The State Bar Act provides for the licensure and regulation of attorneys by the State Bar of California, a public corporation governed by a board of trustees, and provides that protection of the public is the highest priority of the State Bar and the board of trustees in exercising their licensing, regulatory, and disciplinary functions.

(1)Existing law creates within the State Bar the Governance in the Public Interest Task Force, comprised of the Chair of the State Bar and 6 other members of the Board of Trustees of the State Bar, 4 of whom are attorney members and 2 of whom are public members, appointed as specified.

This bill would revise the composition of the 6 appointed members of the task force to include 3 attorney members and 3 public members, and would revise the manner of appointment of those task force members.

(2)Existing law requires the secretary of the State Bar to be selected annually by the board, and specifies that the secretary need not be a licensee. Existing law requires the board by rule to set meetings and to determine what constitutes a quorum, as specified. Existing law requires, at the annual meeting of the board, reports to be received and authorizes matters pertaining to the State Bar and the administration of justice to be acted upon.

This bill would repeal those provisions.

(3)Existing law requires the board to establish a State Bar Court to act in its place and stead in the determination of specified disciplinary proceedings. Existing law authorizes the State Bar Court to, among other things, take and hear evidence pertaining to the proceeding, to administer oaths and affirmations, and to compel, by subpoena, the attendance of witnesses and the production of books, papers, and documents pertaining to the proceeding.

Existing law authorizes a member of the board, or of a committee, unit, or section of the board having jurisdiction, to administer oaths and issue a subpoena pursuant to the provisions described above.

This bill would remove this authority of a member of the board, or of a committee, unit, or section of the board having jurisdiction, and would, instead, provide that the State Bar Court is authorized to administer oaths and issue a subpoena pursuant to the aforementioned provisions.

(4)Existing law authorizes the board to formulate and enforce rules of professional conduct for all licensees. Existing law provides that rules of professional conduct adopted by the board, when approved by the Supreme Court, are binding upon all licensees. Existing law additionally authorizes licensees to formulate by initiative rules of professional conduct for all licensees of the State Bar, as specified, and requires the rules of professional conduct approved by a majority of licensees and the Supreme Court have the same force and effect as the rules of professional conduct formulated and approved by the above-described provisions. Existing law authorizes the board, without petition, to direct the secretary to cause an initiative measure embodying a rule of professional conduct formulated by the board to be submitted to all active licensees for mail vote, as specified.

This bill would remove the authority of licensees to formulate, and submit to licensees for a vote, rules of professional conduct and remove the authority of the board to submit to licensees for a vote, rules of professional conduct.

(5)Under existing law, the board has the power to discipline licensees of the State Bar for willful breach of a rule of professional conduct approved by the Supreme Court, as specified.

This bill would remove this power of the board, and would, instead, give this power to the State Bar Court.

(6)Existing law provides that conviction of a licensee of a felony or misdemeanor involving moral turpitude constitutes cause for disbarment or suspension. Existing law requires the district attorney, city attorney, or other prosecuting agency to notify the State Bar of the pendency of the action, requires the clerk of the court in which a licensee is convicted to transmit a certified copy of the record of conviction to the State Bar, and requires the State Bar to transmit the record of conviction to the Supreme Court within 5 days.

This bill would instead require the State Bar of Californias Office of Chief Trial Counsel to be notified of the pendency of the action, would require the clerk of the court to transmit a certified copy of the record of conviction to the Office of Chief Trial Counsel, and would require the Office of Chief Trial Counsel to transmit the record of conviction to the Supreme Court within 30 days.

(7)Existing law, until January 1, 2020, requires the board to charge an annual license fee for active licensees at a sum not exceeding $315 for 2019. Existing law requires the board to fix the annual license fee for inactive licensees at a sum not exceeding $75. Existing law authorizes the board to waive the payment by a licensee of the annual license fee, any portion thereof, or any penalty thereon, as the board is authorized to provide by rule. Existing law requires the board to adopt a rule or rules providing that an active licensee who can demonstrate total gross annual individual income from all sources of less than $40,000 presumptively qualifies for a waiver of 25% of the annual license fee.

This bill would require the board to charge an annual license fee for active licensees at a sum not exceeding $438 for 2020. The bill would require the board to fix the annual license fee for inactive licensees at a sum not exceeding $108. The bill would require the board to adopt a rule or rules providing that an active licensee who can demonstrate total gross annual individual income from all sources of less than $60,478.35 presumptively qualifies for a waiver of 25% of the annual license fee.

(8)Existing law requires the annual license fees for active and inactive licensees to be increased by an additional $40 to be allocated to fund qualified legal services projects and support centers that provide free legal services to persons of limited means, and further authorizes a licensee to deduct $40 from their invoice if the licensee elects not to have the amount allocated for those purposes.

This bill would require the State Bar to report to the Senate and Assembly Committees on Judiciary the total amount of fees received pursuant to those provisions and the percentage of licensees who elected to opt out of the fees for specified time periods.

(9)Existing law requires a fee of $10 for active licensees and a fee of $5 for inactive licensees to be paid for purposes of funding the Attorney Diversion and Assistance Program. Existing law requires certain amounts of those fees to be transferred by the State Bar to a nonprofit corporation to fund the support of recovery efforts of the nonprofit corporation.

This bill would provide that, for 2020 only, the fee shall be $1 for active licensees, which would be paid to the nonprofit corporation, and no fee for inactive licensees.

(10)Existing law authorizes the State Bar to collect voluntary fees on behalf of and for the purpose of funding the California Supreme Court Historical Society, which advances the science of jurisprudence by preserving and disseminating to the general public the history of the Supreme Court and the Judicial Branch.

This bill would authorize the State Bar to collect voluntary donations on behalf of and for the purposes of funding California ChangeLawyers, which promotes a better justice system for all Californians.

(11)Existing law requires the State Bar to provide offers of discounts and other benefits to active and inactive licensees of the State Bar, including insurance and affinity programs. Existing law requires revenue received from the affinity programs to support the programs of the California Bar Foundation. Existing law authorizes the State Bar, if approved by the board and the California Bar Foundation, to transfer administration of those programs offering discounts and other benefits to active and inactive licensees to the California Bar Foundation, subject to specified distributions of the revenue received from those programs, as provided.

This bill would provide that the State Bar was authorized to provide noninsurance affinity programs until December 31, 2018, and has been authorized to provide insurance affinity programs only, after December 31, 2018. The bill would make other related changes, including revising the expiration date of provisions relating to the distribution of revenues from those programs from December 31, 2018, to December 31, 2019. The bill would authorize the State Bar to transfer administration of these programs to Cal Bar Affinity, subject to specified approval, provided that revenue has been distributed as specified from January 1, 2019, until December 31, 2019. The bill would require, subject to approval by the California Lawyers Association, California ChangeLawyers, and Cal Bar Affinity, all revenue received from the noninsurance affinity programs and the insurance affinity programs, less the administrative costs of the State Bar and Cal Bar Affinity in operating the programs, up to 12% of revenue received, and less taxes incurred by Cal Bar Affinity in operating the programs, to be distributed in a specified manner. The bill would prohibit the California Lawyers Association, if it elects to accept affinity fund revenue, from creating or operating an affinity or royalty program involving the sale of insurance or noninsurance products or services with a percentage or share of costs being distributed to the California Lawyers Association and, if the California Lawyers Association does so, would require all funds that would have been provided to the California Lawyers Association from affinity or royalty programs that transferred from the State Bar or are similar to programs that transferred from the State Bar to be provided to California ChangeLawyers and distributed as specified.

 UNFINISHED BUSINESS  

Bill No: SB 176

Author: Jackson (D)

Amended: 9/3/19

Vote: 21

SENATE JUDICIARY COMMITTEE: 9-0, 4/30/19

AYES: Jackson, Borgeas, Allen, Caballero, Jones, Monning, Stern, Umberg, Wieckowski

SENATE FLOOR: 32-4, 5/28/19

AYES: Archuleta, Atkins, Beall, Borgeas, Bradford, Caballero, Dodd, Durazo, Galgiani, Glazer, Grove, Hertzberg, Hill, Hueso, Hurtado, Jackson, Leyva, McGuire, Mitchell, Monning, Moorlach, Nielsen, Pan, Portantino, Roth, Rubio, Skinner, Stern, Umberg, Wieckowski, Wiener, Wilk

NOES: Allen, Bates, Morrell, Stone

NO VOTE RECORDED: Chang, Jones

ASSEMBLY FLOOR: 50-9, 9/10/19 - See last page for vote

SUBJECT: State Bar of California

SOURCE: Author

DIGEST:

This bill is the annual State Bar fee bill that authorizes the collection of attorney licensing fees.

Assembly Amendments

revise the fee increase and oversight provisions in the bill to reflect the recommendations from the State Auditor and Legislative Analyst’s Office.

ANALYSIS:

Existing law:

1. Establishes that protection of the public, which includes support for greater access to, and inclusion in, the legal system, shall be the highest priority for the State Bar and the Board of Trustees (Board) in exercising their licensing, regulatory, and disciplinary functions. Whenever the protection of the public is inconsistent with other interests sought to be promoted, the protection of the public shall be paramount. (Bus. & Prof. Code § 6001.1.)
2. Requires attorneys who practice law in California be licensed by the State Bar and establishes the State Bar for the purpose of regulating the legal profession. The Legislature sets the annual fees. (Bus. & Prof. Code § 6000 et seq.)
3. Authorizes the State Bar to collect the following annually from active members: $315 in license fees (Bus. & Prof. Code § 6140); $40 for the Client Security Fund (Bus. & Prof. Code § 6140.55); $25 for disciplinary activities (Bus. & Prof. Code § 6140.6); and $10 to fund the Lawyer Assistance Program (Bus. & Prof. Code § 6140.9). Requires the State Bar to provide each licensee the option of deducting $5 from the annual fee if the licensee elects not to support lobbying and related activities, as specified. (Bus. & Prof. Code § 6140.05.)
4. Authorizes the State Bar to collect the following annually from inactive members: $75 in license fees (Bus. & Prof. Code § 6141); $10 for the Client Security Fund (Bus. & Prof. Code § 6140.55); $25 for disciplinary activities (Bus. & Prof. Code § 6140.6); and $5 to fund the Lawyer Assistance Program (Bus. & Prof. Code § 6140.9). Requires the State Bar to provide each licensee the option of deducting $5 from the annual fee if the licensee elects not to support lobbying and related activities, as specified. (Bus. & Prof. Code § 6140.05.)
5. Requires the Board to adopt a rule or rules providing that an active licensee who can demonstrate total gross annual individual income from all sources of less than $40,000 presumptively qualifies for a waiver of 25 percent of the annual license fee. (Bus. & Prof. Code § 6141.1.)
6. Provides for the establishment of a nonprofit association, known as the California Lawyers Association, comprised of the former sections of the State Bar and the California Young Lawyers Association. The nonprofit association may provide mandatory continuing legal education, as specified. The nonprofit association may have dues collected on the State Bar dues invoice and must operate pursuant to a mission, as specified. (Bus. & Prof. Code § 6055, et. seq.)
7. Requires the Board to contract with the State Auditor to conduct audits of the State Bar’s operations, as specified. For the 2019 audit, the Auditor was required to engage in a performance audit that assesses and reviews specific aspects of State Bar operations, including an evaluation of each program or division of the State Bar receiving support from the annual State Bar licensing fees and other fees required of active and inactive licensees. (Bus. & Prof. Code § 6145.)
8. Requires the Legislative Analyst’s Office (LAO), to assess whether the State Bar effectively utilizes licensing fee revenues to maximize efficiencies in each program or division of the State Bar that receives support from the annual licensing fee and other fees active and inactive licensees are required to pay, as specified. The LAO shall submit the report by July 1, 2019. (Bus. & Prof. Code § 6145 (d).)
9. Requires the Board to be comprised of attorney and nonattorney members, as specified, and requires that vacancies be filled. (Bus. & Prof. Code §§ 6013.1; 6013.3; 6013.5)
10. Requires the State Bar to provide offers of discounts and other benefits to active and inactive licensees of the State Bar, including insurance and affinity programs. (Bus. & Prof. Code § 6141.3 (a).)
11. Requires revenue received from the affinity programs to support the programs of the California Bar Foundation, including support for qualified legal services projects, discipline at the State Bar, and the Client Security Fund. Existing law authorizes the State Bar, if approved by the Board and the California Bar Foundation, to transfer administration of those programs offering discounts and other benefits to active and inactive licensees to the California Bar Foundation, subject to specified distributions of the revenue received from those programs, as provided. (Bus. & Prof. Code § 6141.3.)
12. Provides that given the public protection mission of the State Bar, the Legislature finds that it would be inappropriate for the State Bar to administer the program on a long-term basis. Therefore, should the program continue to operate after December 31, 2018, it is the intent of the Legislature that the program be administered by an entity other than the State Bar. (Bus. & Prof. Code § 6141.3 (d).)
13. Provides that it is the intent of the Legislature that the State Bar seek ways and means to identify and rehabilitate attorneys with impairment due to abuse of drugs or alcohol, or due to mental illness, affecting competency so that attorneys so afflicted may be treated and returned to the practice of law in a manner that will not endanger the public health and safety. (Bus. & Prof. Code § 6230.)

This bill:

1. Authorizes active licensee fee increases and inactive licensee fee increases in the amount recommended by the Auditor for 2020 and expresses the intent of the Legislature that the State Bar use licensee fees for active and inactive licensees in a manner that is consistent with the Auditor’s report released on April 30, 2019 and the LAO report released on June 26, 2019. The annual license fee for active licensees for 2020 shall be $438. The annual fee for inactive licensees for 2020 shall be $108.
2. Requires the Board to adopt a rule or rules providing that an active licensee who can demonstrate total gross annual individual income from all sources of less than $60,478.35 presumptively qualifies for a waiver of 25 percent of the annual license fee.
3. Repeals provisions that require the secretary of the State Bar to be selected annually by the Board and repeals other provisions that are inconsistent with the new appointment structure of the Board.
4. Specifies when the term of an appointee of the Supreme Court to the Board commences.
5. Provides that if approved by the California Lawyers Association, California ChangeLawyers, and Cal Bar Affinity, all revenue received from the insurance affinity programs, less the administrative costs of, and taxes incurred by, Cal Bar Affinity in operating the programs, shall be distributed as follows on and after January 1, 2020:

• The first $150,000 received in 2020 and 2021 shall go to the California Commission on Access to Justice, as specified;
• Any additional revenue shall be distributed with one-third going to California ChangeLawyers, one-third going to the California Lawyers Association, and one-third for qualified legal services projects and support centers, as specified.

1. Changes the phrasing of “abuse of drugs or alcohol” to “substance use” to conform to the phrasing throughout the State Bar Act and codifies the ChangeLawyers dues voluntary check-off.
2. Requires the State Bar to report specified information to the Senate and Assembly Judiciary Committees.

Background

The State Bar is a public corporation. 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, § 9.) The power to regulate the practice of law, including the power to admit and to discipline attorneys, is among the inherent powers of the Supreme Court. The State Bar functions as the administrative arm of the Supreme Court for the purpose of assisting in attorney admissions and discipline, with the Court retaining its inherent judicial authority to disbar or suspend attorneys.

Last year’s State Bar fee bill included provisions that required an audit of the State Bar by the Auditor’s Office and a study by the LAO. The audit and study are designed to inform the Legislature’s deliberations regarding a potential increase in fees. The Auditor’s audit was released on April 30, 2019, the same day this bill was heard in the Senate Judiciary Committee. The LAO’s study was released on June 26, 2019. This bill authorizes increases in active licensee fees and inactive licensee fees in the amount recommended by the Auditor for 2020 and expresses the intent of the Legislature that the State Bar use licensee fees for active and inactive licensees in a manner that is consistent with the Auditor’s report released on April 30, 2019. This bill also contains provisions that raise the salary cap that qualifies attorneys to pay reduced licensing fees.

Comments

The author writes:

The power to regulate the practice of law, including the power to admit and to discipline attorneys, is among the inherent powers of the Supreme Court. The State Bar functions as the administrative arm of the Supreme Court for the purpose of assisting in attorney admissions and discipline, with the court retaining its inherent judicial authority to disbar or suspend attorneys. At the same time, the Legislature’s exercise, under the police power, of a reasonable degree of regulation and control over the profession and practice of law in California, is well established. The Legislature also exercises regulatory authority pursuant to the State Bar Act and has authority to set the amount of fees necessary to fund the disciplinary system. The Legislature has enacted statutes making protection of the public the highest priority of the State Bar and empowering the Bar to promote improvement of the administration of justice.

This bill continues the Legislature’s oversight of the State Bar through the annual fee authorization bill.  The State Bar is requesting a substantial fee increase for 2020 and beyond. The State Auditor conducted an audit of the State Bar and the Legislative Analyst’s Office conducted a study to help the Legislature ascertain whether a fee increase is warranted. This bill authorizes licensee fee increases in an amount that is consistent with the recommendations of the State Auditor and Legislative Analyst’s Office.

This bill amends Business and Professions Code Section 6140 to provide that the State Bar may assess a licensing fee for active licensees of $438 for 2020. This bill also amends Business and Professions Code Section 6141 to provide that the State Bar may assess a licensing fee for inactive licensees of $108 for 2020.

