A proposal to strip $70 million from the Legal Services Corp. isn’t the only thing weighing heavily on the minds of legal aid providers.

Many of their programs have already sustained significant reductions in state support and declines in money from Interest On Lawyers’ Trust Accounts (IOLTA) during the past three years. Federal, state and IOLTA money are the financial foundation of most legal aid programs in the country — and all are hurting. “It just devastating,” said Betty Balli Torres, president of the National Association of IOLTA Programs. “The cuts are coming from everywhere.”

Funding from IOLTA has dropped significantly as interest rates have fallen to historic lows. IOLTA generated $371 million for legal aid groups in 2007 when interest rates were at 5.25%, according to Torres. Those rates are now at 0.25% or lower, and IOLTA brought in $125 million in 2009 — a 66% decrease.

Congress established IOLTA in 1980 as a way to help support legal services for indigent people. A portion of interest derived from certain lawyer trust accounts is distributed to legal aid providers.

State support has also been harder to come by for legal aid providers in recent years as lawmakers have grappled with budget shortfalls. The Texas Legislature stepped up to fill the IOLTA funding gap with a one-time emergency allocation of $20 million for legal aid in 2009 and 2010, but 2011 is a different story. The state’s preliminary budget would cut legal aid funding by $23 million — 51% of the total.

Wisconsin Gov. Scott Walker has proposed reallocating 75% of the money generated by a $4 justice information fee, typically a court fee or a filing fee. That money has gone to legal aid providers in the past, but it would be used to fund other projects in the criminal justice system under Walker’s proposal. Legal aid providers have said it would result in a $4 million loss in funding.

The Legal Services of New Jersey system, which is made up of six legal aid organizations across the state, saw a nearly $10 million decrease in state support during the 2010-11 fiscal year coupled with a decline in IOLTA money from more than $40 million in 2007 to $8 million in 2010. It has cut about 200 of its 700 positions since 2007 as a result.

Lawmakers in New Hampshire are weighing a proposed $1.7 million cut in support for New Hampshire Legal Assistance — about half’s the group’s budget. That cut could force the closure of four of New Hampshire Legal Assistance’s seven offices.

Karen Sloan can be contacted at ksloan@alm.com.