How Cities Can Manage Legal Costs Without Increasing Risk
by Michelle Marchetta Kenyon
Michelle Marchetta Kenyon is the managing shareholder in the Oakland office of McDonough Holland & Allen. She serves as city attorney for the cities of Calistoga, Moraga and Rohnert Park and is also president of the League of California Cities City Attorneys’ Department. She can be reached at firstname.lastname@example.org.
About Legal Notes
This column is provided as general information and not as legal advice. The law is constantly evolving, and attorneys can and do disagree about what the law requires. Local agencies interested in determining how the law applies in a particular situation should consult their local agency attorneys.
In cities throughout California, revenues are declining but the need for services is not. Like other municipal departments, city attorneys are exploring ways to provide more cost-effective legal assistance while maintaining the level of service expected by the city. This article provides suggestions on how to effectively use existing legal resources and manage associated costs.
Develop a Strategic Plan
The work of a city attorney is often reactive and shaped by what the city needs done now. This limits the city attorney’s opportunity to manage the level of service being provided and may result in either faulty prioritization or misuse of legal resources. Developing a thoughtful strategic plan can assist with setting goals and priorities for the city attorney’s department, which in turn helps the department manage its resources. Although a strategic plan can take many forms, at a minimum it should include:
• A mission statement for the city attorney’s office, including its role in the organization;
• A discussion of the assumptions upon which the strategic plan is based, such as funding, staffing, expected demand for services and anticipated challenges;
• A discussion of the department’s goals; and
• Performance measurements.
Developing a strategic plan also gives the city attorney a way to interact with the city council, the city manager and the city’s department heads to collaboratively set goals and priorities for the city’s legal department and its resources. Although not a panacea, a strategic plan defines the level of service expected from the city attorney and provides a baseline for gauging the city attorney’s performance. This comprehensive review of the city’s legal services provides the foundation upon which the city attorney will base his or her decisions in managing legal costs and helps ensure that legal services are provided in a manner that works for the city at all levels.
Proactively Manage Risk
Whether designated as the city’s risk manager or not, the city attorney plays a critical role in risk management. While the city council can decide what level of service it wants from the city attorney, unforeseen circumstances can play havoc with legal budgets. Managing risk is a multifaceted task whose complexity is driven by the source of the risk. Addressing risk proactively can reduce the potential for claims and disputes that result in increased legal costs in two areas: contracts and personnel.
Contractual Risk. In contracting for goods and services, cities risk incurring liability in several areas, depending on the nature of the contract. The greatest exposure to liability is in the area of personal injury and property damage claims. To reduce these potential risks, the city’s goal in contracting is to shift these risks to other parties. Accordingly, in drafting contracts careful attention should be paid to the indemnification clauses that generally require the other party to indemnify and defend the city against any claims for damages arising out of work performed under the contract. It’s also important to remember that an indemnification clause protects a city only to the extent the other party has sufficient insurance to cover the legal defense costs and payment of any potential judgment or settlement. As a result, to properly manage risk each contract should be reviewed not only for adequate indemnity clauses but also for adequate insurance limits to cover the potential liability that may arise out of the performance of the contract.
Personnel Risk. Personnel problems, in addition to disrupting the organization and affecting morale, can result in a significant need for legal services. Personnel risk can be managed most effectively by focusing on the basics. In most cities, personnel rules and regulations are the best place to start. The human resources director and city attorney should ensure that the personnel rules are current by periodically reviewing and updating them as needed. Outdated or incomplete personnel rules can turn an otherwise manageable personnel problem into a significant and expensive crisis. Personnel risk should also be managed through training. State law requires that supervisors undergo harassment prevention training every two years, but supervisors regularly have to address other areas of potential employee concern, such as performance, interpersonal conflicts, personal challenges, employee honesty, disabilities and accommodation. Supervisors may benefit from training that a qualified human resources specialist can provide in some or all of these areas.
All too often, a personnel problem can be traced back to a supervisor mishandling the issue and unintentionally turning a controllable situation into something much more difficult to address. Providing a supervisor with the tools to address these problems, when and if they arise, can help defuse a potentially explosive situation. One of the best tools in personnel risk management is early and constant communication between management and the city attorney. When the city attorney works closely with both supervisors and staff, potential personnel issues can be identified, and early communication of potential problems may help to resolve issues before a crisis develops.