The State Bar was requesting mandatory active licensee fees to be increased to total more than $800 in 2020. The Orange County Bar Association (OCBA) submitted a letter expressing concern with the State Bar’s proposal to increase mandatory fees. The OCBA wrote that they “agree with the California State Auditor’s April 30, 2019 Report that the State Bar has not adequately demonstrated its needs underlying the proposed increases…” The OCBA urged the Legislature to “consider an increase far more modest than that proposed by the State Bar.” The OCBA was also clear that even the Auditor’s proposed increase “could have distressing effects on the OCBA’s and other local bar associations’ ability to deliver legal services to underserved populations, albeit not as significant and devastating an effect as the State Bar’s proposed increase to $813.”

Related/Prior Legislation

SB 544 (Umberg, Chapter 152, Statutes of 2019) prohibited the staff of the State Bar or the members of the examining committee from considering or reviewing an applicant’s medical records relating to mental health when reviewing whether an applicant is of good moral character, or from requesting or seeking to review any medical records relating to mental health, except as provided.

AB 3249 (Assembly Committee on Judiciary, Chapter 659, Statutes of 2018) authorized the State Bar to collect annual licensing fees of $390 for 2019 and enact other reforms, including a strengthening of the attorney discipline system.

SB 36 (Jackson, 2017, Chapter 422, Statutes of 2017) authorized the State Bar to collect active membership dues of up to $390 for the year 2018; reformed the State Bar Act by separating the sections from the State Bar and creating what is now the California Lawyers Association; changed the composition of the State Bar Board; and enacted various reforms to remove politics from the Board.

AB 2878 (Committee on Judiciary, 2016) would have authorized bar dues for 2017 and enacted numerous reforms. The bill died on concurrence on the Assembly Floor.

SB 387 (Jackson, Chapter 537, Statutes of 2015) authorized the State Bar to collect active licensee fees of up to $390 for the year 2016; required the State Bar to develop and implement a specified workforce plan for its discipline system; required the State Bar to conduct a public sector compensation and benefits study, conduct a thorough analysis of its operating costs and develop a spending plan to determine a reasonable amount for the annual membership fee, as specified; required the State Bar to contract with the Auditor’s Office to conduct an in-depth financial audit of the State Bar; and made the State Bar subject to the Bagley-Keene Open Meeting Act and the California Public Records Act, as specified.

AB 1024 (Gonzalez, Chapter 573, Statutes of 2013) allowed applicants, who are not lawfully present in the United States, to be admitted as attorneys at law.

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

SUPPORT: (Verified 9/10/19)

California Commission on Access to Justice

Disability Rights California

Service Employees International Union Local 1000

OPPOSITION: (Verified 9/10/19)

Orange County Bar Association

One individual

ASSEMBLY FLOOR: 50-9, 9/10/19

AYES: Aguiar-Curry, Arambula, Bauer-Kahan, Berman, Bloom, Bonta, Burke, Calderon, Carrillo, Chau, Chu, Cooley, Cooper, Daly, Eggman, Frazier, Friedman, Gabriel, Cristina Garcia, Eduardo Garcia, Gipson, Gloria, Grayson, Holden, Jones-Sawyer, Kalra, Lackey, Levine, Limón, Low, Medina, Mullin, Nazarian, O'Donnell, Quirk, Quirk-Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Salas, Santiago, Mark Stone, Waldron, Weber, Wicks, Wood, Rendon

NOES: Bigelow, Boerner Horvath, Brough, Cervantes, Cunningham, Diep, Kiley, Melendez, Petrie-Norris

NO VOTE RECORDED: Chen, Chiu, Choi, Flora, Fong, Gallagher, Gonzalez, Gray, Irwin, Kamlager-Dove, Maienschein, Mathis, Mayes, McCarty, Muratsuchi, Obernolte, Patterson, Smith, Ting, Voepel

Prepared by: Margie Estrada / JUD. / (916) 651-4113

9/10/19 22:03:01

**** END ****

SENATE THIRD READING

STR Bill Id:SB 176

Author:(Jackson)

As Amended Ver:September 3, 2019

Majority vote

SUMMARY:

Significantly increases the authorization for the State Bar to collect total licensing fees for 2020 from active members, from $430 to $544, and from inactive members from $155 to $183.

Major Provisions

1. States the intent of the Legislature that, among other things, the State Bar be included as part of the annual budget process for the State of California beginning with the 2021-2022 fiscal year.
2. Changes the licensing fee that active attorneys in California pay for 2020 by increasing the licensing fee by $123, from $315 to $438; and reducing the fee for the Lawyer Assistance Program by $9, from $10 to $1, for 2020 only, with the fee reverting back to $10 the following year.
3. Changes the licensing fee that inactive attorneys in California pay for 2020 by increasing the licensing fee by $33, from $75 to $108; and eliminating the fee for the Lawyer Assistance Program for 2020 only, with the fee reverting back to $5 the following year.
4. Increases the total annual income that an active attorney can make to qualify for a waiver of 25% of the annual license fee from $40,000 to $60,478.35, which adjustment is based on an increase in the Consumer Price Index over the last 20 years.
5. Revises the formula for the division of the proceeds from the State Bar's marketing offers, to its licensees, of discounts and other benefits, including insurance products, if ChangeLawyers and Cal Bar Affinity administers the discount and benefit program.
6. Extends, from five to 30 days following receipt of a notice that an attorney has been convicted of a crime, the time that the Office of Chief Trial Counsel has to transmit the record of conviction to the Supreme Court for crimes which involve or may involve moral turpitude.

COMMENTS:

This is the annual State Bar fees reauthorization and legislative oversight bill. The main subject of this year's bill is a fee increase. The Legislature, as part of last year's fees authorization legislation – AB 3249 (Judiciary), Chapter 659, Statutes of 2018 – directed the State Auditor and the Legislative Analyst's Office (LAO) to provide independent and comprehensive assessments of what licensee fees are required to support the Bar's public protection functions. The State Auditor recommended a significantly lower amount of $572, which still represents a 24% increase in the total fee. The LAO provided further options for reducing the fee and still ensuring the State Bar can meet its public protection mandate. This bill revises the fee for 2020, through a combination of ongoing and one-time fees to support the Bar's public protection mandate for a total of $544 for active attorneys. This bill makes other changes as well, including changing how revenue from marketing products to attorneys is distributed.

According to the Author:

This bill continues the Legislature's oversight of the State Bar through the annual fee authorization bill. The State Bar is requesting a substantial fee increase for 2020 and beyond. The State Auditor conducted an audit of the State Bar to help the Legislature ascertain whether a fee increase is warranted. This bill authorizes licensee fee increases in the amount recommended by the State Auditor for 2020 and directs the State Bar to use licensee fees in a manner that is consistent with the Auditor's recommendations.

Arguments in Support:

The Service Employees International Union (SEIU) Local 1000, which represents the attorney and non-attorney employees of the State Bar, writes:

Ultimately, if a fee bill is nor approved by the Legislature, the State Bar has to make abrupt reductions, limiting the ability of the State Bar employees to process complaints against attorneys. The public protection function of the State Bar is essential to our state's legal system. The employees of the State Bar have consistently demonstrated a high degree of productivity, diligence, and professionalism in the State Bar's day-to-day operations. State Bar employees are committed to meeting their mission of public protection and a multi-year fee bill that provides staff with the resources to do this work is critical to long-term planning.

Arguments in Opposition:

The Orange County Bar Association outright opposes the fee increase, writing that although they prefer the fee increase recommended by the State Auditor over the much large fee increase proposed by the Bar, "we still believe an increase to $525 . . . is unnecessary and potentially harmful to the public." The group also expresses its concern that the fee increase is "merely a first step in a series of additional increases over the next few years."

Other bar associations, including the Alameda County Bar Association and the Executives of California Lawyers Associations, while not outright opposed to the bill, have express concerns about the fee increase.

The Association of Discipline Defense Counsel adds that they "do not think the State Bar has sufficiently demonstrated that its stated needs for the proposed increases are sufficiently necessary to justify the staggering increases recommended."

FISCAL COMMENTS:

According to the Assembly Appropriations analysis, costs (General Fund (GF)/special funds) in the hundreds of thousands of dollars for state agencies to either directly pay attorney license fees or reimburse attorneys for payment of active license fees. California employs approximately 4,000 attorneys across numerous state agencies. The Department of Justice (DOJ), for example, employs approximately 1,300 attorneys. Based on the fee increase proposed by this bill, the cost to the GF in Fiscal Year (FY) 2019-20 would be approximately $492,000. The one-time $52 fee increase will be reduced to $9 in 2021 but the Lawyers Assistance Fee will return to $10 in 2021 for an overall increase in FY 2020-21 of $89. Therefore, costs to the GF in FY 2020-21 would be $356,000. The remainder of the one-time costs will be reduced to $4 in 2025 and eliminated by 2030.

VOTES:

SENATE FLOOR: 32-4-2

YES: Archuleta, Atkins, Beall, Borgeas, Bradford, Caballero, Dodd, Durazo, Galgiani, Glazer, Grove, Hertzberg, Hill, Hueso, Hurtado, Jackson, Leyva, McGuire, Mitchell, Monning, Moorlach, Nielsen, Pan, Portantino, Roth, Rubio, Skinner, Stern, Umberg, Wieckowski, Wiener, Wilk

NO: Allen, Bates, Morrell, Stone

ABS, ABST OR NV: Chang, Jones

ASM JUDICIARY: 7-0-5

YES: Mark Stone, Chau, Gonzalez, Holden, Kalra, Obernolte, Reyes

ABS, ABST OR NV: Gallagher, Chiu, Kiley, Maienschein, Petrie-Norris

ASM APPROPRIATIONS: 12-3-3

YES: Gonzalez, Bloom, Bonta, Calderon, Carrillo, Chau, Eggman, Gabriel, Eduardo Garcia, Obernolte, Quirk, Robert Rivas

NO: Bigelow, Brough, Diep

ABS, ABST OR NV: Fong, Maienschein, Petrie-Norris

UPDATED:

VERSION: September 3, 2019

CONSULTANT: Leora Gershenzon / JUD. / (916) 319-2334 FN: 0001576

Date of Hearing: August 14, 2019

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez, Chair

SBPCA Bill Id:SB 176

Author:(Jackson) – As Amended Ver:July 10, 2019

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill increases, from $315 to $438, the 2020 license fee for active members of the California State Bar by imposing a one-time fee increase of $52 and an ongoing fee of $71. This bill also increases, from $75 to $108, the 2020 license fee for inactive members of the State Bar by imposing a one-time fee increase of $13 and an ongoing fee increase of $20. This bill also increases the total annual income, from $40,000 to $60,478.35, an active attorney may make to qualify for a waiver of 25% of the annual license fee.

FISCAL EFFECT:

Costs (GF/special funds) in the hundreds of thousands of dollars for state agencies to either directly pay attorney license fees or reimburse attorneys for payment of active license fees. California employs approximately 4,000 attorneys across numerous state agencies. The Department of Justice (DOJ), for example, employs approximately 1,300 attorneys. Based on the fee increase proposed by this bill, the cost to the GF in FY 2019-20 would be approximately $492,000. The one-time $52 fee increase will be reduced to $9 in 2021 but the Lawyers Assistance Fee will return to $10 in 2021 for an overall increase in FY 2020-21 of $89. Therefore, costs to the GF in FY 2020-21 would be $356,000. The remainder of the one-time costs will be reduced to $4 in 2025 and eliminated by 2030.

COMMENTS:

1. Background and Purpose. The State Bar is responsible for licensing and oversight of attorneys in California. In order to be a licensed attorney, a person must pass several exams, pay an annual licensing fee and participate in a minimum of 25 hours of continuing education every three years. The State Bar is also responsible for investigating and, where appropriate, imposing attorney discipline. As of June 2019, there were more than 270,000 active and inactive members of the State Bar. This bill increases bar dues for active attorneys by adding an ongoing fee of $71 per year and a one-time fee of $52 in 2020. In 2021, the $52 one-time cost will be reduced to $9 and eliminated by 2030. Inactive attorneys will pay a one-time increase of $13 and an ongoing fee increase of $20. The ongoing fee increases will cover the existing operating deficit, employee salary increase, retiree health benefits, increased staff to investigate and prosecute attorney discipline and IT replacements. One-time fee will cover building and technology improvements, contributions to the client security fund and contributions to the reserve fund. According to the author:

This bill continues the Legislature’s oversight of the State Bar through the annual fee authorization bill. The State Bar is requesting a substantial fee increase for 2020 and beyond. The State Auditor conducted an audit of the State Bar to help the Legislature ascertain whether a fee increase is warranted. This bill authorizes licensee fee increases in the amount recommended by the State Auditor for 2020 and directs the State Bar to use licensee fees in a manner that is consistent with the Auditor’s recommendations.

1. State Bar Budget. The Legislative Analyst’s Office in reviewing the State Bar’s practices over the past several years concluded the State Bar needed more legislative oversight. LAO proposed moving State Bar funding into the budget process rather than running an annual State Bar dues bill. LAO contends legislative budget oversight would increase transparency and provide much needed assistance to the State Bar in managing resources. This bill states it is the intent of the Legislature to move State Bar funding into the budget process by FY 2021-22.
2. Prior Legislation. SB 36 (Jackson), Chapter 422, Statutes of 2017, required, among other things, the separation of the State Bar sections from the State Bar and instead created a standalone non-profit organization called the California Lawyers Association.

Analysis Prepared by: Kimberly Horiuchi / APPR. / (916) 319-2081

Date of Hearing: July 9, 2019

ASSEMBLY COMMITTEE ON JUDICIARY

Mark Stone, Chair

SBPCA Bill Id:SB 176

Author:(Jackson) – As Amended Ver:May 22, 2019

As Proposed to be Amended

SENATE VOTE: 32-4

SUBJECT: State Bar of California: ANNUAL LICENSING FEE AND OVERSIGHT

KEY ISSUE: SHOULD THE LEGISLATURE AUTHORIZE THE STATE BAR TO SIGNIFICANTLY INCREASE LICENSING FEES FOR 2020, INCREASING THE TOTAL FEES FOR ACTIVE attorneys fROM $430 TO $544, AND FOR INACTIVE ATTORNEYS FROM $155 TO $183, FOLLOWING INDEPENDENT REVIEWS AND recommendations FROM THE STATE AUDITOR AND THE LEGISLATIVE ANALYST’S OFFICE?

SYNOPSIS

This is the annual State Bar fees reauthorization and legislative oversight bill. The fees authorization bill from two years ago – SB 36 (Jackson), Chap. 422, Stats. 2017 – instituted far reaching reforms that split off the attorney trade association functions from the Bar and into a new nonprofit – the California Lawyers Association – thus allowing the Bar to fully focus on its regulatory obligations and to prioritize public protection. That bill also eliminated the elected attorney positions on the Board of Trustees, and required the Board's leadership to be appointed by the Supreme Court instead of elected by the Board, thus reducing much of the Board's previous law firm-like politics.

The main subject of this year’s bill is a fee increase. The State Bar has been advocating strenuously for at least the past year for such an increase, and has requested that the total fee for active attorney for the 2020 fiscal year be increased from $430 annually to $860, a 100% increase. The Legislature, as part of last year’s fees authorization legislation – AB 3249 (Judiciary), Chap. 659, Stats. 2018 – directed the State Auditor and the Legislative Analyst’s Office (LAO) to provide independent and comprehensive assessments of what licensee fees are required to support the Bar's public protection functions. Those reports have been completed. The State Auditor recommended a significantly lower amount of $572, which still represents a 24% increase in the total fee. The LAO provided further options for reducing the fee and still ensuring the State Bar can meet its public protection mandate. This bill, as proposed to be amended, revises the fee for 2020, through a combination of ongoing and one-time fees to support the Bar’s public protection mandate for a total of $544 for active attorneys. The bill makes other changes as well, including changing how revenue from marketing products to attorneys is distributed.

This bill is supported by Service Employees International Union Local 1000 and supported in part by the California Commission on Access to Justice and Disability Rights California. While the bill is only officially opposed by the Orange County Bar Association and one individual (unless amended), many other legal organizations, including the California Lawyers Association and the Legal Aid Association of California have written to express concerns over the proposed fee increase.

