Analysis of the 2005-06 Budget Bill Legislative Analyst's Office February 2005

Judicial Branch (0250)

The California Constitution vests the state's judicial power in the Supreme Court, the Courts of Appeal, and the trial courts. The Supreme Court, the six Courts of Appeal, and the Judicial Council of California, which is the administrative body of the judicial system, are entirely state-supported. The Trial Court Funding program provides state funds (above a fixed county share) for support of the trial courts. Chapter 850, Statutes of 1997 (AB 233, Escutia and Pringle), shifted fiscal responsibility for the trial courts from the counties to the state. California has 58 trial courts, one in each county.

Budget Restructuring. The Governor's budget merges funding for the Judicial and Trial Court Funding programs under a single "Judicial Branch" budget item. It also shifts local assistance funding for a variety of programs, including the Child Support Commissioner program, the Drug Court Projects, and the Equal Access Fund from the Judicial Council budget to the Trial Court Funding budget.

Budget Proposal. The Judicial Branch budget proposes total appropriations of approximately $3 billion in 2005-06. This is an increase of $178 million, or 6 percent, above estimated current-year expenditures. Total General Fund expenditures are proposed at $1.8 billion, an increase of about $168 million, or 11 percent, above current-year expenditures. Total expenditures from special funds and reimbursements are proposed at about $1.3 billion, an increase of $9 million, or less than 1 percent. Approximately 86 percent of total Judicial Branch spending is for the Trial Court Funding program, and the remainder is for the "Judicial" program, which includes the Supreme Court, Courts of Appeal, Judicial Council, and the Habeas Corpus Resource Center .

The overall increase in the Judicial Branch budget is primarily due to salary and benefit cost increases ($101 million), the restoration of one-time reductions ($61 million), and annual adjustments for growth and inflation ($99 million). Most of this increase is for the Trial Court Funding program. Figure 1 shows proposed expenditures for these two major program areas in the past, current, and budget years.

Legislative Action Required to Backfill for Expiring Fees

The budget assumes the adoption of legislation to backfill for state fees that expire at the end of the current year. We withhold recommendation on the budget for the Trial Court Funding program, pending a report by Judicial Council of California staff at budget hearings on the status of its Uniform Civil Fee proposal, and the estimated revenues that would be generated under the proposal in the budget year.

Background. Funding for the trial courts is comprised of three main fund sources: (1) the state General Fund; (2) state revenues from fines, fees, and surcharges; (3) and a fixed county contribution. In recent years, due to the state's fiscal condition, the state has increasingly relied on new revenue from fees and fines to offset General Fund costs. For example, the 2002-03 Budget Act increased civil filing fees by 10 percent and criminal penalties by 20 percent. The 2003-04 Budget Act enacted a variety of new and increased court fees, including a new "court security" fee, and higher filing fees for different case types such as probate and small claims cases. No new or increased fees were adopted as part of the 2004-05 Budget Act.

Growth in State Revenues From Court Fees and Surcharges. Data provided by Judicial Council staff show that state revenues from court fees and surcharges have increased 81 percent as a result of these changes, going from $171 million in 2002-03 to $309 million in 2003-04. In the current year, court staff projects that revenues will further increase to $344 million as the full-year effect of 2003-04 fee increases is realized.

Some Fees to Expire, Legislative Action Required to Backfill for Loss. Under current law, two new fee sources established by the Legislature in 2003-04 will sunset on June 30, 2005, absent legislative action. These fee sources are the court security fee and "undesignated fees." Court staff projects this will result in a $46 million decline in 2005-06 revenues. The Governor's budget assumes that the loss of these revenues would be fully offset by (1) the court's Uniform Civil Fee proposal ($17 million), and (2) a reauthorization of the undesignated fees transfer from the counties to the courts ($29 million). These proposals are discussed below.

• Uniform Civil Fee Proposal. In order to address the complexity and lack of uniformity in the existing civil fee structure, the Judicial Council in late 2003 formed a working group of diverse stakeholders to undertake a comprehensive review of the existing civil fees and to make recommendations for developing a uniform civil fee structure. Based on the findings and recommendations of the working group, the court has developed legislation to streamline the existing civil fee structure and achieve uniformity in the level of fees charged by courts and counties statewide. Generally, this proposal involves collapsing a number of existing fees into a single fee, as well as raising certain fees.

Based on our discussions with court staff, it is our understanding that the courts intend to seek legislative action in the current legislative session to implement the "Uniform Civil Fee" proposal. However, at the time this analysis was prepared, the courts did not have an estimate of the potential 2005-06 revenue that would result from the enactment of its fee proposal. It is our understanding that the Department of Finance (DOF) assumed that the proposal would be modified to ensure that it generates at least the $17 million assumed in the budget. The actual revenue level will depend on the specific legislation enacted by the Legislature, the timing of its enactment, and the length of time it takes courts to implement its provisions.

• Undesignated Fees. When the state assumed primary responsibility for funding trial court operations, there were a number of court-related fees that could not be designated as belonging to either the courts or the counties. There was a lack of information regarding where these fees were being deposited (with the court or county), as well as a lack of information regarding the total amount of revenue generated by these fees. Based on a survey conducted by Judicial Council staff, the 2003-04 Budget Act required counties to transfer $31 million to the courts because it was determined that courts bore the cost of providing the services related to certain undesignated fees. As mentioned above, this funding is scheduled to sunset in June. Consistent with its revenue assumptions, the administration has proposed budget trailer bill language to permanently reauthorize the undesignated fees transfer.

