Legal aid programs throughout the country are facing budget cuts of up to 50% — yet another victim of the faltering economy.
Yet, with the economy likely headed into a recession and coastal areas in Texas and Louisiana still struggling with the aftermath of hurricanes, the need for legal aid programs is stronger than ever.
“This couldn’t come at a worse time, just as people are being laid off, being evicted due to foreclosures and not being able to get access to health care,” said Jayne Tyrell, executive director of the Massachusetts IOLTA program.
IOLTA (Interest on Lawyer Trust Accounts) is the main source of funding for legal aid programs throughout the country. Tied to the federal interest rates, those funds have sunk in the past year.
On top of that, money that legal aid programs derive from state appropriations is also down, because state budgets are facing revenue shortfalls. And law firm contributions also could decrease as firms tighten their belts.
States that did not keep millions in reserves or have seen sharp increases in indigent applicants are hardest hit, such as Illinois, Massachusetts, New Jersey, New York, Texas and Washington.
Texas has been particularly devastated, with thousands of people who lost jobs and homes due to Hurricane Ike seeking help applying or appealing for food stamps, Medicaid or Federal Emergency Management Agency (FEMA) grants.
Betty Torres, director of Texas Access to Justice, said, “[w]e never, ever could have imagined what is happening now. Programs in our coastal areas have literally thousands more clients because of the hurricane. This is a double whammy for them.”
The primary reason for the legal aid cuts is the nosediving federal interest rate. The overwhelming source of legal aid funding is from interest on lawyer trust accounts — bank accounts where lawyers keep clients’ money. Under IOLTA programs in nearly every state, interest on short-term lawyer trust accounts is given to legal aid programs.
With that interest rate diving from 5% last year to 1.75% currently — and the volume of lawyer deals down — legal aid programs throughout the country have been decimated.
IOLTA began in the late 1960s and early 1970s to generate funds for legal services to the poor. The idea was that any interest obtained from a lawyer trust account that was not substantial or long term would go to state IOLTA programs.
Today, all 50 states and the District of Columbia operate IOLTA programs. A total of 36 states require lawyers to participate in IOLTA. In other states, it’s voluntary or “opt-in.” IOLTA programs generated more than $371 million nationwide in 2007.
But funds are expected to sink through 2009.
Legal aid programs are scrambling to make up the millions by approaching state legislatures, requesting that local law firms boost support and asking for a cut of filing fees, pro hac vice fees and victim funds. Others are asking private attorneys to take on more pro bono work.
If the funds can’t be replaced — and when reserves run out — legal aid programs say they will have to lay off attorneys and staffers in the coming year and likely have to start turning away poor people, say IOLTA and legal aid officials.
“For 2009, we have enough reserves to get us through,” said Bob Sable, executive director of Greater Boston Legal Services. “We’ve set aside money for emergencies and we think we can keep the level of services we have. But after that, if things don’t turn around, we’re facing devastating layoffs,” he said.
Already, South Jersey Legal Services in New Jersey announced it would lay off five attorneys and close two offices beginning in January. In a statement, the group announced it would also be limited to providing legal help to 9,000 poor people next year, down from 12,000 this year.
“That’s merely the tip of the iceberg,” said Melville Miller, president of Legal Services of New Jersey. The agency received a $15 million reduction in IOLTA funds, from a total of $40 million last year and is lobbying the state aggressively to make up the shortfall. Miller said he expects to get an answer from state officials next week.
For every million dollars New Jersey loses in money for legal aid services, it must lay off 20 staffers and serve 900 fewer clients, he said.
Massachusetts has seen nearly a 50% decline in IOLTA funds this year, from $31 million to $16 million. And the $11 million in state appropriations for legal aid programs will likely be slashed, too; $1 billion in cuts to the state budget is expected to be announced this week, said Tyrell of the Massachusetts IOLTA program.
Her group will try to make up the funds by requesting cy pres awards — funds from class action awards that, for various reasons, could not be distributed to their intended recipients — from the Legislature.
The shortfall has trickled down to Greater Boston Legal Services, one of Massachusetts’s IOLTA recipients, which had $740,000 cut from its $15 million budget so far this year and expects another $700,000 cut. But the Boston legal aid group is luckier than some of its counterparts in other areas because only a small part of its revenue is from IOLTA funds.
The group directly appeals to Boston law firms to kick in $700 per lawyer. All the large firms do, and Greater Boston Legal Services runs an ad every year applauding all the law firms that contribute.