SUMMARY: Significantly increases the authorization for the State Bar to collect total licensing fees for 2020 from active members, from $430 to $544, and from inactive members from $155 to $183. Specifically, this bill:

1. States the intent of the Legislature that:
   1. The State Bar licensing fees in future years be sufficient to fund the State Bar’s proposed technology and capital improvement projects that the State Auditor recommended funding in its 2019 audit of the State Bar, at the levels recommended by the State Auditor, over a five-year period for the technology and over a 10-year period for the capital improvements, less the technology updates that are included in the ongoing funding, as recommended by the Legislative Analyst’s Office.
   2. The State Bar licensing fees in future years be reduced by the increase in income generated by increasing all real estate leases of State Bar property to market rate as soon as the existing below market rate leases expire, as recommended by the State Auditor in its 2019 audit of the State Bar, and that all leases entered by the State Bar for lease of State Bar property on and after January 1, 2020 be at or above market rate in order to reduce licensing fees.
   3. The State Bar use license fees for active and inactive licensees in a manner that is consistent with the California State Auditor’s Report released on April 30, 2019 and the Legislative Analyst’s Office Report released on June 26, 2019.
   4. The State Bar be included as part of the annual budget process for the State of California beginning with the 2021-2022 fiscal year.
2. Changes the licensing fee that active attorneys in California pay for 2020 by:
   1. Increasing the licensing fee by $123, from $315 to $438; and
   2. Reducing the fee for the Lawyer Assistance Program by $9, from $10 to $1, for 2020 only, with the fee reverting back to $10 the following year.
3. Changes the licensing fee that inactive attorneys in California pay for 2020 by:
   1. Increasing the licensing fee by $33, from $75 to $108; and
   2. Eliminating the fee for the Lawyer Assistance Program for 2020 only, with the fee reverting back to $5 the following year.
4. Increases the total annual income that an active attorney can make to qualify for a waiver of 25% of the annual license fee from $40,000 to $60,478.35, which adjustment is based on an increase in the Consumer Price Index over the last 20 years.
5. Requires the State Bar to report to the Senate and Assembly Committees on Judiciary, by April 30, 2020, on the collections, over the last five years from 2016 through 2020, for the $40 legal services opt out licensing fee and the voluntary justice gap opt-in fee to support legal services, and the percentage of attorneys who participate in each program.
6. Allows the State Bar to collect, in conjunction with its annual license fees, voluntary donations on behalf of California ChangeLawyers.
7. Revises the formula for the division of the proceeds from the State Bar's marketing offers, to its licensees, of discounts and other benefits, including insurance products, if ChangeLawyers and Cal Bar Affinity administers the discount and benefit program, as follows:
   1. Any administrative costs incurred by Cal Bar Affinity or the State Bar, up to a maximum of 10% of the revenue received and any taxes paid are paid first.
   2. Revenue received from sale of noninsurance products remains unchanged and is split between ChangeLawyers and legal services programs.
   3. If approved by ChangeLawyers, Cal Bar Affinity and the California Lawyers Association (CLA), provided CLA complies with the requirement not to compete, as provided, revenue received from sale of insurance products is distributed as follows:
      1. For the calendar years 2020 and 2021, the first $150,000 received each year shall be distributed to the California Commission on Access to Justice;
      2. Any remaining revenue shall be distributed equally to ChangeLawyers, CLA, and legal services programs, as provided.
8. Changes the composition of the State Bar’s Governance in the Public Interest Task Force to include seven members of the Board of Trustees, including the Chair of the Board, three attorney members appointed by the Supreme Court, the Assembly, and the Senate, and three public members appointed by the Governor, the Assembly, and the Senate.
9. Eliminates the requirement that the secretary of the State Bar be selected annually by the Board of Trustees.
10. Eliminates statutory requirements regarding the State Bar’s annual meeting.
11. Limits, to the State Bar Court or the chief trial counsel or their designee, who may administer oaths and issue subpoenas for the State Bar Court, as provided.
12. Eliminates the provision allowing licensees to formulate by initiative rules of professional conduct.
13. Extends, from five to thirty days following receipt of a notice that an attorney has been convicted of a crime, the time that the Office of Chief Trial Counsel has to transmit the record of conviction to the Supreme Court for crimes which involve or may involve moral turpitude.
14. Makes other non-substantive changes.

EXISTING LAW:

1. Provides that protection of the public, which includes support for greater access to, and inclusion in, the legal system, is the highest priority of the State Bar and its Board in exercising their licensing, regulatory, and disciplinary functions. Provides, whenever the protection of the public is inconsistent with other interests sought to be promoted, that the protection of the public shall be paramount. (Section 6001.1.)
2. 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.)
3. Authorized the State Bar to collect $315 in annual membership fees from active members for a total annual dues bill of $390 for the year 2018. 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.)
4. 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.)
5. Directs an additional $40 of membership fees to legal services purposes unless a member elects not to support those activities. (Section 6140.03.)
6. Provides that the fee invoice provides each licensee the option of deducting from the annual fees $5 for lobbying and related activities. (Sections 6140.05.)
7. Provides that the Board of Trustees may waive the payment by any licensee of the annual license fee, any portion thereof, or any penalty thereon, as it may provide by rule. Requires the Board of Trustees to adopt a rule providing that an active licensee who can demonstrate total gross annual individual income from all sources of less than $40,000 shall presumptively qualify for a waiver of 25% of the annual license fee. (Section 6141.1.)
8. Requires the Board to contract with the California State Auditor to conduct a biannual performance audit of the State Bar. Requires the State Auditor, for its required 2019 audit of the State Bar, to evaluate each program or division of the State Bar receiving support from the annual State Bar licensing fees and other fees required of active and inactive licensees. Requires the audit to be submitted, as provided, by May 1, 2019. States the intent of the Legislature that this audit be reviewed in conjunction with legislation authorizing the State Bar's licensing fee for 2020. (Section 6145 (b), (c).)
9. Requires the Legislative Analyst's Office to assess whether the State Bar effectively utilizes licensing fee revenues to maximize efficiencies for each program or division assessed by the California State Auditor in 8), above, and report to the Legislature and the Chief Justice by July 1, 2019. (Section 6145 (d).)
10. States that the goal and policy of the State Bar is to dismiss a complaint, admonish the attorney, or forward a completed investigation to the Office of Trial Counsel within six months after receipt of a written complaint, except as to complaints designated as complicated matters by the Chief Trial Counsel, in which case the goal and policy is 12 months. (Section 6094.5.)
11. Requires that the State Bar set as a goal the improvement of its disciplinary system so that no more than six months will elapse from the receipt of complaints to the time of dismissal, admonishment of the attorney involved, or the filing of formal charges by the State Bar Office of Trial Counsel. (Section 6140.2.)
12. Requires the State Bar to publish its Annual Discipline Report by April 30^th of each year, describing the performance and condition of the State Bar’s discipline system, including all matters that affect public protection, including an accurate and complete description of the existing backlog of cases within the discipline system, including the number of complaints as of December 31 of the preceding year that were pending beyond six months after receipt without dismissal, admonition, or the filing of a notice of disciplinary charges. (Section 6086.15.)
13. Requires the Board to establish and administer an Attorney Diversion and Assistance Program (also known as the Lawyer Assistance Program or LAP) to identify and rehabilitate attorneys with impairment due to abuse of drugs or alcohol, or due to mental illness, affecting competency so that attorneys so afflicted may be treated and returned to the practice of law in a manner that will not endanger the public health and safety. Allows any excess funds that are not needed to support that program to be transferred to fund the Client Security Fund. Allows both members and applicants to the State Bar to participate in the Lawyer Assistance Program. (Sections 6140.9, 6230 et seq.)
14. Requires, beginning January 1, 2019, that $1 of the $10 that active licensees pay to the State Bar for support of the Lawyer Assistance Program, be transferred to a statewide, nonprofit corporation that has, for at least 25 years, provided peer support to attorneys recovering from alcohol and substance abuse. Requires the nonprofit to submit an annual report to the State Bar accounting for its use of the funds. (Section 6140.9.)
15. Provides for the division of the proceeds from the State Bar's marketing offers, to its licensees, of discounts and other benefits, including insurance products, between the California Bar Foundation, legal services programs, and the State Bar for discipline functions. Sets forth a revised distribution of proceeds if the California Bar Foundation administers the discount and benefit program. (Section 6141.3.)
16. Creates the State Bar’s Governance in the Public Interest Task Force and sets forth the composition of its members and its responsibilities. (Section 6001.2.)
17. Requires that the secretary of the State Bar be selected annually by the Board of Trustees. (Section 6022.)
18. Sets forth statutory requirements regarding the State Bar’s annual meeting. (Sections 6025-6026.)
19. Sets forth who may administer oaths and issue subpoenas for the State Bar Court, as provided. (Section 6052.)
20. Allows licensees to formulate by initiative rules of professional conduct subject to Supreme Court approval. (Section 6076.5.)
21. Provides the State Bar five days following receipt of a notice that an attorney has been convicted of a crime, if the crime involves or may involve moral turpitude, to transmit the record of the conviction to the Supreme Court. (Section 6101.)
22. Sunsets the State Bar's authorization to collect fees for the Conference of Delegates of California Bar Associations after 2019. (Section 6031.5 (c).)

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

COMMENTS: This is the annual State Bar fees reauthorization and legislative oversight bill. The fees authorization bill from two years ago – SB 36 (Jackson), Chap. 422, Stats. 2017 – instituted far reaching reforms that split off the attorney trade association functions from the Bar and into a new nonprofit – the California Lawyers Association – thus allowing the Bar to fully focus on its regulatory obligations and to prioritize public protection. That bill also eliminated the elected attorney positions on the Board of Trustees, and required the Board's leadership to be appointed by the Supreme Court instead of elected by the Board, thus reducing much of the Board's previous law firm-like politics.

The main subject of this year’s bill is a fee increase. The State Bar has been advocating strenuously for at least the past year for such an increase, and has requested that the total fee for active attorney for the 2020 fiscal year be increased from $430 annually to $860, a 100% increase. The Legislature, as part of last year’s fees authorization legislation – AB 3249 (Judiciary), Chap. 659, Stats. 2018 – directed the State Auditor and the Legislative Analyst’s Office (LAO) to provide independent and comprehensive assessments of what licensee fees are required to support the Bar's public protection functions. Those reports have been completed. The Statue Auditor recommended a significantly lower amount of $572, which still represents a 24% increase in the total fee. The LAO provided further options for reducing the fee and still ensuring the State Bar can meet its public protection mandate. This bill, as proposed to be amended, revises the fee for 2020, through a combination of ongoing and one-time fees to support the Bar’s public protection mandate for a total of $544 for active attorneys. The bill makes other changes as well, including changing how revenue from marketing products to attorneys is distributed. In support of the bill, the author states:

The power to regulate the practice of law, including the power to admit and to discipline attorneys, is among the inherent powers of the Supreme Court. The State Bar functions as the administrative arm of the Supreme Court for the purpose of assisting in attorney admissions and discipline, with the court retaining its inherent judicial authority to disbar or suspend attorneys. At the same time, the Legislature’s exercise, under the police power, of a reasonable degree of regulation and control over the profession and practice of law in California, is well established. The Legislature also exercises regulatory authority pursuant to the State Bar Act and has authority to set the amount of fees necessary to fund the disciplinary system. The Legislature has enacted statutes making protection of the public the highest priority of the State Bar and empowering the Bar to promote improvement of the administration of justice.

This bill continues the Legislature’s oversight of the State Bar through the annual fee authorization bill. The State Bar is requesting a substantial fee increase for 2020 and beyond. The State Auditor conducted an audit of the State Bar to help the Legislature ascertain whether a fee increase is warranted. This bill authorizes licensee fee increases in the amount recommended by the State Auditor for 2020 and directs the State Bar to use licensee fees in a manner that is consistent with the Auditor’s recommendations.

Background on the Bar. Attorneys who wish to practice law in California generally must be admitted and licensed in this state by the State Bar. (Cal. Const., Art. VI, Sec. 9.) The State Bar of California is the largest bar in the country, with approximately 191,000 active licensees and 64,000 inactive licensees. The total number of State Bar licensees is listed at 271,275, which includes 2,289 judge-licensees and 14,635 licensees who are “not eligible to practice law.”

The mission of the State Bar is “to protect the public and includes the primary functions of licensing, regulation and discipline of attorneys; the advancement of the ethical and competent practice of law; and support of efforts for greater access to, and inclusion in, the legal system.”

The 2017 annual licensing legislation significantly reformed the State Bar. After years of ongoing and substantial legislative concerns that the Bar had failed to prioritize its public protection mandate over its activities to advance the legal profession and after an unsuccessful effort at reform in the failed 2016 fee bill, the 2017 annual fee legislation fundamentally reformed the Bar. (SB 36 (Jackson), Chap. 422, Stats. 2017.) The largest structural change in that bill was the separation of the Bar's attorney trade association functions into a new nonprofit, the California Lawyers Association, which should allow the Bar to put a renewed focus on its regulatory and public protection obligations. That separation occurred on January 1, 2018, and appears, by all reports including the increased lobbying efforts by the new organization, to have gone very smoothly.

In addition, the bill eliminated the six elected attorney positions on the Board of Trustees, extended the terms of Board members, and required that the Board's chair and vice chair (previously the president and vice president) be appointed by the Supreme Court instead of elected by the Board. These provisions eliminate much of the Board's historical political infighting, reduce law firm-like politics, and allow it to focus its attention on the Bar's public protection mission and on oversight of Bar staff. SB 36 also required the Bar to adhere to a Supreme Court-approved policy to identify and address any proposed decision of the Board that raises antitrust concerns, thus helping to minimize the State's liability for a Board that, even after the reforms, is still controlled by a majority of active market participants. (See North Carolina State Board of Dental Examiners v. Federal Trade Commission (2015) 135 S. Ct. 1101.)

Last year, the State Bar sought an increase in licensee fees, but because of dubious past spending the Legislature established a process to determine what the Bar actually needs, considering necessary licensing and regulatory activities and expenses. Today, active attorneys in California pay $390 annually in mandatory fees, which includes a general assessment of $315 plus an additional $40 for the Client Security Fund, $25 for the discipline system, and $10 for the Lawyer Assistance Program. Inactive attorneys pay a total of $115 annually, which includes a general assessment of $75 plus an additional $10 for the Client Security Fund, $25 for the disciplinary system, and $5 for the Lawyer Assistance Program. There is an additional $40 fee to support legal services organizations that licensees may opt out of paying.

The general assessment for active attorneys has not been increased for 20 years, leading the Bar last year to write of its dire need for a fee increase:

After 20 years without a fee increase, the State Bar's ability to fulfill its mission is increasingly threatened by costs that exceed licensing fee revenue. This funding gap jeopardizes the State Bar's ability to effectively perform critical public protection work. Additional investments are critically needed in our represented workforce, along with infrastructure and technology upgrades, simply to sustain our current operations.

Justice Lui of the Second Appellate District, who was appointed as the Special Master overseeing the collection, disbursement, and allocation of the Supreme Court's 2017 special fees assessment in place of legislatively prescribed fees, also noted with concern the Bar's financial challenges and recommends a fee increase. In In re Attorney Discipline System: Report of the Special Master (Oct. 1, 2017-Dec. 31, 2017), he writes that the mandatory fees have not substantially increased in nearly 20 years, and the departure of the Sections has cost the Bar $4 million in annual funding, while salaries increases, which account for nearly 70 percent of the Bar's non-grant budget, have "far outstrip[ed]" the growth in the Consumer Price Index. Additionally, Justice Lui writes that the Bar's "antiquated information technology system" must be replaced, something the Bar is already undertaking. He also urges the Legislature to consider a multi-year funding bill, which may limit external controls over the Bar, particularly the Legislature’s, but would allow the Bar to engage in more "long-term financial and strategic planning."

In last year’s annual licensing fees legislation – AB 3249 (Judiciary), Chap. 659, Stats. 2018 – the Legislature directed the State Auditor and the LAO to study the State Bar’s budget and funding needs. In particular, the State Auditor was required, for its 2019 audit of the State Bar, to evaluate each program or division of the State Bar receiving support from the annual State Bar licensing fees and other fees required of active and inactive licensees. The LAO was required to assess whether the State Bar effectively utilizes licensing fee revenues to maximize efficiencies for each program or division assessed by the State Auditor. Those reports have been completed and help shape the picture of what fee increase is actually needed by the State Bar.

This year’s fee increase request from the State Bar. This year, the State Bar reiterated its need for a significant funding increase, writing that without a “fee increase, the State Bar will have to cut spending – first in operations and programing, and then, inevitably, in staffing. Such cuts would result in a significant retrenchment from the State Bar’s ability to meet its core responsibilities.” (State Bar, How a Fee Increase Ensures Public Protection Innovations, Advances, and Momentum, p. 2 (June 2019).) The State Bar has proposed doubling the current total licensing fees of $430 to $860 for 2020, including an ongoing increase of $100 and a one-time increase of $330. The ongoing increase includes $30 to fund the Bar’s operating deficit, $13 for employee fee increases, $17 for retiree health benefits for all employees, and $40 for additional discipline staff. The one-time increase includes $80 to fully fund the Client Security Fund, $82 for technology upgrades, $134 for capital improvements, and $34 to build up the Bar’s reserves. Chart 1 on page – sets forth the Bar’s requested fee increase, along with several other options.

The State Auditor’s findings and recommendations on the fee request. As required by last year’s fee bill, the State Auditor reviewed the State Bar’s budget and funding needs and determined that while the State Bar does need a fee increase, some of its requested fees could be reduced or delayed. With respect to the ongoing funding, the Auditor supported many of the Bar’s funding request, but found that the State Bar’s addition of 58 positions in its discipline operations was based on a study whose current validity the Auditor questioned, since the study was made prior to full implementation of structural and other changes in the Office of Chief Trial Counsel. In addition, filling all 58 positions would “be disruptive, and consistent vacancies in the trial counsel’s office makes filling so many positions in 2020 unrealistic.” (California State Auditor, State Bar of California: It Should Balance Fee Increases With Other Actions to Raise Revenue and Decrease Costs, p. 14 (April 2019).) Instead, the Auditor recommended the hiring of one enforcement team, which it calculated was comprised of 19 full-time equivalents.

With respect to the State Bar’s one-time funding requests, the State Auditor found that while some of the capital improvement projects were warranted, others were premature, “exceeded acceptable market rates,” or “could not be justified.” (Id. at 19.) In particular the Auditor found that the Bar’s $12.5 million proposal to resurface and repair the façade of its San Francisco building is unnecessary. Likewise, with the Bar’s proposed technology projects, the Auditor found that some of the projects were premature and therefore should not be funded at this point.

With respect to the Client Security Fund, which the Auditor's 2016 audit of the State Bar exposed the Bar’s failure to minimize a years' long backlog in compensating victims of dishonest lawyers (The State Bar of California: Its Lack of Transparency Has Undermined its Communications with Decision Makers and Stakeholders (May 2016)), the Auditor recommends reducing the one-time fee increase sought by the Bar from $80 to $40 to fund only those claims that the Bar is likely to pay next year.

