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California Medical Association v. Edmund G. Brown

March 30, 2011


(San Francisco City and County Super. Ct. No. 09-509896)

The opinion of the court was delivered by: Marchiano, P.J.


The California Medical Association (CMA) contests the legality of a loan made from the Contingent Fund of the Medical Board of California (Medical Board) to the state General Fund to help balance the state's fiscal year 2008−2009 budget. Government Code section 16310 authorizes loans from Special Funds to the General Fund if the General Fund is exhausted and the loan does not interfere with the object for which the Special Fund was created. We conclude that the loan to the General Fund was lawful under this statute, and affirm the denial of CMA's petition for writ of mandate to require that the money be returned to the Contingent Fund.


A. Factual and Procedural Background

Item 1110-011-0758 of section 2.00 of the Budget Act of 2008 provided for "transfer by the Controller, upon order of the Director of Finance, from the Contingent Fund of the Medical Board of California to the General Fund" the sum of $6 million. (Stats. 2008, ch. 268, § 2.00, No. 7 West's Cal. Legis. Service, p. 1069.) The provision stipulated: "The amount transferred in this item is a loan to the General Fund. This loan shall be repaid with interest calculated at the rate earned by the Pooled Money Investment Account at the time of the transfer. Repayment shall be made so as to ensure that the programs supported by the Contingent Fund of the Medical Board of California are not adversely affected by the loan through reduction in services or through increased fees." (Ibid.) The Budget Act of 2008 was signed into law on September 23, 2008, and the money was transferred to the General Fund in October 2008.

In October 2009, the CMA petitioned for a writ of mandate directing that the money be returned, with interest, to the Contingent Fund. The named respondents included Arnold Schwarzenegger, as Governor, John Chiang, as State Controller, and Michael Genest, as Director of the California Department of Finance (these respondents or their successors are hereafter referred to collectively as defendants).

The petition states that CMA is "a not-for-profit, professional association of approximately 35,000 physicians and medical students, [which] [f]or more than 150 years . . . has promoted the science and art of medicine, the care and well-being of patients, the protection of the public health, and the betterment of the medical profession. CMA's physician members practice medicine in California in all specialties and settings. They regularly pay biennial license fees to the Medical Board in order to maintain an active license to practice medicine in California. CMA's physician members also are subject to the jurisdiction of the Medical Board in its enforcement of the laws relating to medical practice and licensing."

The Medical Board is described in the record as "a consumer protection agency responsible for protecting the public through the proper licensing and regulation of California's heath care professionals and the enforcement of the Medical Practice Act. Under the Department of Consumer Affairs . . . it licenses physicians and surgeons . . . , investigates complaints against its licensees, and disciplines those found guilty of violating the law." (See Bus. & Prof. Code, § 2004 [listing Medical Board responsibilities].) Biennial license fees paid by physicians, currently capped at $790, are the Medical Board's primary source of revenue. (See Bus. & Prof. Code, § 2435, subds. (c) & (d).) Those fees and others collected by the Medical Board are credited to its Contingent Fund. (Bus. & Prof. Code, § 2445; see also, e.g., Bus. & Prof. Code, § 2168.4, subd. (e).) Salaries and benefits of all Medical Board employees are paid solely out of the Contingent Fund, and the Medical Board does not rely on money from the state's General Fund for any purpose.

The petition challenged the loan from the Contingent Fund to the General Fund on statutory grounds, and on constitutional grounds that have not been renewed on appeal. Defendants argued that the loan was authorized by statute, and that the petition should also be denied because CMA lacked standing or was guilty of laches.

The court determined that CMA had standing and rejected the laches defense, but found no authority that clearly prohibited the loan, and denied the petition.

