Chapter 14: Funding and Financial Arrangements

CONTEXT

Chapters 8 through 13 of this report discussed the means by which specific legal aid services can be delivered on a fixed budget. This chapter considers some of the funding, financial, and administrative arrangements appropriate to a fixed budget. Although this subject is often considered technical, the policy issues considered in this chapter have important consequences for the system's ability to deliver integrated, cost-effective, high- quality services.

MAJOR ISSUES

In this section, we discuss several policy issues which we believe are relevant to the funding and financial administration of legal aid services in Ontario. These issues are:

  1. legislative reform;
  2. multiyear funding allocations;
  3. budget structure;
  4. management information/information technology;
  5. client contributions, cost recovery, debt collection;
  6. federal contributions to legal aid services in Ontario; and
  7. provincial funding in the post-Memorandum of Understanding (MOU) period and transitional funding.

Legislative Reform

As noted in chapter 3, the Legal Aid Act and the "Clinic Funding Regulation" establish separate funding structures for the certificate and clinic programs. The Legal Aid Act establishes the basic funding structure for the certificate program under which funding has until recently been demand-driven and financially "open-ended". The Act states that the Plan is to issue certificates if applicants meet qualifying criteria. It may also require the provincial government to fund any resulting deficits. This latter requirement flows from section 96 of the general Legal Aid Act Regulation, which reads:

Where a sufficient amount was not provided in the approved estimates and the public interest or the urgent requirements of the Fund necessitate further payments, the Attorney General, upon the report of the Director as to the necessity of further payments and stating the reasons that the appropriation is insufficient and the amount estimated to be required, shall make application to the Management Board of Cabinet ... for an order authorizing payments to be made against such amount as the Director considers appropriate.

Funding for the community clinic program is established and governed by the terms of the Legal Aid Act's "Clinic Funding Regulation". While the clinic funding budget is part of the overall legal aid budget, the "Clinic Funding Regulation" specifies that clinic funds are to remain separate from those allocated to other legal aid services by requiring that "the money required for the purposes of this Part [the "Clinic Funding Regulation"] shall be paid out of the money designated by the Attorney General for the purposes of this Part". Clinic supporters consider the separate funding formula for the clinic budget an important bulwark against potential "raiding" of the clinic budget in order to fund the certificate program.

Unlike that for the certificate program, funding for the clinic program is not "open-ended". These funds are designated one fiscal year at a time. As a result, both individual clinics and the clinic system as a whole must run on fixed, annual budgets. The Regulation makes no provision for any shortfall in funds; clinic services must be tailored each year to the available funding.

As noted in chapter 1, our Terms of Reference explicitly state that the legal aid system will continue to have a fixed, not open-ended, budget from the provincial government. Accordingly, we are assuming that the provincial government intends to entrench fixed funding for legal aid services. Our goal, therefore, is to recommend the legislative and operational structures appropriate to a fixed budget.

In this light, we recommend that the legislation itself must be amended. Neither the MOU nor any other administrative agreement can address the "gap" between the funding structure set out in the Legal Aid Act-open-ended funding-and the current and proposed reality-fixed-funding. At the very least, it is inappropriate and misleading if the Legal Aid Act's legislative and regulatory provisions do not coincide with the practical realities of legal aid funding.

Given the government's desire for a fixed budget, and the Plan's need for recognition of the two- and three-year funding cycles of many legal proceedings, we recommend that the provincial government amend the Legal Aid Act to fund the legal aid authority within rolling, three-year cycles. This amendment would explicitly acknowledge the legal aid system's new funding structure. The details of this proposal are discussed below.

Multiyear Funding Allocations

In chapter 8, we recommended that the provincial government commit itself to providing ongoing, secure, multiyear funding for legal aid services in Ontario. We believe that this commitment will reconcile the provincial government's desire to establish predictable, fixed funding allocations for legal aid with the fact that the funding of legal aid cases often extends over three or more fiscal years. Multiyear funding is also necessary because the legal aid authority will require a certain lead time to respond the changing patterns and levels of need.

In our view, such a commitment is of central importance to the operations and administration of a reformed legal aid program. A multiyear funding commitment by the provincial government in the future would allow the administrators of a reformed legal aid plan to avoid the planning and operational crises which often attend sudden, unpredictable changes in funding or need. A rolling, three-year funding allocation would be appropriate under the circumstances.