Additionally, the State Auditor recommends a one-time suspension of the $10 and $5 dollars that active and inactive attorneys pay, respectively, for the Lawyer Assistance Program which seeks to “identify and rehabilitate attorneys with impairment due to abuse of drugs or alcohol, or due to mental illness, affecting competency so that attorneys so afflicted may be treated and returned to the practice of law in a manner that will not endanger the public health and safety.” (Section 6230 et seq.) The revenue of that program has, according to the State Auditor, consistently exceeded expenditures and the program now has a reserve balance that is ten times more than the Bar’s stated policy. A one-time suspension of the fee is clearly warranted.

As directed by this Committee last year – which has repeatedly raised concerns about the Bar’s misuse and underutilization of its prime real estate purchased with licensee fees – the State Auditor also reviewed the Bar’s management of its real estate to determine if the Bar was effectively using it to increase income and offset the need for fee increases from its licensees. Instead the Auditor found that:

[The State Bar] is currently leasing space in [the San Francisco] building to tenants at below‑market rates and has allowed space to go unleased for long periods of time. Furthermore, according to current standards, State Bar occupies more space in both its San Francisco building and the building it owns in Los Angeles than it needs to accommodate its size. If State Bar were able to capture more revenue from its real estate holdings, it could minimize future fee increases. (California State Auditor, State Bar of California, supra, p. 27.)

The Auditor found that, far from being a historical problem, the Bar’s underutilization of its real estate is a very current problem, one which the Bar only recognized after confronted by the Auditor:

In 2018 and 2019, State Bar entered into four leases for its San Francisco building with below‑market rates that range from $12 to $28 per square foot less than those of comparable properties. Even if State Bar had leased its space at the lowest of the appraiser’s market rates, it would have earned $777,000 in additional revenue in just the first year of the four leases. The chief administrative officer had initially believed that the real estate broker had obtained the best lease rates it could, but State Bar commissioned a recent analysis, which confirmed that its San Francisco lease rates are below market, so he now agrees that State Bar could pursue higher lease rates in the future. (Id. at 28.)

Again, this Committee has repeatedly raised questions about the Bar’s underutilization of its real estate, which, as a result, has required its licensees to contribute more in fees. Moreover, according to the State Auditor, the Bar provided its property management firm hired to help it maximize use of its real estate in San Francisco with almost 4,000 square feet of office space in its prime San Francisco building, which the Auditor found had an annual lease value of $260,000. This is in addition to the $300,000 the Bar has budgeted to pay the firm for property management services and $600,000 for lease commissions. The Bar’s failures to properly manage its real estate holdings raises many questions. Should the Bar own its own buildings, especially if it cannot manage them effectively? Given that the Bar’s paramount duty is public protection, is it appropriate for the Bar and its Board to spend significant portions of their time, as it has at recent board meetings, focused on real estate management and not on public protection? If the Bar is to continue to own its own real estate, might it be more appropriate to transfer responsibility for building management to the Department of General Services, which manages other state-owned buildings?

Regardless of who owns or manages the Bar’s office space going forward, one thing is clear – all leases entered by the State Bar for lease of State Bar property on and after January 1, 2020 must be at or above market rate in order to reduce licensing fees, and State Bar licensing fees in future years should be reduced by the increase in income generated by increasing all real estate leases to market rate as soon as the existing below market rate leases expire. The proposed amendments to this bill state just this in legislative intent language.

The Legislative Analyst’s Office’s findings and recommendations on the fee request. Also as directed by last year’s fee legislation, the LAO assessed whether the State Bar effectively utilizes its licensing fee revenues to maximize efficiencies for each program or division funded by the annual licensing fee. The LAO discovered that the current State Bar budget process – where the Bar submits its annual budget to the Legislature’s Judiciary Committees, which then set its annual fee amount, significantly limits legislative oversight, since there is no actual review of expenditures, which all other state agencies, including all entities within the judicial branch, must go through. This has allowed for some less than optimal oversight of some very significant decisions that impact the Bar’s ability to protect the public and the fees its licensees must pay in order to fund those decisions, such as the decisions to purchase a $75 million building in Los Angeles, leave multiple floors of its San Francisco building vacant for decades, and approve expensive technology system. Additionally, the Bar:

[C]onsistently approves budgets that assume expenditures will exceed revenues. Actual costs end up being lower than the budgeted amounts—resulting in the operational surpluses discussed earlier—through a combination of lower‑than‑assumed costs resulting from (1) vacant positions and (2) operational decisions to defer priorities (like routine maintenance or technology replacement) that might have been approved in the budget. By consistently assuming that its priorities will cost more than the resources it has on hand, the State Bar’s budget has not been an effective planning tool. Moreover, the State Bar’s operational decisions to delay some costs could increase its costs in the long term. For example, deferring routine maintenance could result in higher one‑time costs in the future, like replacing a system sooner than otherwise would be needed. (LAO, The California State Bar: Considerations for a Fee Increase, p. 16 (June 26, 2019).)

In reviewing the specifics of the Bar’s proposed fee increase for 2020, the LAO noted that, despite claiming in prior years it would have a deficient – when in reality it did not – it appears that the Bar will actually have a structural deficit; and “[a]ccordingly, an increase to the ongoing fee for the purpose of addressing a structural deficit seems reasonable.” (Id. at 17.) Moreover, the LAO found some of the proposed fee increases, such as the fee increase to cover salary increases, reasonable. However, the LAO raised a number of questions and concerns about other proposed fee increases. In particular:

• Retiree Health Benefits: While moving from providing retiree health benefits to only executive staff (as the Bar has for years) to providing that benefit to all staff is not in itself unreasonable, the Bar’s proposal to bring all staff up the top benefits that it has provided to its executive staff, as opposed to bring all staff, including executive staff, to a reasonable middle ground could result in an unfunded liability that future attorneys would have to fund. (Id.) The Committee suggests that this be best negotiated by the Bar with its employees, but that in doing so both sides should be cognizant of the retiree health benefits paid by other state agencies, including judicial branch entities such as the Judicial Council.
• Additional Discipline Staff: The LAO believes that the workload study that the State Bar did which identified a need for 58 additional staff did not accurately identify actual staffing needs, the methodology used was faulty, and a different statutory timeframe to resolve cases (the statute provides 180 days as a goal and a policy, but not as a mandate, see Sections 6094.5 and 6140.2) might eliminate the need for additional staff. As a result the LAO suggests that funding additional disciplinary staff is, at this time, premature. (Id. at 17-19.)
• Ongoing Expenses for One-Time Need: The Bar included in its ongoing fee request intended to offset its operating deficit $9 per active member to scan files. The LAO noted that not only is this a one-time expense and not an ongoing expense, but it is not clear if such a wholesale scanning of old files is even necessary. (Id. at 20.)
• One-Time Expenses for Ongoing Needs: The LAO noted that certain reported one-time expenses, in particular the regular refreshment of technology systems, are better classified as ongoing expenses, though at a lower amount. Additionally, the LAO, like the State Auditor, noted that some of the Bar’s proposed one-time expenses could be better spread out over a longer period of time, since those funds would not all have been used in 2020, to reduce the overall cost of the fee increase in 2020. (Id. at 21-23.)

More Legislative Oversight of the Bar and its Fees are Necessary. Regardless of what the ultimate licensing fees are approved by the Legislature, the LAO writes that “our review of the State Bar indicates that increased legislative oversight could be beneficial to ensure that fee revenues are assessed appropriately to support expenditures that are consistent with legislative expectations and priorities. Increased oversight also would help ensure that funds are used in an accountable and transparent manner.” As discussed in more detail below, it is clear that the current method of overseeing the Bar’s budget has not been sufficient to prevent inappropriate spending and that the State Bar, its licensees, and the public would benefit from greater oversight of the Bar’s expenditures and greater transparency.

The California Lawyers Association, the state’s attorney trade group, asks that the licensing fees by at the lowest end recommended. The Bar has asked that the total fees it charges to active attorneys be increased from $430 a year to $860. The State Auditor has instead recommended that the fee for 2020 be reduced to $572. The LAO has recommended a range of options to reduce the needed fees still further that are as much as $53 lower than the fee recommended by the State Auditor. CLA, for the most part, supports the lowest proposed fee increase, writing:

We have carefully analyzed the two recent reports on the State Bar, the April 30, 2019 report of the California State Auditor and the June 26, 2019 report of the Legislative Analyst’s Office (LAO). It is our belief that any increase in the licensing fee for 2020 should not exceed the “low” option contained in the LAO report. Although we recognize, as the LAO report notes, that the “low” option demonstrates a “bare‐bones” assessment, the LAO report also notes, on Page 23, that this would cover “the most immediate and necessary costs.” We are, however, sensitive to the impact of this option on the State Bar workforce and are open to engaging in a discussion about addressing these issues.

CLA adds that if there is to be a fee increase in 2020, “there should also be some associated performance standards, measurements, or benchmarks included in this bill, along with a required accountability report from the State Bar addressing planned and actual spending.” CLA believes that such a report could be used to “to assist in evaluating the impact of any fee increase authorized for 2020 and potentially provide justification for an adjustment to the amount of the licensing fee in 2021.”

This Committee’s recommendations. This Committee has studied the State Bar’s request for a fee increase, along with the reports received by the State Auditor and the LAO, and has determined that, while the State Bar does indeed require a fee increase, it should be reduced as recommended by the State Auditor and as further reduced by suggestions from the LAO. Chart 1, below, shows the current fees, the fees requested by the Bar, those approved by the State Auditor, and suggested alternatives by the LAO. The last column presents the Committee’s recommended funding. This includes creating new ongoing fee of $71 and one-time fees of $52 for active attorneys, and a portion of those fees for inactive attorneys, which is $20 for ongoing and $13 for one-time fees; and reducing funding for the Lawyer Assistance Program, which is currently overfunded, for 2020. While this is not the lowest end of the range suggested by the LAO, it is lower than the State Auditor’s recommendation and still provides support for key programs to protect the public.

Charts 1 and 2, below lay out in detail the changes to licensing fees for both active and inactive attorneys in California for 2020, as proposed to be amended into this bill.

Chart 1: Proposed Fees for Active Attorneys 2020

*LAO did not consider CSF or LAP, so those amounts are not included in the LAO totals.

Chart 2: Proposed Fees for Inactive Attorneys 2020

In order to better oversee the State Bar’s expenditures – like all other state agencies, including the judicial branch – and prevent a repeat of inappropriate spending, is it time for the State Bar to go through the legislative budget process? Unlike other government agencies, the Bar has historically had little oversight over its spending. The Legislature sets licensee fees each year, but the Bar’s budget does not go through the typical legislative review and oversight that all branches of government receive. Instead the Bar is subject to a financial audit by a private firm, that mostly just confirms what is in the Bar’s bank accounts, and a bi-annual performance audit by the State Auditor that can review whatever the Auditor chooses. The Bar’s budget is submitted to the Judiciary Committees of the Assembly and Senate, but not the fiscal committees – the Budget or the Appropriations Committees – which would be better positioned to oversee the Bar’s budget. Nor does the Legislative Analyst, who reviews all government spending as part of the annual budget process, review the Bar’s budget (this year being the one exception). As a result, the Bar has historically been able to spend money much as it chooses with limited oversight.

This Committee has long raised concerns about the Bar’s excessive expenses for, among other things, executive salaries, excessive travel, “business expenses,” and other special allowances, when limited funds are required by law to first and foremost support public protection and the discipline system; and the State Auditor has historically and repeatedly found instances of questionable spending by the Bar. Over the last few years, the Bar has reduced unnecessary spending on travel and catering, and outside contracting, including eliminating the $30,000 president's slush fund, alcohol expenditures, and the "business expenses" of its executives that were well above and beyond state per diem rates. Additionally, the Bar has, under pressure from the State Auditor and this Committee, reduced the discrepancies between benefits provided to executive staff and the rest of the staff, finally expanding retiree health benefits to all staff, not just executive staff, and equalizing benefits so current executive staff no longer receive better health benefits than the rest of the Bar's staff. However, not all questionable expenditures have been reduced or eliminated. In particular, the Bar continues to pay its executives at rates far higher than comparable state employees. For example, the executive director of the Bar, like her predecessors, not only is eligible for a CalPERS pension, but also receives a fully funded 457 retirement account in addition to her salary. This Committee is not aware of other state employees whose employers pay for both their CalPERS pension and their private retirement account.

In addition, this Committee has, for years, questioned whether the Bar has made financially reasonable decisions with respect to maximizing use, and minimizing the cost, of its real property. In 2012, the Bar purchased a building in Los Angeles; however, according to the State Auditor, the Bar did not perform a cost-benefit analysis to determine if the purchase was appropriate and warranted before receiving approval from its Board to purchase the building, did not fully inform the Legislature of its plans, and potentially risked public safety by doing so and not prioritizing other areas, such as attorney discipline. At the time, the State Auditor found that the decision to purchase the Los Angeles 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." (California State Auditor, State Bar of California: It Has Not Consistently Protected the Public Through its Attorney Discipline Process and Lacks Accountability, p. 43 (June 2015).) The Bar has also, for years, failed to lease out multiple floors of its San Francisco office building, located in the prime Financial District, south of Market Street. While the Bar is now leasing out most of those floors, as discussed above, many of those leases are below market, requiring that licensees make up the difference in their annual fees.

Given the Bar’s history of questionable spending and underutilization of its assets, and given the recommendations of the LAO that the State Bar requires more legislative oversight, this bill, as proposed to be amended, appropriately sets forth the legislative intent that the State Bar become part of the state budget process. Moving the State Bar into the annual budget process would:

[I]ncrease legislative oversight by leveraging the expertise of the budgetary committees to evaluate State Bar funding requests in a manner similar to other state departments. Additionally, requiring the State Bar to submit budgetary information in a manner similar to other state departments would enable easier comparison to ensure standardized or similar treatment across the various departments responsible for licensing professions. (LAO, The California State Bar, supra, at p. 23.)

The intent language gives the Bar until the 2021-22 fiscal year to come into the annual budget process to allow the budget committees and the Department of Finance time to better understand the Bar and its revenues and expenditures, and to allow the Bar to convert from a calendar fiscal year to that state’s July-June fiscal year.

The licensing fee increase may have the unintended, but nevertheless likely, impact of reducing critically needed funds to support legal services for low-income Californians. The State Bar licensing fee seeks to support legal services to the poor in two ways – through an opt-out fee and an opt-in voluntary payment.

Opt-Out Contribution to Legal Services Organizations. As a result of SB 345 (Evans), Chap. 681, Stats. 2013, the Legislature enacted Section 6140.03, which established a $30 optional fee for licensed attorneys who voluntarily choose to contribute to the support of nonprofit legal aid organizations that make free legal services available to poor Californians. According to this Committee’s analysis of that bill, “The optional legal aid fee continues the existing mechanism 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 for, consistently with each lawyer's professional responsibility.” The legal aid fee, which was increased to $40 the next year in AB 2746 (Committee on Judiciary), Chap. 429, Stats. 2014, was formulated with an “opt-out” mechanism so that attorneys would be inclined to pay the fee unless they requested that the amount were deducted from their annual licensing fees. According to data from the State Bar, opt out rates have varied over the years. Since 2015, the opt-out out rates have been approximately 34% (2015); 35% (2016); 30% (2017); and 39% (2018). It is unclear why opt-out rates significantly increased in 2018, but the increase corresponds to the State Bar implementing a new online fee payment system, which may have some connection. But regardless of the cause, it is concerning that nearly one-third of attorneys exercise the option to deduct $40 from their licensing fees.

This Committee passed AB 1060 (Gray) earlier this year to make that fee mandatory and eliminate the opt-out, but that bill was not voted on by the full Assembly and is now on the Assembly’s Inactive File.

Justice Gap Fund Opt-In Campaign. As the result of AB 2301 of 2006, the State Bar established the Justice Gap Fund to promote charitable giving by lawyers. (Section 6033.) This program collects contributions by individual attorneys to support legal services via the State Bar’s annual membership dues collection process and by contributions made online at the State Bar's website. The suggested Justice Gap contribution is $100 per year. In 2008, its first year of operation, the fund generated an additional $1 million for legal aid programs throughout the state, representing contributions from about six percent of licensed attorneys. Unfortunately, despite great efforts by all involved, donations dropped by 20% to $800,000 in 2009 (5% of licensed attorneys), and have dropped even lower since then. In 2015–18, donations were collected from only about 4.5% of attorneys (ranging from a low of 4.2% in 2016 to a high of 4.6% in 2017). The performance of the Justice Gap Fund is by no means a reflection on the talented and dedicated volunteers who have organized and led this program, nor does it imply that California lawyers are less charitable than those in other states. The Committee's research indicates that every state that has adopted a voluntary giving program through their attorney license fee statements have had little success. It may be that the best time to approach lawyers for a charitable donation is not when they are required to pay their license fees, which are themselves hundreds of dollars. The request may be particularly difficult in January and February when California State Bar dues are collected – a period that is generally recognized as the least productive for charitable campaigns.

The Fee Increase Proposed by this Bill is Likely to Further Limit Attorney Giving. Given the very significant fee increase proposed by this bill, it is highly likely that even more attorneys will elect to opt out of their voluntary payments to support legal services. The Legal Aid Association of California (LAAC) writes that they “are concerned about what the increased fees will mean for voluntary (both “opt-in” and “opt-out”) contributions through the annual fees statement. In recent years, attorneys donated over $6 million annually to civil legal aid through those two lines in our fees statement. When dues for most attorneys will increase by 30-50%, we are concerned that attorneys will look for ways to save money and may opt out of the suggested $40 contribution.” California Lawyers Association reiterates this concern, writing that both the opt-in and opt-out funds may well decrease.

