Report 2022-031 Recommendation 4 Responses

Report 2022-031: The State Bar of California: It Will Need a Mandatory Licensing Fee Increase in 2024 to Support Its Operations (Release Date: April 2023)

Recommendation #4 To: Bar of California, State

By October 2023, the State Bar should identify any service fees that do not fully cover the costs of providing the services. The State Bar should increase the fees it has identified to the amount necessary to recoup its costs unless it determines that doing so would limit the public's access to the services. It should also identify any service fees that have not been updated in five years or more and assess whether they should be updated. The State Bar should then determine the effect that the increased service fees will have on the amount of mandatory licensing fee revenue that it needs.

1-Year Agency Response

The two outstanding service fee assessments relate to the Mandatory Fee Arbitration (MFA) program and the Lawyer Referral Service (LRS) certification program.

The MFA operational review and improvement process is complete, and a proposal for enhancing the program is included in the State Bar's April 2024 report to the Legislature regarding diversion programs pursuant to section 6086.20 of the Business and Professions Code. In addition to the proposal set forth in the report, the redesign process has yielded a number of operational improvements to the existing program which are now in the implementation phase. Proposals related to the fee were put on hold while this review was undertaken. A proposal to change to the current fee structure and to increase the fee to recoup the costs of operating the program is anticipated to be presented to the Board of Trustees for consideration and adoption in May 2024.

The LRS fees are capped by statute in an amount that effectively prohibits the State Bar from collecting sufficient fees to cover the costs of administering the program. At its January 2024 meeting, the Board of Trustees adopted an affirmative legislative proposal to modernize the LRS certification requirements, and amend the existing statutory caps, which have not been adjusted since they were originally imposed in 1994. The State Bar is currently working with legislative staff on the proposed amendments to incorporate into the 2025 annual fee bill, AB 3279. If passed, the new amendments would go into effect January 1, 2025.

California State Auditor's Assessment of 1-Year Status: Partially Implemented

The State Bar previously completed an analysis of most of its service fees and their expected effect on mandatory licensing fee revenue. In its response, the State Bar indicates that it is still in the process of reviewing two of its fees.

6-Month Agency Response

After a fee assessment in March 2023 for all Admissions and General Fund service fees, the Board of Trustees approved the State Bar's final proposal for General Fund service fee increases in its May 2023 meeting (see the sixty-day update regarding agenda item 709). The Board approved the fee increases for different programs and directed staff to implement them as soon as practicable.

In August 2023, the State Bar completed its analysis of service fees and their expected effect on mandatory licensing fee revenue. The State Bar sent an update to the Legislature (please see the document "August 2023 State Bar Financial update"). The proposed mandatory licensing fee increase is needed to ensure the public's access to the State Bar's services.

California State Auditor's Assessment of 6-Month Status: Partially Implemented

Although the State Bar completed an analysis of most of its service fees and their expected effect on mandatory licensing fee revenue, it indicated that for two of its fee-for-service programs, the Lawyer Referral Service and Mandatory Fee Arbitration Program, it was not considering raising the fees because both programs are currently undergoing operational review by the State Bar which could impact the fees for each program. We will continue to assess this recommendation as partially implemented until the State Bar completes its operational review and determines whether the fees for each program need to be adjusted.

60-Day Agency Response

The State Bar began a fee assessment in March 2022 for all Admissions and General Fund (GF) service fees. At the May 2023 Board of Trustees meeting, the final proposal for GF service fee increases was presented as agenda item 709. The Board approved the fee increases for different programs and directed staff to implement them as soon as practicable. Please refer to attachment B of the board agenda item 709 containing the State Bar's "General Fund Fee Adjustments."

The fee increases adopted in May 2023 did not include fees for the Lawyer Referral Services and the Mandatory Fee Arbitration. Staff believes it is appropriate to postpone consideration of fee adjustments for these programs as the programs are undergoing operational review and improvement that will meaningfully impact the fee-for-service assessment.

The next step is for the staff to conduct an analysis to determine the effect that the increased service fees will have on the amount of mandatory licensing fee revenue that it needs. It will be completed by October 2023.

California State Auditor's Assessment of 60-Day Status: Pending

In its update to this recommendation, the State Bar indicated that it postponed making a decision on fee adjustments for the Lawyer Referral Services or the Mandatory Fee Arbitration Programs because these programs are undergoing operational review. We have assessed this recommendation as pending until the State Bar completes its review and makes its determination about the appropriate fee level for these programs. After it does so, the State Bar still needs to identify the effect that any increase in service fees will have on the amount of the mandatory licensing fee revenue it needs.

All Recommendations in 2022-031

Agency responses received are posted verbatim.