Analyst's Concern and Recommendation. Although we have not had an opportunity to review the Uniform Civil Fee proposal, since it was still being developed at the time this analysis was prepared, we think the overall goal of simplifying the existing civil fee structure has merit. We also think that the proposed reauthorization of the undesignated fees transfer has merit to the extent that courts bear the costs of providing the services for which the fees are being collected. However, given that no estimate is available of the potential revenue that would be generated by the Uniform Civil Fee proposal, we withhold recommendation at this time. We recommend the Legislature direct Judicial Council staff to report at budget hearings on its Uniform Civil Fee proposal, in particular the amount of revenue that it estimates would be generated by the proposal if it were adopted by the Legislature, and the timeline for implementation. To the extent that the revenue from these proposals does not materialize, either the courts would have to reduce their budgets or the General Fund would have to backfill the shortfall.

Technical Budget Adjustments Required

We recommend the Department of Finance make technical adjustments to the Judicial Branch budget as part of the May Revision.

Based on our review of the Judicial Branch budget and discussions with DOF staff, we identified two technical budgeting issues that require budget adjustments. First, the current- and budget-year reserve amounts for the Trial Court Trust Fund do not appear to accurately reflect the level of proposed expenditures from the fund. Accordingly, we recommend that DOF, as part of the May Revision, make the required adjustments to align the Trial Court Trust Fund reserve amounts with its proposed spending plan. Second, in calculating the annual growth adjustment for the Trial Court Funding program, the budget assumes a 4.8 percent increase in the state appropriations limits (SAL). The increase published elsewhere in the budget is closer to 6 percent. This would result in increased funding for the trial courts of $27 million on a current law basis. The administration has indicated that it plans to make the required adjustment to reflect higher growth in the SAL as part of the May Revision.

Newly Identified Mandate Review

Chapter 1123, Statutes of 2002 (AB 3000, Committee on Budget), requires the Legislative Analyst's Office to review each mandate included in the Commission on State Mandates' (CSM) annual report of newly identified mandates. In compliance with this requirement, this analysis reviews the mandates entitled "Grand Jury Proceedings."

Grand Jury Proceedings Mandates

We recommend adoption of the Governor's proposal to suspend the "Grand Jury Proceedings" mandates, as this would allow the Legislature the time to evaluate the outcomes of these mandates without incurring additional costs. We further recommend the Legislature adopt supplemental report language requiring the Administrative Office of the Courts to report to the Legislature on the grand jury proceedings process.

The California Constitution requires the annual establishment of a grand jury in each county. Grand juries investigate and issue reports on the operations, accounts, and records of local government entities, including school districts. The local entity or entities that are the subject of the report are then required to comment on the findings and recommendations of the grand jury. In 1996, 1997, and 1998, the Legislature adopted laws relating to the grand jury process. These are summarized below.

• Chapter 1170, Statutes of 1996 (SB 1457, Kopp), authorized the grand jury to request the local entity to appear before it to discuss the findings of its report. It also required the local entity to provide more extensive comments on the findings of the grand jury report. For example, it required the responding entity to indicate if it was in agreement (fully or partially) with the findings of the grand jury, and whether any of its recommendations had been adopted.
• Chapter 43, Statutes of 1997 (AB 829, Thomson), required the court, in consultation with the county counsel and the district attorney to ensure that grand juries receive training that at a minimum addresses report writing, interviews, and the scope of the grand jury's responsibility and authority.
• Chapter 230, Statutes of 1998 (AB 1907, Woods), requires the county clerk to transmit a copy of the grand jury report, and any local entity response to the State Archivist.

In June 2002, CSM determined that the statutory changes described above constitute state-reimbursable mandates and estimated the statewide cost of these mandates to be $12.6 million (for 1997-98 through 2004-05). This includes county costs for such expenses as (1) providing training to grand juries, (2) providing more extensive comments to grand juries in response to its findings, and (3) providing a meeting room and support for the grand juries.

The Governor's budget proposes to suspend the mandates and includes no funding for prior-year claims.

Analyst's Recommendation. We recommend adoption of the Governor's proposal to suspend the mandates. This will provide the Legislature and the administration an opportunity to examine the grand jury proceedings process and the related mandates. Suspending the mandates would prevent the state from incurring additional costs during such an examination. However, the grand jury proceedings would continue but potentially without meeting the specific requirements of the legislation described above. Nevertheless, we think that some of the practices required by the mandates—for example, training—are likely to continue since the training materials have already been developed.

In deciding whether to continue to fund these mandates, the Legislature should consider the extent to which the legislative changes adopted in the three measures discussed above actually made a substantive difference in the quality and outcome of grand jury proceedings. We recommend the Legislature adopt supplemental report language requiring the Administrative Office of the Courts to report to the Legislature by December 2005 regarding the grand jury proceedings. In particular, the report should include an assessment of (1) the quality of grand jury reports, (2) the response of local government entities to the findings and recommendations of the grand jury reports, and (3) training provided to grand juries to determine if the goals and objectives of the subject legislation have been achieved. The following language is consistent with this recommendation:

On or before December 1, 2005, the Administrative Office of the Courts shall report to the appropriate fiscal and policy committees of the Legislature on the Grand Jury Proceedings mandates. The report shall include, but is not limited to, an assessment of (1) the quality of grand jury reports, (2) the response of local government entities to the findings and recommendations of the grand jury reports, and (3) training provided to grand juries in a representative sample of counties to determine if the goals and objectives of the subject legislation have been achieved.