Report 98106 Summary - May 1998

State Bar of California:

Financial Outlook for the Admissions Fund Is Not As Bleak As Portrayed

Results in Brief

The State Bar of California (State Bar) is a public corporation established by the California State Constitution. The Business and Professions Code provides the State Bar with guidance and direction in fulfilling its mission to preserve and improve the justice system to assure a free and just society under law. Its committee of bar examiners assists in this mission by overseeing one of the major responsibilities, the licensing of attorneys. The State Bar's Office of Admissions (admissions) provides direct support to this committee in the fulfillment of its duties.

During the next three years, admissions will not generate revenue sufficient to cover its yearly costs of operation and will have to use its existing fund balance of $2.2 million to cover its costs. Admissions projects that by the end of 2000 it will consume the existing fund balance and incur a deficit of $2.1 million. While we agree it is possible admissions could consume its fund balance during the next three years, we believe that the decline will not occur as quickly as it has projected. In 1998, we estimate the fund balance will drop to $1.5 million, not the $1 million predicted by admissions. Furthermore, in 1999, we expect admissions will still have money left in its fund, rather than incur a deficit as it predicted. Not until 2000 do we anticipate the fund to potentially incur a deficit; even then, we expect that the deficit will be no greater than $629,000, considerably less than the $2.1 million deficit projected by admissions. On the other hand, the fund could retain a positive balance of as much as $319,000 in 2000.

Admissions has inaccurately portrayed a bleak financial outlook for the Admissions Fund by basing its revenue and expense estimates for 1998 on questionable assumptions and then carrying these assumptions forward to its estimates for 1999 and 2000. Specifically, it based its revenue projection of $7.9 million for 1998 primarily on data from 1995 rather than using a combination of revenue figures, law school enrollment data, and the number of exam applicants from prior years. As a result, admissions projected its revenue to drop by $680,000, from $8.6 million in 1997 to $7.9 million in 1998. However, our review of historical trends indicated that such a dramatic decrease appears unlikely. Instead, we project that revenues in 1998 will be approximately $8.2 million.

Meanwhile, admissions' expense projection of $9.1 million contained questionable and duplicative costs. Specifically, we question $125,000 in expenses because they represent unusually high increases from actual expenses in prior years. In addition, admissions did not coordinate budgeting decisions for parking and building maintenance expenses among its staff and with other State Bar staff, resulting in a duplication of $61,000 in expenses. By understating its revenue projection by $359,000 and overstating its expense projection by $186,000 for 1998, admissions understated its fund balance by $545,000. By carrying these assumptions forward, admissions also understated its fund balance in 1999 and in 2000.

In October 1997, the governor vetoed the State Bar's annual membership fee bill. As a result, actual expenses could be $329,000 less than the amount projected by admissions. Because of the uncertainty regarding the effect of organizational funding decisions as well as the impact of legislation currently being considered, we cannot project the impact of these events for 1999 and 2000.


To develop a more reliable picture of its future financial condition, admissions should do the following:

  • Use current statistical data and historical data to project exam revenues.

  • Use reasonable and justifiable assumptions in developing estimates of future activity and apply these assumptions consistently.

  • Coordinate responsibilities among its directors to ensure that all costs are covered but not duplicated.

  • Prepare and maintain documentation to support its basis for projecting revenues and expenses that are significantly different from those of prior years.
In addition, admissions and the Office of Financial Planning should clarify with each other the methods used to budget certain admissions fund expenses, such as parking and building costs, to ensure that these expenses are not duplicated in the overall projection for the Admissions Fund.

Agency Comments

The State Bar agrees with our recommendations and stated that it will be revising some of its budgeting procedures to ensure that revenue and expense projections for the Admissions Fund are reasonable and justifiable. The State Bar also stated that the membership fee structure that has not yet been determined will have a direct impact on the budget of the Admissions Fund in 1998 and future years.