Board OKs budget; avoids deficit

By Nancy McCarthy
Staff Writer

By a vote of 17-1, the State Bar Board of Governors adopted a nearly $100 million budget that incorporates a series of steps designed to avoid a potential $4.6 million deficit in the coming year. In addition to laying off 18 employees and shifting revenue among different funds, the board is relying on an ongoing search for non-dues revenue and a prospective change in its fee collection to help offset anticipated shortfalls.

The $390 fee for active attorneys is expected to remain flat for the fifth consecutive year, requiring continuous belt-tightening and no new programs. "It's going to be very, very tight without a fee increase," said finance director Sam Quan.

As approved, Quan said the budget provides the bar with a $7,700 operating surplus.

"We're through the fat, we're through the muscle, we're at the bone," said President Jim Herman.

Cavanaugh

Such protestations went nowhere with Long Beach governor Matt Cavanaugh, who has criticized bar finances continuously since joining the board two years ago. He argued that the bar "still takes in more than we're spending, still takes in more than we need" and criticized what he called a top-heavy organization with a highly paid staff.

"A bureaucracy is a beast, and it will keep on growing as long as you feed it," Cavanaugh said.

That brought a rebuke from Herman, who told Cavanaugh, "Your observations are frankly lacking insight." Herman said the bar has been significantly affected by increased costs, coupled with reduced income.

Former attorney general John Van de Kamp, who also represented Los Angeles, said the word "bureaucracy" is a loaded term that probably should be avoided. But he called the budget discussion a healthy process and said pressure from the board for a balanced budget has paid off. "It seems to me we really need to keep that pressure on," he said.

About half the budget — $49.7 million is in the bar's general fund and the remainder constitutes restricted funds, such as investment income, section fees and grant revenue.

The fee bill that is working its way through the legislature contains language that will allow the bar to restructure its scaling operation, which currently amounts to a general fund loss of $3.7 million. If the change is approved, the loss is projected at $2.7 million next year.

Attorneys who earn less than $25,000 a year from the practice of law are permitted to halve their dues, and those who earn less than $40,000 from legal work can reduce their dues by 25 percent.

Some high-income arbitrators and mediators take advantage of the scaling opportunity, claiming their income does not derive from the practice of law. The fee bill will narrow that loophole by requiring them to pay full dues.

The bar also had hoped to boost its revenue by increasing dues for inactive attorneys, whose dues have been $50 since 1987. Although there was little stomach for such a move in Sacramento, incoming bar President Tony Capozzi says he will push for an increase next year.

The bar also has started to fund the Lawyers Assistance Program with money from its insurance rebate program and hopes eventually to fund the entire LAP with insurance money. Bar officials see an intersect between professional liability costs and attorneys' substance abuse problems. Because $10 of each active lawyer's dues underwrites the LAP, that money could revert to the general fund if the LAP were paid for by the insurance program.

In other action, a divided board (13-4 with one abstention) supported, with modifications, the recommendations of a Supreme Court task force on multijurisdictional practice. A board committee had urged that the proposals permitting some out-of-state lawyers to practice in California be rejected on philosophical grounds, but the full board nixed the idea because it expects some sort of MJP rules to be approved, with or without bar support.

The proposed rules affect four categories of out-of-state attorneys: those practicing public interest law, in-house counsel, lawyers practicing temporarily in California on specific litigation and those practicing in the state temporarily on non-litigation matters.

The board recommended that everyone in those categories be required to register with the State Bar and be required to contribute to the Client Security Fund.

"This seems like it's a rush to judgment," said Riverside governor Jim Heiting. "It seems like we have to do it because the Supreme Court says it's a good idea. Well, I don't think we have to do it."

Heiting

Heiting, a small firm practitioner, said the proposals raise numerous questions, and there is insufficient data to know the impact of allowing out-of-state lawyers to practice in California. "I don't believe the (proposals) protect the public," he said. "I believe they relax rules that protect the public."

Heiting said he believes permitting out-of-state lawyers to practice in California will require creation of a new monitoring body to oversee MCLE compliance, moral character issues, contributions to the Client Security Fund and other requirements imposed on California attorneys. "We don't have enough money for benefits for our members or raises for our staff," he said. "I don't believe $390 from each out-of-state attorney (practicing in California) will cover our costs."

Fran Bassios, special assistant to the executive director, said he estimates 1,500 to 3,000 corporate counsel and public interest lawyers will be affected by new rules but no one can predict how many so-called "transient" lawyers might come to California and how their work might affect the discipline system.

San Francisco governor Rod McLeod said multijurisdictional practice has already arrived and the State Bar should not put itself in the position of being obstructionist. "The train has left the station," he said. "We should tweak the rules to protect California attorneys."

The train analogy is overused, Heiting shot back. "It doesn't mean we can't put the brakes on."

Chico governor Bob Persons said at the very least, out-of-state lawyers should be required to contribute to the Client Security Fund and register with the bar "so at least we'll know where they live." Cavanaugh called the proposed rules pure economic protectionism, a way to keep California attorney fees high."