This bill would express the intent of the Legislature to enact statutory changes relating to the Budget Act of 2016.

This bill would express the intent of the Legislature to enact statutory changes relating to the Budget Act of 2016.

(Without Reference to File)

SENATE THIRD READING

STR Bill Id:SB 846

Author:(Anderson)

As Amended Ver:August 19, 2016

Majority vote

SENATE VOTE: Vote not relevant

SUMMARY: Reauthorizes the State Bar to collect up to $390 for active membership dues for 2017 and implements changes to the governance of the State Bar to maximize the Bar's prioritization of public protection in all of its activities and makes other reforms to the Bar's governance structure. Specifically, this bill:

1. Reauthorizes the State Bar to collect up to $390 for active membership dues for 2017.
2. Defines public protection -- the highest priority of the State Bar -- as the core regulatory functions of the State Bar, in the following order of priority:
   1. Attorneys must be competent and ethical and comply with all laws and standards of professional conduct;
   2. Appropriate discipline or legal sanction must be imposed upon attorneys who fail to comply with those standards and non-attorneys who practice law without a license;
   3. Competent and professional legal services must be equally provided without regard to income; and
   4. The legal profession must represent the broad diversity of California.
3. Eliminates the six elected State Bar Board of Trustees (Board) members, and reduces the membership of the Board from 19 members to 13 members. States the intent of the Legislature that this reduction of membership number occur through the expiration of the terms of the elected members who are serving as of December 31, 2016.
4. Extends terms of members of the Board from three to four years.
5. Requires those making appointments to the Board after December 31, 2016 to consider appointing members with specified expertise.
6. Provides that the chair and vice chair (previously, the president and vice president) of the Board must be appointed by the Supreme Court instead of elected by the Board. Provides that the term of the chair is two years. Provides that the Board annually selects the treasurer, who is not required to be a board member.
7. Requires that any decision of the Board that the California Supreme Court determines may raise antitrust concerns be reviewed by the Court and is subject to modification, veto, or other appropriate action by the Court.
8. Eliminates the ability of the State Bar to prevent future Legislatures from reducing future membership dues by securing all or any portion of an obligation of the State Bar on future dues.
9. Eliminates the State Bar's ability to create foundations or non-profit corporations as a means to raise additional revenue.
10. Requires Board's approval for contracts for goods or services over $50,000 or information technology (IT) contracts above $100,000. Requires the Board to adopt policies to require its approval for contracts that could impact the State Bar's ability to protect the public.
11. Requires the Attorney General to appoint an enforcement program monitor, through March 31, 2020, to monitor and evaluate the State Bar's disciplinary system to ensure the Bar is successfully and consistently protecting the public. Sets forth the duties of the enforcement monitor, including developing recommendations and submitting an initial report to the Supreme Court and the Legislature by October 1, 2019, and a final report by March 31, 2020.
12. Sets forth specific requirements for the handling of unlawful practice of law complaints, including specific timeframes for processing those complaints; specified, acceptable resolutions for those complaints; and requiring that those complaints be forwarded to law enforcement.
13. Eliminates certain State Bar exceptions to the Bagley-Keene Open Meeting Act, and adds an exception from both the Bagley-Keene Open Meeting Act and the California Public Records Act for the State Bar Court. Provides that access to records of the State Bar Court shall be governed by the laws applicable to the records of the judiciary.
14. Provides several exceptions to confidentiality of State Bar admission applications and records, including the names of applicants who passed the Bar examination, and makes those exceptions retroactive to January 1, 2016.
15. Requires the State Bar to conduct an analysis of the funds necessary to timely satisfy claims against the Client Security Fund (CSF), including possible additional efforts to increase collection from responsible attorneys, a review of other non-public protection expenditures, including executive salaries and benefits, that can be redirected to better fund the CSF, and after exhausting all other options, whether a dues increase is necessary to ensure timely payment of claims against the CSF. The report is due to the Legislature by March 15, 2017.
16. Requires that the 2017 performance audit of the State Bar by the State Auditor includes a review of the State Bar's expenses, including executive salaries and benefits, outside contracts and real estate holdings, to determine the appropriate and necessary expenses of the State Bar to protect the public and what an appropriate member dues level should be. Requires that the audit also include a recommendation for determining Section costs, including a notice and opportunity to challenge process for the Sections. Requires the State Auditor to conduct a performance audit, due by June 15, 2018, on changes in the State Bar's expenses and ways for the State Bar to increase operational effectiveness and efficiency.

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, requires the annual mandatory membership fee set by the Board to pay for discipline and other functions to be ratified by the Legislature. (Business and Professions Code Section 6000 et seq. Unless stated otherwise, all further statutory references refer to that code.)
2. Authorizes the State Bar to collect $315 in annual membership fees from active members for a total annual dues bill of $390 for the year 2016. Provides that the other $75 is pursuant to statutory authorization to assess annually the following fees: $40 for the Client Security Fund; $25 for the disciplinary system; and $10 for the Lawyer Assistance Program. (Sections 6140, 6140.55, 6140.6, 6140.9.)
3. Authorizes the State Bar to collect $75 in annual membership fees from inactive members for a total annual dues bill of $115. Provides that the other $40 is pursuant to statutory authorization to assess annually the following fees: $10 for the Client Security Fund; $25 for the disciplinary system; and $5 for the Lawyer Assistance Program. (Sections 6141, 6140.55, 6140.6, 6140.9.)
4. Directs $40 of membership dues to legal services purposes unless a member elects not to support those activities. (Section 6140.03.)
5. Provides that protection of the public is the highest priority of the State Bar and its Board in exercising their licensing, regulatory and disciplinary functions. Whenever the protection of the public is inconsistent with other interests sought to be promoted, provides that the protection of the public shall be paramount. (Section 6001.1.)
6. Creates the Governance in the Public Interest Task Force, effective February 1, 2013, and requires that the task force report to the Supreme Court, the Governor and the Assembly and Senate Judiciary Committees by May 15, 2014, and every three years thereafter, its recommendations for enhancing public protection and ensuring that public protection is the State Bar's highest priority. (Section 6001.2.)
7. Permits the State Bar, for purpose of carrying into effect and promoting its objectives (of which public protection is its highest priority), to sell, lease, exchange, convey, transfer, assign, encumber, pledge, dispose of any of its real or personal property or any interest therein, including without limitation all or any portion of its income or revenues from membership fees paid or payable by members. (Section 6001.)
8. Provides, pursuant to a 1950's statute, that whenever the Board secures an obligation of the State Bar on all or any portion of the fees from membership dues the Legislature may not, until the obligation is repaid in full, reduce membership dues below the maximum amount in effect when the obligation was created and provides that this constitutes a covenant to the holder of the obligation. (Section 6008.5.)
9. Requires the State Bar to annually report on the performance and condition of its discipline system, including the backlog of discipline cases that are six months old, and case processing times, as provided. (Section 6086.15.)
10. Requires the State Bar to develop and implement a workforce plan for its discipline system and conduct a public sector compensation and benefits study, including a recommendation for an appropriate backlog goal and an assessment of staffing needed to achieve that goal. Requires the State Bar to conduct a thorough analysis of its operating costs and develop a spending plan to determine a reasonable amount for its annual dues. Requires that the workforce plan and the spending plan be submitted to the Legislature by May 15, 2016, and be implemented by December 31, 2016. (Section 6140.16.)
11. Requires the State Bar's Board to contract with the California State Auditor to conduct a biannual performance audit of the State Bar. (Section 6145(b).)
12. Subjects the State Bar to the Public Records Act, with specified exceptions. Provides that identifying information submitted by applicants to the State Bar for admission to practice law and State Bar admissions records, as specified, are confidential and may not be disclosed pursuant to any state law including the Public Records Act. (Sections 6001, 6026.11.)
13. Effective April 1, 2016, subjects the State Bar to the Bagley-Keene Open Meeting Act, as provided, with exemptions for the Judicial Nominees Evaluation Commission and the Committee of Bar Examiners. (Sections 6001 6026.7; Government Code Section 11121.)

FISCAL EFFECT: This bill is keyed fiscal by the Legislative Counsel.

COMMENTS: This bill, the second State Bar dues reauthorization and oversight bill considered by this Assembly this year, continues the decades-long tradition of oversight of the Bar via review of the annual dues authorization bill, as part of the general oversight role of the Legislature over the agencies in the executive and judicial branches of government. This bill comes before this house after yet another year of turmoil involving the Bar, and after the Senate's Judiciary Committee's unwillingness to adequately address the longstanding governance shortfalls of the Bar, or even, at a bare minimum, to effectively prioritize the true public protection functions of the Bar over its lawyer trade association functions.

This past year, there has continued to be extensive and publically reported turmoil involving the Bar, some of the information likely coming to light by way of new transparency laws applied to the Bar last year. First, the media reported that the Bar had failed to investigate over 300 complaints about the unauthorized practice of law, some awaiting assignment to an investigator for years before any action was taken. According to the Bar, many of those complaints were filed by immigrants seeking legal assistance with, among other things, their legal status in this country. It goes without saying that failure to immediately investigate and, when appropriate, take action to stop the unauthorized practice of law puts the public at substantial risk and the longer the delays in investigating them, the more the public is put at risk. The Bar now asserts that these cases are being assigned to an attorney immediately upon receipt and that the backlog has finally been addressed, but when this matter was first made public, over 300 cases were still awaiting intake. Had this issue not been made public, it is unclear when, if ever, such corrective action would have been taken. Second, the Bar, without input from or approval by the Legislature, and apparently without fully following its own newly established procedures recommended by the State Auditor, took out a $10 million loan for upgrades and tenant improvements for its San Francisco building and attempted to secure the loan with a pledge of future member Bar dues, which could have tied the hands of future Legislatures in the setting of dues based on a 1950's era statute. This apparently only came to light as a result of the State Auditor's most recent audit of the Bar, which was only required by last year's Bar dues legislation. Most recently, it was reported that the Bar, which the Auditor found pays over a dozen of its top executives more than the Governor, hired a public relations (PR) executive who reportedly makes more than the White House Press Secretary and remodeled its executive suite at a cost of $125,000.

