Tuesday, April 24, 2012

LSAC Responds to Balkinization Post

Brian Tamanaha

The Chair of the LSAC Board of Trustees sent out a mass email today with a pointed response to my recent post raising questions about LSAC's priorities. In fairness to LSAC, I will post his response (with a few comments).
It is true that fees for the LSAT are scheduled to go up by about 15% next year and the total cost of the test and admissions reports for an applicant who applies to six schools will be about $450. Considered against the total cost of a legal education, this is a very modest sum – about 0.3% of total law school costs. This percentage has been going down over the past decade and, at the same time, the LSAC has expanded its efforts to enable low-income students to avoid the costs entirely (see below). Compared to other professional graduate tests, the cost of the LSAT is quite low – 66% of the cost of the tests for students planning to attend business or medical school.
My criticisms were that this is a bad time to raise fees and $450 is a lot of money for students. To tell us that this sum is a fraction of the cost of legal education and cheaper than applications to B-school, while true, does not respond to the concerns I raised.
It is also true that the LSAC has a large reserve. Years ago, the Board tried to estimate the number of students who would take the test each year and adjust its price accordingly – lower if we expected lots of students and higher if we expected fewer students. This resulted in large year-to-year swings in our prices (and it turned out to be very difficult to predict how many students would take the test each year). Then, about 20 years ago, we decided to implement a policy of steadier increases which would permit us to build up a reserve when lots of students happened to be applying to law school and to call on that reserve when the numbers went down. (We are an organization with large fixed costs; for example, the cost to produce the test is about the same whether 1,000 or 100,000 students take the test.) Then, for several years (especially in later years up to 2009-2010), many students took the test and we ran surpluses. Now fewer students are taking the test. Next year, we project a deficit in our annual operating budget of about $7.5 million and it looks like we’ll see deficits for several years to come. So we’re now calling on the reserve we’ve prudently built up during the flush years instead of hitting students with huge price spikes.
My criticism was that LSAC, a non-profit organization, is raising fees when it has $170,000,000 on hand in cash and securities, which provides it a huge reserve. At a time of declining demand, rather than raising fees, another way to go is draw down on the reserve and cut expenses. This is the rainy day they have been preparing for.
The operating budget deficit is the product of the many things the LSAC does for law students and law schools. More than half of the deficit last year – $3.4 million of it – was caused by the LSAC’s fee waiver program. To do its part to help law schools become more diversified socioeconomically, the LSAC waived its test and application-processing fees for over 9,000 low-income students last year. When the recession hit, the LSAC also increased its direct subsidies to schools to help them weather the storm; for example, the LSAC began to pay more of the costs for admissions staff to attend candidate forums and the annual professional meeting. Finally, the LSAC provides generous support for a variety of diversity initiatives. For example, it probably provides more support than anyone in legal education for diversity pipeline efforts.
The fee waivers for low income students should be applauded. Nevertheless, the fee increase will be felt by many people who do not qualify for a waiver.
Some bloggers complain that the compensation for certain LSAC employees is too high. Our employees are well-compensated, but they are not excessively compensated, especially in view of the difficulty and technical complexity of their work. The LSAC Board scrutinizes salaries very closely and regularly commissions professional salary surveys to assess the fairness of our compensation structure. What we pay is fair in the market – not too much or too little.
I pointed out that in 2009 the President earned $624,000 (which is nearly $200,000 more than his predecessor earned just two years earlier), and that the officers earned salaries of $375,707, $322,827, etc.--plus supplemental payments ranging from $75,000 to $100,000 in 2008. The LSAC administers a testing and application service that holds a monopoly position. It's not obvious that the handsomely compensated high officers, including their general counsel, are engaged in work of great technical complexity (the current President is a former law school dean).
Some bloggers claim that the LSAC spends $1 million per year on lobbying expenses. That is just plain wrong. Over the last three years (which were typical), the LSAC’s lobbying expenses have been less than $25,000 per year.
I took the $1 million dollar figure from LSAC's 990 form, under the category "Lobbying Expenditures During 4-Year Averaging Period," #2a "Lobbying non-taxable amount:" 2007--$1,000,000; 2008--$1,000,000; 2009--$1,000,000. If I spoke in error, I stand corrected.
There are those who think the LSAC should confirm each school’s reported LSAT and UGPA scores, and who claim it would be easy to do. The LSAC is in discussions with the ABA to see if it can do this. But it is very wrong to think it will be an easy task. It turns out that the LSAC is missing a crucial piece of information to do this – it doesn’t know which students go to which schools until well after the reporting period and, even then, the LSAC knows only what the schools report. It also turns out that an unknown number of schools – those with variances from ABA Standard 503 – have an unknown number of students who are completely off the LSAC’s radar screen. And many students can legitimately be counted as attending more than one school under current ABA standards. Yes, the LSAC should try to help make this reporting more reliable; the LSAC has already said it will do that if it can solve these problems and do the task well. We’re working on it, but it is a very complicated task.
It is great to hear that LSAC is working on confirming the LSAT/GPA medians reported by law schools. This is a welcome change from the LSAC President's statement in the National Law Journal suggesting that LSAC would not do this: “That’s just not something we have done historically, and I don’t see why we would. We are not in the reporting business.” Given recent news of false reporting by two law schools (after years of rumors about false reporting), this will go a long way toward restoring the reliability of these numbers. Whatever difficulties this will pose for LSAC are minor by comparison.