To address these very real concerns, LAAC asks the State Bar to “support efforts to shore up other funding,” something this Committee strongly supports. In addition, LAAC requests that the State Bar report back early on any possible drop in legal aid funds due to the licensing fee increase. This bill, as proposed to be amended, does just that by requiring the State Bar to report to the Senate and Assembly Committees on Judiciary, by April 30, 2020, on the collections, over the last five years from 2016 through 2020, for the $40 legal services opt out licensing fee and the voluntary justice gap opt-in fee to support legal services, and the percentage of attorneys who participate in these programs. This should help determine if there is indeed a problem during next year’s fee bill and allow for possible alternatives to improve those collections as soon as possible.

Reduced fees for certain lower-income attorneys. Current law allows the Bar’s Board of Trustees to waive the payment by any licensee of the annual license fee or any portion thereof, and requires the Board to, presumptively, reduce by 25% the licensee fee for any active attorney making less than $40,000 in gross income. The $40,000 limit has not been increased for 20 years. This bill increases the $40,000 limit by the growth in the Consumer Price Index over the last 20 years so that now all active attorneys making up to $60,478.35 will presumptively qualify for a waiver of 25% of the annual license fee.

While this is a good start, it is hoped that given the substantial fee increase proposed by this legislation, the State Bar will be able to offer reductions to other lower-income lawyers as well as, particularly, attorneys who work for legal aid organizations or similar nonprofits. LAAC writes that it is concerned about the impact of the fee increase on legal aid groups: “Most civil legal aid employers pay the fees for all of their attorneys, so the amount [of a fee increase], though small for an individual attorney, would be large for a nonprofit. This would ultimately take funding away from client services. . . .” This Committee hopes that the Bar will be able to expand its fee reduction to more lower-income attorneys, including legal aid lawyers.

As proposed to be amended, this bill adjusts the use of the affinity funds to better support access to justice. The 2017 Bar reform legislation, SB 36 (Jackson), Chap. 422, Stats. 2017, allowed the Bar to transfer, to the California Bar Foundation (since the renamed California ChangeLawyers), the marketing and sales to attorneys of discounts and other benefits, including insurance products. Those funds had historically been used by the Bar, in part, to fund excess business expenses for Bar executives and slush funds for the Board president. Proceeds from those sales now fund ChangeLawyers’ programs, legal services programs, and the Bar’s discipline functions or the Client Security Fund. Given the significant fee increase that this bill proposes and the reasonableness of having attorneys directly support the discipline functions of the State Bar through their licensing fees, this bill readjusts how the revenue from those marketing programs are used to better support access to justice.

First, the California Commission on Access to Justice (CCAJ) is moving from a subgroup of the State Bar to an independent entity by the end of this year as a result of the Bar’s renewed focus on its core regulatory activities. CCAJ’s advocacy has, among other things, helped increase the Equal Access Fund, which support legal aid programs across the state, and helped guarantee access to court reporters for low-income Californians. To successfully achieve this transition, the CCAJ writes that it “needs a modest amount of funding to support its infrastructure and most importantly to continue its work to be an independent voice for access to justice.” As proposed to be amended, this bill provides $150,000 a year from the marketing funds to support CCAJ over the next two years. Disability Rights California (DRC) also supports this use of the marketing funds.

As proposed to be amended, the remaining funds collected from the sale of insurance products to attorneys will be divided equally between legal services programs, ChangeLawyers, and the California Lawyers Association (CLA), the attorney trade association that spun off from the Bar at the beginning of 2018. As required by the legislation, CLA may only use these funds for “diversity, equity and inclusion, access to justice, and civic engagement efforts.” While it is clear that the funds to legal services program and ChangeLawyers will directly benefit low-income Californians, it is hoped that CLA will use these funds to improve access to legal services for low- and middle-income Californians and to help the Bar (which remains 80% white) look much more like the rest of California (which is only 37% white). (State Bar, Office of Research and Institutional Accountability, 2017 Demographic Survey, p. 14 (Jan. 26, 2017); U.S. Census Bureau, 2017 American Community Survey 1-year Estimates: Selected Characteristics of the Native and Foreign-Born Populations.)

Writing in support of using this revenue to support legal services programs, DRC writes:

We appreciate the recognition in this distribution that qualified legal services projects, of which DRC is a recipient, should be a proportionate beneficiary of these funds to support programs throughout the state that provide legal services to low-income individuals. State legal services funding continues to fall behind many other states. For example, California falls behind States such as New York and Massachusetts, which provides more than 10 times more funding per eligible client than California does. Looking to all sources of funding is critical and the proposed distribution recognizes that need.

More effort is needed to increase the diversity of California attorneys so that they can better reflect California. According to a 2017 demographic survey of attorneys in California that the Bar conducts every five years, fully 80 percent of attorneys in California are white and 57 percent are male. (California State Bar, Office of Research and Institutional Accountability, 2017 Demographic Survey.) This compares to a state where only 37% of the population is white. (U.S. Census Bureau, 2017 American Community Survey.) A workforce that reflects the diversity of our society has been shown to not only be fairer by offering more opportunity for all, but also to be a more effective workforce. Diversity of the legal profession is especially important because it provides access to our justice system and our democratic institutions, as well. The legal profession, however, is consistently among the least diverse professions.  

This Committee held a hearing on diversity of the legal profession this past May and learned that unfortunately, despite numerous and long-standing programs to diversify the legal profession, diversity has not significantly increased. While California has become more diverse, existing programs have barely kept pace with the changing demographics of the state and have not appreciably moved the needle. The profession and the judiciary, especially at the top ranks, remain significantly overrepresented by white males and underrepresented by everyone else, particularly women of color. Despite years of concerted effort to diversify the legal profession, little has changed.  In order to achieve the goal to have California’s bench and bar reflect the diversity our state and provide opportunity and justice for all, dramatic changes to state policies and priorities will be required. 

One very important step to improve diversity on the bench and to improve transparency of the judicial selection process was Governor Newsom’s recent decision to make public the names of the members of the eight Regional Judicial Selection Advisory Committees, so that all judicial applicants, not just those with the right connections, know who will be helping to evaluate their applications.

California’s Bar Exam passing score remains well above the rest of the nation and its passage rate remains lowest. California is renowned for having the toughest bar exam in the country, with the lowest pass rate, which hovered near historic lows this past year – at 31.4 percent for the February 2019 exam and 40.7 percent for the July 2018 exam. California’s low passage rate on the bar exam – both historically and particularly so today – is the result, at least in part, of its “cut score” or passing score, which was set in 1986 and is higher than all states, except Delaware.

According to the ABA, nationally, the eventual bar passage rate for minority students trailed their white peers by 10% – 85% to 95%, respectively. (American Bar Association, Embracing Opportunities for Increasing Diversity in the Legal Profession: Collaborating to Expand the Pipeline (2006).) The extremely high passing score on the California Bar Exam (the second highest in the nation) further exacerbates this problem; according to the State Bar, only 32 percent of black test takers; 47 percent of Latino test takers; and 49 percent of Asian test takers passed the bar exams offered in 2018, compared with 60 percent of their white peers. (State Bar of California, Advancing Diversity and Inclusion in the Legal Profession (2019).) If California’s passing score were reduced to the national average score, the racial disparities would not disappear, but they would be significantly reduced.

If the passing score on the bar exam were reduced to 1388, California would still have one of the nation’s highest cut scores, with only four states in the nation having a higher passing score. Furthermore, there does not seem to be any evidence that Californians would be harmed by a lower cut score and higher bar exam passage rate. The State Bar’s Committee of Bar Examiners (CBE) acknowledges that "[t]here is no empirical evidence available that would support a statement that as a result of its high pass line California lawyers are more competent than those in other states, nor is there any data that suggests that there are fewer attorney discipline cases per attorney capita in this state." (CBE, Standard Setting Study for the California Bar Examination and Related Recommendation to Circulate Two Options for Public Comment, pp. 8-9 (July 28, 2017).) The Bar adds that "the relationship between discipline rates and minimum competence . . . is unclear at best" and as a result, there are doubts that "changing the cut score would have any impact on the incidence of attorney misconduct." (California State Bar, Final Report on the 2017 California Bar Exam Standard Setting Study, pp. 42, 44 (Sept. 12, 2017).)

Given the apparent lack of correlation between reducing the passing score to the lower end of the statistically accurate scale suggested by the State Bar’s recent study and any reduction in public protection, the disproportionate impact on applicants of color, and the apparent negative consequences to both law students and Californians in need of legal representation of retaining the current passing score, it may be counterproductive to the goals of increasing diversity within the legal profession for California to continue to maintain its current cut score. It is hoped that the Supreme Court will soon reconsider its recent decision to retain the 30-year-old passing score for the bar exam.

Conference of California of Bar Associations. According to its website, the Conference of California Bar Associations (CCBA) “serves justice in California by bringing together attorney volunteers from all around the State to seek, debate, and promote creative, non-partisan solutions to law-related issues for the benefit of Californians.” In 1999, following the Supreme Court’s decision in Keller v. State Bar of California (1990) 496 U.S. 1, which prohibited the use of mandatory Bar fees to fund political and ideological activities, as a violation of a licensee’s First Amendment freedom of speech rights, the State Bar ceased funding CCBA (then the Conference of Delegates of the State Bar) and instead created a check-off box on the fees statement to allow attorneys to voluntary give to CCBA with their annual licensing fees. (SB 144 (Schiff), Chap. 342, Stats. 1999, adding Section 6031.5.) CCBA has received funding in this manner for the last 20 years. Last year, amendments by the Senate Judiciary Committee originally eliminated the check-off box entirely, but then provided it with a one-grace period and eliminate the check-off box effective January 1, 2020. (AB 3248 (Judiciary), Chap. 659, Stats. 2019, amending Section 6031.5.)

Bay Area Lawyers for Individual Freedom, the Los Angeles County Bar Association, the Ventura County Bar Association, and one individual write in support of continuing the check-off box on the fees statement in support of CCBA. They write that they “recognize (1) the invaluable and unique services provided by the association in promoting the fair and equal administration of justice for Californians, and (2) the threat that the currently planned and imminent elimination of the check-off poses to the continued operations of the association.” If the check-off box cannot be extended permanently, they request that at least it be extended for one more year so that CCBA can have a “meaningful opportunity to find alternate sources of funding.”

It should be noted that the Legislature last year provided CCBA with an additional year (2019) to secure funding beyond what is provided from voluntary donations through the licensing fees statement and it is not clear what efforts were made in this year. Nor is it clear why CCBA cannot raise sufficient funds outside the fees statement; the Committee has not received any information that might answer these questions.

The Bar has revised its discipline system to prioritize cases that have the greatest potential harm to the public. The primary recipient of attorney’s licensing fees is the Bar’s discipline system. According to the LAO, the discipline system, in entirety, spends 84% of the Bar’s general fund. (LAO, The California State Bar, supra, at p. 5.) The Bar has a statutory goal of resolving its discipline cases, from complaint to dismissal, admonishment, or filing of formal charges, within 180 days (Sections 6094.5 and 6140.2), and is required to report annually to the Legislature, the Governor, and the Chief Justice on the Bar’s discipline process and any backlog in discipline cases, defined as cases not processed within six months (Section 6086.15).

For too many years, the 180-day goal became the main focus of the Bar’s discipline reporting. Certainly to operate its discipline system effectively and maximize public protection, the Bar must minimize its backlog in order to prevent wayward attorneys and non-attorneys from continuing to practice law in a manner that endangers the public. However, focusing solely on the backlog can itself jeopardize public safety. The State Auditor discovered, in 2015, that, when taking steps to reduce the backlog, the Bar 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 then, 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. (California State Auditor, State Bar of California: It Has Not Consistently Protected the Public Through its Attorney Discipline Process and Lacks Accountability 1 (June 2015).)

Thus, while the backlog is an important measurement of the health of the Bar’s discipline system, it should not, by any means, be the sole driver of restructuring or reengineering decisions.

In the last few years, the Bar has reorganized its discipline staffing and, most importantly, has prioritized its cases so that rather than focusing on its oldest cases first, the Bar has now started prioritizing those cases that could most impact public protection. This new case prioritization is long overdue and the Committee applauds the Bar’s efforts. Even with focus on the most important cases, the Bar has still been able to reduce its backlog, when compared with last year, slightly.

However, it is worth considering, as suggested by the LAO in its report, what should be the appropriate backlog for the Bar’s discipline system. Some licensing agencies, such as the Dental Board, have longer disposition time periods. (See LAO, The California State Bar, supra, at p. 29.) Or, perhaps, the cases with the highest priority should have shorter statutory timeframes, while the cases with lower priority should have a longer disposition times. These are issues that this Committee may wish to consider before approving any further staffing positions for the Bar.

ARGUMENTS IN SUPPORT: In support of the bill (as well as a multi-year fee bill), the Service Employees International Union (SEIU) Local 1000, which represents the attorney and non-attorney employees of the State Bar, writes:

Ultimately, if a fee bill is nor approved by the Legislature, the State Bar has to make abrupt reductions, limiting the ability of the State Bar employees to process complaints against attorneys. The public protection function of the State Bar is essential to our state’s legal system. The employees of the State Bar have consistently demonstrated a high degree of productivity, diligence, and professionalism in the State Bar’s day-to-day operations. State Bar employees are committed to meeting their mission of public protection and a multi-year fee bill that provides staff with the resources to do this work is critical to long-term planning.

ARGUMENTS IN OPPOSITION: The Orange County Bar Association outright opposes the fee increase, writing that although they prefer the fee increase recommended by the State Auditor over the much large fee increase proposed by the Bar, “we still believe an increase to $525 . . . is unnecessary and potentially harmful to the public.” The group also expresses its concern that the fee increase is “merely a first step in a series of additional increases over the next few years.”

Other bar associations, while not outright opposed to the bill, write to express their concerns about the fee increase. The Alameda County Bar Association and the Executives of California Lawyers Associations write:

We are concerned, of course, about the impact that the proposed dramatic increase will have on our members. But our concern goes much deeper. This proposed increase would certainly lead to some of our members dropping their membership in our bar – and that would not just affect our nonprofit associations, but also the public at large. Voluntary bar associations generally operate on a shoe-string budget, and [adds the Alameda County Bar Association] a significant loss of membership would be devastating to our programs and our very existence.

The Association of Discipline Defense Counsel adds that they “do not think the State Bar has sufficiently demonstrated that its stated needs for the proposed increases are sufficiently necessary to justify the staggering increases recommended.”

REGISTERED SUPPORT / OPPOSITION:

Support

California Commission on Access to Justice (in part)

Disability Rights California (in part)

Service Employees International Union Local 1000

Opposition

Orange County Bar Association

One individual (unless amended)

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

 THIRD READING 

Bill No: SB 176

Author: Jackson (D)

Amended: 5/22/19

Vote: 21

SENATE JUDICIARY COMMITTEE: 9-0, 4/30/19

AYES: Jackson, Borgeas, Allen, Caballero, Jones, Monning, Stern, Umberg, Wieckowski

SUBJECT: State Bar of California

SOURCE: Author

DIGEST:

This bill is the annual State Bar fee bill that authorizes the collection of attorney licensing fees.

Senate Floor Amendments of 5/22/19 authorize active licensee fees and inactive licensee fees in the amount recommended by the Auditor of the State of California (Auditor) for 2020 and express the intent of the Legislature that the State Bar use licensee fees for active and inactive licensees in a manner that is consistent with the Auditor’s report released on April 30, 2019. The amendments also revert provisions that were intended to streamline the commencement of service by the Board of Trustees’ (Board) Senate Rules Committee appointees and Assembly appointees back to existing law.

