COMMITMENT • INTEGRITY • LEADERSHIP	View full PDF report
State Bar of California It Should Balance Fee Increases With Other Actions to Raise Revenue and Decrease Costs Report Number: 2018-030

Introduction

Background

The State Bar of California (State Bar) is a public corporation within the Judicial Branch of California, and its mission is to protect the public, as the text box describes.¹ A 13‑member board of trustees (board) governs State Bar. Of these 13 members, seven are attorneys: the Supreme Court of California (Supreme Court) appoints five attorney members, and the Legislature appoints two attorney members. The remaining six members cannot be attorneys: the Legislature appoints two members, and the Governor appoints the remaining four, subject to the Senate’s confirmation. State Bar’s 2019 budget accounts for 583 staff members who work in its San Francisco and Los Angeles offices.

State law requires every person practicing law in California to hold an active license from the State Bar. State law classifies all State Bar licensees as either active or inactive. A licensee may become inactive either by voluntary request or by the board’s action. For instance, State Bar can change an active licensee’s status to inactive if that licensee fails to pay the necessary fees or is deemed mentally incompetent. Inactive licensees cannot practice law in the State. However, inactive licensees are able to restore their active status without retaking the bar examination. As of March 2019, State Bar had 190,000 active and 64,000 inactive licensees.

State Bar’s Public Protection Function

As part of fulfilling its public protection charge, State Bar licenses, regulates, and disciplines attorneys. State Bar’s licensing duties include administering the admission exam to become a practicing attorney in California, while its regulatory duties include maintaining the State’s official listing of licensed attorneys and overseeing continuing legal education for these attorneys. Finally, as part of its discipline system, State Bar investigates and prosecutes claims of professional misconduct.

Discipline System

State Bar’s attorney discipline system comprises multiple divisions, the primary of which are the Office of the Chief Trial Counsel (trial counsel’s office) and the State Bar Court. The trial counsel’s office investigates and prosecutes attorneys accused of violating state law and State Bar’s Rules of Professional Conduct, which establish professional and ethical standards for attorneys to follow. The State Bar Court adjudicates the matters filed by the trial counsel’s office and, if warranted, recommends that the Supreme Court—which has the final authority in attorney discipline—suspend or disbar the attorneys in question. The trial counsel’s office has long struggled to process all of the complaints that it receives each year, which has contributed to its backlog. Under state law, State Bar must count as part of its backlog any complaints for which it has not dismissed the case, admonished the attorney, or filed disciplinary charges with the State Bar Court within 180 days of their receipt. According to State Bar, the trial counsel’s office received about 16,000 complaints in 2018 and filed disciplinary charges in 650 cases. The trial counsel’s backlog of complaints and cases at the end of 2018 numbered about 1,750.

Client Security Fund

If State Bar finds an attorney guilty of misconduct, that attorney’s clients may receive reimbursements for financial losses the clients incurred. The Legislature established the Client Security Fund (security fund) to reimburse individuals who suffer monetary losses as the result of dishonest attorneys’ conduct. Applicants may file claims with the security fund for these reimbursements. The board appoints a seven‑member commission to administer the fund. This commission has authority to approve claims and determine payment amounts, a process that it generally bases on two principles. First, the claimed loss must be the result of attorney conduct—such as theft or embezzlement of money or property—that violates state law or State Bar rules. Second, State Bar may generally investigate claims and determine reimbursements only after the attorney meets particular status requirements, such as being disbarred or disciplined. However, clients may submit their claims before State Bar imposes discipline.

According to State Bar, the security fund received an atypically large number of applications from 2009 through 2013 as a result of the residential mortgage crisis that began in 2007. During the crisis, so‑called foreclosure consultants took advantage of distressed homeowners, claiming to offer help in negotiating loan modifications with lenders but instead charged high fees for worthless services. These foreclosure consultants often secured their fees through deeds of trust on the homeowners’ residences, and some attorneys who worked with the foreclosure consultants participated in activities that constituted professional misconduct. The security fund still has many pending claims awaiting reimbursement. In 2018 the security fund paid 879 claims, which totaled $9.2 million in reimbursements. The average amount that it paid for each claim was $10,400.

