3/24/2008 Recorder (San Francisco)
The Recorder Vol. 132, No. 57 Copyright 2008 by American Lawyer Media, ALM, LLC
March 24, 2008
Cheryl Miller
, Recorder Staff Writer

SACRAMENTO -- Gov. Arnold Schwarzenegger has a $16 billion budget deficit dilemma on his hands. He insists he doesn't want to cut education. But he proclaims with equal fervor that he won't raise taxes.

So what's a post-partisan governor to do? Close tax loopholes, of course.

Now one governor's loophole may be another politician's tax increase. But according to two media outlets, Schwarzenegger told the audience at a Pleasant Hill budget forum last Wednesday that the state should consider closing tax loopholes, and in his mind that includes the lack of a sales tax on professional services -- including legal services.

'We have to look at the way we are taxing,' Schwarzenegger is reported as saying. 'There's whole new economies that are developing, service-oriented economies.'

Asked about the comments on Thursday, finance department spokesman H.D. Palmer said the governor was just explaining that there are a lot of deficit-eliminating ideas 'out there.'

'Basically, it was in the context of we ought to have everything on the table as we ought to be having discussions about them sooner rather than later,' Palmer said. 'But we're not carrying a bill in our back pocket, if that's what you're asking.'

The state keeps tabs on how much money it loses from sales tax exemptions, or loopholes or whatever you'd like to call them. In 2007-08, for instance, state and local coffers could have raked in another $6 billion if California allowed sales taxes on food, according to the Department of Finance. The department doesn't project what a tax on legal services might generate. But a 2007 report by the treasurer's office estimated that the state could reap more than $10 billion from a tax on 'construction and professional services.'

Taxing legal services isn't a new idea. Jeffrey Bleich, president of the State Bar, noted that San Francisco considered -- and quickly dropped -- the notion of taxing professionals when he led the San Francisco Bar Association in 2003.

As for Schwarzenegger's trial balloon, 'I get lots of complaints,' Bleich said Friday, 'but this hasn't been one of them.'

How serious is Schwarzenegger? He told reporters that he hears lots of budget-balancing proposals 'and I just throw it out there.' But it's an interesting concept. He may be able to sell it to Democrats by promising more money for schools and other pet interests. And if he can leverage that new money into support for sweeping changes to California's budgeting practices, he may also draw some Republican backing. Giving Republicans a chance to crow about 'taxing the lawyers' might not hurt either.

Clark Kelso, the long-time McGeorge School of Law professor and current state prisons receiver, is also on a quest for funding. Sometime in the next few weeks he'll be asking the Legislature to approve a bond sale -- he says he doesn't know the amount yet -- to build medical facilities in state prisons. And to help move that request through the Legislature, he's hired an old acquaintance, Ray LeBov.

LeBov, now a private lobbyist, is the former director of the Judicial Council's Office of Government Affairs. Kelso worked closely with the Judicial Council back in the 1990s when the state unified its municipal and superior courts.

The bond sale 'is a large enough, a critical enough piece of my plan that I wanted to make sure I had appropriate representation,' Kelso said. 'In dealing with the Legislature it's always best to have highly respected and skilled representation.'

Kelso's hire of LeBov stands in stark contrast with his recently ousted predecessor, Robert Sillen, who angered legislators from both parties with his brash talk and go-it-alone attitude. Sillen was no favorite, either, with the inmate advocates who brought the lawsuit that led U.S. District Judge Thelton Henderson to put California's troubled prison medical system into receivership.

'Clearly what Judge Henderson wants me to do is take some of the conflict out of this,' Kelso said.

'I really have to have that approval [for the bonds] from the Legislature and the governor before I can begin construction,' he said. 'The longer we have to wait, the more delay we have, the more costs go up.'

Speaking of having to wait, the Schmier brothers, Ken and Mike, have launched their latest legislative effort to force the Judicial Council to drop the rule that forbids citation of appellate courts' unpublished opinions.

The Schmiers, both practicing Bay Area attorneys, persuaded freshman Assemblyman Jared Huffman, D-San Rafael, this month to ask Chief Justice Ronald George in a letter whether he will form a committee 'to address additional issues' regarding the no-citation rule. Huffman is at least the fifth lawmaker over the last decade or so to have either introduced legislation or questioned George about the unpublished opinions issue on the Schmiers' behalf.

'Michael is diligent' about lobbying lawmakers, said brother Ken. 'I wish that he had [filmmaker] Michael Moore with him when he visits them.'

The Schmiers insist that George has stymied all their efforts with lawmakers with relentless lobbying of his own.

'Every time we visit a legislator and make the case for our cause, we're followed in by the chief justice of the state of California,' Ken Schmier said. 'We're just not on the same playing field.'

In this case, George wrote back to Huffman on March 7 saying that rule changes enacted in April 2007 have boosted the number of opinions that are now published. The Supreme Court will eventually form a committee to study the effects of those changes, George wrote, but not before there's 'sufficient information to determine the appropriate scope of the new committee's charge.'

The Schmiers say there's already plenty of evidence to warrant the launch of a new committee. And they're not convinced that George will ever really act to allow nonpublished citations. But that's not stopping them.

'How often does an ordinary person get to be a linchpin in retaining the rule of law? Because that's what this is all about,' Ken Schmier said.

In a nutshell, the Schmiers believe that courts shouldn't be in the business of deciding for themselves what constitutes 'useful' case law. And they've made it their mission to persuade judges, legislators and the media that their cause is just. Ken Schmier said his brother is more optimistic that their desired change is coming, perhaps through the Legislature. Brother Ken thinks the change might have to come through an eventual federal lawsuit.

'Everyone who pushes to see good things happen feels alone some times,' he said. 'But you have to decide in your own mind what's important to you.'


Reporter Cheryl Miller's e-mail address is cmiller@alm.com.