This bill addresses some, but by no mean all, of the governance and operational problems that plague the Bar by, among other things: 1) Defining public protection to include the Bar's key regulatory functions -- admissions, regulation of attorneys, discipline of attorneys and sanctions for unlawful practice of law – which should help the Bar focus on its key purpose – protecting the public from harm – and appropriately reducing board focus on its trade association activities; 2) continuing reform of the Bar's board by eliminating board members elected by licensed attorneys themselves and reducing the board from a supermajority of practicing attorneys to a majority of practicing attorneys; 3) requiring the board to exercise greater oversight of Bar staff; 4) requiring the Supreme Court to review any anticompetitive decisions made by the board's attorney majority to avoid costly antitrust liability; and 5) directing the Attorney General to appoint a monitor to help improve the Bar's long-standing problems disciplining attorneys and properly protecting the public from the unlicensed practice of law. This bill also maintains member bar dues for 2017 at their same level as this year. This bill, in an effort to reach a compromise that will keep the Bar fully funded in 2017, helps make this state agency a better regulator of attorneys although still not enacting the larger reforms that many believe are urgently needed to truly make the Bar an effective protector of the public.

Analysis Prepared by: Leora Gershenzon / JUD. / (916) 319-2334 FN: 0004920

Date of Hearing: August 24, 2016

ASSEMBLY COMMITTEE ON JUDICIARY

Mark Stone, Chair

SBPCA Bill Id:SB 846

Author:(Anderson) – As Amended Ver:August 19, 2016

SENATE VOTE: Not Applicable

SUBJECT: STATE BAR DUES: PUBLIC PROTECTION, LEGISLATIVE OVERSIGHT AND ANNUAL AUTHORIZATION OF MEMBER DUES

KEY ISSUES:

1. SHOULD THE LEGISLATURE AUTHORIZE THE STATE BAR TO assess MEMBERSHIP dues for active bar members in 2017 AT $390, THE SAME RATE AS THIS YEAR?
2. as part of THE LEGISLATURE'S annual oversight OF THE BAR AND IN LIGHT OF systemic, longstANding and ongoing FINANCIAL, ADMINISTRATIVE and public protection CONCERNS, should the legislature consider SUBSTANTIAL CHANGES TO bar GOVERNANCE AND accountability IN ORDER TO IMPROVE THE BAR’S PARAMOUNT DUTY TO PROTECT THE PUBLIC FROM HARM, BY AMONG OTHER THINGS:
   1. IN ORDER TO PREVENT HARM TO THE PUBLIC FROM BAD LAWYERS, BETTER DEFINING PUBLIC PROTECTION TO MORE CLEARLY DELINEATE and prioritize THE BAR'S CORE REGULATORY FUNCTIONS, WHICH ARE SEPARATE AND DISTINCT FROM ITS TRADE ASSOCIATION FUNCTIONS;
   2. ELIMINATING BOARD MEMBERS ELECTED BY ATTORNEYS AND REDUCING THE BOARD FROM A SUPERMAJORITY OF PRACTICING ATTORNEYS TO A SIMPLE MAJORITY OF PRACTICING ATTORNEYS;
   3. ESTABLISHING A DISCIPLINE MONITOR TO IMPROVE THE BAR'S DISCIPLINE PROCESS AND SETTING FORTH A DETAILED PROTOCOL FOR HANDLING UNLAWFUL PRACTICE OF LAW COMPLAINTS; AND
   4. SETTING FORTH MORE DETAILED OVERSIGHT AND REVIEW BY THE STATE AUDITOR TO ENSURE THAT THE BAR'S EXPENSES AND MEMBER DUES ARE REASONABLE AND REFLECT THE BAR'S PRIORITIES?

SYNOPSIS

This is the second time this year that our Committee has considered the annual State Bar dues reauthorization legislation. When this Committee first heard the bill — AB 2878 (Judiciary) — virtually every Committee member spoke of the decades of significant and sustained problems at the Bar and the need for meaningful structural and governance reform in order to better protect the public. That bill, which reauthorized the Bar to collect dues next year, contained minimal reforms and failed on the Assembly Floor, garnering only 10 votes, after members of this Committee and others strongly advocated for the critical need for more meaningful reforms. That bill was then amended to include many more significant reforms of the State Bar, including many of the reforms contained in this bill, and passed off the Assembly Floor by a vote of 79-0. However, that bill was never heard in the Senate Judiciary Committee after that Committee insisted that three key reforms be stripped from the bill and this Committee understandably refused.

The current language of today's bill, which is co-authored by this entire Committee, represents a compromise between the version that passed the Assembly Floor (which Committee members referred to as the "bare minimum" needed to overhaul the Bar) and the version, stripped of a number of key reforms, demanded by the Senate Judiciary Committee. This compromise bill continues the decades-long tradition of Judiciary Committee oversight of the Bar via review of the annual dues authorization bill, as part of general legislative oversight of agencies within the executive and judicial branches of government.

This past year, there has continued to be extensive and publically reported turmoil involving the Bar, some of the information likely coming to light by way of new transparency laws applied to the Bar last year. First, the media reported that the Bar had failed to investigate over 300 complaints about the unauthorized practice of law, some awaiting assignment to an investigator for years before any action was taken. According to the Bar, many of those complaints were filed by immigrants seeking legal assistance with, among other things, their legal status in this country. It goes without saying that failure to immediately investigate and, when appropriate, take action to stop the unauthorized practice of law puts the public at substantial risk and the longer the delays in investigating them, the more the public is put at risk. The Bar now asserts that these cases are being assigned to an attorney immediately upon receipt and that the backlog has finally been addressed, but when this matter was first made public, over 300 cases were still awaiting intake. Had this issue not been made public, it is unclear when, if ever, such corrective action would have been taken. Second, the Bar, without input from or approval by the Legislature, and apparently without fully following its own newly established procedures recommended by the State Auditor, took out a $10 million loan for upgrades and tenant improvements for its San Francisco building and attempted to secure the loan with a pledge of future member Bar dues, which could have tied the hands of future Legislatures in the setting of dues based on a 1950's era statute. This apparently only came to light as a result of the State Auditor's most recent audit of the Bar, which was only required by last year's Bar dues legislation. Most recently, it was reported that the Bar, which the Auditor found pays over a dozen of its top executives more than the Governor, hired a PR executive who reportedly makes more than the White House Press Secretary and remodeled its executive suite at a cost of $125,000.

While not reforming all of the governance and operational problems that plague the Bar, this bill, among other things: (1) Defines public protection to include the Bar's key regulatory functions -- admissions, regulation of attorneys, discipline of attorneys and sanctions for unlawful practice of law – which should help the Bar focus on its key purpose – protecting the public from harm – and appropriately reduce board focus on its trade association activities; (2) continues reform of the Bar's board by eliminating board members elected by licensed attorneys themselves and reducing the board from a supermajority of practicing attorneys to a majority of practicing attorneys; (3) requires the board to exercise greater oversight of Bar staff; (4) requires the Supreme Court to review any anticompetitive decisions made by the board's attorney majority to avoid costly antitrust liability; and (5) directs the Attorney General to appoint a monitor to help improve the Bar's long-standing problems disciplining attorneys and properly protecting the public from the unlicensed practice of law. This bill also maintains member bar dues for 2017 at their same level as this year.

While the bill's reform proposals go too far for those seeking to maintain the status quo, with the Bar board focused much of the time on trade association functions, rather than its critical public protections functions, or for those who see the Bar's longstanding and well-documented problems as operational only and not fundamentally structural, the bill is opposed by the Center for Public Interest Law which argues that the bill fails to adequately reform the bar by leaving in place the Bar board's majority of practicing attorneys and does not eliminate the "problem of an intrinsically distracted regulator that, at every meeting, allows the interests of lawyers to compete with the interests of consumers."

SUMMARY: Reauthorize the State Bar to collect up to $390 for active membership dues for 2017 and implements changes to the governance of the State Bar to maximize the Bar's prioritization of public protection in all of its activities and makes other reforms to the Bar's governance structure. Specifically, this bill:

1. Reauthorizes the State Bar to collect up to $390 for active membership dues for 2017.
2. Defines public protection -- the highest priority of the State Bar -- as the core regulatory functions of the State Bar, in the following order of priority:
   1. Attorneys must be competent and ethical and comply with all laws and standards of professional conduct;
   2. Appropriate discipline or legal sanction must be imposed upon attorneys who fail to comply with those standards and non-attorneys who practice law without a license;
   3. Competent and professional legal services must be equally provided without regard to income; and
   4. The legal profession must represent the broad diversity of California.
3. Eliminates the six elected State Bar Board of Trustees (Board) members, and reduces the membership of the Board from 19 members to 13 members. States the intent of the Legislature that this reduction of membership number occur through the expiration of the terms of the elected members who are serving as of December 31, 2016.
4. Extends terms of members of the Board from three to four years.
5. Requires those making appointments to the Board after December 31, 2016 to consider appointing members with specified expertise.
6. Provides that the chair and vice chair (previously, the president and vice president) of the Board must be appointed by the Supreme Court instead of elected by the Board. Provides that the term of the chair is two years. Provides that the Board annually selects the treasurer, who is not required to be a board member.
7. Requires that any decision of the Board that the California Supreme Court determines may raise antitrust concerns be reviewed by the Court and is subject to modification, veto, or other appropriate action by the Court.
8. Eliminates the ability of the State Bar to prevent future Legislatures from reducing future membership dues by securing all or any portion of an obligation of the State Bar on future dues.
9. Eliminates the State Bar's ability to create foundations or non-profit corporations as a means to raise additional revenue.
10. Requires Board's approval for contracts for goods or services over $50,000 or IT contracts above $100,000. Requires the Board to adopt policies to require its approval for contracts that could impact the State Bar's ability to protect the public.
11. Requires the Attorney General to appoint an enforcement program monitor, through March 31, 2020, to monitor and evaluate the State Bar's disciplinary system to ensure the Bar is successfully and consistently protecting the public. Sets forth the duties of the enforcement monitor, including developing recommendations and submitting an initial report to the Supreme Court and the Legislature by October 1, 2019, and a final report by March 31, 2020.
12. Sets forth specific requirements for the handling of unlawful practice of law complaints, including specific timeframes for processing those complaints; specified, acceptable resolutions for those complaints; and requiring that those complaints be forwarded to law enforcement.
13. Eliminates certain State Bar exceptions to the Bagley-Keene Open Meeting Act, and adds an exception from both the Bagley-Keene Open Meeting Act and the California Public Records Act for the State Bar Court. Provides that access to records of the State Bar Court shall be governed by the laws applicable to the records of the judiciary.
14. Provides several exceptions to confidentiality of State Bar admission applications and records, including the names of applicants who passed the Bar examination, and makes those exceptions retroactive to January 1, 2016.
15. Requires the State Bar to conduct an analysis of the funds necessary to timely satisfy claims against the Client Security Fund (CSF), including possible additional efforts to increase collection from responsible attorneys, a review of other non-public protection expenditures, including executive salaries and benefits, that can be redirected to better fund the CSF, and after exhausting all other options, whether a dues increase is necessary to ensure timely payment of claims against the CSF. The report is due to the Legislature by March 15, 2017.
16. Requires that the 2017 performance audit of the State Bar by the State Auditor includes a review of the State Bar's expenses, including executive salaries and benefits, outside contracts and real estate holdings, to determine the appropriate and necessary expenses of the State Bar to protect the public and what an appropriate member dues level should be. Requires that the audit also include a recommendation for determining Section costs, including a notice and opportunity to challenge process for the Sections. Requires the State Auditor to conduct a performance audit, due by June 15, 2018, on changes in the State Bar's expenses and ways for the State Bar to increase operational effectiveness and efficiency.

