on an annual
basis.
Currently, registration fees collected from law corporations and
LLPs are maintained in a separate account and only used to
process applications from entities that wish to obtain
designation as a law corporation or LLP. The Bar points out,
however, that its "other disciplinary and regulatory functions
related to these entities and the attorneys who are associated
with them go beyond the administrative operations that are now
supported by these revenues." As a result, this bill would
clarify that these fees may be transferred to the Bar's General
Fund and used for regulatory and disciplinary purposes.
Under existing law, both law corporations and LLPs must maintain
security for claims. Only law corporations, however, must
include a statement in their application attesting to the fact
that they have liability insurance. The bill therefore requires
LLP applicants for registration with the State Bar to file a
separate form stating that the limited liability partnership has
complied with the security requirements for claims arising out
of the practice of law.
Bill Would Increase Informal Bidding Requirement Threshold For
IT Projects . Under existing law the State Bar is prohibited
from awarding a contract for goods and/or services for more than
$50,000 unless it complies with specified public contracting
requirements. This bill would increase that amount from $50,000
to $100,000 only for contracts for IT goods and/or services.
This change is consistent with a recent change by the Department
of General Services to increase the dollar thresholds for
conducting informal competitive solicitations for non-IT goods
from $50,000 to $100,000 and IT goods and services from $500,000
to $1 million. These changes did not apply to the Bar, which
seeks an increase which it asserts is "necessary to keep pace
with the cost of contracting for these goods and services." The
bill further requires that the Bar report back to the
Legislature regarding the bill's increase in contracting
authority. In addition, in order to ensure that the Bar is
using its current employees to the best of their abilities, the
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bill provides that the Bar should have a preference for using
in-house employees for IT projects whenever possible.
Some Bar-Related Issues Raised by Center for Public Interest
Law : As the dues bill moves forward, the Center for Public
Interest Law (CPIL) has raised several issues of concern with
the author not directly related to dues which will only be
briefly recounted here as CPIL and the author's office are
working cooperatively to discuss them.
The first issue raised by CPIL involves a recent request that
the author and the Legislature consider the potential merits of
seeking an independent audit of the State Bar's Lawyer's
Assistance Program (LAP) for substance-abusing and mentally ill
lawyers. CPIL notes several merits for such an audit, but
further acknowledges that such an audit need not be effectuated
through legislation. Instead, such an audit could be performed
by the Bureau of State Audits at the request of the author to
coincide with the Bar's upcoming overall audit in 2011, and the
author's office is apparently considering the potential benefits
of such a review request.
CPIL's second issue of concern deals with whether the power to
appoint the Chief Trial Counsel for the State Bar should be
transferred from the Bar's Board of Governors to another entity
such as the Attorney General. CPIL asserts that appointment
authority residing in the Board of Governors (who are elected by
lawyers) may pose a conflict of interest and may also violate
federal anti-trust law. While these points may or may not have
merit, CPIL has informed Committee counsel that they have
concurred with the author's own counsel that such an approach
would be best evaluated in the context of a possible stand-alone
bill, and CPIL is apparently considering whether or not to
pursue this avenue.
CPIL's third issue of concern is whether the author should
consider amending her bill to add language to the State Bar Act
that declares the highest priority of the Board of Governors in
implementing the State Bar Act to be public protection. However
CPIL acknowledges that case law binding on the Bar already
establishes public protection as the Bar's highest priority.
Prior Related Legislation :
AB 3049 (Judiciary), Chapter 165, Statutes of 2008.
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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.
REGISTERED SUPPORT / OPPOSITION :
Support
State Bar of California (sponsor)
Opposition
None on file
Analysis Prepared by : Drew Liebert / JUD. / (916) 319-2334