Summary of LAO Findings and Recommendations on the 2010-11 Budget

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	Program	Budget Issue	LAO Finding Or Recommendation	Last Updated
Go Back	Judiciary	Funding for trial court operations.	Reject Governor's proposed General Fund augmentations totaling $117.9 million for trial courts—$100 million to fully restore a one-time reduction made in 2009-10 and $17.9 million for increased employee benefits costs—given the availability of other funds to support existing trial court operations and the state's current General Fund shortfall.	2-23-10

Detailed Narrative
The 2009-10 budget included a one-time unallocated reduction of $100 million and a permanent, largely unallocated reduction of $172 million to the General Fund support budget of trial courts. In addition, the budget also provided $124 million less than the estimated workload budget for 2009-10, primarily by (1) continuing permanently various reductions enacted on a one-time basis for 2008-09 and (2) eliminating the inflationary adjustment based on the state appropriations limit otherwise required under state law for trial courts. The 2009-10 budget assumed that the total $396 million savings identified above would be accommodated primarily through the closure of courthouses for one day per month and related furloughs of court staff, increased court fees, the redirection of various special funds, and the utilization of trial court reserves. *Governor Proposes to Restore One-Time Reduction and Fund Increased Employee Benefit Costs.* The Governor’s budget for 2010-11 proposes a $100 million General Fund augmentation to fully restore the one-time unallocated reduction of that same amount made in 2009-10 to the trial courts’ budget. (The $100 million reduction in trial court funding would, however, be continued under a “trigger” proposed as part of the Governor’s budget plan. Under such a provision, various alternative revenue and expenditure reduction proposals would be triggered, including a continuation of the one-time reduction to the courts from 2009-10, if the federal government does not provide $6.9 billion in additional funds sought to reduce General Fund costs.) Although the proposed budget does not include inflationary adjustments to the operating budget of trial courts, it does include $17.9 million in additional General Fund support for increased retirement and health benefit costs for trial court employees. *Trial Courts Have Significant Amount of Unspent Funds.* As mentioned above, the 2009-10 budget assumed that the Judicial Council would use special fund balances and trial court reserves to help offset budget reductions in the current year. The Administrative Office of the Courts (AOC) reports that $161 million was redirected from various special funds, such as the Trial Court Trust Fund (TCTF), to support trial court operations in the current year. Under current state law, the Judicial Council has broad authority to allocate the roughly $3 billion appropriated from the TCTF by the Legislature in the 2009-10 budget for support of individual trial courts as well as statewide programs supporting trial courts. Moreover, pursuant to current law, all trial courts in the state are authorized by the Judicial Council to retain any unspent funds they have at the end of each fiscal year. According to the AOC, a total of $71 million in the reserves of individual trial courts was used to help backfill current-year reductions to the trial courts. Despite the above actions taken in the current year, a significant amount of special fund balances and trial court reserves remains. For example, the administration projects that the TCTF will have an unspent year-end balance in 2009-10 of $85 million. Moreover, AOC reports that the trial courts had a total of $536 million in unspent funds at the end of 2008-09. About $216 million is classified as having been restricted by contractual or statutory obligations, leaving $320 million in reserves that had not been obligated. A projection for the balance of the individual trial court funds for the end of 2009-10 is not yet available. Nevertheless, it is clear that, together with the TCTF fund balance, more than sufficient resources are available in the budget year to allow a continuation of the $100 million one-time unallocated reduction made to the courts in the current year. Sufficient resources should also be available to pay for the estimated $17.9 million increase in employee benefit costs proposed in the administration’s budget plan. *Recommend Rejecting Proposed General Fund Augmentations.* Given the availability of other funds to support existing trial court operations and the state’s current General Fund shortfall, we recommend that the Legislature reject the Governor’s proposed General Fund augmentations totaling $117.9 million for trial courts—both the $100 million restoration and the $17.9 million for employee benefits costs. Although the trial courts have plans to use some of the unspent funds to implement various projects, we believe that the courts could prioritize the use of the significant fund balances and reserves that would remain to move forward with their highest priority projects and delay those projects deemed to be of lower priority.

Detailed Narrative

The 2009-10 budget included a one-time unallocated reduction of $100 million and a permanent, largely unallocated reduction of $172 million to the General Fund support budget of trial courts. In addition, the budget also provided $124 million less than the estimated workload budget for 2009-10, primarily by (1) continuing permanently various reductions enacted on a one-time basis for 2008-09 and (2) eliminating the inflationary adjustment based on the state appropriations limit otherwise required under state law for trial courts. The 2009-10 budget assumed that the total $396 million savings identified above would be accommodated primarily through the closure of courthouses for one day per month and related furloughs of court staff, increased court fees, the redirection of various special funds, and the utilization of trial court reserves.

Governor Proposes to Restore One-Time Reduction and Fund Increased Employee Benefit Costs. The Governor’s budget for 2010-11 proposes a $100 million General Fund augmentation to fully restore the one-time unallocated reduction of that same amount made in 2009-10 to the trial courts’ budget. (The $100 million reduction in trial court funding would, however, be continued under a “trigger” proposed as part of the Governor’s budget plan. Under such a provision, various alternative revenue and expenditure reduction proposals would be triggered, including a continuation of the one-time reduction to the courts from 2009-10, if the federal government does not provide $6.9 billion in additional funds sought to reduce General Fund costs.) Although the proposed budget does not include inflationary adjustments to the operating budget of trial courts, it does include $17.9 million in additional General Fund support for increased retirement and health benefit costs for trial court employees.

Trial Courts Have Significant Amount of Unspent Funds. As mentioned above, the 2009-10 budget assumed that the Judicial Council would use special fund balances and trial court reserves to help offset budget reductions in the current year. The Administrative Office of the Courts (AOC) reports that $161 million was redirected from various special funds, such as the Trial Court Trust Fund (TCTF), to support trial court operations in the current year. Under current state law, the Judicial Council has broad authority to allocate the roughly $3 billion appropriated from the TCTF by the Legislature in the 2009-10 budget for support of individual trial courts as well as statewide programs supporting trial courts. Moreover, pursuant to current law, all trial courts in the state are authorized by the Judicial Council to retain any unspent funds they have at the end of each fiscal year. According to the AOC, a total of $71 million in the reserves of individual trial courts was used to help backfill current-year reductions to the trial courts.

Despite the above actions taken in the current year, a significant amount of special fund balances and trial court reserves remains. For example, the administration projects that the TCTF will have an unspent year-end balance in 2009-10 of $85 million. Moreover, AOC reports that the trial courts had a total of $536 million in unspent funds at the end of 2008-09. About $216 million is classified as having been restricted by contractual or statutory obligations, leaving $320 million in reserves that had not been obligated.

A projection for the balance of the individual trial court funds for the end of 2009-10 is not yet available. Nevertheless, it is clear that, together with the TCTF fund balance, more than sufficient resources are available in the budget year to allow a continuation of the $100 million one-time unallocated reduction made to the courts in the current year. Sufficient resources should also be available to pay for the estimated $17.9 million increase in employee benefit costs proposed in the administration’s budget plan.

Recommend Rejecting Proposed General Fund Augmentations. Given the availability of other funds to support existing trial court operations and the state’s current General Fund shortfall, we recommend that the Legislature reject the Governor’s proposed General Fund augmentations totaling $117.9 million for trial courts—both the $100 million restoration and the $17.9 million for employee benefits costs. Although the trial courts have plans to use some of the unspent funds to implement various projects, we believe that the courts could prioritize the use of the significant fund balances and reserves that would remain to move forward with their highest priority projects and delay those projects deemed to be of lower priority.