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Budget and Policy Post
February 9, 2024

The 2024‑25 Budget

Department of Justice


Overview

Roles and Responsibilities. Under the direction of the Attorney General, the Department of Justice (DOJ) provides legal services to state and local entities, brings lawsuits to enforce public rights, and carries out various law enforcement activities. DOJ also provides various services to local law enforcement agencies and manages various databases (including the statewide criminal history database).

Spending Proposed for 2024-25. As shown in Figure 1, the Governor’s budget proposes $1.3 billion to support DOJ operations in 2024-25—a decrease of $47 million (or 4 percent) over the revised amount for 2023-24. This decrease reflects various changes, including the expiration of limited-term funding. About half of the proposed funding supports DOJ’s Division of Legal Services, while the remainder supports the Division of Law Enforcement and the California Justice Information Services Division. Of the total amount proposed for DOJ operations in 2024-25, $487 million (or 38 percent) is from the General Fund. This is a decrease of $31 million (or 6 percent) from the revised 2023-24 General Fund amount. The proposed budget would provide DOJ with a total of about 5,900 positions in 2024-25, roughly the same as the revised 2023-24 level.

Figure 1

Department of Justice Budget Summary

(Dollars in Millions)

2022‑23 Actual

2023‑24 Estimated

2024‑25 Proposed

Change From 2023‑24

Amount

Percent

Legal Services

$600

$695

$686

‑$9

‑1.2%

Law Enforcement

284

359

345

‑14

‑3.9

California Justice Information Services

260

277

253

‑24

‑8.7

Totals

$1,145

$1,331

$1,284

‑$47

‑3.5%

Litigation Deposit Fund

Background

Litigation Deposit Fund (LDF) Receives Certain State Litigation Proceeds. The LDF is a state special fund that receives litigation proceeds—or monies required by settlement agreements or court judgements to resolve legal cases—in cases where the state is a party to the case and no other state law specifically provides for (1) the handling and investing of the money and (2) how any earned interest is distributed. The fund primarily supports payments to people and entities harmed by those breaking the law, as well as transfers to various state special funds—most notably, DOJ special funds to support current and future litigation-related costs. State law requires that any monies remaining in the LDF that are not needed to satisfy court-ordered payments or to support DOJ litigation costs be transferred to the state General Fund no later than July 1 of each fiscal year.

LDF Revenues Primarily Transferred to DOJ Special Funds. Tens of millions of LDF revenues are regularly transferred to four DOJ special funds—the Unfair Competition Law (UCL) Fund, the False Claims Act (FCA) Fund, the Antitrust Account, and the Public Rights Law Enforcement Special Fund (PRLESF)—that support litigation-related costs. For example, $87 million was transferred to these four funds in 2022-23. State law specifies what types of litigation proceeds can be transferred into these funds and provides guidelines on how these proceeds are to be used. These DOJ special funds are part of the annual state budget process. This means the Legislature receives key revenue and expenditure information to monitor the health of these funds and makes decisions about how much funding should be available from them to support DOJ litigation activities.

Concerns With Legislative Oversight of LDF Prior to 2023-24. Prior to changes made in the 2023-24 budget package described below, the Legislature had concerns with the level of oversight it had of the LDF. This is because the LDF was created to hold monies as a trust fund. Accordingly, it is not reflected in or considered part of the state budget, similar to other state funds with this status. Instead, DOJ is responsible for administering the fund and had significant discretion over when funds would be transferred from the LDF—including to its own special funds. This allowed for the LDF fund balance to steadily grow—reaching nearly $900 million by the end of 2022-23. Additionally, DOJ was only required by state law to report limited information on the fund to the Legislature on a quarterly basis. (For more details on our assessment of the LDF, please see our 2021 report: Increasing Oversight of the Litigation Deposit Fund.)

Key Changes Made in 2023-24 to Increase Legislative Oversight of LDF. To increase legislative oversight of the LDF, the 2023-24 budget package made various changes. One key change was that it revised Government Code 16427 to require that most litigation proceeds deposited into the LDF be transferred to a state special fund subject to legislative oversight (1) within three months after case resolution for deposits made after July 2023 or (2) by January 2024 for deposits made before July 2023. This requirement ensures that monies transferred to these funds are considered in the annual state budget process and subject to greater legislative oversight. Additionally, this transfer requirement will generally only leave monies in the LDF that were pending allocation to specific entities or narrowly defined purposes, as well as funds tied to cases awaiting final resolution. Another key change made by the 2023-24 budget package required DOJ provide the Legislature with increased information for litigation proceeds deposited into or transferred from the LDF.

$400 Million Loan From LDF to General Fund. The 2023-24 budget included budget provisional language allowing the Department of Finance (DOF) to authorize an up to $400 million no-interest loan from the LDF to the General Fund to help address the state’s budget problem. DOF is required to notify the Legislature at least 30 days before transferring funds associated with the loan. The budget required DOJ provide a list of all cases whose litigation proceeds would be loaned to the General Fund within 60 days after the transfer of funds and report certain information (such as any restrictions on the use of such funds) until the entire loan is repaid. The budget also exempted these litigation proceeds from being transferred out of the LDF until the entire loan is repaid. This is to ensure that the repaid monies will be used to comply with the underlying settlement agreements and court judgements of these cases. DOF notified the Legislature of its intent to authorize the full $400 million loan in January 2024.

