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Board of Trustees Discusses Challenging 2023 State Bar Budget

At its meeting Thursday and Friday, the State Bar Board of Trustees grappled with tough decisions around the agency’s 2023 budget, which must be finalized and submitted to the Legislature by the end of February. After reviewing budget options drawing on General Fund reserves at amounts ranging from a third to nearly 80 percent, the Board directed staff to return with a budget in early February reflecting a responsible use of reserves that allows the State Bar to achieve its operational objectives while preserving the organization’s ability to function without a fee increase through 2024 if required. 

“Whether you’re a head-of-household, a business owner, or a public agency, your budget impacts your ability to achieve your goals,” said Board Chair Ruben Duran. “The State Bar is no exception. With only one fee increase in nearly 25 years, we find ourselves stretched impossibly thin, even as we do all we can to fulfill our mandated obligation to protect the public from bad-actor lawyers. Nevertheless, the Board is committed to working with staff to maximize our dollars, while still honoring our mission to protect the public through attorney licensing, regulation and discipline, and increasing access and inclusion in the legal profession.”  

Cost increases: Like other government entities, the State Bar is dealing with the impacts of the most significant period of inflation in decades. The agency was granted a licensing fee increase in 2020, the first and only such increase in nearly 25 years. The increase, while significant at the time, barely made up for past inflation, and significant cost escalation since then is impacting the agency.  

A recently negotiated labor agreement that includes modest cost-of-living adjustments is projected to increase 2023 personnel expenses by $4.5 million, an amount only partially covered by aggressive salary savings garnered from unfilled positions.

Dwindling reserves: The combined impact of static General Fund revenue and cost escalation has resulted in declining reserves. The State Bar projects that once the 2022 books are finalized, its General Fund reserves will be approximately $10.3 million, or 10.9 percent, as of year-end. The 10.9 percent reserve level is below the minimum threshold target of 17 percent, equating to two months of operating costs, set by the Board.  

In addition, declining revenue in Admissions and rising test administration costs have resulted in the Admissions Fund being in a severe structural deficit position. With fewer people taking the bar exam, revenue has declined nearly 30 percent since 2018. The 2023 Admissions budget will also require significant use of reserve funds. An Admissions fee restructure intended to address the structural deficit is still under development and is not expected to impact revenues until 2024. 

Unknown timing and value of San Francisco building sale: The State Bar’s San Francisco headquarters building was listed for sale in December 2022. However, the San Francisco commercial real estate market has deteriorated, and the building’s value has decreased 15 to 20 percent from the appraised value a year ago. The draft budget contains an assumption that the building will sell within the first six months of the year, but there is considerable uncertainty around when or if the building will sell and what post-sale workspace arrangements for the agency’s San Francisco workforce will cost 

Licensing fee now lower than in nearly 20 other states: At least 18 other states now have attorney licensing fees higher than those in California, including states with much lower costs of living, for example: Idaho, Nevada, and Tennessee. 

In other actions, the Board: 

Approved legislative priorities: The Board approved a dozen legislative priorities for the State Bar to pursue this year, including proposals to increase fees to address critical operational and strategic needs, efforts to improve oversight of client trust accounts, minor changes to statutes relating to the discipline system, efficiencies, and technical amendments. Staff plan to return to the Board in March with additional proposals that may address more significant improvements to the discipline system and other governance reforms.  

Discussed five years of reform and further governance improvements: Marking the five-year milestone since the State Bar was refocused solely on its regulatory mission to protect the public, the Board discussed new steps to continue strengthening the agency’s governance and improving its discipline system. Staff is undertaking steps to strengthen oversight, reporting, and training regarding potential conflicts of interest. The Board is also considering options for stronger independent oversight of the discipline system and heard presenters Amarik Singh, Inspector General of the California Department of Corrections and Rehabilitation, and Alex Bustamante, Senior Vice President, Office of Ethics, Compliance and Audit Services, UC Office of the President, on possible models for independent oversight.    

Approved recommendations from the Ad Hoc Commission on the Discipline System: The Board accepted an amended final report from the commission, which was charged with recommending ways to improve the discipline system’s fairness and effectiveness. The Board’s robust discussion on the resulting recommendations focused on the need to balance public protection with fairness as well as the need to more directly tie relevant recommendations to the 2019 Farkas Report, which found disparities for Black male attorneys in the discipline system. Some recommendations will require further study, statutory amendments, or funding that is currently uncertain given the budget, so the Board directed staff to return with a progress report by its September 2023 meeting. 

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The State Bar of California's mission is to protect the public and includes the primary functions of licensing, regulation and discipline of attorneys; the advancement of the ethical and competent practice of law; and support of efforts for greater access to, and inclusion in, the legal system.