Legislative Analyst's Office

Analysis of the 2003-04 Budget Bill

Judicial Council (0250)

In 2002, responsibility was shifted from the counties to the state for funding the operation, maintenance and development of trial court facilities. The budget does not include any capital outlay proposals for trial court facilities, but there are implementation and funding issues resulting from this shift that the Legislature may wish to address.

Trial Court Facilities Act

Background

Trial Court Funding Act. In 1997, the Legislature passed and the Governor signed into law Chapter 850, Statutes of 1997 (AB 233, Escutia and Pringle), which established the "Trial Court Funding Act." This legislation implemented the Legislature's goal of shifting responsibility for trial court funding and operations from the counties to the state. Chapter 850 also established the "Task Force on Court Facilities" (task force), whose responsibility was to report to the Legislature, Governor and Judicial Council (council) on the funding of new construction, remodeling, and renovation of trial court facilities.

Task Force on Court Facilities. The duties of the task force were to:

Document the state of existing court facilities and determine the extent to which existing court facilities are utilized.
Examine existing standards for court facility construction.
Determine the need for new or modified court facilities.
Document funding mechanisms currently available for construction, renovation, operation and maintenance of court facilities.
Review and make recommendations for operational changes that might mitigate the need for additional court facilities.
Recommend funding responsibilities among the various government entities for support of trial court facilities, as well as funding sources and mechanisms.

In response to the task force's final report, the Legislature enacted Chapter 1082, Statues of 2002 (SB 1732, Escutia), the Trial Court Facilities Act of 2002.

Summary of the Facilities Act

Chapter 1082 provides for transfer of trial court facilities from counties to the state and a funding mechanism for their operation, maintenance, and renovation, and construction of new facilities.

Operation and Maintenance Responsibility and Funding. Counties are required to make annual maintenance-of-effort (MOE) payments to the state for operation and maintenance of court facilities that are equal to the amount each county historically expended on operation and maintenance of court facilities. These MOE payments are an ongoing responsibility of the counties; however, no provision is made for their escalation in future years due to inflation or the construction of new facilities. The state is responsible for funding operation and maintenance costs in excess of the county payments. The council is responsible for administration of operation and maintenance funds.

Construction Funding. Various new fees are imposed on court filings and fines to generate revenue to be deposited in a new "State Court Facilities Construction Fund." Funds for renovation of existing and construction of new court facilities are to be appropriated from this fund. The court fees and fines are specified in fixed amounts—some for limited periods of time—with no provision for escalation in the future due to inflation or the need to construct additional court facilities. The state is responsible for funding construction costs if the specified court fees and fines do not generate sufficient revenue for the construction fund.

Construction Responsibility. The council is required to annually recommend to the Governor and the Legislature the projects and amounts to be expended for renovation and construction of court facilities. The council has ownership authority over court facilities to be constructed, and authority to design, bid, award and construct projects, except as delegated to others.

Potential Fiscal Impact on the State

There are currently about 450 trial court facilities in the state comprising about 10.1 million usable square feet (usf). About 9 million usf are in county-owned buildings and about 1 million usf is leased by counties in commercial office buildings. By way of comparison, the total amount of academic facilities at the University of California's (UC) eight general campuses is about 10.9 million usf.

Below, we describe the various costs for which the state is now responsible. These costs are to operate and maintain existing facilities; develop, operate and maintain additional facilities for which there is a current need; and develop, operate and maintain additional facilities for which a need is projected to develop in the future.

Operating Costs of Existing Facilities. The task force estimates the annual cost to operate and maintain existing trial court facilities is about $263 million a year (see Figure 1). These new state costs initially will be funded through the county MOE provisions discussed above. Since county payments will be fixed at historical levels, the share of operating and maintenance costs they will cover will erode in future years, because of inflation and the need to construct additional facilities.


Figure 1 Existing Trial Court Facilities— Annual Operating Costs
(In Millions)
	Amount
Operation, maintenance, and administration	$140.0
Lease payments	27.6
Debt service costsa	95.8
Total	$263.4

a With an average of 14.4 years remaining on the debt.

Current Facility Needs. The task force estimated the current need for trial court facilities in two ways—first assuming "maximum reuse" of existing facilities (meaning renovating facilities rather than constructing new ones, whenever practicable)—and then assuming a "reduced reuse" scenario (where many older facilities would be replaced rather than renovated). Figure 2 summarizes the task force's estimates. Using the maximum reuse assumption, the task force estimated that there is a current need for 3.9 million usf of additional court facilities (both expansions of existing facilities and new facilities). With the reduced reuse assumption, it was estimated the current need was an additional 7 million usf. The task force estimated the capital cost for these two options at $2.8 billion and $3.4 billion, respectively.