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, requires the annual mandatory membership fee set by the Board to pay for discipline and other functions to be ratified by the Legislature. (Business and Professions Code Section 6000 et seq. Unless stated otherwise, all further statutory references refer to that code.)
2. Authorizes the State Bar to collect $315 in annual membership fees from active members for a total annual dues bill of $390 for the year 2016. Provides that the other $75 is pursuant to statutory authorization to assess annually the following fees: $40 for the Client Security Fund; $25 for the disciplinary system; and $10 for the Lawyer Assistance Program. (Sections 6140, 6140.55, 6140.6, 6140.9.)
3. Authorizes the State Bar to collect $75 in annual membership fees from inactive members for a total annual dues bill of $115. Provides that the other $40 is pursuant to statutory authorization to assess annually the following fees: $10 for the Client Security Fund; $25 for the disciplinary system; and $5 for the Lawyer Assistance Program. (Sections 6141, 6140.55, 6140.6, 6140.9.)
4. Directs $40 of membership dues to legal services purposes unless a member elects not to support those activities. (Section 6140.03.)
5. Provides that protection of the public is the highest priority of the State Bar and its Board in exercising their licensing, regulatory and disciplinary functions. Whenever the protection of the public is inconsistent with other interests sought to be promoted, provides that the protection of the public shall be paramount. (Section 6001.1.)
6. Creates the Governance in the Public Interest Task Force, effective February 1, 2013, and requires that the task force report to the Supreme Court, the Governor and the Assembly and Senate Judiciary Committees by May 15, 2014, and every three years thereafter, its recommendations for enhancing public protection and ensuring that public protection is the State Bar's highest priority. (Section 6001.2.)
7. Permits the State Bar, for purpose of carrying into effect and promoting its objectives (of which public protection is its highest priority), to sell, lease, exchange, convey, transfer, assign, encumber, pledge, dispose of any of its real or personal property or any interest therein, including without limitation all or any portion of its income or revenues from membership fees paid or payable by members. (Section 6001.)
8. Provides, pursuant to a 1950's statute, that whenever the Board secures an obligation of the State Bar on all or any portion of the fees from membership dues the Legislature may not, until the obligation is repaid in full, reduce membership dues below the maximum amount in effect when the obligation was created and provides that this constitutes a covenant to the holder of the obligation. (Section 6008.5.)
9. Requires the State Bar to annually report on the performance and condition of its discipline system, including the backlog of discipline cases that are six months old, and case processing times, as provided. (Section 6086.15.)
10. Requires the State Bar to develop and implement a workforce plan for its discipline system and conduct a public sector compensation and benefits study, including a recommendation for an appropriate backlog goal and an assessment of staffing needed to achieve that goal. Requires the State Bar to conduct a thorough analysis of its operating costs and develop a spending plan to determine a reasonable amount for its annual dues. Requires that the workforce plan and the spending plan be submitted to the Legislature by May 15, 2016, and be implemented by December 31, 2016. (Section 6140.16.)
11. Requires the State Bar's Board to contract with the California State Auditor to conduct a biannual performance audit of the State Bar. (Section 6145(b).)
12. Subjects the State Bar to the Public Records Act, with specified exceptions. Provides that identifying information submitted by applicants to the State Bar for admission to practice law and State Bar admissions records, as specified, are confidential and may not be disclosed pursuant to any state law including the Public Records Act. (Sections 6001, 6026.11.)
13. Effective April 1, 2016, subjects the State Bar to the Bagley-Keene Open Meeting Act, as provided, with exemptions for the Judicial Nominees Evaluation Commission and the Committee of Bar Examiners. (Sections 6001 6026.7; Government Code Section 11121.)

FISCAL EFFECT: As currently in print this bill is keyed fiscal.

COMMENTS: This bill, the second State Bar dues reauthorization and oversight bill considered by this Committee this year, continues the decades-long tradition of oversight of the Bar by the Judiciary Committee via review of the annual dues authorization bill, as part of the general oversight role of the Legislature over the agencies in the executive and judicial branches of government. This bill comes before this Committee after yet another year of extensive and publically reported turmoil involving the Bar, and after the Senate's Judiciary Committee's unwillingness to adequately address the longstanding governance shortfalls of the Bar, or even, at a bare minimum, to effectively prioritize the true public protection functions of the Bar over its lawyer trade association functions.

Background on the Bar. Attorneys who wish to practice law in California generally must be admitted and licensed in this State and must be members of the State Bar. (Cal. Const., Art. VI, Sec. 9.) The State Bar of California is the largest state bar in the country. As of March 2016, the State Bar had 186,152 active members and 56,929 inactive members. Total State Bar membership is listed at 257,788, which includes 2,162 judge members and 12,544 members who are “not eligible to practice law.”

The Bar is currently governed by a 19-member board of trustees, which is made up of 13 active lawyer members (6 attorneys elected by other licensed attorneys in the state; 5 lawyers appointed by the Supreme Court; and 2 attorneys appointed by the Legislature) and 6 public (non- attorneys) members (4 public members appointed by the Governor and 2 public members appointed by the Legislature). Currently, two public member positions are vacant, awaiting appointment by the Governor. California has a unified bar, which means that the State Bar is both the regulatory arm of the state, as well as a mandatory attorney trade association. By statute, the Bar's highest priority, as necessary and appropriate, is protection of the public, although public protection is not defined and apparently that has allowed the Bar to focus undue attention on its trade association functions to the detriment of its fundamental and critically important regulatory functions. (Section 6001.1.)

Bar Report on its Progress This Past Year: When the Committee heard AB 2878, the State Bar provided a list of its accomplishments over the past year, including hiring its new management team last Fall: executive director Elizabeth Parker, chief operating officer Leah Wilson, and general counsel Vanessa Holton. The Bar also stated that it is "well on its way to completing" all of the recommendations from the State Auditor in the 2015 audit, discussed in more detail below, including revising its discipline report to the Legislature, to ensure that it is consistent, clear and reliable; improving the quality of the discipline process; requiring a cost-benefit analysis for all contracts above $2 million; streamlining its organizational structure to more efficiently use existing staff resources; and beginning the development of a new case management system.

In an effort to address questionable management and budget practices, the Bar has reduced its overall budget for 2016 by 6.2 percent and reduced budgets for temporary help, travel and catering even more. The Bar states that it has eliminated all business expense accounts and the president’s once secret $30,000 discretionary expense account, something that has for years been of substantial concern to this Committee. It has also cancelled numerous contracts with outside counsel, seeking to bring more of that work in-house. The Bar also states that it is beginning an effort to use zero-based operational costs for assessment of fees charged by its Admissions division, as well as a review of other fees charged. After media reports that the Bar has not properly addressed unauthorized practice of law complaints, discussed more fully below, the Bar states that it has developed a protocol for handling these cases and has adopted a referral policy to allow Bar investigators and criminal prosecutors to simultaneously investigate cases.

However, Well Reported, Disconcerting and Longstanding Problems at The Bar Continue to Raise Very Troubling Questions About Public Protection, Discipline, Governance, Expenditures and Oversight. The State Bar has been in the news throughout much of the past year primarily due to troubling management, oversight and governance problems, as well as questions about whether the Bar has focused sufficiently on its primary duty -- public protection.

Bar Admitted Ignoring Unlawful Practice of Law Complaints, Many of Which are From Immigrants, Thus Allowing the Unlawful Practice of Law to Endanger the Public: The Bar operates an investigatory and discipline process to protect the public from unscrupulous attorneys, with possible disciplinary actions ranging from letters of warning and private reproval, to disbarment. The Bar's investigatory and regulatory duties include protecting the public from the unauthorized practice of law by non-attorneys and attorneys not licensed in this State. Although public protection is the Bar's highest statutory priority, the Bar reportedly allowed hundreds of complaints alleging the unauthorized practice of law to sit idle for months or even years without taking action. Many of the complaints are against "notaries," who offer to assist immigrants in securing legal status or performing other legal work, but whose efforts can result in denial of protective status or even deportation.

According to media reports, the Bar initially identified 59 complaints of unauthorized practice of law that were uninvestigated for years, with some complaints dating as far back as 2007. (Lyle Moran, State Bar admits ignoring dozens of complaints against people practicing law without a license, Daily Journal (Jan. 29, 2016).) At the time, the Bar called its failure to investigate complaints "unacceptable," and blamed a fired investigator. (Ibid.) The Daily Journal later learned that the Bar actually had more than 270 additional complaints alleging unauthorized practice of law that were allowed to sit idle, awaiting assignment to an investigator. These additional complaints were reportedly left in a drawer for more than two months or, in some cases, six months and more. (Lyle Moran, State Bar let hundreds of complaints against non-attorneys sit idle, Daily Journal (March 4, 2016).) These cases were reportedly assigned to an attorney, addressing the backlog, but when this matter was first made public, over 300 cases were still awaiting intake. Had this matter not been made public, likely as the result of a public records request, it is unclear if and when corrective action would have been taken.

