Business Update with Mark Lacter

Cuts to L.A. Superior Court; April income taxes help California's financial situation

KPCC's business analyst Mark Lacter says it may be tough to get quick service at L.A. Superior Court. He also explains why income taxes are particularly helping California during April.

Steve Julian: Mark, still more cuts facing L.A. Superior Court. How bad is it?

Mark Lacter: Really bad Steve -- 56 courtrooms will be closed by June 30, along with layoffs for 350 workers. The courtrooms being shut cover all sorts of litigation - divorce cases, probate cases, family court, traffic court. And they also cover business-related litigation. So if you're looking to file suit against your doctor, your auto repair shop, your parts supplier - whoever – the case will probably be delayed by many more months, possibly years.

Julian: The state can't lay off judges, can it?

Lacter: No, but it can lay off the support staff, and they're, of course, the ones that really move things along. This is just the latest round of cuts – last year L.A. courts trimmed $70 million by freezing wages and forcing staff members to take furlough days. Apparently that wasn’t enough – and there could be additional reductions if voters don't approve the governor's tax increases in November. In other words, most folks might just decide that going through the court system is more trouble than it's worth. It's kind of ironic, considering that California is often cited as one of the most litigious states in the nation - and according to some, a place that needs significant changes in its tort system. Well, it's happening - unintentionally.

Julian: You don't always have to go to court to settle a dispute.

Lacter: That's true. There's the mediation process, where you have a third party brought on to facilitate some sort of resolution (though a mediator can't impose a decision the way a judge would). Then there's arbitration in which you have a third party - it's often a retired judge - who is brought on to actually make a decision. In theory, both sides must agree in advance on arbitration, but sometimes the deck is stacked against the plaintiffs. So these are not always ideal ways to resolve business disputes, but with so few courtrooms in operation, there might not be much choice.

Julian: Are the courts a priority for state funding?

Lacter: No, they're really not - far less than, say, education or law enforcement. For now just expect lots of delays.

Julian: What about the state budget? Income taxes must be loading the coffers to the gills.

Lacter: Well, they are coming in. As you might guess, April is the big month for personal income taxes, which, represents more than half of the total revenues for California. Through the first 20 days of April, a total of $5.8 billion has come in. The biggest revenue day was on the 18th - the day after taxes were due - when more than a billion dollars was received. Unfortunately, the governor is expecting April tax revenues to be $9.1 billion.

Julian: And what does your calculator tell you?

Lacter: If my arithmetic is correct, over the next six business days they have to receive $3.3 billion, which will take some doing. So if the state receives less money than expected, it could mean that the deficit will be even larger than was estimated just a few months ago. Gov. Brown says it could be higher by $1 billion or more. The higher the deficit, the more there is to cut.

Julian: It's not only that, is it?

Lacter: No, there are other reasons besides lower tax receipts (lawmakers have resisted making spending cuts, for instance), but state officials had been counting on a pickup in personal income taxes. After all, the economy is supposed to be getting stronger, meaning that people are making more money, especially at the higher end. And it still might happen over the next few months. As we've been talking about recently, the state is so reliant on the very wealthy that when the numbers are lower than expected, it can present a real problem.

Mark Lacter is a contributing writer for Los Angeles Magazine and writes the business blog at LA Observed.com.


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