Governor’s Proposal

Additional Up to $100 Million Loan From LDF to General Fund. The Governor’s 2024-25 budget proposes budget provisional language allowing DOF to authorize an additional, up to $100 million no-interest loan from the LDF to the General Fund subject to 30-day legislative notification. Similar to the requirements for the 2023-24 loan, DOJ would be required to provide a list of all cases whose litigation proceeds would be loaned to the General Fund within 60 days after transfer of the funds and to report certain information until the loan is repaid. Additionally, these litigation proceeds would be exempt from transfer out of the LDF until the entire loan is repaid.

Assessment

LDF Fund Balance Has Decreased Significantly. While the LDF fund balance reached $958 million at the end of September 2023, it decreased to nearly $657 million as of the end of December 2023, largely due to the transfers required by Government Code 16427. Specifically, as of the end of December 2023, $484 million had been transferred ($389 million) or was pending transfer ($95 million) from the LDF to state funds subject to legislative oversight. As shown in Figure 2, these monies will be transferred to four DOJ special funds—the UCL Fund ($263 million), the FCA Fund ($100 million), the PRLESF ($64 million), and the Antitrust Account ($57 million)—and will be available to support DOJ litigation-related costs.

Figure 2

Transfers From Litigation Deposit Fund to DOJ Special Funds

As of End of December 2023 (In Millions)

DOJ Special Fund

Transferred

Pending

Total

Unfair Competition Law Fund

$218.0

$44.6

$262.6

False Claims Act Fund

51.8

48.5

100.3

Public Rights Law Enforcement Special Fund

62.0

2.3

64.3

Antitrust Account

57.3

57.3

Totals

$389.1

$95.4

$484.5

DOJ = Department of Justice

Proposed Loan Would Help Address Budget Condition, but LDF Not an Ideal Source. Given the state’s fiscal condition, we find it reasonable for the administration to propose a loan to the General Fund, as this will help reduce the level of reductions necessary for other programs supported by the General Fund. Despite this, we are concerned about making such a loan from the LDF. This because much of the $657 million LDF fund balance is not an ideal source for a loan. Specifically, about $500 million (or 76 percent) of this fund balance consists of the litigation proceeds that will already be loaned to the General Fund (which are exempt from transfer) or were in the process of being transferred to state special funds, as required by Government Code 16427. This leaves about $157 million in the LDF. However, these funds are generally to be used for narrowly defined purposes or are attached to cases that have not been fully resolved. This makes these funds a less than ideal source for a loan for various reasons. For example, monies held in the LDF for a case that has not been resolved (such as due to the case being on appeal) may need to be returned. As such, it would be difficult for the LDF to support the proposed additional $100 million loan.

Funds Transferred to DOJ Special Funds Likely Able to Support Loan. DOJ’s UCL Fund, FCA Fund, PRLESF, and Antitrust Account will receive nearly $485 million in transfers from the LDF to support DOJ litigation activities. Assuming expenditures levels from these funds remain relatively constant at approximately $105 million, it appears likely that $100 million could be borrowed from these special funds without impacting DOJ’s operations supported by the special funds in the near term

Various Ways Available to Ensure Loans From DOJ Special Funds Do Not Impact DOJ Activities. There are various ways to ensure any loans authorized from the UCL Fund, FCA Fund, PRLESF, and Antitrust Account do not negatively affect the ability of DOJ to pursue the litigation supported by the special funds. For example, most—if not all—of the money could be borrowed from the UCL Fund and the FCA Fund. This is because these two funds received three-quarters of the money recently transferred from the LDF. Additionally, these two funds have traditionally received deposits of litigation proceeds on a more regular basis. Accordingly, if there was an unexpected increase in litigation expenses before the loan is repaid, it is more likely that additional revenues would be forthcoming to these special funds to maintain ongoing support for DOJ litigation activities. Additionally, DOJ could be required to report on specific cases whose litigation proceeds were being used to make this loan, similar to the reporting requirements related to the $400 million loan from the LDF. This transparency would help ensure that the state complies with the underlying settlement agreements and court judgements of these cases when monies are repaid.

Recommendations

Reject Loan From LDF. We recommend the Legislature reject the Governor’s proposed loan from the LDF as it will be difficult for the LDF to support the loan. The monies currently left in the fund balance are to support the 2023-24 authorized loan or narrowly defined purposes or are tied to cases that have not yet been resolved. Accordingly, these funds are not ideal candidates to support the loan.

Direct DOJ to Identify Specific Litigation Proceeds in Its Special Funds That Could Be Loaned. We recommend the Legislature direct DOJ to provide by May Revision a list of cases whose litigation proceeds could be used to support up to $100 million in loans, along with the DOJ special fund or funds from which the monies would be borrowed. Such loans should come from one or more of the DOJ special funds that received LDF transfers. This allows DOJ to consider what litigation activities may currently be in progress, what activities may be necessary in the near future, and what litigation proceeds might be forthcoming when providing the Legislature with the department’s recommendations for how much to borrow from its special funds. Additionally, such a list will help the Legislature ensure that the state complies with any underlying settlement agreements and court judgements when monies are ultimately repaid.

Authorize Loans From DOJ Special Funds to General Fund. We recommend that the Legislature review DOJ’s proposed list of cases whose litigation proceeds could be used to support General Fund loans to determine whether any changes are needed, such as changing the amount proposed to be borrowed from a particular special fund. We recommend that the Legislature then modify the budget to reflect loans to the General Fund from the special funds holding the litigation proceeds identified on the final list. Additionally, for each of these loans, we recommend requiring DOJ to report certain information (such as any restrictions on the use of the litigation proceeds) until the entire loan is repaid, similar to the reporting requirements related to the $400 million loan from the LDF. This will help the Legislature monitor and track loan repayments and ensure that monies are used appropriately when they are repaid.