It goes without saying that failure to immediately investigate and, when appropriate, take action to stop the unauthorized practice of law leaves the public at serious risk. If legal action is not taken, the unauthorized practice will likely continue, unnecessarily jeopardizing vulnerable individuals who are seeking legal assistance. When the failure to investigate lasts months or even years, the risk increases significantly. The failure to investigate in a timely manner is even more disturbing when many of the victims are immigrants, for whom negative consequences may include deportation. Those harmed, particularly those who have been deported, may not have the opportunity for a second chance to obtain actual legal assistance.

The Bar has acknowledged its mishandling of these complaints, stated that it has worked through the backlog, and has developed protocols to improve the Bar's handling of these critically important complaints. These protocols are codified in this bill.

Last Year's State Audit Substantially Faulted the Bar for Not Consistently Protecting the Public and For Lacking Accountability: As required by statute, the State Auditor completes a performance audit of the Bar every two years. The 2015 audit reviewed the Bar's discipline process, in particular its backlog of discipline cases, and the Bar's 2012 $75 million purchase and renovation of a building in Los Angeles. The audit uncovered significant, troubling decisions made by the Bar in the handling of both matters. (California State Auditor, State Bar of California: It Has Not Consistently Protected the Public Through its Attorney Discipline Process and Lacks Accountability (June 2015).)

Discipline: To operate its discipline system effectively and maximize public protection, the Bar must minimize its backlog (cases not processed within six months) in order to prevent wayward attorneys and non-attorneys from continuing to practice law in a manner that endangers the public. The Bar is required to report annually to the Legislature, the Governor, and the Chief Justice on the discipline process and any backlog. Unfortunately, the State Auditor discovered that the Bar did not fully and consistently report its backlog or its case processing times to the Legislature or the Governor, and, when taking steps to reduce the backlog, did not adequately protect the public. Of particular importance, according to the Auditor, was the manner in which the Bar reduced its backlog of discipline cases, which may have caused "significant risk to the public":

[A]s the State Bar reduced its excessive backlog of disciplinary cases, the severity of the discipline it imposed on attorneys who failed to fulfill their professional responsibilities decreased. In other words, to reduce its backlog, the State Bar allowed some attorneys whom it otherwise might have disciplined more severely—or even disbarred—to continue practicing law, at significant risk to the public. . . . The chief trial counsel confirmed that she believes . . . that insufficient quality control was a key factor that enabled the State Bar to decrease its backlog. (Id. at 1 (emphasis added).)

As a result of the audit findings, the Legislature, in last year's dues bill, SB 387 (Jackson), Chap. 537, Stats. 2015, directed the Bar to develop and implement a workforce plan for its discipline system and to conduct a public sector compensation and benefits study, including a recommendation for an appropriate backlog goal and an assessment of staffing needed to achieve that goal, both of which are now completed and discussed below.

Building Purchase: The State Auditor also determined that, when purchasing a building in Los Angeles in 2012, the Bar did not perform any cost-benefit analysis to determine if the purchase was appropriate and warranted before receiving approval from its Board to purchase the building. The Bar, according to the Auditor, did not fully inform the Legislature of its plans, thereby potentially risking public safety by not prioritizing other areas, such as attorney discipline:

The State Bar of California’s … primary mission is the protection of the public through its attorney discipline system. However, the State Bar’s financial priorities over the past six years did not consistently reflect that mission: Rather than using its financial resources to improve its attorney discipline system, the State Bar dedicated a significant portion of its funds to purchase and renovate a building in Los Angeles in 2012. Although the Legislature approved $10.3 million for this building, the State Bar ultimately spent approximately $76.6 million on it. Facilitating this purchase required the State Bar to transfer $12 million between its various funds, some of which its Board of Trustees (board) had set aside for other purposes.

The ultimate responsibility for ensuring that the State Bar spends funds prudently rests with the board, which should have ensured that the State Bar’s decision to purchase the Los Angeles building was justified and financially beneficial. However, the State Bar did not fully communicate its questionable financial decisions regarding this new building to the board because it never presented its board with comprehensive cost estimates of purchasing versus leasing a building. Moreover, only four months before it purchased the Los Angeles building, the State Bar informed the Legislature in an annual report that a building would cost $26 million—a third of the $76.6 million the State Bar ultimately paid. In addition, the State Bar could offer no evidence that it informed the Legislature of its final decision to purchase the Los Angeles building even though state law required it to do so. As a result, key decision makers and stakeholders lacked the information necessary to make informed financial decisions related to the purchase of the Los Angeles building or to understand its impact on the State Bar’s other financial priorities. (Id. at 43.)

The Auditor thereby found that the decision to purchase the Los Angles building jeopardized the State Bar’s core function to protect public safety: "Rather than using its financial resources to improve its attorney discipline system, the State Bar dedicated a significant portion of its funds to purchase and renovate a building in Los Angeles in 2012." (Id., emphasis added)

Even more troubling was the fact that the Bar chose to secure the additional funding for the Los Angeles building, in part, through a loan that required the Bar to use $4.6 million of its "Public Protection Fund" as collateral for the loan. The sole purpose of the Public Protection Fund, which the Bar itself established in 2001, was to protect the public in the event of a financial emergency – and that emergency is generally regarded as a veto of the Bar’s annual dues bill. However, without any notification to its members or the Legislature, the Bar decided, unilaterally, to tie up over 70 percent of its Public Protection Fund – $4.6 million of the $6.5 million fund – for the 15-year life of the loan. The Bar may not access those Public Protection funds for any reason during that time, or it will default on the loan for the Los Angeles building. This completely negated the purpose of the fund: public protection. If the Bar Board had determined that the Public Protection Fund were actually not necessary, the Board, in consultation with the Legislature, could have decided that the remaining unsecured funds, as well as the $4.5 million that is securing the Los Angeles building loan after the loan is paid off, could have been used for other purposes, such as improving the discipline system, reducing the legal services “justice gap” or refunding unnecessary dues to members. It did not. Moreover, given the uncertainty this year of having a successful dues bill, those funds could – and should – have been used to protect jobs and the important public protection functions carried out by Bar employees. Unfortunately, the Bar's actions have reduced both public protection and job security.

S.F. Building Loan and Restructuring of L.A. Building Loan: In spite of last year's audit that questioned the cost of the Los Angeles building and its impact on public protection, and without waiting for the results of the legislatively-required discipline workplan (which showed that the Bar requires significant additional spending to meet its public protection mandate), the State Bar decided, without input or approval from the Legislature, to take out a new $10 million loan for upgrades and tenant improvements to its San Francisco building.

In order to use some of the loan as security for repayment, the Bar, again without consultation with the Legislature, chose to secure the loan and refinance the original $25 million loan on the Los Angeles building, discussed above, through a security interest in future member dues. The loan, secured on future Bar dues, was entered on March 1, 2016 for a term of ten years. Before receiving approval from the Board, the Bar requested an opinion from its staff on the legality of the revenue pledge. While finding the loan legally permissible, legal staff appropriately warned the Bar of the following:

Such a pledge, which has the potential to impact the Bar's regulatory functions, could additionally be deemed inconsistent with the later adoption of Business & Professions Code, section 6001.1, which provides that the Bar must place public protection as its highest priority and additionally states, "[w]henever the protection of the public is inconsistent with other interest sought to be promoted, the protection of the public shall be paramount." . . . [S]uch a pledge could subject the Bar to criticism on the basis that it could place funds that govern its core regulatory activities at what may be deemed to be unnecessary risk.

These risks were not mentioned in the materials presented by the Bar to its Board when it requested approval for the loan. Nor was the Board apparently provided with a cost-benefit analysis that included both a recommended course of action and alternatives, as the Bar's list of accomplishments states is required for all expenditures reasonably expected to exceed $2 million. Clearly, this loan met that $2 million threshold. Moreover, the decision to proceed with the loan came less than one year after the State Auditor questioned the Bar's decision to purchase the Los Angeles building on the basis that the Bar had not considered whether the resources to repay the loan might be better spent on improving the Bar's discipline system.

Even more troubling, Business & Professions Code Section 6008.5 provides that whenever the Board secures a Bar obligation with all or any portion of the fees from membership dues, the Legislature may not, until the obligation is repaid in full, reduce membership dues below the maximum amount in effect when the obligation was created, providing a covenant to the holder of the obligation. Thus, at least on its face, this statute, which has been on the books since 1957, appears to provide that, as a result of the loan, the Legislature cannot lower Bar dues by even a single penny. The annual legislative setting of the amount of the Bar's dues is the Legislature’s chief mechanism for oversight of the Bar. Without the ability to annually establish Bar fees, including the ability to lower fees, the Legislature would lose a key oversight tool to ensure that the Bar is properly carrying out its mission and protecting the public. It appears that this issue was never presented to the Board when it approved of the loan. Nor was there apparently any consultation with the Legislature before restricting future legislative authority.

It is highly unlikely that this statute, the policy merits of which are questionable, was ever constitutional. A legislature cannot restrict the powers of a subsequent legislature by enacting a statute that appears to be nonrepealable. (County Mobilehome Positive Action Committee v. County of San Diego (1998) 62 Cal. App. 4^th 727, 734.) "An act of one legislature is not binding upon, and does not tie the hands of future legislatures [citations omitted]." (Ibid.) This provision may also run afoul of the constitutional prohibition against delegation of legislative power, which prevents the Legislature from, among other things, delegating rate setting ability to members of the industry that is regulated. (See State Bd. of Dry Cleaners v. Thrift-D-Lux Cleaners (1953) 40 C.2d 436, 447.) This statute appears to delegate to the Bar, should it choose to secure a loan with future dues, the ability to fix the minimum price of future dues for as long of a loan period as the Bar chooses.

At the request of the chairs of this Committee and the Senate Judiciary Committee, the Bar and the lender restructured the loan so that it is no longer secured by future member dues. However, until the loan is repaid in full, the obligation still exists and still reduces the amount of Bar's resources available to protect the public. This bill, quite appropriately, therefore eliminates this anachronistic statute and, with it, the Bar's ability to lock in a dues rate for years, even if the Bar has no need for the funding generated by those dues.

