State budget woes affect courts, legal consumers

Volume 33 Number 6

By

From hiring freezes and the elimination of salary increases to proposed taxes on legal services and confiscation of client security funds, it’s apparent that the legal system is not immune to the downturn in the economy as states try to balance budgets.

Massachusetts Chief Justice Margaret H. Marshall, who serves as president of the Conference of Chief Justices, told the ABA House of Delegates earlier this year that state courts are willing to bear their fair share of budget cuts during these lean times. “Yet many state courts are being asked to do more,” she says. “Our budgets are being deci-mated, even as we know that in times of economic stress, people turn in even greater numbers to their state courts for relief.”

She says we may be approaching a funding level that is below what it will take the legal system to function at even “minimally adequate levels.”

ABA President H. Thomas Wells Jr. agrees. “Our ability to maintain courts as an independent branch of govern-ment is undermined if they simply do not have the resources they need to carry out their work, ” he says.

In response, the ABA has put together a media kit on the importance of fair and impartial state courts, has sent out news releases objecting to what it considers inappropriate cuts, and recently held a conference addressing the economic pressures on the third branch.

In May, Wells convened a summit in Charlotte, N.C., called “Justice Is the Business of Government: The Criti-cal Role of Fair and Impartial State Courts.” Chief justices from 34 states and three territories sent delegates repre-senting the bar and the three branches of government to develop strategies to support state justice systems.

Officials say that at least 46 states are facing or will face severe revenue shortfalls in the current or upcoming fis-cal budgets. Revenue gaps are predicted to reach $350 billion. As a result, painful choices are being made.

 

A skirmish in Connecticut

“[Connecticut’s] budget, like all other states, is a mess with a huge deficit,” says Norman K. Janes, interim executive director of the Connecticut Bar Association. “Legislators and the governor are desperate to find all possible new sources of revenue.”

Earlier this year, the governor of Connecticut attempted to take $2 million from the state’s client security fund and put it into general funds.

The ensuing uproar included a lawsuit filed by the CBA and a dozen well-known Connecticut lawyers to prevent Gov. M. Jodi Rell and state officials from seizing the money from a fund that compensates clients who are victim-ized by dishonest lawyers.

Chris Cooper, a spokesperson for the governor’s office, said assets and revenues that flow into certain “off budget” accounts like the client security fund would go toward core state functions. The balance left after the trans-fer would be more than enough, he said, and the transfer would essentially take only funds in excess of what are normally expected to operate the program.

Joette Katz, an associate justice on the Connecticut Supreme Court and chair of the client security fund, dis-agreed. She wrote that the fund’s ability to continue to pay the full amount of claims filed—and to make victims whole—would be jeopardized. In addition, she wrote that the transfer would leave the fund with no cushion against claims currently pending.

ABA President Wells, in a letter to the Hartford Courant, said raiding the client security fund is not an appropri-ate way to meet budget challenges. “The fund is a way lawyers police their own profession to right wrongs suffered by clients,” he wrote. “The governor and the legislature should not use the fund for any other purpose.”

Ultimately, the state legislature saw it that way, too: In May, the Connecticut House of Representatives voted 139-3 in favor of a bill to restore the funds.

However, there are other sources of revenue being discussed that would affect the practice of law in Connecticut. For example, the CBA has reversed a long-standing position against an increase in the attorney occupational tax on the condition that the increase is used to fund the state’s financially struggling legal aid programs.

Similarly, the CBA supports an increase in court filing fees but is vigorously opposed to any efforts to extend the sales tax to professional services.

 

Sales tax, and other measures

Minnesota is one state considering a sales tax on legal services. The Minnesota State Bar Association and the ABA have long opposed such taxes.

Leo Brisbois, now president of the MSBA, wrote to state politicians that such a tax would not be a tax on law-yers—an appealing idea for some members of the public—but instead would be a tax on the everyday people and businesses with legal needs. The bills in the Minnesota House and Senate have since been amended to exempt busi-ness consumption of legal services.

Some Minnesota politicians have suggested that a sales tax on legal services is fair because “users” of the judicial system should be expected to support that system. But Brisbois tells Bar Leader that “an adequately funded third branch of government is a societal obligation,” and not the obligation of only those individuals who “find them-selves in the courts—often brought there by the acts of others.”

Low- and moderate-income earners would primarily be affected by such a tax, he says, since the wealthiest indi-viduals would likely avoid the sales tax by seeking legal services in one of the 46 states that do not tax legal fees. Brisbois calls the proposed tax “an inequitable, regressive tax policy which also adversely affects individual citi-zens’ ability to access justice.”

At most, he adds, only 28 percent of legal services are consumed by individuals, so revenues from the tax would not be high. Brisbois says no one has been able to answer the bar’s questions about whether the additional costs of implementation, enforcement, and collection that the state will have to bear have been taken into account.

Brisbois says the MSBA would support an increase in some court filing and court administration fees to raise ad-ditional general fund revenues with the understanding that the new revenues would aid in court funding.

Hawaii, New Mexico, and South Dakota are the only states that now tax legal services, but several states, includ-ing Wisconsin and Vermont, have been discussing it. Other budget-cutting effects around the country include:

| In Arizona, about 180 employees could be laid off after two rounds of cuts. Recent cuts affect the Superior Court, the Clerk of the Superior Court, Adult Probation, and Juvenile Probation. Also, night courts have been eliminated. | California has implemented a voluntary furlough program; participants agree to take one day off each month and accept a comparable reduction in gross pay. Also, there are no cost of living increases for the judicial branch. | In Florida, about 280 court personnel positions have been cut. | Maine is no longer staffing magnetometers used as people enter the courthouse. | The governor of Massachusetts announced a proposal to cut the trial courts budget by 4 percent, which some judges say will result in at least 250 layoffs and cripple the judiciary. | New Hampshire is halting all civil and criminal jury trials for a month to save on per diem payments to ju-rors. In addition, seven judgeships will remain vacant through the end of the fiscal year. | All state courts in Oregon are now closed on Fridays at least through June 30. Proposed cuts would require all department employees to take 16 unpaid furlough days before the end of June. | Pennsylvania has implemented a freeze on adding new positions and eliminated staff merit salary in-creases. In addition, as a result of an across-the-board 6 percent cut, there is not sufficient funding for the statutorily mandated salaries of the trial courts, magisterial district judges, one of the intermediate appellate courts, and two Philadelphia courts. | Utah has dismissed all of its in-house court reporters and is looking into an $8 “conviction fee” to pay for security and metal detectors.

 

With few state budgets on the upswing, it seems likely that there will be more such efforts in the months to come. Also likely is that legal communities across the country will pull together as lawyers and leaders in Connecticut did. In recognition of that work, the Connecticut Bar Association received the Isaac Hecht Law Client Protection award, for the bar’s efforts to protect the rights of legal clients. The award, from the National Client Protection Organiza-tion Inc., was presented to CBA president and delegate to the ABA House of Delegates Livia DeFilippis Barndollar, at the ABA National Forum on Client Protection on May 29.

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