ANALYSIS:

Existing law:

1. Establishes that protection of the public, which includes support for greater access to, and inclusion in, the legal system, shall be the highest priority for the State Bar and the Board in exercising their licensing, regulatory, and disciplinary functions. Whenever the protection of the public is inconsistent with other interests sought to be promoted, the protection of the public shall be paramount. (Bus. & Prof. Code § 6001.1.)
2. Requires attorneys who practice law in California be licensed by the State Bar and establishes the State Bar for the purpose of regulating the legal profession. The Legislature sets the annual fees. (Bus. & Prof. Code § 6000 et seq.)
3. Authorizes the State Bar to collect the following annually from active members: $315 in license fees (Bus. & Prof. Code § 6140); $40 for the Client Security Fund (Bus. & Prof. Code § 6140.55); $25 for disciplinary activities (Bus. & Prof. Code § 6140.6); and $10 to fund the Lawyer Assistance Program (Bus. & Prof. Code § 6140.9). Requires the State Bar to provide each licensee the option of deducting $5 from the annual fee if the licensee elects not to support lobbying and related activities, as specified. (Bus. & Prof. Code § 6140.05.)
4. Authorizes the State Bar to collect the following annually from inactive members: $75 in license fees (Bus. & Prof. Code § 6141); $10 for the Client Security Fund (Bus. & Prof. Code § 6140.55); $25 for disciplinary activities (Bus. & Prof. Code § 6140.6); and $5 to fund the Lawyer Assistance Program (Bus. & Prof. Code § 6140.9). Requires the State Bar to provide each licensee the option of deducting $5 from the annual fee if the licensee elects not to support lobbying and related activities, as specified. (Bus. & Prof. Code § 6140.05.)
5. Requires the Board to adopt a rule or rules providing that an active licensee who can demonstrate total gross annual individual income from all sources of less than $40,000 presumptively qualifies for a waiver of 25 percent of the annual license fee. (Bus. & Prof. Code § 6141.1.)
6. Provides for the establishment of a nonprofit association, known as the California Lawyers Association, comprised of the former sections of the State Bar and the California Young Lawyers Association. The nonprofit association may provide mandatory continuing legal education, as specified. The nonprofit association may have dues collected on the State Bar dues invoice and must operate pursuant to a mission, as specified. (Bus. & Prof. Code § 6055, et. seq.)
7. Requires the Board to contract with the Auditor to conduct audits of the State Bar’s operations, as specified. For the 2019 audit, the Auditor was required to engage in a performance audit that assesses and reviews specific aspects of State Bar operations, including an evaluation of each program or division of the State Bar receiving support from the annual State Bar licensing fees and other fees required of active and inactive licensees. (Bus. & Prof. Code § 6145.)
8. Requires the Legislative Analyst’s Office (LAO), to assess whether the State Bar effectively utilizes licensing fee revenues to maximize efficiencies in each program or division of the State Bar that receives support from the annual licensing fee and other fees active and inactive licensees are required to pay, as specified. The LAO shall submit the report by July 1, 2019. (Bus. & Prof. Code § 6145 (d).)
9. Requires the Board to be comprised of attorney and nonattorney members, as specified, and requires that vacancies be filled. (Bus. & Prof. Code §§ 6013.1; 6013.3; 6013.5)
10. Requires the State Bar to provide offers of discounts and other benefits to active and inactive licensees of the State Bar, including insurance and affinity programs. (Bus. & Prof. Code § 6141.3 (a).)
11. Requires revenue received from the affinity programs to support the programs of the California Bar Foundation, including support for qualified legal services projects, discipline at the State Bar, and the Client Security Fund. Existing law authorizes the State Bar, if approved by the Board and the California Bar Foundation, to transfer administration of those programs offering discounts and other benefits to active and inactive licensees to the California Bar Foundation, subject to specified distributions of the revenue received from those programs, as provided. (Bus. & Prof. Code § 6141.3.)
12. Provides that given the public protection mission of the State Bar, the Legislature finds that it would be inappropriate for the State Bar to administer the program on a long-term basis. Therefore, should the program continue to operate after December 31, 2018, it is the intent of the Legislature that the program be administered by an entity other than the State Bar. (Bus. & Prof. Code § 6141.3 (d).)
13. Provides that it is the intent of the Legislature that the State Bar seek ways and means to identify and rehabilitate attorneys with impairment due to abuse of drugs or alcohol, or due to mental illness, affecting competency so that attorneys so afflicted may be treated and returned to the practice of law in a manner that will not endanger the public health and safety. (Bus. & Prof. Code § 6230.)

This bill:

1. Authorizes active licensee fee increases and inactive licensee fee increases in the amount recommended by the Auditor for 2020 and expresses the intent of the Legislature that the State Bar use licensee fees for active and inactive licensees in a manner that is consistent with the Auditor’s report released on April 30, 2019.
2. Requires the Board to adopt a rule or rules providing that an active licensee who can demonstrate total gross annual individual income from all sources of less than $60,478.35 presumptively qualifies for a waiver of 25 percent of the annual license fee.
3. Repeals provisions that require the secretary of the State Bar to be selected annually by the Board and repeals other provisions that are inconsistent with the new appointment structure of the Board.
4. Specifies when the term of an appointee of the Supreme Court to the Board commences.
5. Provides that if approved by the California Lawyers Association, California ChangeLawyers, and Cal Bar Affinity, all revenue received from the insurance affinity programs, less the administrative costs of, and taxes incurred by, Cal Bar Affinity in operating the programs, shall be distributed as follows on and after January 1, 2020:

• Thirty-seven and one-half percent of the revenue shall go to California ChangeLawyers provided that five percent of that amount shall be used to fund joint legal fellowships from the California Lawyers Association or an affiliated nonprofit organization established under Section 501(c)(3) of the Internal Revenue Code (hereinafter referred to as an affiliated 501(c)(3) organization) and California ChangeLawyers to qualified legal services projects and support centers, as defined in subdivisions (a) and (b) of Section 6213, located in rural areas of the state.
• Thirty-seven and one-half percent of the revenue shall go to the California Lawyers Association or an affiliated 501(c)(3) organization to support their respective diversity, equity and inclusion, access to justice, and civic engagement efforts, provided that five percent of that amount shall be used to fund joint legal fellowships from the California Lawyers Association or an affiliated 501(c)(3) organization and California ChangeLawyers to qualified legal services projects and support centers, as defined in subdivisions (a) and (b) of Section 6213, located in rural areas of the state.
• Twenty-five percent of the revenue shall go to California ChangeLawyers, which shall distribute that revenue to qualified legal services projects and support centers in accordance with the formula provided in Section 6216.

1. Changes the phrasing of “abuse of drugs or alcohol” to “substance use” to conform to the phrasing throughout the State Bar Act and codifies the ChangeLawyers dues voluntary check-off.

Background

The State Bar is a public corporation. 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, § 9.) The power to regulate the practice of law, including the power to admit and to discipline attorneys, is among the inherent powers of the Supreme Court. The State Bar functions as the administrative arm of the Supreme Court for the purpose of assisting in attorney admissions and discipline, with the Court retaining its inherent judicial authority to disbar or suspend attorneys.

Last year’s State Bar fee bill included provisions that required an audit of the State Bar by the Auditor’s Office and a study by the LAO. The audit and study are designed to inform the Legislature’s deliberations regarding a potential increase in fees. The Auditor’s audit was released on April 30, 2019, the same day this bill was heard in the Senate Judiciary Committee. The LAO’s study is due to the Legislature on July 1, 2019. The bill authorizes increases in active licensee fees and inactive licensee fees in the amount recommended by the Auditor of the State of California (Auditor) for 2020 and expresses the intent of the Legislature that the State Bar use licensee fees for active and inactive licensees in a manner that is consistent with the Auditor’s report released on April 30, 2019. This bill also contains provisions that raise the salary cap that qualifies attorneys to pay reduced licensing fees.

Comments

The author writes:

The power to regulate the practice of law, including the power to admit and to discipline attorneys, is among the inherent powers of the Supreme Court. The State Bar functions as the administrative arm of the Supreme Court for the purpose of assisting in attorney admissions and discipline, with the court retaining its inherent judicial authority to disbar or suspend attorneys. At the same time, the Legislature’s exercise, under the police power, of a reasonable degree of regulation and control over the profession and practice of law in California, is well established. The Legislature also exercises regulatory authority pursuant to the State Bar Act and has authority to set the amount of fees necessary to fund the disciplinary system. The Legislature has enacted statutes making protection of the public the highest priority of the State Bar and empowering the Bar to promote improvement of the administration of justice.

This bill continues the Legislature’s oversight of the State Bar through the annual fee authorization bill.  The State Bar is requesting a substantial fee increase for 2020 and beyond. The State Auditor conducted an audit of the State Bar to help the Legislature ascertain whether a fee increase is warranted. The audit was released on the day this bill was heard in the Senate Committee on Judiciary. This bill authorizes licensee fee increases in the amount recommended by the State Auditor for 2020 and directs the State Bar to use licensee fees in a manner that is consistent with the Auditor’s recommendations.

This bill amends Business and Professions Code Section 6140 to provide that the State Bar may assess a licensing fee for active licensees of $460 for 2020. This $460 licensing fee includes $22 for IT, $16 for capital improvements, $3 for the general fund reserve, and $40 for the client security fund. In addition to the $460, an active licensee would still be assessed the ongoing $25 for discipline, the ongoing $40 for the Client Security Fund, and the ongoing $10 for the Lawyer Assistance Program. This would mean that the State Bar would be authorized to assess fees in the total amount of $535 to active licensees in 2020.

This bill also amends Business and Professions Code Section 6141 to provide that the State Bar may assess a licensing fee for inactive licensees of $109 for 2020. This $109 licensing fee includes: $11 for IT, capital improvements, and the general fund reserve; and $10 for the client security fund. In addition to the $109, an inactive licensee would still be assessed the ongoing $25 for discipline, the ongoing $10 for the Client Security Fund, and the ongoing $5 for the Lawyer Assistance Program. This would mean that the State Bar would be authorized to assess fees in the total amount of $149 to inactive licensees in 2020.

The State Bar was requesting mandatory active licensee fees to be increased to total more than $800 in 2020. The Orange County Bar Association (OCBA) submitted a letter expressing concern with the State Bar’s proposal to increase mandatory fees. The OCBA wrote that they “agree with the California State Auditor’s April 30, 2019 Report that the State Bar has not adequately demonstrated its needs underlying the proposed increases…” The OCBA urged the Legislature to “consider an increase far more modest than that proposed by the State Bar.” The OCBA was also clear that even the Auditor’s proposed increase “could have distressing effects on the OCBA’s and other local bar associations’ ability to deliver legal services to underserved populations, albeit not as significant and devastating an effect as the State Bar’s proposed increase to $813.”

Related/Prior Legislation

SB 544 (Umberg, 2019) prohibits the staff of the State Bar or the members of the examining committee from reviewing an applicant’s medical records relating to mental health when reviewing whether an applicant is of good moral character, as specified.

AB 1024 (Gonzalez, Chapter 573, Statutes of 2013) allowed applicants, who are not lawfully present in the United States, to be admitted as attorneys at law.

AB 3249 (Assembly Committee on Judiciary, Chapter 659, Statutes of 2018) authorized the State Bar to collect annual licensing fees of $390 for 2019 and enact other reforms, including a strengthening of the attorney discipline system.

SB 36 (Jackson, 2017, Chapter 422, Statutes of 2017) authorized the State Bar to collect active membership dues of up to $390 for the year 2018; reformed the State Bar Act by separating the sections from the State Bar and creating what is now the California Lawyers Association; changed the composition of the State Bar Board; and enacted various reforms to remove politics from the Board.

AB 2878 (Committee on Judiciary, 2016) would have authorized bar dues for 2017 and enacted numerous reforms. The bill died on concurrence on the Assembly Floor.

SB 387 (Jackson, Chapter 537, Statutes of 2015) authorized the State Bar to collect active licensee fees of up to $390 for the year 2016; required the State Bar to develop and implement a specified workforce plan for its discipline system; required the State Bar to conduct a public sector compensation and benefits study, conduct a thorough analysis of its operating costs and develop a spending plan to determine a reasonable amount for the annual membership fee, as specified; required the State Bar to contract with the Auditor’s Office to conduct an in-depth financial audit of the State Bar; and made the State Bar subject to the Bagley-Keene Open Meeting Act and the California Public Records Act, as specified.

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

SUPPORT: (Verified 5/23/19)

None received

OPPOSITION: (Verified 5/23/19)

Orange County Bar Association

One individual

Prepared by: Margie Estrada / JUD. / (916) 651-4113

5/23/19 17:14:58

**** END ****

 THIRD READING 

Bill No: SB 176

Author: Jackson (D)

Amended: 4/25/19

Vote: 21

SENATE JUDICIARY COMMITTEE: 9-0, 4/30/19

AYES: Jackson, Borgeas, Allen, Caballero, Jones, Monning, Stern, Umberg, Wieckowski

SUBJECT: State Bar of California

SOURCE: Author

DIGEST:

This is the annual State Bar fee bill that will serve as the vehicle to reauthorize the collection of attorney licensing fees.

ANALYSIS:

Existing law:

1. Establishes that protection of the public, which includes support for greater access to, and inclusion in, the legal system, shall be the highest priority for the State Bar and the Board of Trustees (Board) in exercising their licensing, regulatory, and disciplinary functions. Whenever the protection of the public is inconsistent with other interests sought to be promoted, the protection of the public shall be paramount. (Bus. & Prof. Code § 6001.1.)
2. Requires all attorneys who practice law in California to be licensed by the State Bar and establishes the State Bar for the purpose of regulating the legal profession. The Legislature sets the annual fees. (Bus. & Prof. Code § 6000 et seq.)
3. Authorizes the State Bar to collect $315 in annual license fees from active members for a total annual dues amount of $390 for 2019. (Bus. & Prof. Code § 6140.)
4. Requires the Board to adopt a rule or rules providing that an active licensee who can demonstrate total gross annual individual income from all sources of less than $40,000 presumptively qualifies for a waiver of 25 percent of the annual license fee. (Bus. & Prof. Code § 6141.1.)
5. Authorizes the State Bar to assess annually the following fees to active members: $40 for the Client Security Fund (Bus. & Prof. Code § 6140.55); $25 for disciplinary activities (Bus. & Prof. Code § 6140.6); and $10 to fund the Lawyer Assistance Program. (Bus. & Prof. Code § 6140.9).
6. Authorizes the State Bar to assess annually the following fees to inactive members: $10 for the Client Security Fund (Bus. & Prof. Code § 6140.55); $25 for disciplinary activities (Bus. & Prof. Code § 6140.6); and $5 to fund the Lawyer Assistance Program. (Bus. & Prof. Code § 6140.9.)
7. Authorizes the State Bar to increase the annual membership fees by an additional $40, to be allocated only for purposes of providing voluntary support for nonprofit organizations that provide free legal services to persons of limited means. Members have the option of deducting the $40 from the annual membership fee if they elect not to have the amount allocated for the purposes of legal services. (Bus. & Prof. Code §§ 6033, 6140.03.)
8. Requires the Board to establish and administer a Client Security Fund to relieve or mitigate pecuniary losses caused by dishonest conduct of active members of the State Bar, as specified. (Bus. & Prof. Code § 6140.5.)
9. Provides for the establishment of a nonprofit association, known as the California Lawyers Association, comprised of the former sections of the State Bar and the California Young Lawyers Association. The nonprofit association may provide mandatory continuing legal education, as specified. The nonprofit association may have dues collected on the State Bar dues invoice and must operate pursuant to a mission, as specified. (Bus. & Prof. Code § 6055, et. seq.)
10. Requires the Board to contract with the California State Auditor’s Office to conduct audits of the State Bar’s operations, as specified. For the 2019 audit, the State Auditor’s Office is required to engage in a performance audit that assesses and reviews specific aspects of State Bar operations, including an evaluation of each program or division of the State Bar receiving support from the annual State Bar licensing fees and other fees required of active and inactive licensees. The Auditor’s audit is required to be submitted by May 1, 2019 to the Senate and Assembly Committees on Judiciary, the Chief Justice of the Supreme Court, and Board. (Bus. & Prof. Code § 6145.)
11. Requires the Legislative Analyst’s Office (LAO), to assess whether the State Bar effectively utilizes licensing fee revenues to maximize efficiencies in each program or division of the State Bar that receives support from the annual licensing fee and other fees active and inactive licensees are required to pay, as specified. The LAO shall submit the report to the Legislature and to the Chief Justice of the Supreme Court by July 1, 2019. (Bus. & Prof. Code § 6145 (d).)
12. Requires the Board to be comprised of attorney and nonattorney members, as specified, and requires that vacancies be filled. (Bus. & Prof. Code §§ 6013.1; 6013.3; 6013.5)
13. Requires the State Bar to provide offers of discounts and other benefits to active and inactive licensees of the State Bar, including insurance and affinity programs. (Bus. & Prof. Code § 6141.3 (a).)
14. Requires revenue received from the affinity programs to support the programs of the California Bar Foundation, including support for qualified legal services projects, discipline at the State Bar, and the Client Security Fund. Existing law authorizes the State Bar, if approved by the Board and the California Bar Foundation, to transfer administration of those programs offering discounts and other benefits to active and inactive licensees to the California Bar Foundation, subject to specified distributions of the revenue received from those programs, as provided. (Bus. & Prof. Code § 6141.3.)
15. Provides that given the public protection mission of the State Bar, the Legislature finds that it would be inappropriate for the State Bar to administer the program on a long-term basis. Therefore, should the program continue to operate after December 31, 2018, it is the intent of the Legislature that the program be administered by an entity other than the State Bar. (Bus. & Prof. Code § 6141.3 (d).)
16. Provides that it is the intent of the Legislature that the State Bar seek ways and means to identify and rehabilitate attorneys with impairment due to abuse of drugs or alcohol, or due to mental illness, affecting competency so that attorneys so afflicted may be treated and returned to the practice of law in a manner that will not endanger the public health and safety. (Bus. & Prof. Code § 6230.)
17. Provides that upon certification by the examining committee that the applicant has fulfilled the requirements for admission to practice law, the Supreme Court may admit the applicant as an attorney at law in all the courts of this state and may direct an order to be entered upon its records to that effect. A certificate of admission thereupon shall be given to the applicant by the clerk of the court. (Bus. & Prof. Code § 6064 (a).)
18. Provides that upon certification by the examining committee that an applicant who is not lawfully present in the United States has fulfilled the requirements for admission to practice law, the Supreme Court may admit that applicant as an attorney at law in all the courts of this state and may direct an order to be entered upon its records to that effect. A certificate of admission thereupon shall be given to the applicant by the clerk of the court. (Bus. & Prof. Code § 6064 (b).)