Maximize Cost Recovery and Properly Allocate Costs
Cost recovery is a standard tool used to recover costs imposed by the actions or inactions of third parties. Examples of areas where cities can and should recover their costs include nuisance abatement and applications for land use approvals. Under state law, cities can recover nuisance abatement costs from the property owner, including any legal costs incurred as part of the abatement. A well written and current nuisance abatement ordinance should be in place to ensure that the city can take full advantage of nuisance abatement cost recovery procedures. Cities also have the authority to recover all costs associated with processing land use entitlements, including all legal costs related to reviewing permit applications, environmental documents, development agreements and administrative appeals. With the proper procedures and policies in place, cities can seek reimbursement for all costs incurred in reviewing and processing development applications and can ask for monetary deposits prior to incurring any costs to ensure that reimbursement is made.
Properly allocating legal costs ensures that the General Fund is not saddled with costs associated with specialized services. For example, when the city attorney also serves as general counsel to the city’s redevelopment agency (RDA), the city attorney’s time spent providing legal services to the agency should be allocated to the RDA budget, not the city’s General Fund. Moreover, legal services provided on behalf of utilities should be allocated to those enterprise funds; for example, when the city attorney provides legal services for the municipal water and sewer utilities, the city should consider having the costs of those services covered by the enterprise funds for the two utilities — not the General Fund. The same should be considered for legal services provided to form assessment districts and periodic legal review during the life of the district. In such instances, the assessment should be calculated to include enough revenue to cover these anticipated legal costs, and any additional legal costs associated with the district should be allocated to the district fund.
This list of specialized services is not exhaustive, and the city attorney should work closely with the city’s finance officer to confirm that all legal costs are allocated to the appropriate fund.
Become More Efficient
Ironically, in a time of reduced city revenues and tightening budgets, the demands on the city attorney’s office only increase. In times like these, it is even more imperative that city attorneys look for opportunities to be more efficient. Although caution is required, several methods to increase city attorney efficiency should be considered.
Form Documents. Using city attorney-approved form documents allows city staff to produce an initial draft of the document, which is then submitted to the city attorney for final review and approval. Commonly used form documents include construction contracts, consulting services agreements, claim rejection letters, standard conditions of approval and ordinance/resolution forms. By using form documents, staff can put a document into its final form without substantial input from the city attorney. When the attorney does eventually review the document, he or she can focus on those portions that are specific to the circumstances, making final approval quicker and more efficient. It is important to remember, however, that truly effective use of form documents requires that certain practices be followed, including proper training on their use and periodic review and updating.
Both staff and the city attorney need to be aware that while form documents can be used in many instances, there will certainly be times when unique or unusual circumstances require a more customized document. These special instances should be spotted early so time and effort is not spent on a form document that cannot possibly fit the situation.
Meeting Attendance. Do you really need to have an attorney attend every meeting? If it is a city council meeting, the answer is probably yes, except in rare circumstances. If it is a planning commission meeting, the answer may be yes, but the city attorney, staff and commission chair should evaluate the need for attorney presence on an agenda-by-agenda basis. The same question should also be asked for staff meetings and meetings with outside parties. Teleconferencing is now widely used in lieu of in-person attendance, and videoconferencing has become both technologically and financially feasible
for even the smallest agency.
Gatekeepers. Many cities use various gatekeeping techniques to manage how city staff requests legal services. One technique is to use a legal request form that requires the department head’s approval before it can be submitted to the city attorney. A more informal method is to simply require all city attorney requests to obtain the department head’s verbal approval. This gives the department manager an opportunity to review the request and decide whether it merits submittal to the city attorney. By using gatekeepers, the city can define the level of legal services it wants on an ongoing basis, which provides opportunities to identify potential cost savings in real time.
Shrinking revenues demand examination of and possible alterations to the provision of legal services. Look closely at your city’s needs and demands prior to implementing any particular method, and begin by developing a strategic plan. This gives the city attorney the ability to choose among many methods to help manage the provision of legal services.