In this system, the government would commit to three-year funding levels in each annual government budget. Thus, for example, the provincial budget for 1998/99 would establish the legal aid transfer payment for that fiscal year, and for 1999/2000 and 2001/02. The budget for 1999/2000 would confirm the amount for that year and 2001/02 (the Act might permit a variance in exceptional circumstances), and establish the level for 2002/03. This would allow the legal aid authority to plan its affairs in light of the funding the government was able to provide, and would work well with government fiscal framework planning, which generally predicts funding levels at least that far in advance for programs like legal aid. The government's public commitment to three years of funding would simply reflect the practical reality that it takes that much time to "turn the ship".

The Act should provide for the funding cycle, and should allow the legal aid authority to transfer surpluses or deficits between fiscal years within it. The authority should be required to balance its budget by the end of each three-year cycle, unless the Attorney General authorized the carry-over of a surplus or deficit to the next cycle. This flexibility is important if we are to expect the legal aid authority to manage its operation rather than just to authorize service and pay bills.

We emphasize that we believe that the province's commitment to provide multiyear funding must be matched by a concurrent commitment of the legal aid authority to manage these funds in the most cost-effective and transparent means possible. At the very least, the legal aid authority must provide the provincial government with annual reports, annual business plans, and a multiyear strategic plan so that the province may evaluate the legal aid authority's budget requests.

Budget Structure

We must also address the question of whether there should continue to be separate budgets for the clinic program and other legal aid services. The separation of the clinic and certificate program budgets was intentional. The authors of the original "Clinic Funding Regulation" feared that "pooling" these budgets would tempt the Law Society to divert clinic resources to the certificate program. This concern was founded on a belief that the Law Society's commitment to private-bar delivery of legal aid would always take precedence over its commitment to clinics, especially during times of fiscal restraint. According to this view, the formal separation of the two budgets is absolutely critical to the continued survival of the clinics.

Given the high priority we have placed on "poverty law" services, we have no intention of suggesting reforms which would either explicitly or implicitly threaten clinic funding. That said, we believe that it will be both desirable and necessary to integrate these two budgets once those services begin to function as part of a coordinated legal aid system.

In view of the substantial changes we have recommended to non-clinic program areas, we believe that clinic funding should be secured for as long as may be necessary to transform the operation of the rest of the system. In our view, it would unwise to integrate the two budgets until such time as the fundamental changes we have proposed for the delivery of criminal law, family law, and other legal aid services have taken effect. Secure funding for the clinic program during this period will ensure that the basic underpinnings of this program will remain in the face of more significant changes in other program areas. These changes are likely to fully occupy the legal aid authority's time in the first few years of its operation. Moreover, we believe it would be unwise to alter the clinic system until the fundamental structure and operations of the rest of the system are apparent.

Once those changes are complete, the budgets for all legal aid programs should be integrated. At that point, the governors of the legal aid authority should be able to establish comprehensive service priorities, evaluate alternative program-delivery models on the basis of actual experience, and allocate funds to specific program areas.

While it is difficult to predict the length of this transition period, we believe that the Legal Aid Act should, at a minimum, preserve at least the current level of funding for the clinic program through the first post-MOU three-year funding cycle. We stress that this specific recommendation is being made within the context of our general recommendation for a legislated three-year funding allocation for legal aid services generally. Moreover, given the relatively small portion of the current legal aid budget devoted to clinics, and the important role we believe they will assume within the new system, we are confident that this condition will not unduly restrict the authority or operations of a new legal aid authority.

Management Information/Information Technology

One of the consequences of the certificate program's funding crisis in the period immediately following the adoption of the MOU was a critical evaluation of the Plan's management information and information technology. Although a "Strategic Plan for Information Technology" had been prepared for the Plan in 1992, little progress had been made on its major recommendations. The purpose of this strategic plan was to "create a comprehensive information technology environment to meet the challenges of [the Plan's] future business environment".

As a result of the crisis, the Law Society and the Plan's management began to improve its management information and information technology. In particular, the Plan's Service Encounter System, which is designed to improve the Plan's legal aid application and certificate management, is now implemented in almost every Area Office.

