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2012

Other Budget Issues

Further Detail

Background. The California Department of Justice (DOJ) is responsible for providing legal advice and representation to state entities in various matters. As part of its 2011-12 budget package, the Legislature implemented a billable service model, which required DOJ to begin billing  12 of its larger General Fund-supported client departments for the cost of its legal services. (Prior to 2011-12, DOJ was already billing special fund-supported departments for legal services.) Under this new approach, these 12 client departments receive a direct General Fund appropriation—totaling about $50.6 million in the current year—for the purpose of paying DOJ legal fees. The appropriation each of these departments receives each year is based on the number of legal service hours performed for those agencies in prior years. When DOJ performs legal services for one of these departments, DOJ bills the client department and funds are transferred from the client department’s budget to DOJ’s Legal Services Revolving Fund (LSRF).

The DOJ also receives a General Fund appropriation to provide legal services for some departments with smaller legal workloads. In 2011-12, the budget provides DOJ’s LSRF with $1.5 million to fund work for these clients. In addition, DOJ receives about $1 million from the Indian Gaming Special Distribution Fund (SDF) and about $360,000 from the Gambling Control Fund in 2011-12 for gaming-related legal work. Based on our conversations with DOJ, we estimate that the LSRF will have a year-end fund balance of about $25 million in 2012-13, or about 13 percent of its proposed $192 million in expenditures.

Governor’s Budget Proposal. The Governor’s budget includes various adjustments to the legal services budgets for DOJ and other departments. These adjustments include (1) a $405,000 General Fund augmentation to DOJ, (2) a shift of $1.1 million from the California Department of Corrections and Rehabilitation’s budget to DOJ to account for a technical error in the current year, (3) a shift of $347,000 from several billable client departments’ budgets to DOJ due to revised workload estimates, and (4) a $600,000 augmentation to DOJ from the SDF. According to DOJ, the total $2.5 million added to DOJ’s budget by these adjustments would be used to fund legal services work for the Governor’s Office. The DOJ reports that, in the current year, the funding appropriated for smaller clients (including the Governor’s Office) was insufficient to meet the costs of performing this work, and, as a result, the unfunded costs had to be absorbed by the LSRF.

LAO Recommendation. We recommend (1) approving the Governor’s proposal to augment DOJ’s budget by $600,000 from the SDF and (2) delaying by one year the proposed $1.9 million increase in DOJ’s General Fund appropriation for legal services. Doing so would mean that the LSRF would continue to absorb these costs for one additional year, providing the state a one-time budget savings totaling $1.9 million. While we have no technical concerns with the proposal, we believe this is a reasonable one-time approach considering the state’s fiscal situation and the projected fund balance of the LSRF.