2016 State Audit Again Raised Troubling Public Protection Concerns: In response to the significant and disturbing audit findings from 2015, the Legislature last year required the State Auditor to perform an in-depth financial audit of the Bar. That audit, The State Bar of California: Its Lack of Transparency Has Undermined its Communications with Decision Makers and Stakeholders (May 2016), found that the State Bar's financial reports "contained errors and lacked transparency, and these weaknesses have limited stakeholders’ ability to understand the State Bar’s operations and the Legislature’s ability to ensure the appropriateness of the State Bar’s fees.” (Ibid. at 1.) The State Auditor also found that in the absence of oversight, the State Bar has made "questionable or inappropriate financial decisions," including its decision to create a nonprofit organization that failed to support its stated beneficiaries – legal services and the Bar Sections – and instead used most of its funds for dinners and hotel expenses that occurred before the nonprofit was even created and for an unrelated State Fair exhibit. The Bar’s general fund eventually was used to bail out the failed nonprofit.

The audit also exposed the Bar’s failure to take steps to minimize a years' long backlog in compensating victims of dishonest lawyers. According to the State Auditor, although the Bar realized its shortfall in the Client Security Fund – used to compensate victims of dishonest attorneys – the Bar not only failed to “take steps to address the problem or to communicate the fund’s true financial situation, it did the opposite: In 2012 the State Bar eliminated from its financial statements any disclosure of future amounts it expected to pay related to the Client Security Fund, reporting instead that the fund’s balance had improved. Further, because the State Bar lacked the funds necessary to pay claims, it slowed its claims processing from about 18 months to about 36 months, potentially harming victims who needed these resources.” (Id.)

Additionally, the audit discovered that the State Bar provides executives with "significantly more generous salaries and benefits than other executives in comparable positions in state government," with the top salaries for more than a dozen executives exceeding the Governor’s salary. (Id. at 3) The State Auditor determined that the Bar could save nearly $1 million annually if its executive salaries and benefits were more consistent with other state agencies.

Even more troubling than what was in the report was what was not fully included in the report. As discussed above, the State Bar revised the loan for upgrading its San Francisco building, originally secured by future bar dues, only after the State Auditor raised troubling questions about that loan during this most recent audit. Additionally, the Bar decided to compare its salaries with the Attorney General's office, as part of its compensation study discussed below, only after the State Auditor noticed that the Bar was only comparing its salaries to highly paid local and judicial branch agencies and specifically excluding other regulatory and executive branch agencies that have substantial operational similarities to the State Bar. If the Auditor had not been there, it is likely that the loan attempting to tie the Legislature’s hands would have been much harder to undo and the compensation study would have lacked even minimal comparisons with relevant state agencies, rendering its results less relevant than even the existing report. Finally, after the State Auditor raised questions about the securitization of the loan to the Bar, but before its audit was completed and therefore still confidential, the Bar's current executive director, who is herself an attorney, reported the issue to the Legislature, which is apparently a misdemeanor. The State Auditor sent the executive director a letter, warning that if such "an unlawful disclosure ever recur, we will have no option but to promptly refer the matter to the appropriate law enforcement entity for prosecution."

Improper Transfer of Funds: The use of the Public Protection Fund to secure the loan on the L.A. building, described above, is part of a larger pattern in which the Bar transfers money between its various funds and uses the money on unrelated items, according to the State Auditor. The Auditor found that, from 2009 through 2012, the Bar made approximately 50 transfers between funds involving over $64 million. (Id. at 13.)

In order to help shore up the Client Security Fund, the Bar transferred funds from the Attorney Diversion and Assistance Program (also known as the Lawyer Assistance Program or LAP) this year to the Client Security Fund.  While that may have seemed like a reasonable decision given that the Client Security Fund is severely underfunded and the Bar believes that the LAP is overfunded, it appears that the transfer may have violated the law.  Attorneys are statutorily required to pay specific dues to support the LAP: $10 per active member and $5 per inactive member.  (Section 6140.9.)  The statute is clear -- those dues specifically cannot be moved to the Bar’s general fund unless funds are obtained from alternative sources to support LAP and at least the minimum required dues ($10 or $5 per member) each year are used to support the LAP.  Legislative Counsel confirms the clear reading of the statute.  (Legislative Counsel, State Bar of California:  Membership Fees:  Attorney Diversion and Assistance Program #1610845 (June 1, 2016).)  Thus, the Bar’s moving of funds from the LAP could well have violated the law. If the LAP is overfunded, it may well be more appropriate to reduce the dues that fund the LAP.

Firing of Executive Director and Ensuing Litigation/Arbitration: In November 2014, the State Bar terminated its then-executive director, Joe Dunn. In response to that termination, the executive director filed suit against the State Bar, alleging whistleblower status and charging the bar with engaging in "egregious" fiscal improprieties. Bar officials reportedly responded with accusations against him, including criticism of his lavish expense accounts.

After spending months litigating the matter, the court ordered the parties to arbitrate their dispute, as required in the executive director's employment contract. The arbitration, which has apparently been open to the public, included release of the $359,000 internal investigation of the former executive director in 2014, which concluded that although "certain other deficiencies in Dunn's performance would warrant counseling or reprimand only (such as his inattention to proper allocation of expenses between mandatory and voluntary fees), Dunn's repeated failure to provide adequate or truthful information to the Board plainly provides an adequate basis to terminate his at will employment." (Mark Helm and Bart Williams, Independent Investigation for the State Bar of California: Summary of Findings and Recommendations, p. 27-28 (Munger Tolles Report).) That arbitration is proceeding.

Additional Firings and Ensuing Litigation: In and around the time of the firing of the executive director, the Bar also fired its general counsel, who was hired by the executive director, as well as the Bar’s chief financial officer, and an administrative specialist, who brought a $15 million wrongful termination suit against the Bar this past February. At roughly the same time, the Bar laid off its public information officer. On February 25, 2016, the Public Employment Relations Board issued a complaint against the Bar for that termination, alleging the Bar fired the public information officer as retaliation for his filing a grievance against the organization. This past winter, the Bar fired its managing director of investigations after he filed a whistleblower complaint against the Chief Trial Counsel. While it is difficult to determine what precisely occurred in each of these cases and whether any of the firings were justified, the number and frequency of these incidents raises concern about management at the State Bar. And according to media reports as of six months ago, the State Bar had spent over $530,000 on attorney's fees for the wrongful termination litigation of its former executive director and the others, of which less than $400,000 was covered by insurance. (Lyle Moran, State Bar spent $413K investigating Dunn, leak of report, Daily Journal (Feb. 24, 2016).) It is reasonable to assume that those figures have risen substantially since then.

Former Chief Trial Counsel Recently Resigned While Awaiting Senate Confirmation: The Bar's former chief trial counsel, Jayne Kim, has also been the subject of controversy. She filed an internal complaint against the former-executive director, which ultimately led to his firing. Last October, her subordinate employees in the Office of Chief Trial Counsel, members of SEIU, issued a 76 percent "no confidence" vote in her leadership, alleging that she misled the Board, grossly mismanaged her office, and failed to protect the public. Despite that vote, the Board on December 21, 2016, at the recommendation of current executive director Elizabeth Parker, voted 14-1 to seek another term for the chief trial counsel, although Ms. Parker did promise to address concerns regarding her management style. She resigned in late April, while awaiting a Senate confirmation hearing. Since then, the Bar has hired, for $60,000, then let go, then re-hired a search firm, the Hawkins Co., to engage in a search for a new chief trial counsel.

Troubling Expenses Cause Bar to Finally Cut its Travel and Catering Budget: This Committee has long raised concerns with the Bar’s expenses for travel, business expenses and other special allowances, when limited dues funds are required by law to first and foremost support public protection and the discipline system; non-dues funds could go to support woefully underfunded legal services programs or potentially to reduce mandatory bar dues. According to a media report from earlier this year, likely based on a public records request, the Bar had a number of questionable expenses and exercised limited oversight of how Bar members' funds were spent:

In late January 2014, a group of six executives and trustees from the State Bar of California embarked on a mission to protect the public from unscrupulous lawyers—by traveling to El Salvador.

While there, the bar president, the executive director and a bar employee classified as a public information officer signed an "accord" with the nation's foreign affairs minister pledging to work together to educate Salvadorans living in California about available legal resources. The two-page agreement carried no legal weight; it's unclear if the American signatories had any authority to sign an international pact anyway.

Outside the signing ceremony, the trip was unremarkable—except for the costs. Expenses for hotel rooms, airfare, meals, a driver's services and cellphone bills submitted to the bar by just four of the travelers—the only ones readily accessed through the bar's convoluted accounting system—totaled more than $6,600.

This international trip was not an isolated occurrence. Between 2013 and 2014, bar executives led by then-CEO Joe Dunn and, occasionally, trustees submitted thousands of dollars in expenses associated with trips to El Salvador, Mexico, Guatemala, Nicaragua, Peru and Mongolia, according to documents compiled by The Recorder.

The trips were paid out of bar funds. Just how much the costs for these trips added up to is difficult to say. The bar does not code expense reports by foreign trips, so determining who went where when and for how much requires some guesswork and manual calculations. For years, the bar refused to make public such records, arguing that the quasi-judicial agency was not subject to state sunshine-in-government laws. . . .

Hundreds of pages of bar records reveal numerous expenses and activities that appear to have a tenuous connection to the agency's mission of pursuing bad lawyers and protecting the public—the California public, at least. (Cheryl Miller, Joe Dunn, Bar Officials Spent Freely on Foreign Travel, The Recorder (Jan. 25, 2016).)

More recently, the Bar asserts that it has begun to reduce unnecessary spending. The 2016 budget reduces spending on travel by 29 percent, from $3.4 million to $2.4 million, and on catering by 24 percent, from $2.1 million to $1.6 million. These line items were reduced because, according to chief operating officer Leah Wilson, these “were areas of 'extraordinary costs’ for the bar.” (Lyle Moran, State bar cuts annual budget by 6 percent, Daily Journal (Feb. 2, 2016).) It is worth noting that, prior to seeking a financial audit by the State Auditor last year, Committee staff had asked the Bar for, among other things, information on Bar travel outside the country and was informed (incorrectly, as is now clear) that the only such trip was to Mongolia.