Here is the Chair's closing paragraph:
The LSAC is by no means perfect. It relies on the hard work and insights of its outstanding staff and of hundreds of volunteers from its member schools who all do their very best to make the LSAC a valuable and responsive organization. It’s a tough environment right now for law schools and affiliated organizations like the LSAC, AALS, and ABA. There is great value in constructive criticism and new ideas, and we welcome them from any and all sources. On the other hand, poorly considered and uninformed complaints are not helpful to the LSAC, law students, or law schools.
That last line was directed at me. Readers of the original post--and the Chair's response--can decide for themselves whether the concerns I raised are "poorly considered and uninformed complaints." More important, it is nice to see that LSAC recognizes that it must be responsive to concerns raised about its operation.

The original post.


Dear Mr. Tamanaha:

Thanks for your great job in reporting this. The LSAC Chair's E-mail is a true and absolute masterpiece of lawyerly-doubletalk. It does everything except address the actual issues you raised. These people should be ashamed of themselves -- especially since their rhetoric is nearly an exact replica of what we've heard from the people on Wall Street who destroyed our economy.

The same goes for the outrageous salaries being paid these people -- again just like the monstrosities going on on Wall Street. This group has an absolute monopoly on this situation, and are abusing that situation for their own gain.

Keep up the good work.

Ross Taylor
University of Washington 1977

They tried paying the president only 300k, but it turned out the test wasn't compatible with No.2 pencils that year . . .

Why would the president of LSAC act any differently than the dean of a law school?

These posts have been very educational. It appears that LSAC is misjudging the shared interest of law schools and students in reducing the barriers to application at this critical juncture, and that its principals should force it to change course.

This part of the reply is striking: "When the recession hit, the LSAC also increased its direct subsidies to schools to help them weather the storm; for example, the LSAC began to pay more of the costs for admissions staff to attend candidate forums and the annual professional meeting."

Does this mean LSAC not only subsidizes applications by lower-income students (which seems laudable, if and to the extent those candidates will be able eventually to attend), but also subsidizes less wealthy law schools? The idea of charging students more so that they can be exposed to schools less likely to be able to offer financial aid, and (as a rough correlation) perhaps even less likely to generate jobs for them, seems more dubious. Is LSAC understood to serve as a cross-subsidizing insurance vehicle for legal education providers?

Terrific critique. You've got to be kidding me on those salaries. The truth really hurts, doesn't it, LSAC?

This comment has been removed by the author.

I don't mind it that prospective law students suffer some pain in learning how monopolies burden the public; they are trying, after all, to enter one of the worst of the monopolistic professions, and their future income will depend in large part on screwing the public out of its options and its wealth.

The fault lies with the legal profession, which, in the interests of justice and as Milton Friedman often proposed, should simply abolish all barriers to the practice of law, including required courses, LSATs, diplomas, and state bars.

This exchange sheds critical light on the rising costs to applicants and potential law school students but LSAC costs are of the least of expenses on the balance sheet of those seeking a legal education. With this issue out of the way maybe Mr. Tamanaha can now shift his critique to the major prohibitive price, law school tuition.

