Analysis of the 2006-07 Budget Bill Legislative Analyst's Office February 2006

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 suport 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.

The Judicial Branch can be thought of as consisting of two components: (1) the judiciary (the Supreme Court, Courts of Appeal, Judicial Council, and the Habeas Corpus Resource Center) and (2) the Trial Court Funding program, which funds local superior courts.

The 2005 Budget Act merged funding for the judiciary and Trial Court Funding programs under a single “Judicial Branch” budget item. It also shifted 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 $3.4 billion in 2006-07. This is an increase of $140 million, or 4.3 percent, above estimated current-year expenditures. Total General Fund expenditures are proposed at $2 billion, an increase of about $224 million, or 12.7 percent, above current-year expenditures. Total expenditures from special funds and reimbursements are proposed at about $1.4 billion, a decrease of $84 million, or 5.6 percent. Approximately 89 percent of total Judicial Branch spending is for the Trial Court Funding program, and the remainder is for the “judiciary” program, which includes the Supreme Court, Courts of Appeal, Judicial Council, and the Habeas Corpus Resource Center.

The overall net increase in the Judicial Branch budget is primarily due to annual adjustments for growth and inflation ($122 million), the restoration of one-time reductions ($58 million), and annualization of prior-year employee compensation adjustments ($12 million). Most of this increase is for the Trial Court Funding program. Figure 1 shows the revenue sources for the entire Judicial Branch, while Figure 2 shows proposed expenditures for these two major program areas in the past, current, and budget years.

Automatic Spending for Entire Budget Not Justified

We recommend rejection of the Governor’s proposal to expand use of the State Appropriations Limit (SAL) adjustment to the entire Judicial Branch. The proposal provides no clear rationale as to why the SAL adjustment should be applied to the entirety of the Judicial Branch and will likely lead to over funding of the courts budget. (Reduce Item 0250-001-0001 by $1.2 million, Item 0250-112-0001 and Item 0250-112-0556 by $1.6 million, Item 0250-111-0001 and Item 0250-101-0932 by $14.6 million, and Item 0250-101-0001 by $447,000.)

Background

Use of SAL for the Trial Court Funding Program. Chapter 227, Statutes of 2004 (SB 1102, Committee on Budget) changed the process for budgeting the Trial Court Funding program from the traditional state process-in which annual adjustments are separately requested and approved based on demonstrated need-to a process in which the amount of new funding for this program is based on a formula and does not require demonstration of need. Specifically, current law requires use of the year-to-year growth in the SAL (referred to as the “SAL growth factor,” which is described in the nearby box) to adjust the trial court budget every year. The language requires that the SAL growth factor be applied to trial court operating costs, excluding judicial officer salaries. This establishes a minimum funding level for the courts, which can be provided from any combination of the three revenue sources: the General Fund, filing fees and surcharge revenues, and the fixed county contribution. Additionally, under current law the Judicial Council can request additional funding above and beyond the SAL adjustment for (1) nondiscretionary costs that are growing faster than SAL or (2) operational or programmatic changes that require additional funding.

Rationale for Use of SAL. Use of the SAL growth factor was thought to benefit the trial courts for three reasons. First, it was intended to provide stability and predictability to the Trial Court Funding program during periods of state fiscal crisis. Second, it was believed that more predictable funding for the trial courts would improve the process for adjusting local court employee salaries. Specifically, use of the SAL would allow local court administrators to know how much they could expect to receive from the state prior to negotiating salary increases with local court employees. Finally, since the Trial Court Funding program represents the vast majority of Judicial Branch spending, using SAL also provided a greater degree of financial independence and flexibility for the Judicial Branch.

Although the 2005-06 budget merged funding for the judiciary and Trial Court Funding program into a Judicial Branch budget item, it did not extend the application of the SAL to the judiciary.

Governor’s Proposal Expands Application of SAL

The Governor’s budget proposes to make several changes in the use of the SAL growth factor for the courts. Most notably, the budget proposes to apply the SAL growth factor to portions of the trial court funding program that are not included under current law (for example, superior court judge salaries), as well as the judiciary. The budget requests $17.9 million to fund these proposed changes. Also, the proposal would require that the annual SAL adjustment be funded entirely from the General Fund. Figure 3 summarizes the major provisions of the proposal as compared to current law.

No Clear Policy Rationale for Expansion of SAL to Judiciary

Judiciary Already Has Budget Stability and Independence. One of the key reasons given for the proposed expansion of the SAL funding methodology is the need for budget stability and independence. According to Administrative Office of the Courts (AOC) staff, using the SAL growth factor would ensure that the courts experience steady growth, and would prevent the courts from being subject to significant budget cuts during times of state fiscal crisis. However, our review of historical funding shows that the judiciary has, in fact, experienced relative budget stability. Figure 4 shows General Fund expenditures for the judiciary from 1990-91 through 2005-06. As the figure illustrates, the judiciary budget generally experienced steady upward growth during this period. In fact, our analysis shows that spending for the judiciary has been more stable than the General Fund and slightly outpaced growth in General Fund expenditures.