Mistake on First Year Bar Exam.  First year law students at unaccredited law schools are required to pass a test – sometimes referred to as the Baby Bar – in order to be able to apply to take the regular Bar examination.  Unfortunately, the most recent first year exam, for which nearly 500 sat, contained an essay (one of only four in the exam) that covered material not generally taught in the first year of law school.  It is unclear how this mistake was made given an approval process for the test that should have been very thorough.  It appears that the problem was rectified by eliminating that question from the test, begging the question whether the Bar is spending sufficient time and attention on it key regulatory functions that include testing and licensing of prospective attorneys to ensure their basic competence.

Clear Oversight Role for the Legislature: While the above events and reported claims and allegations may not be fully understood, enough is known about them to trigger legislative and public concern about how the Bar is governed and overseen, particularly given that public protection is required to be the Bar's paramount duty. Nevertheless, at least one member of the Board has remarkably and ironically questioned whether the Legislature should have oversight over the Bar. According to media reports, the Governance in the Public Interest Task Force had asked to be provided with "any cases in other states touching on the propriety of a Legislature setting licensing fees for lawyers or reviewing the appointment of a chief trial counsel." (Lyle Moran, State Bar panel may review legislative oversight of agency, Daily Journal (Feb. 29, 2016).)

Even some in the Legislature have questioned what amount of oversight is appropriate for the Legislature to exercise over the State Bar. The analysis of this Committee’s original Bar dues bill, AB 2878, by the Senate Judiciary Committee seems to suggest that the Legislature should defer its role of oversight to the Chief Justice.

Given that the Supreme Court has the authority over the admission and practice of law in the State of California, it is arguably appropriate that the Supreme Court take the leading role in assessing how the State Bar, as its administrative arm, is best structured and governed to support adequate regulation of the legal profession, protection of the public, and the effective administration of justice.  In recognition of the Supreme Court’s primary authority over the admission and practice of law and in deference to the Chief Justice, the following amendment is suggested to remove the Commission that would study governance and replace it with the Chief Justice’s language whereby the Special Master would review issues of governance of the State Bar.

Despite the opinion of some that the Legislature should defer its oversight authority to the Supreme Court, the Court itself has long understood the Legislature's joint role in overseeing and regulating the Bar, even though the Bar is located in the judicial branch and under the direct oversight of the Supreme Court. The Court has described the shared oversight role as follows:

We long have recognized the Legislature's authority to adopt measures regarding the practice of law. "[T]he power of the legislature to impose reasonable regulations upon the practice of the law has been recognized in this state almost from the inception of statehood."  "[T]his court has respected the exercise by the Legislature, under the police power, of 'a reasonable degree of regulation and control over the profession and practice of law . . .' in this state. This pragmatic approach is grounded in this court's recognition that the separation of powers principle does not command 'a hermetic sealing off of the three branches of Government from one another.'" ("In the field of attorney-client conduct, we recognize that the judiciary and the Legislature are in some sense partners in regulation.") (In re Attorney Discipline System (1998) 19 Cal.4th 582, 602 (citation omitted).)

The Legislature has, for years, given the Bar the opportunity to correct its longstanding and ongoing management and operational difficulties itself; and the Supreme Court has been able to provide the Bar with the needed guidance and direction (including by appointing a special master) to ensure that protection of the public is paramount in the licensing and regulation of the state’s attorneys. However, the failure of both entities to reform the Bar leaves the Legislature little option but to step in and make reforms necessary to ensure that the Bar can fulfill its paramount duty to protect the public.

Bar Reports Submitted to the Legislature, Including the Two-Year Overdue Governance in the Public Interest Task Force Report. As required by last year's dues reauthorization legislation, SB 387 (Jackson), Chap. 537, Stats. 2015, the Bar completed four operational reports this year. The Bar's Classification Study, prepared for the Bar by CPS HR Consulting, reviewed all positions in the State Bar, as well as the compensation for those positions, and compared them to other state and local agencies. The study found that the salaries for attorneys were below market range, while non-attorney positions were above market range. However, this study looked at only a limited number of "comparable agencies," most very well-paying local agencies and only added the Attorney General's office, which has a pay scale well below the Bar's, on the strong recommendation of the State Auditor. No similar professional regulatory agencies were compared. The report looked at all staff, rather than focusing on discipline staff, as the Legislature had directed, but did not compare executive staff salaries and benefits, which the State Auditor just found to be excessive.

The Workforce Planning Report, prepared for the Bar by the National Center for State Courts, looked at the Bar's discipline system and overall operations. This report made some thoughtful and helpful recommendations concerning operations and reorganization, including recommending that the Bar should operate as one organization rather than multiple departments; expand overall communication to, from, and among staff; and eliminate some of its senior management positions. It also set forth a number of specific recommendations for each part of the Bar's discipline system. However, while these may well be valid recommendations, they fail to address the underlying governance problems impacting the State Bar, including the Bar's ongoing ability to adequately focus on discipline and public protection. Even if all the recommendations were implemented, the Bar would likely still not adequately prioritize and focus on public protection.

The State Bar Backlog Report was a point in time review of the Bar's handling of complaints and concluded that the Bar cannot meet the legislative statutory goal for investigating all cases within 6 months (although the legislative goal provides for an additional 6 months for "complicated cases"). The report determined that with current resources, the Bar could only meet a 238- to 259-day investigation goal. An enhanced goal would reduce that timeframe to 193- to 209-days, but would require additional resources. The report failed to take into account how changes in the Bar's investigation protocols could impact the State Bar Court or other parts of the Bar and, while the report considered possible factors for determining complex cases, the report did not recommend such a definition, nor discuss how developing such a definition might impact timeframes and, more importantly, public protection. Moreover, while a complex case may take more time, the report did not address the need to prioritize cases based on public protection; obviously, risk of harm to the public must be a key factor in prioritizing cases.

The Spending Plan Report considered existing goals and spending and compared California dues to average of other states' dues and concluded that dues need to be raised to provide timely and adequate discipline. However, the report failed to assess existing expenditures; rather it just assumed that the existing costs were reasonable. The report failed to determine what necessary operating costs are, and what programs are operating effectively and efficiently today. Finally, the report failed to analyze priorities, as legislatively required, or to prioritize the Bar's functions that are necessary to protect the public and failed to suggest any redirection of current funding to ensure that the public protection mandate is met.

These four reports appear to address, in however a limited fashion, the results of the Bar's governance problems. They do not appear to address the root cause of the problems. Even if all of the reports' recommendations were implemented, the underlying cause of the problems – the Bar's structural inadequacies and their impact on public protection – would not be adequately addressed to ensure that the Bar is fully able to protect the public from incapable or unscrupulous attorneys – truly its paramount function.

Finally, just this month the Bar delivered its legislatively required Governance in the Public Interest Task Force Report, which was actually due to the Legislature in 2014. That report, which contains both a majority and a minority report, began by stating: "It is universally acknowledged that significant changes are needed at the State Bar of California, an institution now approaching its ninth decade. As both Majority and Minority Task Force Reports emphasize, the problems at the State Bar are not recent in origin: indeed, decades of studies, reports and statutory provisions reflect efforts to reform the State Bar, most with only modest impact." (State Bar Governance Task Force, p. 1 (footnote omitted).) The majority Task Force report goes so far as to list “nine fundamental operational problems, . . . each with important implications for the governance and structural issues” for the Bar:

1. The Perception and Reality of An Ineffectively Managed Discipline System
2. Inadequate Definitions of the Bar’s “Public Protection” Mission
3. Proliferation of Activities: Lack of Organizational Coherence leading to “Mission Creep”
4. A Conflicting Hybrid Governance Structure
5. Confused Reporting Relationships Hindering Accountability
6. Proliferation of Committees, Boards and Commissions and Over Reliance on Volunteers
7. Restricted Separate Funding Sources, Creating Cultural and Procedural Obstacles to Financial and Organizational Management
8. Inadequate Development and Support for Human Resources
9. Inadequate Resources to Satisfy Statutory Backlog Definitions (Ibid. at 3.)

The majority report raises – but does not address – a critical and obvious question: “has the State Bar become unmanageable because of structural conflicts, diversity of mission and overreliance on a large number of independently operating volunteers?” (Id.) The majority goes on to conclude the same way it began, by recognizing its long-standing and fundamental problems: "Since the mid 1970’s . . ., the State Bar has also been the subject of continuing criticism. Oft-repeated refrains raise understandable concerns about past problems in a poorly managed discipline system, lax financial management, and an improper diversion of both human and monetary resources from the State Bar’s regulatory to its associational functions. These issues appear in audits and reports dating back many years." (Ibid. at 32.) However, while there is universal agreement on the problems at the Bar, there is no universal agreement on the solutions.

The Task Force's majority members do recommend some governance reforms, including some included in the bill, but left it for others to determine what fundamental reforms are necessary. The minority report appropriately complains that "while ably describing [the Bar's] dysfunction and its causes, the majority’s desire to protect the structural status quo it so effectively indicts makes its report nearly useless. Accordingly, the minority is left with no recourse but to urge the Legislature and the Supreme Court to stop the endless cycle of Task Forces, studies, audits, crisis and critical media coverage by gradually and deliberatively de-coupling the Bar’s regulatory and advocacy roles over several years, as well as changing the Board governance structure." (Minority Report at 3.)

Can the Bar's Board of Trustees Continue to Oversee Attorneys When the Vast Majority of Board Members Are Practicing Attorneys? Under earlier governance reforms enacted by the Legislature in 2011 in an effort to begin to address significant concerns about the Bar's governance (SB 163 (Evans), Chap. 417, Stats. 2011), the State Bar is governed by a Board, made up of 19 members, down from 23 in 2011 (though the Board President may remain on the Board for one year after his or her term is completed and be the 20^th member, as is the case today), with a substantial component of attorney members selected by the Supreme Court. (Section 6010 et seq.) Under that legislation, due to Bar insistence, the Legislature agreed to allow the Bar to retain a supermajority majority of lawyer-members, or active market participants, following assurances from the Bar that the increased percentage of public members would completely address prior Board governance problems. Thus, of the current 20 possible members, 14 are lawyer members -- 6 of whom are elected by bar members in districts across the state -- and 6 are public members.  Currently, there are two vacant public member seats, both of which are gubernatorial appointees, so the Board is currently composed of 18 members, 14 of whom are active members of the State Bar and 4 of whom are public members.

