The State Bar has been burning through its reserves, and needs to increase its license and program fees, the state auditor reported April 13.
The Bar’s general fund reserve fell from $19 million to $12.4 million in two years, from 2020 to 2022, despite a policy that required the Bar to have $16 million in reserves, the auditor report said. The Bar also predicts that its revenue will fall $4.3 million short of its expenses in 2023. Licensing fee revenue pays for 80% of the State Bar’s administrative costs, the report said.
The Bar agreed with the auditor.
“The recognition of the need for a licensing fee increase to sustain State Bar operations reinforces a message that the Board of Trustees and State Bar leadership have relayed in recent months,” the Bar wrote in its formal response.
A likely cause of the deficits, according to the auditor report, is rising personnel costs. The State Bar paid $79.5 million in personnel costs in 2019, and $84.8 million to personnel in 2022, the report said.
The Bar is not requesting the legislature increase fees, because the executive director believes the requests destabilize relationships with legislators, the auditor reported.
A fee increase requested by the State Bar in 2022 was rejected by the legislature, who instead ordered the audit, the report said.
The Bar’s programs are also underperforming, the auditor reported. Only three of the State Bar’s 10 programs met their performance metrics targets: the Office of the Chief Trial Counsel, the probation program and the judicial evaluation program. Overall, the State Bar’s programs reached 24 out of 36 performance targets. None of the Bar’s seven administrative offices met all of their performance targets.
The Bar had a 21% staff vacancy rate in its administrative offices, while the programs had an 8% vacancy rate.
Despite the current deficit, the Bar will have to spend additional funding to meet its performance metrics by filling vacant positions, the auditor wrote.
The Bar could raise $91.1 million by raising the licensing fee by $24, to $414, the auditor wrote.
The auditor also said the Bar should raise service fees to cover the costs of specific programs, including the MCLE Compliance program, the certificates of standing program, the lawyer referral service, mandatory fee arbitration and MCLE provider certification. None of these programs are funded by their current fees, resulting in a $1.9 million hole.
The auditor also reported that the Bar is not planning through long-term financial forecasting. The Bar should bring back its practice of posting, on its public website, forecasts for its general funds going forward three years, the report said. The Bar agreed with that recommendation.
The audit report also suggested improvements on the Bar’s discipline cases.
The Bar should review the accuracy of data in its case management system, audit its investigator’s billing statements and formalize the process for identifying conflicts of interest between State Bar investigators and attorneys, the report said. The Bar agreed with these recommendations as well.
Read the full auditor report here.