B. Statutory and Fiscal Background

Defendants contend that the $6 million loan from the Contingent Fund to the General Fund was authorized by Government Code section 16310, which, in the fall of 2008, provided: "(a) When the General Fund in the Treasury is or will be exhausted, the Controller shall notify the Governor and the Pooled Money Investment Board. The Governor may order the Controller to direct the transfer of all or any part of the moneys not needed in other funds or accounts to the General Fund from those funds or accounts, as determined by the Pooled Money Investment Board, including the Surplus Money Investment Fund or the Pooled Money Investment Account. All moneys so transferred shall be returned to the funds or accounts from which they were transferred as soon as there are sufficient moneys in the General Fund to return them. No interest shall be charged or paid on any transfer authorized by this section, exclusive of the Pooled Money Investment Account, except as provided herein. This section does not authorize any transfer that will interfere with the object for which a special fund was created or any transfer from the Central Valley Water Project Construction Fund, the Central Valley Water Project Revenue Fund, or the California Water Resources Development Bond Fund." (Stats. 1997, ch. 694, § 6, p. 4755.) The remainder of the statute consisted of a subdivision (b) providing for payment of interest on the money transferred. (Ibid.)

CMA contends that the loan from the Contingent Fund to the General Fund was prohibited by Business and Professions Code section 2445, which states: "All moneys paid to and received by the board shall be paid into the State Treasury and shall be credited to the Contingent Fund of the Medical Board of California. Those moneys shall be reported at the beginning of each month, for the month preceding, to the Controller. [¶] The contingent fund shall be for the use of the board and from it shall be paid all salaries and all other expenses necessarily incurred in carrying into effect the provisions of this chapter. [¶] If there is any surplus in these receipts after the board's salaries and expenses are paid, such surplus shall be applied solely to expenses incurred under the provisions of this chapter. No surplus in these receipts shall be deposited in or transferred to the General Fund."

In opposition to the petition, defendants submitted the declaration of Department of Finance (DOF) program budget manager Veronica Chung-Ng, which explained: "Governmental Cost Funds consist of those funds that receive revenues derived from taxes, licenses, and fees. Expenditures of these Governmental Cost Funds represent the cost of operating the State government. There are two major fund types which comprise the Governmental Cost Funds. These two fund types are the General Fund and Special Funds. [¶] The General Fund is the main operating fund of the State, consisting of moneys that are not required by law to be deposited into any other fund." Special Funds like the Contingent Fund of the Medical Board "are used to account for resources that are legally restricted for particular functions or activities of government."

Chung-Ng further explained that General Fund and Special Fund cash is deposited into the Pooled Money Investment Account (PMIA). Most Special Funds are considered to be " 'borrowable' by the General Fund for daily cash flow purposes," and the Contingent Fund of the Medical Board was among the Special Funds listed in a May 2008 report from the Controller as a "borrowable resource[]" for the General Fund. The State Controller's Office "evaluates the General Fund cash needs" on a daily basis "and determines how much to borrow from the borrowable resources that reside in the PMIA. With certain exceptions, this borrowing is actually made from the PMIA overall cash balance and not from individual funds/accounts." In contrast to such "cash flow borrowing," the loan at issue was a "budgetary" loan, i.e., a loan that is "specifically authorized in a given year's Budget Act and result[s] in cash being borrowed directly from the special fund."

In May 2008, the Governor announced that California was grappling with a budget deficit of $17.2 billion, and Chung-Ng noted that "[b]y Fall of 2008, the State was facing a severe fiscal and general fund cash crisis."

In October 2007, the Bureau of State Audits reported that the Medical Board Contingent Fund had a surplus at the close of its 2006−2007 fiscal year of $18.5 million, a sum sufficient to cover 4.3 months of operating expenditures. By the close of the 2007−2008 fiscal year, the surplus in the Contingent Fund had grown to $23.9 million. Despite deduction of the $6 million loan to the General Fund, a $24.4 million surplus remained at the end of fiscal 2008−2009, an amount that would cover 5.5 months of operations. The Governor's 2010−2011 budget projected Contingent Fund surpluses of $26.0 million at the end of fiscal 2009−2010, and $23.0 million at the end of fiscal 2010−2011. In October 2009, the Medical Board projected surpluses of $22.9 million in 2009−2010 and $19.6 million in 2010−2011, covering 5.1 months and 4.3 months of operations, respectively.

Medical Board budget analyst Debbie Titus declared in opposition to CMA's petition that the loan to the General Fund "has had no material effect on the Board's ability to perform its statutory obligations of licensing physicians ...

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