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Other Budget Issues

Last Updated: 2/8/2011
Budget Issue: Funding for legal services
Program: Department of Justice
Finding or Recommendation: Modify Governor's January budget proposal to transition General Fund-supported state agencies to a "billable-services" model for the legal services they receive from the Department of Justice (DOJ) by reducing the proposed General Fund appropriation to the California Department of Corrections and Rehabilitation for DOJ legal services by $5.5 million, in order to reflect more recent data of the level of services used.
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, 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. Currently, DOJ charges these agencies $170 for each hour worked by an attorney and $140 for each hour worked by a paralegal.

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 2010-11 budget provides $53.8 million in General Fund support for this purpose. For the prior fiscal year (2009-10), DOJ provided over 425,000 hours of legal services on a “first-come, first-serve” basis. Almost two-thirds of the total hours were for the California Department of Corrections and Rehabilitation (CDCR).

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, which is often more expensive than DOJ representation, due to a lack of resources.

Governor Proposes to Transition Most Remaining State Agencies to Billable Services

In order to address the situation discussed above, the administration proposes to transition most General Fund-supported state agencies to the existing billable-services model for the legal services they receive from DOJ. In order to transition these agencies to a billable service model, the Governor proposes various budget adjustments—that in total result in a net increase in General Fund costs of $5.5 million. Specifically:

  • Reduce $50.1 million in General Fund support from DOJ.
  • Increase $9.7 million in General Fund support for particular departments that typically use a significant amount of DOJ legal services (such as the Franchise Tax Board and the Board of Equalization). The proposed adjustment for each department is based on the number of hours of non-billable legal services that DOJ provided the department in 2009-10.
  • Increase $45.9 million in General Fund support for CDCR, which assumes a 15 percent reduction in the number of legal service hours that DOJ provided to CDCR in 2008-09. The administration assumes that CDCR will be able to be more efficient in its use of DOJ legal services under the proposed billable-services model.  
  • Add budget bill language to allow DOF to adjust the General Fund appropriation level of individual departments—specifically those for which DOJ  provided less than 1,000 hours of legal services in 2009-10—to allocate a total of $1.5 million in General Fund support in DOJ’s base budget for legal services. The DOF would be required to provide a written notification to the Joint Legislative Budget Committee 30 days prior to making an allocation.   

Under the Governor’s proposal, DOJ would maintain $3.1 million in General Fund support to provide legal services to the State Lands Commission and the California Coastal Commission under the current non-billable services model.

Governor’s Proposal Has Merit, but Requires Modification

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.

The administration’s proposal to transition most state agencies to a billable-services model 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. A billable-services model could also 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.

However, the administration’s methodology to determine the appropriate budget adjustment for each department appears to be inconsistent. For example, the proposed budget increases General Fund support for CDCR based on the number of legal service hours the department received from DOJ in 2008-09. On the other hand, the budget includes adjustments to other departments based on legal services provided by DOJ in 2009-10. We believe that all department budgets should be adjusted in accordance to the most recent data on legal services usage. We estimate that adjusting CDCR’s budget based on 2009-10 data would result in $5.5 million in General savings relative to the Governor’s budget. (Similar to the administration’s proposal, this estimate assumes that under a billable-services model CDCR will be able to be more efficient in its usage of DOJ legal services.)

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 reduce the proposed General Fund appropriation to CDCR for DOJ legal services by $5.5 million.