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Other Budget Issues

Last Updated: 3/3/2010
Budget Issue: Funding for legal services.
Program: Department of Justice
Finding or Recommendation: Modify Governor's proposal to transition General Fund-supported state agencies to a "billable-services" model for the legal services they receive from DOJ by (1) amending the proposed budget control section to specify that any request above $1 million may proceed no sooner than 30 days after notification to the Joint Legislative Budget Committee, (2) approving the proposed budget control section process only for 2010-11, and (3) appropriating legal services funding in the budget.
Further Detail


Under the direction of the Attorney General, the Department of Justice (DOJ) is responsible for representing state agencies and employees in judicial proceedings. Although state agencies sometimes hire outside legal counsel, existing state law specifies that such agencies must receive the written consent of the Attorney General to do so. Except for programs supported by the General Fund as discussed below, state law also requires the Attorney General to charge state agencies to recover the costs incurred for providing them with legal services. These payments are deposited in a special fund, called the Legal Services Revolving Fund (LSRF), and then transferred to reimburse DOJ in accordance with the number of billable hours of services it has provided. In order to facilitate this “billable services” process, DOJ and each such state agency it represents sign a Memorandum of Understanding that outlines the amount and type of work that DOJ will carry out on behalf of the agency.

However, a different arrangement generally exists with respect to the legal representation by DOJ of programs that are supported from the state General Fund. State law specifies that charges by DOJ for legal services may not be assessed against the General Fund, except as approved by the Department of Finance (DOF). Thus, DOJ provides legal services to those state agencies whose budget is supported by the General Fund based on a “non-billable services” model. In order to fund the costs of these services, the annual state budget includes a direct General Fund appropriation for DOJ. For example, the 2009-10 budget provides $48 million in General Fund support for this purpose. For the prior fiscal year (2008-09), DOJ used all of its General Fund appropriation to provide over 450,000 hours of legal services on a “first-come, first-serve” basis. About two-thirds of the total hours were for the California Department of Corrections and Rehabilitation.

According to DOJ, the annual General Fund appropriation has sometimes not been sufficient to accommodate all of the legal services requested by the various agencies. As a result, beginning in 2008-09, the department began to periodically authorize state agencies to seek outside counsel due to a lack of resources. Through November 2009, DOJ authorized outside counsel, which is often more expensive than DOJ representation, for over 350 cases.

Governor Proposes to Transition Remaining State Agencies to Billable Services

In order to address the situation discussed above, the administration proposes to gradually transition General Fund-supported state agencies to the existing billable-services model for the legal services they receive from DOJ. In order to begin this transition in 2010-11, the Governor proposes various budget adjustments—that in total do not result in either a net savings or cost—to fund all of the legal services DOJ provides to state agencies from the LSRF. Specifically, the Governor proposes the following:

  • Reduce $48 million in General Fund support from DOJ. Although the administration’s budget plan assumes that these funds would be allocated for legal services under a new control section discussed below, the proposed budget bill does not appropriated these funds.
  • Add Control Section 5.20 to the budget bill to allow DOF to adjust the General Fund appropriation level of individual departments to allocate funding for legal services. Decisions would be based on departmental requests provided to and approved by DOF. The DOF would be required to report quarterly to the Joint Legislative Budget Committee (JLBC) on allocations made pursuant to this control section.
  • Eliminate the existing statutory provision that specifies that charges for DOJ legal services generally may not be made against the General Fund.

According to the administration, the above process would facilitate the effective collection of data on actual legal services usage and costs that would eventually be used to adjust the baseline General Fund support of departments in the budget, thus eliminating the need for DOF to review each separate request for funding for legal services. The administration intends to implement the interim budget control process for at least several years.

Governor’s Proposal Has Merit, but Lacks Legislative Oversight

The current process for providing legal services to General Fund agencies is potentially inefficient. Once DOJ has used its budgeted General Fund resources to provide legal services to state agencies on a first-come, first-served basis, that process, as noted earlier, authorizes agencies to turn to outside counsel to obtain such representation. However, they often obtain this private counsel at up to double the cost than if they had been represented by DOJ.

Proposal Has Some Advantages. The administration’s proposal to eventually transition all state agencies to a billable-services system would address this problem and thus merits legislative consideration. It would provide agencies a way to use less-expensive DOJ legal representation in years in which the state’s aggregate need for legal resources exceeded the amounts initially budgeted for such purposes. State agencies would be likely to spend less money than otherwise on generally more expensive private counsel. The requirement that state agencies obtain approval from DOF to secure additional allocations from the General Fund for these purposes could help ensure that excessive requests for such resources do not occur.

 In addition, the requirement that state agencies justify and obtain DOF approval for these legal resources could provide an incentive for state agencies to use the legal services of DOJ more efficiently. In some cases, it could prompt departments to better utilize the “in-house” counsel they employ. In some cases, agencies might also find it more cost-effective to settle some cases early rather than using their limited resources to pay for expensive litigation.

Proposal Does Not Appropriate Funds. As mentioned above, there appears to be a technical problem with the Governor’s proposal in that the funds intended for legal services are not appropriated in the budget bill. Without such an appropriation, the funds cannot be allocated by DOF.

Proposed Legislative Oversight Is Weak. The interim budget control process proposed by the administration does not provide sufficient legislative oversight, in our view, for the allocation of funding. The proposed control section would provide DOF unlimited authority to adjust the appropriations of departments for legal services without any prior legislative review. Under the Governor’s proposal, the Legislature would be notified after the fact, on a quarterly basis, of budget adjustments made by DOF.

Interim Authority Justified for Only One Year. The administration proposes that the additional authority over spending for legal services be delegated to DOF for an indefinite period of time, perhaps several years. However, we find no compelling reason why the transitional process of having DOF review and approve each request for legal services should continue beyond the budget year. Data on actual legal services usage and costs by agency collected both prior to and during 2010-11 should be sufficient to determine the necessary baseline adjustments by May 2011 that could be made for 2011-12.

LAO Recommendation

We believe the administration’s proposal has merit and could eventually lead to savings by state agencies on the cost of legal representation. In view of the above concerns, however, we recommend that the Legislature amend the proposed budget control section to provide for stronger legislative oversight of the new process. In particular, it should specify that any request above $1 million may proceed no sooner than 30 days after the Director of DOF provides notification of the proposed expenditures to the JLBC. In addition, we recommend that the budget control section process proposed by the administration be approved by the Legislature only for 2010-11, in order to complete the move towards an effective billable-services system as early as possible. Finally, we recommend that the Legislature appropriate the $48 million for legal services in an item in the budget.