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Budgeters project bar red ink

By Nancy McCarthy
Staff Writer

The State Bar is spending down its reserves and faces a $6.6 million deficit by 2011, according to figures released by bar officials last month. Nonetheless, chief financial officer Peggy Van Horn believes that with some cutbacks and readjustments, “there is no need for slash and burn” to the organization.

“The whole point is, we can take a measured approach to this,” Van Horn said. “We want expenditures and revenue to match.”

At a board meeting in La Quinta, Van Horn projected a deficit of $3.7 million this year. However, because of accumulated savings of almost $10 million, the bar would stay in the black with an ending balance of $6 million. Although the deficit is expected to grow in the following years, Van Horn said savings will not be spent until 2011, when the year would start with only $100,000 in the bank. By the end of that year, the bar would be $6.5 million in the hole, Van Horn projects.

The board asked her to provide options to avoid that outcome at a special budget meeting next month.

Van Horn’s projections assume no increase in bar dues, which currently stand at $410 for California’s 165,000 active attorneys. A $10 increase — 2.5 percent — in both 2010 and 2011 would ease the pain but would still leave the bar in the red, she said.

Among options discussed by the board were the imposition of new filing fees in State Bar Court, allocating a portion of the fees paid by law corporations and LLPs to the general fund, cutting the Lawyer Assistance Program to the level of its legislative mandate, and eliminating programs that address the elimination of bias and legal services.

A possible across-the-board 3 percent cutback would hit large bar operations, particularly discipline, disproportionately hard while the reductions to smaller programs would likely not be significant.

Although Van Horn favors a deliberate, slower approach to balancing the budget, board members appear to be leaning toward swifter action. Three members said they will not vote for a deficit budget. And President Holly Fujie said the board is questioning spending down savings. “We want to do what we can to reduce the deficit, and we understand the necessity of drawing down some of the moneys, but we still want to have that cushion,” she said.

“The board is going to be looking at all possibilities for cutbacks. We don’t want to harm public safety or our members, but the board is very concerned about running a deficit.”

Howard Miller

Howard Miller, a board vice president from Los Angeles and chair of its financial committee, declined to speculate about what actions the board might take to balance the budget. “All decisions really have to await a full presentation of the data in March,” he said.

By that time, the bar will know how much revenue it has received from 2009 dues, the primary source of its money.

John Peterson

John Peterson, a vice president from Fresno, said he will not vote for a budget that is not balanced. He did vote for the current budget, which shows more expenditures than revenues, “because I thought we had comfortably more in the reserve.” Now, he says, “I would insist the staff does what is necessary to balance the budget.”

Fees-inflation chart
(Click to Enlarge)

Bar dues have remained relatively static since 2002, when they stood at $390. At the same time, inflation, as measured by the consumer price index, has increased at a far faster rate. Van Horn said that bar dues should be $492 this year in order to keep pace with inflation. “We’re still providing the same services, but have lost buying power,” she said. “We’re doing more with less, but that isn’t sustainable.”

California’s bar dues are the 13th highest in the country and the State Bar is the only bar that allows scaling for lower income earners.

Fujie and Peterson were noncommittal on the possibility of an increase in bar fees. Fujie said she believes if a raise is necessary, attorneys would prefer smaller, gradual increases rather than a big bump several years from now. Peterson said he would not rule out a dues increase, but said “it’s a very difficult request to make of the members.”

Fujie pointed out that 80 percent of the bar budget is used for staff salaries. “We’d like to avoid layoffs if we can but that may not be possible,” she said. Personnel costs are expected to increase by about $4 million between now and 2011, from $42.3 million to $46.4 million, with benefits accounting for the largest percentage increase.

Compounding the problem is a reduced return on investments, from 4 percent to 1 percent.

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