Court construction fund could be insolvent soon, report finds

California’s court construction funding system faces insolvency in three years, according to a Legislative Analyst’s Office report that recommended an overhaul of how the bills get paid.

The report, issued Friday, finds that the current system is based on a shaky funding source that one account could begin to dry up as soon as this year.

The report recommended an overhaul of court construction funding. The agency gave similar advice three years ago. But this time, Gov. Gavin Newsom included the recommended changes to court construction funding in his proposed 2021-22 state budget.

For nearly 20 years, courts have largely relied on fines and fees, ranging from traffic tickets to court fees, to raise money for a pair of construction accounts. Lawmakers also raided the construction funds of nearly $1.6 billion during the last economic downturn, beginning in 2009.

In response to these pressures, Newsom and the legislative analyst have recommended consolidating two construction funds and paying for courthouse buildings directly out of the state general fund.

“We recommend the Legislature approve the governor’s new approach to fund new trial court construction projects from the General Fund,” the report said. “As we discussed, this approach helps ensure that any new construction projects are weighed against the Legislature’s other General Fund priorities.”

“We are encouraged by the governor’s proposal to address the very real solvency issues facing the program and look forward to working with the Legislature and the governor on a permanent funding solution,” said Judicial Council spokesman Blaine Corren in an email.

“Given the significant decline in revenue from fines and fees, which have always been a regressive way to fund infrastructure projects, it makes sense to improve the way that court operations and construction projects are funded,” said Assembly Judiciary Committee Chairman Mark Stone, D-Scotts Valley, in an email. “At the same time, should these funding reforms be implemented, it is clear that the Legislature must take a more active oversight role to ensure construction projects reflect legislative priorities.”

Assemblywoman Cristina Garcia, D-Bell Gardens, chairs the subcommittee that oversees the courts budget. She declined to comment on the proposals, but confirmed her committee will evaluate them at a hearing on March 15.

A summary of Newsom’s proposed budget, issued last month, laid out how the state arrived at its current system and proposed ways to help speed construction projects. After the Legislature consolidated state courts in the late 1990s, “the Trial Court Facilities Act of 2002 transferred responsibility and ownership of court facilities from the counties to the state,” the summary said.

In order to support court construction, “the state substantially increased fines, fees, assessments and surcharges,” causing financial hardship among low-income people, the summary said. Lawmakers have since phased out some of these fees and disposed of some of the individual debts through amnesty programs. But the result has been to “effectively halt” many construction projects, the summary said.

Newsom has proposed consolidating the State Court Facilities Construction Fund (SCFCF) and Immediate and Critical Needs Account (ICNA). The legislative analyst endorsed this idea, noting the funds are now receiving just over half the money they took in a decade ago.

“Absent any action, SCFCF faces insolvency in 2021-22,” the legislative analyst’s report said. “However, due to its larger fund balance, ICNA would not become insolvent until 2024-25. As such, the accounts will shortly lack sufficient funds to support current obligations, much less any new ones (such as new construction projects).”

The combined fund would still be quickly heading toward insolvency, however. With that in mind, the report endorsed Newsom’s approach of also shifting court construction obligations back to the General Fund. This would start to unwind the 2002 law, which created the State Court Facilities Construction Fund and increased several fines and fees to finance it.

“Supporting new projects directly from the General Fund helps ensure that the projects will be weighed in the context of the Legislature’s broader General Fund priorities, including other state infrastructure needs,” the report stated. “This will be particularly important in the coming years, given the state’s projected operating deficit.”

Newsom’s budget includes several proposals to shift obligations back to the General Fund. For instance, it proposes to fund four smaller projects with $8.3 million and another $66.5 million in revenue bonds backed by the General Fund.

The report also endorsed Newsom’s proposal to pay for 12 more projects beginning around 2025 with $302 million, plus $1.8 billion in revenue bonds backed by the General Fund.

A 2018 legislative analyst’s report identified the same problems and proposed similar solutions. It called for phasing out the two construction funds and shifting construction responsibilities to the General Fund. While then-Gov. Jerry Brown didn’t take these steps, the report praised him for backfilling $1.4 billion of the money taken from the construction accounts.

Many people within the court system have long been critical of their reliance on fines and fees to pay for construction and other court expenses.

“We got hooked on using fines, fees, and assessments as a way to fund vital government services,” said Judicial Council Administrative Director Martin Hoshino in a Feb. 4 news release about an online tool that allows people who can’t afford to pay to apply to have their fines reduced. “We’ve gotten to a point of stacking these fines and fees on top of people, and we’ve created nothing short of a debtor’s prison. That should not be happening.”