Sable plans to ask the state Legislature for a cut of all pro hac vice fees — fees out-of-state lawyers pay for the privilege of handling a case in another state.
The situation is particularly severe in Texas, which was battered by Hurricane Ike. Since the hurricane, legal aid programs in Houston and Galveston have been flooded with requests for help from people who have been displaced by the hurricane, who were turned down by FEMA or for food stamps and need to file appeals.
Paul Firrh of Lone Star Legal Aid estimates that 1.5 million people are classified as living at the poverty line out of 6 million in the greater Houston area and that thousands more have applied for legal aid since Ike.
“We serve 72 counties on the eastern corridor and 29 were declared disaster areas,” he said. “There’s a lot of temporary unemployment; a lot of people can’t pay the rent or applied for emergency food stamps. If you apply for help yourself, without a lawyer, 50% of the time you are denied.”
Already, Firrh’s lawyers are stretched thin, working nights and weekends alongside volunteer lawyers, manning tables at disaster recovery clinics and going to peoples’ homes to help them fill out paperwork.
Despite the great need, Texas Access to Justice, which oversees all legal aid programs in the state, saw its IOLTA funding drop from $20 million last year to $12.5 million this year.
Fortunately, the state gets other funding — a portion of lawyer licensing fees, of filing fees and of a crime victim fund. Still, the agency plans to appeal to the state Legislature for help — possibly for cy pres awards — hoping to avert layoffs and having to turn people away in droves.
Things are grim in Washington state, too. Not only is IOLTA revenue down by 33% in 2008 from 2007, from $9 million to $6 million, but the Seattle-based Legal Foundation of Washington is expecting a big hit in its $11 million state appropriation because the state is facing a $4 billion deficit.
“It’s pretty gloomy on every front,” said Caitlin Davis Carlson, executive director of the Legal Foundation of Washington. “What we’re hoping is things will turn around in 2009 and interest rates will go back up and there will be more activity in the legal market.”
Carlson finds it somewhat ironic that, just as the funds dry up, the need goes up.
“In this economy, it’s the poor and the most vulnerable who get slammed the worst — people losing their homes, veterans, domestic violence shoots up,” she said. “The demand is incredible.” Carlson said her agency, like many, is able to help only 20% to 25% of those seeking help.
Cuts hit New York
The IOLTA freefall is expected to hit New York programs this month, said Lorna Blake, executive director of IOLTA Fund of New York State. The state is anticipating a revenue cut from $25 million to $17 million next year if the interest rate is cut again.
“We are very, very concerned,” Blake said, adding that grants to agencies like the Legal Aid Society of New York would not be affected until 2010.
Ruth Ann Schmitt, executive director of the Lawyers Trust Fund of Illinois, watched the economy slipping and made a point of putting aside funds and giving away nonrenewing grants to its legal aid agencies. “Our programs are good through January or June,” she said. “I don’t know how frightened to be at this point.”
But the group was hit with a double whammy when the state cut its allocation from $5 million to $3 million. “If the governor does not restore that money, we’re going to have serious problems,” she said.
Additionally, Schmitt said that she has noticed law firms cutting donations, too. “They’re squealing when you ask for money these days,” she said.
Florida ducks problems
Florida is one of the lucky states. When real estate sales were booming throughout the 1990s and early 2000s, the state put aside substantial reserves.
As a result, even though IOLTA revenue plummeted from $32 million to $20 million this year, and appropriations from the state fell from $1.26 million to $1 million, the foundation has enough reserves to survive without cuts for the next four years.
“We have four years of breathing space, and can hopefully wait until the short-term rates go back up,” said Jane Curran, executive director of The Florida Bar Foundation. The state is also in a good position because all 85,000 licensed lawyers are required to either give 20 hours a year or $350 annually toward pro bono.
California, too, has been relatively unscathed so far. That’s because that state just tied its program to the federal interest rate last year — previously the rate was as low as 0.25%. “We’re at least even to last year,” said Stephanie Choy of the Legal Services Trust Fund Program in California. “We’re fortunate.”
In addition to the expected $17 million in projected IOLTA funds, California also gets $5 million annually from filing fees and $1 million from attorney donations.
Still, Choy said the stable numbers are only part of the picture. California has the highest level of indigents in the country — an estimated 6.4 million — so the need is higher, Choy said.
“The fear is that law firm giving will be down this year,” she said, noting that one large law firm based in California — Heller Ehrman — has closed down. “Meanwhile the need keeps going up.”
This article originally appeared online October 24, 2008.