Despite these advances, many observers believe that the Plan's information systems and management information could still be improved. For example, the "Strategic Plan for Information Technology" recommended several improvements to the Plan's payment-agreement management and legal-accounts management, which have yet to be implemented.

We do not intend to make specific recommendations about the appropriate technology or management information needed in present or future circumstances. Rather, we stress two broader points.

First, we strongly believe that the governors and senior management of a legal aid program in Ontario require sophisticated management information and information technology. The relationship between management information and information technology and the legal aid system's ability to fulfill its broad mandate cannot be overemphasized. In order to plan for and work within the three-year budget cycle we have proposed, the legal aid authority will have to be much better informed than it has been in the past. Policy choices on subjects as diverse as priority-setting, cost-effectiveness of alternative service providers, quality-assurance mechanisms, financial planning, and the preparation of budgets depend on the legal aid system's ability to collect and analyze sophisticated data. Equally important, the governors of the legal aid system will be unable to meet their obligation to provide reliable cost projections (and multiyear budget requests) if they lack the data necessary to estimate the value and timing of these liabilities.

Second, the specific management information and information technology required in a fixed-budget environment necessarily depend on the choices that the governors of the legal aid program make regarding delivery models, quality-assurance mechanisms, and number and location of offices. The information technology necessary to collect and analyze management information from a Staff Office differ significantly from that used to the same ends for a judicare service provider. At a general level, however, we believe that improved management information and information technology can be used to increase operational and financial controls, reduce administrative costs, enhance program-evaluation capabilities, and improve the quality of service to clients and service providers, potentially including improvements in access, electronic reporting of work done, direct deposit to service providers' bank accounts, electronic reporting of payments for work done, and monitoring outstanding work-in-progress and work yet to be done.

In view of these considerations, we recommend that the governors of the legal aid program make the development of a sophisticated management-information and information-technology strategy an early priority.

Client Contributions, Cost Recovery, Debt Collection

Client contributions, cost recovery, and debt collection have been an important source of revenues for the Plan. In the past, the Plan has collected considerable sums from these sources. As noted in chapter 2, the Plan's financial-eligibility rules require clients to contribute towards the cost of their legally aided services if they have funds available after meeting their basic expenses, or if they own a house. In fiscal year 1995/96, clients contributed $17.0 million towards the cost of the Plan programs, including $12.7 million collected from liens on client property. In the same year, $4.8 million was paid to the Plan as a result of client recoveries in civil matters.

We are doubtful that client contributions are a likely source of substantial new revenues for legal aid services. Revenues generated from client contributions are necessarily linked to the number of certificates issued and the number of Pay Agreements signed with successful applicants. In the past three years, the number of certificates has declined significantly. As a result, there are substantially fewer clients from whom to request contributions. At the same time, the financial-eligibility threshold has been cut considerably, meaning that those clients who do qualify for legal aid are likely to have less money with which to make a contribution.

Nonetheless, the record of client contributions is impressive. We believe that it is appropriate to continue the client-contribution policy. In our view, it is only fair to ask those clients who are able to contribute a portion of the cost of their legal aid services to do so. Moreover, a continuation of this policy would allow the legal aid authority to expand its financial-eligibility standards in better economic times.

Finally, we note that we are doubtful that the Plan's accounts receivable represent a significant source of potential revenues. These accounts are primarily in the form of unrealized liens, outstanding Pay Agreements, and judgment debts. Plan liens often have less priority than other creditors. As a result, many liens are essentially uncollectable. Nor does the Plan have the power to force homeowners to sell their property in order to make payments on their Plan accounts. So, too, the collection of outstanding Pay Agreements is frustrated by the fact that the income level of most legal aid clients makes it unlikely that many debts can recovered. Notwithstanding these doubts, we believe that the collection of these moneys should be improved, if it proves cost-effective to do so.

Federal Contributions to Legal Aid Services in Ontario

The federal government funds legal aid through the various cost-sharing agreements, as discussed in chapter 3. In recent years, the federal government has either reduced or "capped" funding available for legal aid in Ontario.

The question of the appropriate amount of federal funding for legal aid services in Ontario is a matter of continuing controversy between the two governments. Most obviously, federal legislation in the areas of refugee, criminal, and young offender law has often substantially increased the demand for legal aid services without a corresponding increase in the federal contribution to legal aid services in Ontario. For example, section 11 of the Young Offenders Act requires the province to provide free legal aid to all young offenders, regardless of their circumstances. Less obviously, the federal government has also passed legislation in the fields of criminal, family, and income-support law which has affected the demand for legal aid services.