This bill:

1. Requires the Board to charge an annual license fee in an unspecified amount for 2020. This amount is left blank for mandatory fees pending the results of the Auditor’s audit and LAO study.
2. Requires the Board to adopt a rule or rules providing that an active licensee who can demonstrate total gross annual individual income from all sources of less than $60,478.35 presumptively qualifies for a waiver of 25 percent of the annual license fee.
3. Repeals provisions that require the secretary of the State Bar to be selected annually by the Board and repeals other provisions that are inconsistent with the new appointment structure of the Board.
4. Specifies when the term of an appointee to the Board commences.
5. Provides that if approved by the California Lawyers Association, California ChangeLawyers, and Cal Bar Affinity, all revenue received from the insurance affinity programs, less the administrative costs of, and taxes incurred by, Cal Bar Affinity in operating the programs, shall be distributed as follows on and after January 1, 2020:

• Thirty-seven and one-half percent of the revenue shall go to California ChangeLawyers provided that five percent of that amount shall be used to fund joint legal fellowships from the California Lawyers Association or an affiliated nonprofit organization established under Section 501(c)(3) of the Internal Revenue Code (hereinafter referred to as an affiliated 501(c)(3) organization) and California ChangeLawyers to qualified legal services projects and support centers, as defined in subdivisions (a) and (b) of Section 6213, located in rural areas of the state.
• Thirty-seven and one-half percent of the revenue shall go to the California Lawyers Association or an affiliated 501(c)(3) organization to support their respective diversity, equity and inclusion, access to justice, and civic engagement efforts, provided that five percent of that amount shall be used to fund joint legal fellowships from the California Lawyers Association or an affiliated 501(c)(3) organization and California ChangeLawyers to qualified legal services projects and support centers, as defined in subdivisions (a) and (b) of Section 6213, located in rural areas of the state.
• Twenty-five percent of the revenue shall go to California ChangeLawyers, which shall distribute that revenue to qualified legal services projects and support centers in accordance with the formula provided in Section 6216.

1. Changes the phrasing of “abuse of drugs or alcohol” to “substance use” to conform to the phrasing throughout the State Bar Act and codifies the ChangeLawyers dues voluntary check-off.

Background

The State Bar is a public corporation. 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, § 9.) The power to regulate the practice of law, including the power to admit and to discipline attorneys, is among the inherent powers of the Supreme Court. The State Bar functions as the administrative arm of the Supreme Court for the purpose of assisting in attorney admissions and discipline, with the Court retaining its inherent judicial authority to disbar or suspend attorneys.

The California State Bar is the largest state bar in the country. This year the State Bar is pushing for an increase of recurring fees of $100. This increase represents about a 30 percent increase in fees because fees for 2019 were $315. The State Bar is also requesting an additional one-time amount of $330 that attorneys would need to pay in 2020 for a variety of purposes, including technology and infrastructure, and funding for the Client Security Fund.

Last year’s State Bar fee bill included provisions that required an audit of the State Bar by the State Auditor’s Office and a study by the LAO. The audit and study are designed to inform the Legislature’s deliberations regarding a potential increase in fees. The Auditor’s audit was released on April 30, 2019, the same day this bill was heard in the Senate Judiciary Committee. The LAO’s study is due to the Legislature on July 1, 2019.

The Auditor of the State of California determined, among other things, that the State Bar’s proposed 2020 licensing fee includes a premature staffing increase; the State Bar’s proposed 2020 special assessment fee includes premature funding for some projects; and the State Bar’s proposed 2020 program fees are higher than necessary. The Auditor also criticized the State Bar for not maximizing lease revenue from its San Francisco building. According to the Auditor, the State Bar entered “into leases that are below market value, and it has not leased all available space in the building.”

The Auditor additionally recommended that the Legislature “should adopt a multiyear fee cycle.” The Legislature may wish to review how the State Bar is implementing the recommendations of the Auditor, the future recommendations of the LAO, and how the State Bar has been implementing Legislative priorities, such as ensuring that nefarious attorneys are no longer allowed to practice law, and ensuring that AB 1024 (Gonzalez, Chapter 573, Statutes of 2013) has been fully implemented. AB 1024 allowed applicants, who are not lawfully present in the United States, to be admitted as attorneys at law.

SB 176 contains provisions that raise the salary cap that qualify attorneys to pay reduced licensing fees. This bill also contains provisions that require California ChangeLawyers to administer the insurance affinity programs historically administered by the State Bar and require that the proceeds fund Legal Services Projects, the ChangeLawyers, and the California Lawyers Association, as specified. This bill also contains provisions to update the State Bar Act because of changes to the composition of the State Bar Board and changes due to the creation of the California Lawyers Association. This bill also codifies that the ChangeLawyers, formerly the California Bar Foundation, can appear on the State Bar fee invoice as they have been appearing on the invoice for years.

Comments

The author writes:

The power to regulate the practice of law, including the power to admit and to discipline attorneys, is among the inherent powers of the Supreme Court. The State Bar functions as the administrative arm of the Supreme Court for the purpose of assisting in attorney admissions and discipline, with the court retaining its inherent judicial authority to disbar or suspend attorneys. At the same time, the Legislature’s exercise, under the police power, of a reasonable degree of regulation and control over the profession and practice of law in California, is well established. The Legislature also exercises regulatory authority pursuant to the State Bar Act and has authority to set the amount of membership fees necessary to fund the disciplinary system. The Legislature has enacted statutes making protection of the public the highest priority of the State Bar and empowering the Bar to promote improvement of the administration of justice.

This bill continues the Legislature’s oversight of the State Bar through the annual fee authorization bill.  The State Bar is requesting a substantial fee increase for 2020 and beyond. The State Auditor conducted an audit of the State Bar to help the Legislature ascertain whether a fee increase is warranted. The audit was released on the day this bill was heard in the Senate Committee on Judiciary. Additionally, the Legislative Analyst’s Office is conducting a study that is due to the Legislature by July 1^st. The Study will also aid the Legislature in assessing whether a fee increase is necessary.

Related/Prior Legislation

SB 544 (Umberg, 2019) prohibits the staff of the State Bar or the members of the examining committee from reviewing an applicant’s medical records relating to mental health when reviewing whether an applicant is of good moral character, as specified. The bill is currently in the Senate Judiciary Committee.

AB 1024 (Gonzalez, Chapter 573, Statutes of 2013) allowed applicants, who are not lawfully present in the United States, to be admitted as attorneys at law.

AB 3249 (Assembly Committee on Judiciary, Chapter 659, Statutes of 2018) authorized the State Bar to collect annual licensing fees of $390 for 2019 and enact other reforms, including a strengthening of the attorney discipline system.

SB 36 (Jackson, 2017, Chapter 422, Statutes of 2017) authorized the State Bar to collect active membership dues of up to $390 for the year 2018; reformed the State Bar Act by separating the sections from the State Bar and creating what is now the California Lawyers Association; changed the composition of the State Bar Board; and enacted various reforms to remove politics from the Board.

AB 2878 (Committee on Judiciary, 2016) would have authorized bar dues for 2017 and enacted numerous reforms. The bill died on concurrence on the Assembly Floor.

SB 387 (Jackson, Chapter 537, Statutes of 2015) authorized the State Bar to collect active licensee fees of up to $390 for the year 2016; required the State Bar to develop and implement a specified workforce plan for its discipline system; required the State Bar to conduct a public sector compensation and benefits study, conduct a thorough analysis of its operating costs and develop a spending plan to determine a reasonable amount for the annual membership fee, as specified; required the State Bar to contract with the State Auditor’s Office to conduct an in-depth financial audit of the State Bar; and made the State Bar subject to the Bagley-Keene Open Meeting Act and the California Public Records Act, as specified.

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

SUPPORT: (Verified 5/3/19)

None received

OPPOSITION: (Verified 5/3/19)

One individual

Prepared by: Margie Estrada / JUD. / (916) 651-4113

5/8/19 15:54:59

**** END ****

SENATE JUDICIARY COMMITTEE

Senator Hannah-Beth Jackson, Chair

2019-2020 Regular Session

Bill No: SB 176 (Author:Jackson)

Version: April 25, 2019

Hearing Date: April 30, 2019

Fiscal: No

Urgency: No

Consultant: MEC

SUBJECT

State Bar of California

DIGEST

This is the annual State Bar fee bill that will serve as the vehicle to reauthorize the collection of attorney licensing fees.

EXECUTIVE SUMMARY

The State Bar of California (State Bar) is a public corporation. 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, § 9.) The power to regulate the practice of law, including the power to admit and to discipline attorneys, is among the inherent powers of the Supreme Court. The State Bar functions as the administrative arm of the Supreme Court for the purpose of assisting in attorney admissions and discipline, with the Court retaining its inherent judicial authority to disbar or suspend attorneys.

The California State Bar is the largest state bar in the country. This year the State Bar is pushing for an increase of recurring fees of $100. This increase represents about a 30 percent increase in fees because fees for 2019 were $315. There has not been a fee increase in 20 years. If the fees of 20 years ago were adjusted for inflation pursuant to the Consumer Price Index (CPI), fees would need to be increased by $170.^[1] The State Bar of California is also requesting an additional one-time amount of $330 that attorneys would need to pay in 2020 for a variety of purposes, including technology and infrastructure, and funding for the Client Security Fund (CSF).

Last year’s State Bar fee bill included provisions that required an audit of the State Bar by the State Auditor’s Office and a study by the Legislative Analyst’s Office (LAO). The audit and study are designed to inform the Legislature’s deliberations regarding a potential increase in fees. The State Auditor’s audit is due to be released on April 30, 2019, the same day this bill is set to be heard in this Committee. The LAO’s study is due to the Legislature on July 1, 2019.

SB 176 contains provisions that would raise the salary cap that qualify attorneys to pay reduced licensing fees. This bill also contains provisions that require California ChangeLawyers to administer the insurance affinity programs historically administered by the State Bar and require that the proceeds fund Legal Services Projects, the ChangeLawyers, and the California Lawyers Association, as specified. The bill also contains provisions to update the State Bar Act because of changes to the composition of the State Bar Board and changes due to the creation of the California Lawyers Association. The bill also codifies that the ChangeLawyers, formerly the California Bar Foundation, can appear on the State Bar fee invoice as they have been appearing on the invoice for years.

PROPOSED CHANGES TO THE LAW

Existing law:

1. Establishes that protection of the public, which includes support for greater access to, and inclusion in, the legal system, shall be the highest priority for the State Bar and the Board of Trustees (Board) in exercising their licensing, regulatory, and disciplinary functions. Whenever the protection of the public is inconsistent with other interests sought to be promoted, the protection of the public shall be paramount. (Bus. & Prof. Code § 6001.1.)
2. Requires all attorneys who practice law in California to be licensed by the State Bar and establishes the State Bar for the purpose of regulating the legal profession. The Legislature sets the annual fees. (Bus. & Prof. Code § 6000 et seq.)
3. Authorizes the State Bar to collect $315 in annual license fees from active members for a total annual dues amount of $390 for 2019. (Bus. & Prof. Code § 6140.)
4. Requires the Board to adopt a rule or rules providing that an active licensee who can demonstrate total gross annual individual income from all sources of less than $40,000 presumptively qualifies for a waiver of 25 percent of the annual license fee. (Bus. & Prof. Code § 6141.1.)
5. Authorizes the State Bar to assess annually the following fees to active members: $40 for the Client Security Fund (Bus. & Prof. Code § 6140.55); $25 for disciplinary activities (Bus. & Prof. Code § 6140.6); and $10 to fund the Lawyer Assistance Program. (Bus. & Prof. Code § 6140.9).
6. Authorizes the State Bar to assess annually the following fees to inactive members: $10 for the Client Security Fund (Bus. & Prof. Code § 6140.55); $25 for disciplinary activities (Bus. & Prof. Code § 6140.6); and $5 to fund the Lawyer Assistance Program. (Bus. & Prof. Code § 6140.9.)
7. Authorizes the State Bar to increase the annual membership fees by an additional $40, to be allocated only for purposes of providing voluntary support for nonprofit organizations that provide free legal services to persons of limited means. Members have the option of deducting the $40 from the annual membership fee if they elect not to have the amount allocated for the purposes of legal services. (Bus. & Prof. Code §§ 6033, 6140.03.)
8. Requires the Board to establish and administer a Client Security Fund to relieve or mitigate pecuniary losses caused by dishonest conduct of active members of the State Bar, as specified. (Bus. & Prof. Code § 6140.5.)
9. Provides for the establishment of a nonprofit association, known as the California Lawyers Association, comprised of the former sections of the State Bar and the California Young Lawyers Association. The nonprofit association may provide mandatory continuing legal education, as specified. The nonprofit association may have dues collected on the State Bar dues invoice and must operate pursuant to a mission, as specified. (Bus. & Prof. Code § 6055, et. seq.)
10. Requires the Board to contract with the California State Auditor’s Office to conduct audits of the State Bar’s operations, as specified. For the 2019 audit, the State Auditor’s Office is required to engage in a performance audit that assesses and reviews specific aspects of State Bar operations, including an evaluation of each program or division of the State Bar receiving support from the annual State Bar licensing fees and other fees required of active and inactive licensees. The Auditor’s audit is required to be submitted by May 1, 2019 to the Senate and Assembly Committees on Judiciary, the Chief Justice of the Supreme Court, and Board. (Bus. & Prof. Code § 6145.)
11. Requires the LAO, to assess whether the State Bar effectively utilizes licensing fee revenues to maximize efficiencies in each program or division of the State Bar that receives support from the annual licensing fee and other fees active and inactive licensees are required to pay, as specified. The LAO shall submit the report to the Legislature and to the Chief Justice of the Supreme Court by July 1, 2019. (Bus. & Prof. Code § 6145 (d).)
12. Requires the Board to be comprised of attorney and nonattorney members, as specified, and requires that vacancies be filled. (Bus. & Prof. Code §§ 6013.1; 6013.3; 6013.5)
13. Existing law requires the State Bar to provide offers of discounts and other benefits to active and inactive licensees of the State Bar, including insurance and affinity programs. (Bus. & Prof. Code § 6141.3 (a).)
14. Existing law requires revenue received from the affinity programs to support the programs of the California State Bar Foundation, including support for qualified legal services projects, discipline at the State Bar, and the Client Security Fund. Existing law authorizes the State Bar, if approved by the Board and the California Bar Foundation, to transfer administration of those programs offering discounts and other benefits to active and inactive licensees to the California Bar Foundation, subject to specified distributions of the revenue received from those programs, as provided. (Bus. & Prof. Code § 6141.3.)
15. Given the public protection mission of the State Bar, the Legislature finds that it would be inappropriate for the State Bar to administer the program on a long-term basis. Therefore, should the program continue to operate after December 31, 2018, it is the intent of the Legislature that the program be administered by an entity other than the State Bar. (Bus. & Prof. Code § 6141.3 (d).)
16. Existing law provides that it is the intent of the Legislature that the State Bar seek ways and means to identify and rehabilitate attorneys with impairment due to abuse of drugs or alcohol, or due to mental illness, affecting competency so that attorneys so afflicted may be treated and returned to the practice of law in a manner that will not endanger the public health and safety. (Bus. & Prof. Code § 6230.)

This bill:

1. Requires the Board to charge an annual license fee in an unspecified amount for 2020. This amount is left blank for mandatory fees pending the results of the State Auditor’s audit and LAO study.
2. Requires the Board to adopt a rule or rules providing that an active licensee who can demonstrate total gross annual individual income from all sources of less than $60,478.35 presumptively qualifies for a waiver of 25 percent of the annual license fee.
3. Repeals provisions that require the secretary of the State Bar to be selected annually by the Board and repeals other provisions that are inconsistent with the new appointment structure of the Board.
4. Specifies when the term of an appointee to the Board commences.
5. Provides that if approved by the California Lawyers Association, California ChangeLawyers, and Cal Bar Affinity, all revenue received from the insurance affinity programs, less the administrative costs of, and taxes incurred by, Cal Bar Affinity in operating the programs, shall be distributed as follows on and after January 1, 2020:

• Thirty-seven and one-half percent of the revenue shall go to California ChangeLawyers provided that five percent of that amount shall be used to fund joint legal fellowships from the California Lawyers Association or an affiliated nonprofit organization established under Section 501(c)(3) of the Internal Revenue Code (hereinafter referred to as an affiliated 501(c)(3) organization) and California ChangeLawyers to qualified legal services projects and support centers, as defined in subdivisions (a) and (b) of Section 6213, located in rural areas of the state.
• Thirty-seven and one-half percent of the revenue shall go to the California Lawyers Association or an affiliated 501(c)(3) organization to support their respective diversity, equity and inclusion, access to justice, and civic engagement efforts, provided that five percent of that amount shall be used to fund joint legal fellowships from the California Lawyers Association or an affiliated 501(c)(3) organization and California ChangeLawyers to qualified legal services projects and support centers, as defined in subdivisions (a) and (b) of Section 6213, located in rural areas of the state.
• Twenty-five percent of the revenue shall go to California ChangeLawyers, which shall distribute that revenue to qualified legal services projects and support centers in accordance with the formula provided in Section 6216.

1. Changes the phrasing of “abuse of drugs or alcohol” to “substance use” to conform to the phrasing throughout the State Bar Act and codifies the ChangeLawyers dues voluntary check-off.

COMMENTS

1. State Bar of California

The State Bar of California is a public corporation. Attorneys who wish to practice law in California generally must be admitted and licensed in this state and must be members of the State Bar. (Cal. Const., art. VI, Sec. 9.) The power to regulate the practice of law, including the power to admit and to discipline attorneys, is among the inherent powers of the Supreme Court. The State Bar functions as the administrative arm of the Supreme Court for the purpose of assisting in attorney admissions and discipline, with the Supreme Court retaining its inherent judicial authority to disbar or suspend attorneys.