A recent U.S. Supreme Court case, which found that if a state licensing board has a majority of members who are active market participants then the board can only invoke antitrust immunity if it is subject to active state supervision, has raised serious questions about the Bar's immunity from federal antitrust laws. In that case, North Carolina State Board of Dental Examiners v. Federal Trade Commission (2015) 135 S. Ct. 1101, the Supreme Court held, in a 6-3 decision, that the North Carolina Dental Board (composed of eight members, six of whom were practicing dentists) did not have state immunity to an antitrust action brought by the Federal Trade Commission to stop the dental board from preventing non-dentists from offering teeth whitening services. The Court held that the dental board, since it was controlled by "market participants" who pose a risk of self-dealing, could only invoke state immunity to an antitrust action if the board is "actively supervised" by state officials. It is important to note that 75 percent of the North Carolina dental board members were active dentists, while currently fully 78 percent of the State Bar Board is composed of active Bar members. Even when all public members are appointed, the Bar's Board will still be composed of a supermajority of active Bar members – 68 to 70 percent (depending on whether the Board has 19 or 20 members) active Bar members.

To better understand if the Bar (and hence the State) might be subject to antitrust liability in its current configuration, this Committee asked Legislative Counsel for its opinion as to the risk of liability after the North Carolina State Board of Dental Examiners decision. Legislative Counsel opined that the Bar is indeed controlled by active market participants and, if the Bar is found to be in violation of antitrust laws by not being actively supervised by state officials, the State would generally be responsible for defending the Bar and paying any judgments against the Bar or its employees (including not only fines and treble damages, but also imprisonment for up to 10 years for individual board members). (Ops. Cal. Legis. Counsel, No. 1602135, State Bar of California: State-Action Immunity, pp. 5, 13 (April 18, 2016).) What is less clear is what is required for “active state supervision.” Legislative Counsel opines "that a court would analyze the presence of active supervision on a case-by-case basis . . .  [I]t is our opinion that an anticompetitive action of the State Bar would be actively supervised by the state for purposes of state-action immunity if the California Supreme Court retains strict supervisory powers and ultimate full authority over the State Bar’s actions by laying out specific rules and serving as the ultimate decision maker."  (Id. at 9 (citations omitted).) Thus, as long as the Bar’s Board is controlled by active market participants, as it is today, and not subject to active state supervision there will be a significant risk that the State could be subject to liability for the Board’s actions.

It is important to note that the Bar's Office of General Counsel has opined that the Bar is likely not subject to antitrust liability because the Supreme Court has ultimate authority over the Bar. While it is possible that a court will agree with the Bar's interpretation of the North Carolina State Board of Dental Examiners decision, it is also quite possible that a court will determine that such "ultimate" authority is not the same as the required active state supervision.

The Center for Public Interest Law (CPIL), which opposes this bill, believes that the best course of action is for the Board to be restructured in order to eliminate active market participant control: "The simplest way to avoid antitrust liability (and ensure the interest of the public is properly considered)," wrote CPIL in an oppose unless amended letter to AB 2878, "in light of North Carolina is to convert the Board of Trustees’ composition to a supermajority of public members, with the added provision that no vote may be taken where those voting are not public members in the majority." However, if the Board is not restructured to eliminate the Board's active market participant supermajority, CPIL writes that the Legislature must establish true active state supervision, which does not exist today:

The term “active” is critical. It cannot be simply the presence of a supervening entity. The fact there is a state Supreme Court at the zenith of the organizational chart does not provide compliance. . . .

At present, neither the California Supreme Court, nor any other entity, provides the requisite independent and “active” supervision for anticompetitive effect as required by North Carolina. This Legislature should add to this bill the clear authority of the California Supreme Court to engage in “active state supervision” of the Bar, and any part of it controlled by “active market participants” in the profession, as commanded by the U.S. Supreme Court. That authority should include the power and resources to fashion, in its own manner, a system for filtering decisions to focus on those with anticompetitive effect; and, for those, to examine their substantive anticompetitive effect and alternatives, using relevant economic, antitrust, and other expertise separate from practicing attorneys.

This Bill Makes Significant Structural Reforms of the State Bar, Continues and Adds Additional Needed Oversight and Maintains Dues to the Current Level. This bill authorizes the State Bar to collect active membership dues of up to $390 for 2017, the same rate as this year. In addition, the bill makes significant governance and operational reform of the Bar, including:

1. Defining the term “public protection” (something the State Bar has been unable or unwilling to do in the last five years) to be the core regulatory functions of the State Bar – primarily, licensing and discipline of the state's attorneys, but also supporting legal services for low income Californians and diversity – thus ensuring that the Bar focuses its resources on those activities which are the most important to provide the public with protection from bad lawyers and access to justice.
2. Requiring greater oversight by the Board of Trustees to ensure that the State Bar operates more like a state regulatory agency and less like a law firm, including the following:
   1. Requiring Board approval for contracts of goods or services over $50,000 or IT contracts above $100,000; 
   2. Requiring the Board to adopt policies to require its approval of contracts that could impact the State Bar's ability to protect the public;
   3. Eliminating the ability of the Bar to prevent future Legislatures from reducing future membership dues by securing all or any portion of an obligation of the Bar on future dues;
   4. Eliminating the Bar's ability to create foundations or non-profit corporations as a means to raise additional revenue.
3. Implementing Board reforms, including elimination of the election of Board members by attorneys; elimination of the supermajority of attorney members on the Board; extending the length of Board member and officer terms to ensure more experienced leadership and consistent oversight of staff; encouraging the appointment of Board members with expertise in issues of governance; and having the Chief Justice appoint the Chair and Vice Chair to reduce law firm-like “good old boy” politics.
4. Addressing the antitrust concerns raised in last year's U.S. Supreme Court's decision in North Carolina State Board of Dental Examiners v. Federal Trade Commission by requiring that the Supreme Court review any decision of the State Bar that the Court determines to be anticompetitive and specifically providing the Supreme Court the power to veto or modify any such decision.
5. Requiring the Attorney General to appoint an enforcement program monitor to monitor and evaluate the State Bar's disciplinary system and help the State Bar prioritize matters that most impact public protection.
6. Setting forth specific requirements for the handling of unlawful practice of law complaints, including specific timeframes for processing those complaints and requiring those complaints to be forwarded to law enforcement to ensure that these cases are never again left in a desk drawer.
7. Requiring the State Bar to develop a plan for how to pay claims of victims of attorney misconduct--specifically fraud, embezzlement, and theft--from the Client Security Fund, which is vastly underfunded and leaves victims uncompensated for years.
8. Requiring the State Auditor to review the State Bar's expenses, including executive salaries and benefits, outside contracts and real estate holding, to determine the appropriate and necessary expenses of the State Bar to protect the public, appropriate amount of member dues, and fair Section costs. 

Given all of the oversight, governance and management concerns that continue to be raised about the State Bar, as well as the possibility of antitrust liability, can the Bar, even with the significant reforms in this bill, effectively continue to be both a government regulatory agency and a trade association? Since its inception, the Bar has worn two hats -- regulatory agency and professional trade association. California, like 31 other states, including Florida, Idaho, Louisiana, Michigan, Mississippi and Texas, has a unified bar, which means that the State Bar is both the regulatory arm of the state, as well as a mandatory attorney trade association. Attorneys who wish to practice law in this State must join the Bar and their dues cover both the regulatory arm and the trade association. This arrangement is unique among professions licensed by the State of California. For all other professions, the government entity regulates the profession and disciplines wayward practitioners, while a private trade association provides education and advocacy for members of the profession. (See for example, physicians, who are licensed and regulated by the Medical Board of California within the Department of Consumer Affairs, but who may voluntarily join the California Medical Association, their trade group, which provides "legislative, legal, regulatory, economic and social advocacy." (http://www.cmanet.org/about/).)

Eighteen states, generally including larger states such as Colorado, Illinois, Massachusetts, Minnesota, New Jersey, New York, Ohio and Pennsylvania, have non-unified bars. In those states, attorneys are only required to join the regulatory arm of the bar and not the trade association. These states have private trade associations, but those associations are not regulated by the state. Private bar associations are free to govern themselves as they see fit and are not subject to government oversight or transparency laws. Dues payments required by unified bars are, typically, considerably higher that dues payments required by non-unified bars. According to data from the State Bar, approximately 52 percent of active, resident attorneys are members of voluntary trade associations, although there is a range (Colorado - 84%; Illinois - 47%; Massachusetts - 25%; Minnesota - 61%; New Jersey - 44%; New York - 43%; Ohio - 58%; and Pennsylvania - 57%). If California were to have a voluntary bar and follow the average of the large states listed above, nearly 100,000 California active members would potentially join a voluntary bar association.

Several Bar Trustees, Most Notably two Legislative Appointees Are Publically Calling for De-Unification or De-Coupling as a Solution to Long-Term, Structural Problems with the Bar: Three current and one former Bar Board trustees wrote, in a support letter for AB 2878, to request "substantial amendments to address systemic weaknesses in bar governance." These trustees (two of whom are legislative appointees to the Board) first note that the Bar's current controversies are part of a "long history of cyclical crisis, reform, neglect, and renewed crisis":

Nearly every Executive Director of the State Bar over the past few decades has ended his or her service in controversy. Each is replaced by a new leader, charged to be "a new sheriff in town." A show of effort at change is made; the attention of the press, bar and public turn elsewhere; and the Bar slides back into mismanagement, failure to protect Californians, and general dysfunction until a new controversy soon restarts the cycle. This systemic dysfunction derives from the dual mission of the Bar and its short-term, diffuse, volunteer leadership.

The trustees go on to note that unlike "every other profession in our State and unlike an apparent trend in sister states of comparable size and diversity toward decoupling legal regulatory and professional organizations, California attorneys have been granted the privilege of self-regulation." That self-regulation has resulted in allegations, according to the trustees, that "the Bar more vigorously prosecutes attorneys with less money and influence" which have "never been seriously addressed. These tend to be solo practitioners, small-town lawyers, and lawyers of color. The Bar can and should assure Californians that the justice it dispenses is even-handed as well as efficient."