Lawyer Assistance Program

Another element of State Bar’s public protection function is the Lawyer Assistance Program (assistance program), which provides confidential support and resources to California attorneys, law school students, and bar exam applicants who struggle with mental health or substance use issues. The Legislature created the assistance program in 2001 to identify and rehabilitate these attorneys and ensure they do not harm their clients or the public. The program offers services such as assessments by licensed clinicians, facilitated group sessions, and referrals to outside resources. According to assistance program staff, it had 266 participants in 2018. In general, 60 percent of the participants enter the assistance program because State Bar directs them to do so, often as part of a disciplinary proceeding, while 40 percent enter voluntarily.

State Bar’s Revenue Sources, Budget, and Cost Allocation Plan

As Figure 1 shows, State Bar projects that 45 percent of its revenue in 2019 will come from the mandatory fees that its active and inactive licensees pay. The Legislature must annually approve and set the amount of State Bar’s primary fee—referred to as a licensing fee. The Legislature has not increased the licensing fee for 20 years. Licensing fee revenue goes into State Bar’s general fund, and the general fund provides funding for most of State Bar’s operations, including its discipline and administrative departments. To support specific functions, State Bar has additional mandatory and voluntary fees for active and inactive licensees. For example, the security fund and assistance program both receive funding from mandatory fees. Table 2 details these fees for 2019.

Figure 1
State Bar Projects That It Will Receive Almost Half of Its 2019 Revenue From Mandatory Fees

Table 2
State Bar Collects Both Mandatory and Voluntary Fees From Licensees

2019 FEES	ACTIVE LICENSEES	INACTIVE LICENSEES
Mandatory Fees
Licensing	$308	$68
Discipline	25	25
Security Fund	40	10
Assistance Program	10	5
Subtotals	$383	$108
Voluntary Fees
Legislative Activity	$5	$5
Legal Services Trust Fund	40	40
Elimination of Bias	2	2
Subtotals	$47	$47
Total Fees	$430	$155

State Bar prepares an annual budget that allocates revenue from fees and other sources to its operating areas. Its budget process involves submitting a preliminary budget to the Legislature by November 15 each year, followed early in the subsequent calendar year by a final budget that its board has approved. Table 3 shows State Bar’s 2019 budget by major areas of operations. Although State Bar’s Office of Access and Inclusion has the highest budget, the majority of this office’s costs are the result of legal aid grants that it awards to organizations offering free legal services; its operating budget in 2019 is only $3 million and the remainder is grants. As Table 3 indicates, the discipline system has the highest operating costs within State Bar. For example, the 2019 operating budgets for the trial counsel’s office and the State Bar Court total $44 million. These budgets include the costs for 295 full‑time positions, or 50 percent of State Bar’s workforce.

Table 3
State Bar’s Discipline System Has Some of the Highest Budgeted Expenditures for 2019
(Dollars in Thousands)

FUNCTION	2019 BUDGETED EXPENDITURES
Office of Access and Inclusion*
Operates programs to provide legal aid to low‑income Californians	$66,110
Discipline system and related areas
Handles cases of attorney misconduct and includes the assistance program and security fund	54,969
Administrative
Includes finance, IT, and human resources	43,119
Attorney licensing, regulation, and admissions
Regulates licensed attorneys and administers the California bar examination	24,663
Total	$188,861

State Bar maintains an annual cost allocation plan that uses a formula to distribute its administrative expenses across its divisions and programs. According to state guidance, a cost allocation plan should be timely, consistent, accurate, and auditable. In 2016 a consultant evaluated State Bar’s cost allocation plan and concluded it was sound. The consultant also presented several recommendations for improvements. State Bar has at least partially implemented the majority of these recommendations and is currently working toward full implementation. Administrative costs constituted about 23 percent of State Bar’s 2018 budget.

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Footnotes

¹ Until recently, State Bar included member groups known as sections that were organized around areas of legal practice, such as business or criminal law. As a result of a concerted effort by State Bar and the Legislature, in 2017 State Bar separated the sections into a private nonprofit organization—the California Lawyers Association. This change allowed State Bar to focus on its public protection mission.
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