Background
In response to a legislative audit during the 2016 General Session, the Legislature passed H.B. 351, “Attorney General Fiscal Amendments.” This legislation provided the Office of the Attorney General (AG) the option to function as an Internal Service Fund, or “ISF.” The AG began implementing its ISF during the 2018 General Session, concluding in the 2021 General Session. Specific to the Attorney General’s Office, UCA 67-5-5 mandates that the AG hires and provides legal counsel for state agencies (except in certain situations). Following recommendations from the Office of the Legislative Auditor General in the 2015 In-Depth Budget Review, the Legislature adjusted the AG’s budget to fit the ISF model. The Legislature also granted the Attorney General authority for a phased implementation of this new budget format. This transition concluded in Fiscal Year 2022.
What is an ISF?
Internal Service Funds are a government accounting model based on centralized resources. ISFs involve sharing services between different agencies where each participant is billed for the resources used. The money received for services is considered “intra-governmental revenue,” an ISF’s primary funding source. In Utah, other prominent ISFs are housed in the Department of Government Operations, including Technology Services and Facilities Management.
In an ISF, rates charged to users are set to cover the service costs without running a profit. The model aims to enhance state financial efficiency. ISFs help determine the true cost of government services, foster accountability, and provide accurate data for lawmakers, which supports informed decision-making. Agencies can weigh service benefits against its costs, creating market-like incentives. Like private businesses, agencies can adjust usage based on received value. Before this model, as highlighted in the 2015 audit, agencies lacked clarity on billing relative to their service needs due to the absence of a formal rate-setting process with legislative oversight.
Client Focused Budgeting
By design, agencies receive appropriations to cover legal expenses from the AG’s Office. If an agency requires additional legal services, they must request a budget adjustment from the Governor’s Office, which in turn has to be funded by the Legislature. This is a key distinction from the pre-2018 budget, because agencies determine their AG service-level and make budget requests which are prioritized in their respective subcommittees. This paradigm shift has taken some adjusting; prior to the AG ISF, the Attorney General would typically initiate and champion funding requests for additional services to an agency.
Funds received from client agencies are reflected as Dedicated Credits in the Attorney General’s budget (and in fiscal notes). Changes in service levels or rates require both an adjustment to the Dedicated Credits appropriation for the AG and changes to the total appropriation for agencies receiving services.
While funds received by the AG are booked as Dedicated Credits, these funds are comprised of a mix of revenue types that are dictated by the budget of the client agencies. During the 2023 General Session, “Attorney General Targeted Compensation Increases” provided $5 million one-time and $19.4 million ongoing for salary increases to the AG. Of that amount, $5.0 million one-time and $7.7 million ongoing were from state funds, and another 43 sources comprised the remainder of the funding mix.