We believe that the legal aid authority and the provincial government should approach the federal government on a number of issues:

First, the legal aid authority and the provincial government should urge the federal government to maintain or increase the present level of federal funding.

Second, the legal aid authority and the provincial government should identify federal laws, procedures, or policies which affect the demand for legal aid in furtherance of our recommendation that the legal aid authority "undertake ongoing research and develop strategies to implement law and procedures which encourage access to justice and an efficient, integrated justice system".

Finally, we believe that the legal aid authority and the provincial government should approach the federal government and seek funding for one or more of the innovative projects we have discussed in this report. We note that the federal government has funded many legal aid pilot projects and research studies in Ontario and other provinces in the past.

Provincial Funding in the Post-MOU Period and Transitional Funding

The quantum of funds available for legal aid services in the post-MOU period is a complex question. If we assume: (1) that the prevailing level of funding is maintained; (2) that the overhanging loans that were created in prior years to meet cash-flow deficiencies have been retired; and (3) that the number of certificates issued and their cost remains roughly the same as in current projections, there could be more funds available for legal aid services in the period immediately following the expiry of the MOU.

Under the circumstances, we do not believe that the provincial government should reduce funding for legal aid services. Throughout this report we have repeatedly emphasized the presence of vast unmet legal needs all across Ontario. As a result, we strongly recommend that the prevailing level of funding for legal aid services in Ontario continue past the expiry of the MOU. A provincial commitment to prevailing funding would go a long way towards ensuring that the legal aid system would be able to fund the many reforms and service enhancements we believe are necessary.

In the interim, we recommend that the provincial government establish a separate budget allocation for the purpose of funding one-time "transition" costs, including the appointment of a transitional board, and improving information technology. These moneys are necessary to ensure a smooth transition from the current system to the next one, and to ensure that it will be fully operative (rather than a developmental stage) upon the expiry of the MOU. These funds will be required in the 1998/99 fiscal year. The details of our transition strategy are discussed chapter 16.

RECOMMENDATIONS

1. Assuming that the legal aid system in Ontario is to meet fixed funding commitments, the Legal Aid Act should be amended to reflect this arrangement.
2. The provincial government should provide the legal aid authority with a rolling, three-year funding allocation. The legal aid authority should be allowed to carry surpluses and deficits within the three-year cycle (and, with the Attorney General's approval, between cycles).
3. As a condition of funding, the legal aid authority should provide the provincial government with annual reports, annual business plans, and a multiyear strategic plan.
4. The Legal Aid Act should, at a minimum, guarantee the current level of funding for the clinic program's current mandate for a period of at least three years after the expiry of the MOU.
5. The legal aid authority should make the development of a sophisticated management-information and information-technology strategy an early priority. This strategy should seek to:
(i) increase operational and financial controls;
(ii) reduce administrative costs;
(iii) enhance program-evaluation capabilities; and
(iv) improve the quality of service to clients and service providers, potentially including improvements in access, electronic reporting of work done, direct deposit to service providers' bank accounts, electronic reporting of payments for work done, and outstanding work-in-progress and work yet to be done.
6. The legal aid authority should continue its client-contribution policy based on assessed ability to pay.
7. The legal aid authority should improve its ability to recover client contributions and costs, including improved collection on Pay Agreements and lien proceeds, should it prove cost-effective to do so.
8. The legal aid authority and the provincial government should approach the federal government in order to:
(i) urge the federal government to maintain or increase the present level of federal funding to legal aid;
(ii) identify federal laws, procedures, or policies which affect the demand for legal aid and access to justice in furtherance of the authority's responsibility to undertake ongoing research and develop strategies to implement law and procedures which encourage access to justice and an efficient, integrated justice system; and
(iii) seek funding for one or more of the innovative projects discussed in this report.
9. The prevailing level of funding for legal aid services in Ontario should continue past the expiry of the MOU.
10. The provincial government should establish a separate budget allocation for the purpose of funding one-time "transition" costs, including the appointment of a transitional board, and improved information technology, which funds will be required in the 1998/99 fiscal year.