The State Bar of California is the largest state bar in the country. In 2018, the total State Bar membership was 266,627, which included 2,169 judge members, 14,033 members who are “Not Eligible to Practice Law,” and approximately 60,000 inactive members. The State Bar’s programs are financed mostly by annual license fees paid by attorneys as well as other fees paid by applicants seeking to practice law. The State Bar is governed by a Board of Trustees. Pursuant to SB 36 (Jackson, Ch. 422, Stats. 2017), the Board was required to transition to a 13 member board comprised of Governor, Supreme Court, Assembly, and Senate appointees.

The Legislature has enacted statutes making protection of the public the highest priority of the State Bar and highlighting the importance of access to justice and inclusion. In an effort to ensure that the State Bar focuses on its mission to protect the public, the Legislature passed this author’s bill which included robust reforms of the State Bar. (SB 36, Jackson, Ch. 422, Stats. 2017.)   SB 36 codified reforms and required the State Bar’s volunteer-run sections to spin off into a non-profit, non-governmental organization. That organization is now called the California Lawyers Association.

2. The State Bar functions as the administrative arm of the Supreme Court for the purpose of assisting in attorney admissions and discipline, with the Court retaining its inherent judicial authority to disbar or suspend attorneys

As a constitutional matter, the judicial power of California is vested in the Supreme Court, Courts of Appeal, and superior courts. (Cal. Const., art. VI, Sec. 1.) The power to regulate the practice of law, including the power to admit and to discipline attorneys, is among the inherent powers of the Supreme Court. (In re Attorney Discipline System (1998) 19 Cal.4th 582, 592; Obrien v. Jones (2000) 23 Cal.4th 40, 48.) In addressing this inherent authority, the Supreme Court has explained: “‘The important difference between regulation of the legal profession and regulation of other professions is this: Admission to the bar is a judicial function, and members of the bar are officers of the court, subject to discipline by the court. Hence, under the constitutional doctrine of separation of powers, the court has inherent and primary regulatory power.’” (In re Attorney Discipline System, supra, 19 Cal.4th at 593.)

Although originally a creature of statute, the State Bar of California is now “a constitutional entity within the judicial article of the California Constitution.” (Obrien, supra, 23 Cal.4th at 48; see Cal. Const., art. VI, § 9; Bus. & Prof. Code, Sec. 6001.) The State Bar functions as the administrative arm of the Supreme Court for the purpose of assisting in attorney admissions and discipline, with the court retaining its inherent judicial authority to disbar or suspend attorneys. (In re Attorney Discipline System, supra, 19 Cal.4th at 599-600; see Keller v. State Bar of California (1990) 496 U.S. 1, 11.) The State Bar’s regulatory assistance is an integral part of the judicial function. (Obrien, supra, 23 Cal.4th at 48.) Emphasizing the sui generis nature of the State Bar as its administrative arm, the Supreme Court has made clear that “express legislative recognition of reserved judicial power over admission and discipline is critical to the constitutionality of the State Bar Act.” (In re Attorney Discipline System, supra, 19 Cal.4th at 600, citing Bus. & Prof. Code Sec. 6087.)

At the same time, the Legislature’s exercise, under the police power, of a reasonable degree of regulation and control over the profession and practice of law in California, is well established. (Obrien, supra, 23 Cal.4th at 48.) The Legislature also exercises regulatory authority pursuant to the State Bar Act and has authority to set the amount of membership fees necessary to fund the disciplinary system. The Legislature has enacted statutes making protection of the public the highest priority of the State Bar (Bus. & Prof. Code § 6001.1). And, while the Board has statutory authority to formulate rule proposals, they only take effect if the State Supreme Court approves them.^[2]

3. Audit by State Auditor underway in an effort to determine whether a fee increase is warranted

Under current law, the State Auditor is required to audit the State Bar. The State Auditor was statutorily required to focus the 2019 audit in a manner to assess whether a fee increase is warranted. Specifically, the audit is required to include, at minimum, the following for each program or division of the State Bar:

• an assessment of how much fee revenue, staff, and resources are currently budgeted and subsequently expended to perform existing tasks and responsibilities;
• an assessment of whether the State Bar has appropriate program performance measures in place and how these measures are used for budgeting purposes;
• an assessment of the usage of real property owned by the State Bar;
• a review of the State Bar’s Cost Allocation Plan used to allocate administrative costs;
• a review of any proposals for additional funding or resources requested by the State Bar to determine whether these proposals are necessary to meet the State Bar’s public protection function, as well as the accuracy of identified associated funding needs, after reviewing how existing resources are used; and
• a calculation of how much fee revenue would be needed from each State Bar active and inactive licensee to fully offset State Bar costs to perform existing tasks and responsibilities and to support additional proposed expenditures determined to be necessary to meet the State Bar’s public protection function, taking into account any proposed business process reengineering, reallocations, or efficiencies identified by the State Auditor.

The audit is due to the Legislature and California Supreme Court on May 1, 2019. The auditor’s office has indicated that the audit will be released on the day of this hearing. The Legislative Analyst’s Office is statutorily required to assess whether the State Bar effectively utilizes licensing fee revenues to maximize service levels for each program or division assessed by the California State Auditor, and to report its assessment to the California Supreme Court and the Legislature by July 1, 2019.

4. The State Bar seeks fee increases

In an April 2019 document entitled “How a Fee Increase Ensures Public Protection, Innovations, Advances, and Momentum,” the State Bar detailed their request for what they refer to as a “much-needed increase in attorney licensing” fees. The State Bar also points out that this is “the first such request the State Bar has made in 20 years…” According to the State Bar, their budget projects that General Fund expenses will exceed revenues by approximately $10.4 million and the deficit will bring operating reserves to $11.5 million. This amount, according to the State Bar, is “well below the State Bar Board of Trustees’ policy of maintaining a minimum reserve equal to 60 days of operating costs, or 17 percent of the annual budget.” The State Bar contends that without “a fee increase, the State Bar will have to cut spending—first in operations and programming, and then, inevitably, in staffing.” The State Bar is requesting an ongoing increase in the licensing fee of $100. That $100 would be broken up as follows: $40 for new positions in the Office of the Chief Trial Counsel to address statutory case processing timelines; $17 for fair retiree health benefits; $13 for cost-of-living increases for staff; and $30 to address the “ongoing funding deficit resulting from a 20-year stagnant licensing fee.” To be clear, a $100 fee increase would translate into $20,000,000 in new revenue for the State Bar if it is assumed that just 200,000 attorneys would pay the full $100 increase.

Under current law, the Bar Board was required to adopt a rule or rules providing that an active licensee who can demonstrate total gross annual individual income from all sources of less than $40,000 presumptively qualifies for a waiver of 25 percent of the annual license fee. The amount of $40,000 has not increased in 20 years. Accordingly, this bill would require the Board to adopt a rule or rules providing that an active licensee who can demonstrate total gross annual individual income from all sources of less than $60,478.35 presumptively qualifies for a waiver of 25 percent of the annual license fee. $60,478.35 reflects $40,000 adjusted for inflation to account for 20 years without a CPI adjustment.

The State Bar also seeks a one-time increase of $250 broken down as follows: $134 for Capital Plan investments (their buildings); $82 for technological upgrades; and $34 to establish a two-month reserve in the General Fund. Assuming again that 200,000 attorneys would pay the full $250, the State Bar would generate an additional $50,000,000.

The State Bar also seeks an $80 one-time increase to fund the Client Security Fund. According to the State Bar, the Client Security Fund “currently has an estimated outstanding balance of $20 million for applications eligible for payment.” Assuming that 200,000 attorneys would pay the full $80, the State Bar would generate an additional $16,000,000.

An additional $100 ongoing and a one-time increase of $80 for the Client Security Funds and an additional one-time increase of $250 would result in a $430 increase for 2020. After the author reviews the Auditor’s and LAO study results, the author may wish to consider a path forward to lessen the burden of a $430 fee increase.

5. The Client Security Fund

Under existing law, the Client Security Fund (CSF) seeks to protect consumers of legal services by mitigating losses caused by the dishonest conduct of California attorneys. The CSF is funded through a mandatory contribution that is collected as part of the annual bar fee statement – active licensees contribute $40, and inactive licensees contribute $10. Under the State Bar’s rules, the following types of dishonest conduct can lead to reimbursement from the fund: (1) theft or embezzlement of money or the wrongful taking or conversion of money or property; (2) failure to refund unearned attorney fees paid to the lawyer in advance where the lawyer performed no services, or an insignificant portion of the services; (3) the borrowing of money from a client without the intention or reasonably anticipated ability to repay the money; (4) obtaining money or property from a client by representing that it would be used for investment purposes when no investment is made; and (5) an act of intentional dishonesty or deceit that directly leads to the loss of money or property that actually came into the lawyer’s possession. The State Bar’s Discipline Report of March 15, 2018, notes that there were 3,400 outstanding claims with a value of $52.3 million. It was estimated that the payout of claims is delayed by over four years.

6. Contains some State Bar requested provisions

The State Bar requested some amendments that are reflected in the bill in print. Their proposal to repeal Business & Professions Code § 6076.5 was requested because the section “prescribes a process by which licensees of the State Bar may formulate Rules of Professional Conduct through initiative based upon outdated State Bar voting districts. The State Bar’s proposal to repeal Business & Professions Code § 6022 regarding Board selection of the Secretary was requested, according to the State Bar, because it “is a management function involving State Bar staff” and the Secretary “functions as an ongoing staff support to the Board under the general management function of the Executive Director.” The State Bar seeks to amend Business & Professions Code § 6025 and repeal Business & Professions Code § 6026 because those statutes “refer to a discontinued practice of holding one large ‘annual’ meeting of the Board per year.” Because the Board’s current practice is to hold meetings at least every other month, the State Bar argues that these “statutes are outdated and inapplicable to current practice. “ Another provision included in this bill that was requested by the State Bar of California is to “amend outdated Business & Professions Code § 6052 and Business & Professions Code § 6077 regarding the issuance of subpoenas and the imposition of sanctions to replace ‘board’ with ‘State Bar Court’ because those practices are now performed by the State Bar Court, rather than by the Board.” The last provision that was amended in pursuant to the request of the State Bar is an amendment to Business & Professions Code §§ 6013.1, 6013.3, 6013.5, and 6016 to clarify the beginning and end of the Board year.

7. California Lawyers Association and ChangeLawyers

Two years ago the Bar licensing bill, SB 36 (Jackson), required the sections of the State Bar to decouple from the State Bar and become the statewide association for lawyers. The association is now incorporated as the California Lawyers Association. The mission statement of the California Lawyers Association is: Promoting excellence, diversity and inclusion in the legal profession and fairness in the administration of justice and the rule of law. The Legislature, in creating the California Lawyers Association, made it clear that it was interested in the Association’s survival. Provisions of SB 36 designated the Association as the entity responsible for providing and encouraging the development of low-cost programs and materials by which members of the State Bar may satisfy their continuing education requirements. The California Lawyers Association was authorized to have their membership dues collected, as a voluntary check off, on the annual State Bar licensing fee statement. There are other voluntary check offs that are authorized by law that serve an important purpose. For example, the Access to Justice voluntary check off is authorized by Bus. & Prof. Code Sec. 6033. Those voluntary funds are used to fund legal services to those who otherwise cannot afford attorneys. This bill includes a provision that statutorily provides that the ChangeLawyers appear on the State Bar fees invoice. ChangeLawyers was founded in 1989 by the State Bar and was formerly referred to as the California Bar Foundation. ChangeLawyer’s mission is to “build a better justice system for all Californians.”

8. Diversity

Last year, the State Bar licensing bill included provisions aimed at strengthening the diversity in the legal profession. As explained in the Assembly Judiciary Committee analysis for AB 3249:

More effort is needed to increase the diversity of California attorneys and have them better reflect California. According to a 2017 demographic survey of attorneys in California that the Bar conducts every five years, fully 80 percent of attorneys in California are white and 57 percent are male [ . . . ]

Diversity and inclusion are important goals of the State Bar – with inclusion specifically included in the Bar’s mission – but it is clear that more must be done for that goal to be a reality. This is particularly true given the Bar exam’s disproportionate impact on applicants of color. More than the diversity of the Bar is at stake. Given that judges must first be attorneys, if the Bar is not representative of California, it will be more difficult for the judiciary to be representative of the State.

As a result of these significant concerns, this bill sets forth the legislative intent that the State Bar maintain its commitment to, and support of, effective policies and activities to enhance access, fairness, and diversity in the legal profession and elimination of bias in the practice of law by, among other things, continuing to increase diversity and inclusion in the legal profession.

Specifically last year’s State Bar licensing fee bill codified that:

It is the intent of the Legislature that the State Bar maintains its commitment to and support of effective policies and activities to enhance access, fairness, and diversity in the legal profession and the elimination of bias in the practice of law.

The Legislature finds and declares the following:

• The rich diversity of the people of California requires a justice system that is equally accessible and free of bias and is a core value of the legal profession.
• Diversity and inclusion are an integral part of the State Bar’s public protection mission to build, retain, and maintain a diverse legal profession to provide quality and culturally sensitive services to an ever-increasing diverse population.
• Diversity increases public trust and confidence and the appearance of fairness in the justice system and therefore increases access to justice.
• The State Bar should continue to increase diversity and inclusion in the legal profession.

The State Bar shall develop and implement a plan to meet the goals set forth in this section, which may include, but is not limited to, an assessment of needed revenue. The State Bar shall prepare and submit a report to the Legislature, by March 15, 2019, and every two years thereafter, on the plan and its implementation, including a description of activities undertaken to support the plan, their outcomes, and their effectiveness.

The bill currently before this Committee contains provisions designed to support equity, inclusion, access to justice, and civic engagement. Specifically, the bill provides that 37.5 percent insurance affinity funds be distributed to the California Lawyers Association to support their respective diversity, equity and inclusion, access to justice, and civic engagement efforts, and that five percent of that amount shall be used to fund joint legal fellowships from the California Lawyers Association and California ChangeLawyers to qualified legal services projects and support centers located in rural areas of the state.^[3] The bill also provides that 25 percent of funding from the insurance affinity funds be allocated for qualified legal aid programs.

9. Discipline Backlog

The 2017 State Bar discipline report noted that the discipline cases pending increased by 20 percent and the backlog increased by 23 percent, while the number of inquiries and complaints to the State Bar went down slightly. Also of note, the disciplinary filings dropped by 27 percent and the number of attorneys suspended, disbarred, or reproved dropped 29 percent. These numbers are concerning because the backlog represents attorneys who are potentially harming the public while cases about them sit in a backlog.

10. Stated need for the bill

According to the author:

The power to regulate the practice of law, including the power to admit and to discipline attorneys, is among the inherent powers of the Supreme Court. The State Bar functions as the administrative arm of the Supreme Court for the purpose of assisting in attorney admissions and discipline, with the court retaining its inherent judicial authority to disbar or suspend attorneys. At the same time, the Legislature’s exercise, under the police power, of a reasonable degree of regulation and control over the profession and practice of law in California, is well established. The Legislature also exercises regulatory authority pursuant to the State Bar Act and has authority to set the amount of membership fees necessary to fund the disciplinary system. The Legislature has enacted statutes making protection of the public the highest priority of the State Bar and empowering the Bar to promote improvement of the administration of justice.

This bill continues the Legislature’s oversight of the State Bar through the annual fee authorization bill.  The State Bar is requesting a substantial fee increase for 2020 and beyond. The State Auditor is conducting an audit of the State Bar to help the Legislature ascertain whether a fee increase is warranted, and, if so, what the appropriate amount would be. That audit is scheduled to be released on the day this bill is scheduled to be heard in this Committee.

SUPPORT

None known

OPPOSITION

An individual with concerns about the discipline system

RELATED LEGISLATION

Pending Legislation:

SB 544 (Umberg, 2019) prohibits the staff of the State Bar or the members of the examining committee from reviewing an applicant’s medical records relating to mental health when reviewing whether an applicant is of good moral character, as specified. This bill is currently in the Senate Judiciary Committee.

Prior Legislation:

AB 3249 (Assembly Committee on Judiciary, Ch. 659, Stats. 2018) authorized the State Bar to collect annual licensing fees of $390 for 2019 and enact other reforms, including a strengthening of the attorney discipline system.

SB 36 (Jackson, 2017, Ch. 422, Stats. 2017) authorized the State Bar of California to collect active membership dues of up to $390 for the year 2018; reformed the State Bar Act by separating the sections from the State Bar and creating what is now the California Lawyers Association; changed the composition of the State Bar Board; and enacted various reforms to remove politics from the Board.

AB 2878 (Committee on Judiciary, 2016) would have authorized bar dues for 2017 and enacted numerous reforms. The bill died on concurrence on the Assembly Floor.

SB 387 (Jackson, Ch. 537, Stats. 2015) authorized the State Bar of California to collect active licensee fees of up to $390 for the year 2016; required the State Bar to develop and implement a specified workforce plan for its discipline system; required the State Bar to conduct a public sector compensation and benefits study, conduct a thorough analysis of its operating costs and develop a spending plan to determine a reasonable amount for the annual membership fee, as specified; required the State Bar to contract with the California State Auditor’s Office to conduct an in-depth financial audit of the State Bar; and made the State Bar subject to the Bagley-Keene Open Meeting Act and the California Public Records Act, as specified.

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1. See United States Department of Labor’s Bureau of Labor Statistics CPI Inflation Calculator available at https://www.bls.gov/data/inflation_calculator.htm (as of Apr. 26, 2019) ↑

2. The Rules of Professional Conduct are the professional standards to which California attorneys must adhere. Violation of the rules may subject an attorney to discipline. ↑

3. The State Bar of California historically administered a group insurance program, a professional liability insurance program, and affinity programs that generated revenue for the State Bar. The California ChangeLawyers have been administering these programs. ↑