Figure 2 Estimated Current Need for Trial Court Facilities
Usable Square Feet (In Thousands)
Current Need	Maximum Reuse	Reduced Reuse
Existing facilities	10,138	10,138
Less obsolete facilities	-1,399	-3,057
Plus new facilities	3,887	6,993
Current need	12,626	14,074
Capital outlay required ($ millions)	$2,808	$3,383

The estimated annual operation and maintenance cost increase needed to service this additional space is between $3.4 million and $5.4 million.

Future Need. The task force also estimated the future need for additional trial court facilities to accommodate a growth in staff and judges commensurate with population growth. It concluded this would result in a need for an additional 5.8 million usf, costing $2.1 billion over the next 10 years. The estimated annual operation and maintenance cost increase needed to service this additional space is $4 million.

State Capital Investment Impact. According to the council, assumption of responsibility for funding the operation and maintenance of trial court facilities will cost the state about $270 million a year. This estimate does not take into account cost escalation due to inflation and the construction of new court facilities. In addition, the council estimates the cost of constructing new trial court facilities is up to $2.3 billion over the next five years (not counting cost escalation due to inflation). This would make the trial courts one of the state's most costly capital outlay programs. Figure 3 shows how capital spending on court facilities would compare to that for other agencies with large capital outlay programs.


Figure 3 Trial Court Facilities to Become One of the State’s Biggest Infrastructure Programs
Estimated Five-Year Infrastructure Costsa (In Billions)
Department	Estimated Capital Outlay
Water Resources	$2.4
Trial Courts	2.3
Community Colleges	2.0
University of California	1.8
General Servicesb	1.8
California State University	1.5

a Cost estimates from 2002—California's Five-Year Infrastructure Plan, covering 2002-03 through 2006-07.
b The Department of General Services is the "landlord" that provides office space for most state agencies.

Issues for the Legislature

As noted above, trial court facilities are expected to be one of the state's biggest capital outlay programs in the future. Below, we discuss some key issues related to this significant new state responsibility.

Adequacy of Revenue From Court Fees

The Trial Court Facilities Act provides for specific court-imposed fees and fines to be imposed in court actions and dedicated to the cost of renovation and construction of court facilities. These fees and fines, however, are specific dollar amounts and there is no provision for their escalation to compensate for inflation. Also, some of the fees specified in the act are imposed for a limited time only. In the event revenue generated from these fees and fines is inadequate to meet the demand for trial court facilities (as determined by the Judicial Council), the act requires the state to provide additional funding to make up for any deficiencies. The council estimates over $1 billion will be required from the state over the next five years. This will certainly have a significant impact on the General Fund in the form of direct appropriations and debt service on General Fund-backed bonds.

In the longer run, it was hoped that the fee revenues provided by the act would cover the ongoing trial court facilities costs. However, it is likely to be difficult for the fixed fees and fines specified in the act to keep up with rising out-year costs.

To assist the Legislature in its long-term capital planning, we recommend the Legislature adopt supplemental report language directing the Judicial Council to prepare a projection of the long-term funding needs of the court facilities program. If fees and fines, and county MOE payments are insufficient as a permanent funding source, we recommend the Legislature direct the council to prepare a long-term estimate of the revenue deficiency and identify specific options for the Legislature to consider to make up the deficit.

Management of the Court Construction Program

The Trial Court Facilities Act provides the council with the authority and responsibility to implement the design and construction of court facility projects, except as delegated to others. The council has indicated it wishes to hire staff to do this work rather than delegate it to the Department of General Services (DGS).

If the council should undertake this responsibility, it would represent an unprecedented departure from the judicial branch's core function. There is also a question about the cost-effectiveness of the judicial council greatly expanding its staff to manage a program of a type which historically has been managed by the executive branch, and with which the council has no experience. We believe the Judicial Council may have serious difficulties in: (1) hiring several hundred experienced engineers, architects, and support staff and (2) developing the organization, processes, standards and expertise to manage a major construction program. We note that DGS has the capability to shift qualified technical staff to the trial court facilities program quickly and without extensive new hiring. Also, much of DGS's professional staff is already geographically dispersed around the state, which would facilitate dealing with court facilities in all of the 58 counties.

Given these issues, we believe the Legislature needs to be informed of how the administration proposes to deal with the management of the courts' construction program. Accordingly, we recommend that the Departments of Finance and General Services, and the Judicial Council, report at budget hearings on how this function could most efficiently be performed.

Court Facility Guidelines

The Judicial Council staff addressed the issue of court facility guidelines and recommended functional space and utilization standards for use in developing trial court facilities. The council used these guidelines to develop its estimates of the current and future court facilities needs. This is an appropriate approach to estimating facility needs. We recommend, however, that facility guidelines developed by any state agency be reviewed and validated by an outside agency to assure they are cost- effective and consistent with other state standards. Accordingly, we recommend the Legislature adopt supplemental report language directing DGS to review the court facility guidelines developed by the council to assure that they are reasonable and cost-effective.