Calculating Broad Economic Jobs and Tax Impact of Court Cuts — Bloomberg Businessweek Cites Los Angeles Study — Methodology, National Court Funding Campaign

Bloomberg Businessweek has a useful story on the impact of court cuts on the overall economy.  As well as quoting Steve Zack (ABA President), David Boies (Prop 8, Microsoft and Bush Gore litigator) and David Udell (National Center for Access to Justice), the article discusses an interesting, useful, and very quotable 2009 study on the potential economic impact of the cuts that the Los Angeles Courts are suffering.

The Los Angeles Superior Court, the largest trial court system in the country, planned budget cuts of between $79 million and $140 million from 2009 through 2013. A 2009 study by the research firm Macronomics [oops, actually Microeconomics (firm link), see link to article] found that those proposed cuts could result in almost $30 billion in economic losses. The damage stems in part from layoffs at the courts but primarily from an estimated $6.3 billion in reduced legal fees and over $7 billion in losses at businesses, which have to hold reserves that can’t be invested elsewhere while their cases are still under way.

Presumably other courts could, as a very rough approximation indeed, use a similar multiplier for the economic impact of cuts in their states.

For what it is worth, the methodology of the article was to look at the fall off in legal services activity in LA during a prior period of cuts, and correlate it to those cuts, in comparison to ongoing growth in legal services in other markets .  The study showed that there was no fall in overall local GDP, even relative to the other legal markets, an alternative explanation of the drop.  I personally think that a better showing of the operation of mechanism would make this much more convincing.  After all, I would think that most legal billing has nothing to do with state courts, it is transactional, or in the Federal Courts.  A research survey of law firms would give information on this.

The study also looked at the impact on overall economic activity (likely to be much more influential on legislative and public opinion) by finding the average value of economic resources at stake in a case, and calculating the economic impact of having that money not available for higher risk (and therefore higher return) activities.  (A macroeconomic multiplier is also applied.)  As the article puts it:

We have measured damages associated with delays in dispute resolution as the difference between a normal return on these assets (i.e. which allows for risk and illiquidity) and a relatively low risk-free return. This reduction in return exceeds $7.1 billion through 2013. Using an economic multiplier model, associated economic output losses amount to approximately $15.0 billion, with more than 81,000 jobs eliminated and $873 million in lost tax revenue.

I think this more methodologically persuasive, but would want to get data on whether this is what really happens to money in these circumstances.   In total (all impacts, immediate legal services market and broader economic) they project 150,000 job losses and lost local and state tax revenue of $1.6 billion in the period from 2009 to 2013.  I do encourage people to read the study.  (A backwards study would help validate the methodology, we are now maybe getting close to halfway through the period of the projections.)

It would be nice is someone could generate a calculator that courts could use to estimate the economic impact of court cuts.  You would input certain local data, such as overall court budget, planned cuts, average amount at stake, and then software would project the impact.  While it might only be accurate as to perhaps order of magnitude, it would be of great value.

In terms of the strategy to try to protect court budgets, according to the Bloomberg article,  Boise is partnering with Ted Olson (his former opponent in Bush v. Gore, his current ally  in California’s Prop 8 gay marriage case) to engage corporations and others in the ABA’s national campaign to protect courts from raids on the budgetary resources they need.

The task force plans to explore new funding sources and gather data on court funding. More than anything, it hopes to influence the state legislators who control court budgets. The group plans “to make sure this info is presented to people who can do something about this,” Boies says. He points to an example from Missouri where, thanks in part to a coordinated lobbying effort by the general counsels of local corporations, the legislature in January passed the first pay raise for judges since 2008. While corporations carry political clout, so do lawyers and lobbyists, who gave over $200 million to state-level races in 2010, according to data from the National Institute on Money in State Politics.

I laud these efforts to protect our courts at this time of particular peril.  I do hope, however, that the courts, like all institutions, will also determine how to operate far more accessibly and efficiently.  I would like to see the debate as being about how courts can do a far better job of meeting the needs of all.  If that can occur, we will find the courts in much better political shape in the budget struggles of the future.  This should be a moment of intellectual and structural opportunity, not just a fight over funding for the familiar.    See, for example, the work of the National Center for State Courts on re-engineering.


About richardzorza

I am deeply involved in access to justice and the patient voice movement.
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