This exchange sheds critical light on the rising costs to applicants and potential law school students but LSAC costs are of the least of expenses on the balance sheet of those seeking a legal education. With this issue out of the way maybe Mr. Tamanaha can now shift his critique to the major prohibitive price, law school tuition.

The LSAC would actually be doing both the legal profession and the undergraduate students a favor if they were to jack up the price to $5000 with no waivers, thus decreasing the number of kids who throw their lives away by going to law school. The only people who would apply then would be those who can actually afford law school without the life-crushing debt, or those who are truly dedicated to having a legal career and willing to suffer the costs.

The cost of the LSAT ($160 for the test, but there is a mandatory "Credential Assembly Service" for $155 added on) is $315, higher than the $235 for MCAT, $240 for the GMAT or $140 for the GRE. The business about $450 for six applications being one third less than the others is only true with the MCAT and then only true of the applicant uses the universal application which costs $160 plus $34 for each school beyond one.

I'm not sure why the LSAC chair was so evasive, everyone is raising their prices and what he says about overall cost of application and Fee Waiver is true of all the entry tests.

First, on the lobbying amount, the LSAC's response is valid. The $1,000,000 figure is actually from a table found in IRS Form 990 Schedule C for all filers. Pull up a blank IRS Form 990 Schedule C. The LSAC Form 990 for 2009, which can be found on the internet, does list $24,200 as lobbying in Schedule C.
Second, on compensation, what you really need is the comparisons and analysis done by the independent compensation consultant, and how the compensation committee used such reports. Having these reports or minutes would be very helpful. Simply saying the LSAC's compensation is too high without an understanding of how it was arrived is knee jerk, but if such reports and minutes could be obtained and carefully analyzed, then this discussion on compensation would be more useful.
Third, on the cash and securities, query whether a written internal policy exists that explains why such amounts are being held. Having a copy of the written policy would be very helpful.

LSAC and rsm are right about the lobbying. The $1,000,000 is an amount used to calculate the ceiling on lobbying permissible under tax law. The "lobbying expense" is two lines below that, and is roughly $25K.

Nice article, thanks for the information.

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Although I don't agree with the fee increases, nor with the compensation paid (the president of a monopoly only needs to be competent, not able to formulate and execute a vision for the company that can out-compete competitors), I do think they serve a purpose: reducing applications to law schools.

One of the biggest problems with law school is that the bulk of the costs come at the end, whether it be debt repayment or fees to take the bar exam and retain one's licensure as an attorney. Anything that increses the up-front costs to be somewhat akin to the back-end costs is a good thing - especially when 22-year-olds are involved.

That also makes me wonder about the wisdom of subsidising low-income students. If you can't cough up $160 to take the LSAT, how are you going to put down a deposit to school once admitted (mine was $750, back in the day), move to whatever school you attend, put down deposits for rent, and, after graduating, pay for the bar, and pay to be licensed? (Okay, yes, you can take out yet another loan for bar studying, but that's not necessarily a solution....) The $500 to apply to law schools is the least of your worries.

...which is to say: while I support the idea of making the legal profession more economically diverse, we are talking about college graduates. I'm not exactly clear on why we can't expect people to get a job after graduation and use their salary to pay for the LSAT, LSAC fees, application fees, and other costs. I spent a few thousand dollars of my own money on the law school application process, which, as a person with a bachelor's degree, would be an option available to me that isn't available to a high school senior applying to colleges. (Full disclosure: my parents helped out quite a bit once I was in law school.)

It's a waste of time to attempt to figure out the fair charge for the LSAT or the fair salary of the officers of LSAC.

The fair price of anything is what it would bring in a free market. There is no other valid measure.

The problem is that in Law, as in Medicine, there is no free market. That's why Milton Friedman's suggestion that we abolish all barriers to professional practice, including residency, LSATs, JDs, bar exams and the like, is particularly apt.

If such barriers had been in place for engineering, we probably wouldn't have the light bulb, electricity, car, airplane, and movies, much less the cell phone.


If my money was being managed by a tree, it would be a tree fund. If my money was being managed by a hedge...

Keep digging - and, as always - follow the money.

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