These trustees state that their years of service reveal the Board to be "a distracted regulator. It spends much of its energy on professional association matters such as appointments of attorneys to positions of prestige, providing continuing legal education in competition with voluntary bars and for-profit providers while also regulating those providers, conducting an annual conference that draws fewer attendees and requires greater subsidy each year, publishing legal content, selling insurance, etc. . . . Over the past two years, the Board has spent far more time in closed session addressing personnel, litigation and real estate issues than it has devoted in open session to regulation."

The trustees argue that based on antitrust concerns after the North Carolina case, California should follow several of the largest states that have separate judicial branch regulation of attorneys and "thriving voluntary State Bar Associations." They argue that this will allow a statewide professional association to advocate more effectively for a well-funded judiciary and for legal services than "a state agency hemmed in by the most conservative perspective on what and how it can advocate." They further argue that Proposition 209's "prohibition on state-funded affirmative action has hampered the Bar’s ability to advocate for diversity in the profession and for full and fair access to justice for communities of color."

Their proposal involves a three-year process, led by the Bar, with input from the Supreme Court and the Governor, to first study the issue and determine which Bar functions "belong in government and which can be more effectively performed by a private entity" and then make recommendations to the Legislature at the end of 2017 for 2018 restructuring legislation. These proponents of restructure see the end result as creating "a more effective regulator of legal services to Californians and a more potent and less costly professional association for lawyers." The trustee group's proposal is also supported by the Executive Committee of the Business Law Section of the State Bar.

Other Bar sections vehemently disagree with separating the Bar and have voted overwhelmingly in support of the Bar remaining unified. These sections argue that the geographic and practice diversities of their statewide organizations provide for the broadest and most objective possible representation that could well be lost if the sections become part of a private trade organization, particularly if over time membership drops. They are concerned that the well-respected educational materials they prepare and disperse would end up becoming glossy trade magazines used more for marketing than educating other professionals and the public on matters of significant. They believe that remaining part of the regulatory agency allows them to stay within their purview and be perceived by the Legislature as unbiased and objective experts in their respective fields. A trade association, they argue, would not have the clout that the State Bar has today.

Does More Need to be Done in Order to Protect the Public? This bill, as currently drafted, does not address all of the significant and ongoing governance issues raised by the Bar's dual functions as both a regulator of attorneys and a trade association for the same group. There are some who argue that larger reforms should be undertaken now to address – once and for all – the governance failures of the Bar. One approach is to add in the commission that was included in AB 2878 when it successfully passed the floor to study the Bar's governance issues and various restructuring options. Alternatively, the commission could be turned into a special master panel that would be very similar to the commission, except there would be fewer members and they would all be required to be judges or lawyers. Another option is to leave the Bar intact as a unified Bar, but separate the board into two: one that focuses on the Bar's primary regulatory public protection responsibilities and one that focuses on the trade association functions that concern the legal profession but do not involve government public protection functions. Additionally, the board could be further reformed so that practicing attorneys do not hold a majority of the board positions, as was included in AB 2878 when it successfully passed the Assembly floor. Alternatively, instead of non-attorneys having a majority, the board could be evenly split with an additional seat being provided to a non-attorney labor representative. These are but some of the options, short of deunifying the State Bar, that might be considered to best reform the Bar and protect the public from harm.

This Bill Does Not Increase the Bar's Modest Assistance to Legal Aid Organizations, Although Much More is Needed to Begin to Close the "Justice Gap." As this Committee has highlighted for many years, there has long been a dire need for civil legal services for poor Californians – especially underserved groups, such as elderly, disabled, children and people needing assistance with English. By many measures, California suffers from an overwhelming "justice gap" between the legal needs of low-income people and the legal help they receive. It has been estimated that the cost of closing the gap would amount to $400 million. Because of insufficient resources, legal services programs can offer assistance in only a few types of cases; many poor and moderate-income Californians do not qualify for services; and most of those who meet the strict eligibility limits and seek assistance regarding problems for which a legal services office provides service are nevertheless turned away, simply for lack of staff.

As this Committee has frequently discussed and sought to ameliorate, funding for legal aid organizations that provide essential legal help for extremely impoverished individuals has been decimated in recent years. For example, interest on lawyer trust accounts (IOLTA) has been the primary mechanism on which the State has relied to fund legal aid programs, but with the drop of bank interest rates to virtually zero since in the past decade, legal aid programs can no longer rely on IOLTA funding to help maintain their essential mission. Absent a substantial increase in interest rates, which may be undesirable in macro-economic terms, it has become painfully clear that IOLTA alone will never adequately address the needs of those less fortunate who require legal assistance.

The Legislature has for years worked with the Bar to come up with alternative funding sources, in the past using non-mandatory dues, but that sunsetted several years ago diminishing state funding for legal aid even further, despite significantly greater needs for legal services by those who cannot afford them, and dramatically lower funding from other sources. Current law provides an optional legal aid fee by which members who choose to do so can help defray the cost of ensuring that legal services are available without regard to ability to pay market rates, consistently with each lawyer's professional responsibility, at the rate of $40. These voluntary contributions make up for some, but by no means all, of those lost non-mandatory contributions. Unfortunately, this Bar bill, does not provide any new funding for legal services programs. However, this bill very appropriately and importantly makes clear that providing access to legal services for poor Californians is one of the key public protection functions of the Bar.

It is hoped that going forward, and in addition to the very significant $5 million increase in the Equal Access Fund that the Legislature passed as part of this year's budget, the Bar and its Board will be able to find additional, ongoing funding for legal services from the Bar's unrestricted sources of funding, funding that today may be used for discretionary expenses, including travel, catering, the annual meeting fund and other nonessential and non-public protection funds, that might be better invested in helping California's most vulnerable residents who seek legal assistance to avoid, among other things, domestic violence, unemployment and homelessness.

ARGUMENTS IN OPPOSITION: CPIL opposes this bill, arguing that the bill, as now in print, fails to adequately reform the bar by leaving in place the Bar board's majority of practicing attorneys and does not eliminate the "problem of an intrinsically distracted regulator that, at every meeting, allows the interests of lawyers to compete with the interests of consumers."

REGISTERED SUPPORT / OPPOSITION:

Support

None on file

Opposition

Center for Public Interest Law

Analysis Prepared by: Leora Gershenzon / JUD. / (916) 319-2334

SENATE THIRD READING

STR Bill Id:SB 846

Author:(Committee on Budget and Fiscal Review)

As Amended Ver:June 14, 2016

2/3 vote. Budget Bill Appropriation Takes Effect Immediately.

SENATE VOTE: Vote not relevant

SUMMARY: Makes necessary statutory and technical changes to implement the Budget Act of 2016 related to the No Place Like Home Program to further the development of permanent supportive housing for persons who are in need of mental health services and are homeless, chronically homeless, or at risk of homelessness. Specifically, this bill:

1. Establishes the No Place Like Home Program to be administered by the Department of Housing and Community Development (HCD), in consultation with Advisory Committee and specifies the membership to distribute $2 billion among the counties to finance capital costs, including acquisition, design, construction, rehabilitation or preservation and capitalized operating costs of permanent supportive housing for persons who are eligible for services under Proposition 63 and are homeless, chronically homeless, or at risk of chronic homelessness.
2. States that establishing a housing program providing permanent supportive housing to persons who are in need of mental health services and are homeless, chronically homeless or at risk of homelessness is in furtherance of the purposes of Proposition 63, enacted in the November 2, 2004 statewide general election that imposed a 1% tax on income exceeding one million dollars.
3. Funds the program through the issuance of bonds by the Treasurer and secured by Prop 63 revenues and allocates the funds as follows:
   1. $1.8 billion for a competitive grant program to counties that meet minimum eligibility criteria related to their ability to use the funds to develop and operate permanent supportive housing to persons who are eligible for services under Proposition 63 and are homeless, chronically homeless or at risk of chronic homelessness, with a preference for targeting those who are chronically homeless or at risk of chronic homelessness.
   2. $200 million to be distributed to counties for construction, rehabilitation or preservation and capitalized operating costs of permanent supportive housing for persons who are eligible for services under Proposition 63 and are homeless, chronically homeless or at risk of chronic homelessness, with a priority for with mental health supportive needs who are homeless or at risk of chronic homelessness.
4. Authorizes an alternative process to the competitive grants for counties with at least 5% of the state's homeless population and provides a set aside of 8% for small counties.
5. Establishes four categories for the competitive grants based on population and a separate category for Los Angeles and requires at least four rounds of grants as specified.
6. Specifies that the loans are in the form of secured deferred payment loans to pay for the costs of development and specifies additional loan terms; provides for funds to secure or avert default.
7. Appropriates $6.2 million from Prop 63 funds for technical and application assistance to the counties, specifies amounts based on county size and authorizes HCD to contract for expert technical assistance.
8. Requires annual reporting by the counties, HCD and an evaluation.
9. Authorizes a General Fund loan of $1 million for program implementations prior to receipt of bond funds.
10. States legislative intent that the costs to service the debt for the bond shall not impede direct mental health services provided by the counties

FISCAL EFFECT: Appropriates $6,200,000 from Prop 63, authorizes a General Fund loan of $1 million, and provides for the issuance of $2 billion in bonds by the Treasurer and secured by Prop 63 revenues.

COMMENTS: The trailer bill language provides the necessary statutory references to enact the 2016-17 Budget related to housing.

Analysis Prepared by: Genevieve Morelos / BUDGET / (916) 319-2099 FN: 0003433

 THIRD READING 

Bill No: SB 846

Author: Committee on Budget and Fiscal Review

Introduced: 1/7/16

Vote: 21

SUBJECT: Budget Act of 2016

SOURCE: Author

DIGEST: This bill expresses the intent of the Legislature to enact statutory changes relating to the Budget Act of 2016.

ANALYSIS: Senate Bills 826 through 860, inclusive, are to be considered as vehicles for the 2016-17 Budget Trailer Bills.

FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local: No

SUPPORT: (Verified 4/12/16)

None received

OPPOSITION: (Verified 4/12/16)

None received

Prepared by: Jonas Austin / SFA / (916) 651-1520

4/13/16 15:42:46

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