Automatic Spending Is Not Good Fiscal Policy

In addition to questioning the overall policy goals, we have several concerns regarding the fiscal and budgetary effects of the Governor’s proposal, as discussed below.

Use of SAL Will Likely Lead to Overbudgeting. Based on our review, we find that expanding use of the SAL to the entire Judicial Branch will likely lead to overbudgeting. Below we provide two examples to demonstrate how this would occur.

• Superior Court Judge Salaries. Under current law, superior court judges receive salary increases equivalent to the average pay increase for California state employees. The trial courts receive annual budget adjustments to account for these raises. The Governor’s proposal would instead adjust funding for judge salaries by using the SAL growth factor. We believe this method is flawed. For example, in the 2006-07 budget, judge salary increases are estimated to be 3.7 percent, while the SAL growth factor is estimated at 4.7 percent. Because of this difference, the courts would receive an additional $2.3 million beyond what is needed to fund judge salary increases.

• Judiciary Budget. Since the late 1990s, the fastest growing portion of the judiciary budget was AOC, the administrative staff of the Judicial Council. As the trial courts became a state-funded entity, the role of the Judicial Council began to grow, requiring additional staff to meet increasing workload. However, now that this statewide administrative structure has been established, it is not likely that the funding requirements of the AOC will grow at the same pace as the trial courts. Although the trial court funding budget is likely to experience continued growth, this is primarily due to cost increases and should not require a proportionate increase in administrative staff at the AOC. Because significant growth is not expected, providing a budget adjustment using SAL will likely lead to overbudgeting.

Not Accounting for Changes in Court Filing Fee and Surcharge Revenues Could Lead to “Double Dipping.” Under the Governor’s proposal, changes in court filing fee and surcharge revenues have no impact on the General Fund guarantee for the courts. Should these revenues increase, the courts would consequently receive a funding increase greater than SAL. As the SAL adjustment is intended to provide the courts with funding to account for inflation and growth, we see no justification for allowing the courts to receive increases in fee and surcharge revenues in addition to the SAL adjustment.

Removing Annual Appropriations Limits Legislative Oversight. Allowing most of the Judicial Branch to be appropriated without regard to fiscal year limits the Legislature’s oversight. Under the proposal, over 90 percent of the Judicial Branch budget would be appropriated without regard to fiscal year. Unspent funds would no longer lose appropriation authority at the end of the fiscal year and would be available for use at the discretion of the Judicial Branch during future years. Given that total funds annually exceed $3 billion, this provision would reduce oversight and the Legislature’s ability to respond to a fiscal crisis.

Conclusion. Overall, we find that the Governor’s proposal to expand use of the SAL adjustment to the entire Judicial Branch lacks a clear policy rationale and will likely lead to overfunding of the courts. The proposal also reduces legislative oversight by making the vast majority of Judicial Branch funding appropriated without regard to fiscal year. Because of these concerns, we recommend rejection of the Governor’s proposal to expand the use of SAL to the entire Judicial Branch. This would result in a savings of $17.9 million. We would note that there are funds for the budget year in Item 9800 for a salary increase for judges serving in the superior, appellate, and supreme courts.

Information Systems Request Not Justified

We recommend rejection of the request for $12.3 million in information systems funding for the trial courts. The proposal contains no detail on how the funding will be used and does not provide sufficient information to demonstrate that funding is needed above and beyond the $105 million proposed for the trial courts through the State Appropriations Limit adjustment. (Reduce Item 0250-101-0001 by $12,300,000.)

Trial Courts Are Transitioning to Statewide Systems. In conjunction with becoming a state-funded entity after enactment of the Trial Court Funding Act of 1997, there has been a significant effort to provide statewide information systems for the trial courts. Because counties are no longer required to provide administrative services or information technology support to the courts, the courts must have these services available internally. The AOC has developed several information management systems, and has begun to transition the courts to these systems. There are 15 programs currently being developed and implemented for the trial court system. A few major programs are listed below.

• Court Accounting and Reporting System (CARS)-A statewide financial accounting system for the courts. Currently 20 of 58 counties have fully implemented CARS.

• California Case Management System-A statewide system for tracking court cases, scheduled to be implemented statewide by the 2009-10 fiscal year.

• Courts Human Resources Information System (CHRIS)-A statewide trial court human resources information system. The CHRIS is currently anticipated to be utilized by all 58 trial courts by the 2009-10 fiscal year.

In 2005-06, the trial courts will spend an estimated $63 million on project implementation and $73 million for ongoing maintenance of these systems. Expenses have increased significantly as new projects have been established.

Request Lacks Justification. The Governor’s budget requests $12.3 million in ongoing funding for the continued development and implementation, as well as maintenance of the 15 information systems for the trial courts.

Although the implementation of new software is important in order to replace the administrative role previously played by the counties and to improve the accountability of trial courts, the request does not provide any detail on how this funding will be used. In particular, the proposal does not specify the amount of funding that will be designated for each individual project, nor does it identify specific progress that will be made on each project in the budget year. More importantly, the AOC has not provided information to demonstrate that these trial court programs require an augmentation beyond the $105 million SAL adjustment already included in the budget to fund the cost of inflation and growth in trial court operations. For these reasons, we recommend a reduction of $12.3 million.