State Funding for Civil Legal Services

February 1, 2008

Author: Anne Erickson

Ensuring that poor and low income individuals and families have access to justice and that the state of New York has a strong and well-funded system for delivering civil legal services is core to our mission.  Toward that end, we have led the annual effort to secure, maintain and increase state funding for civil legal services programs across the state.  As part of these efforts, each year we review, analyze and report on the state budget and its treatment of legal services.

As readers of the LSJ and others involved in state funding efforts know, last year’s budget was historic in the level of state funding allocated for civil legal services.  Since 1993, when the state first provided general support for the delivery of legal services, this funding had always been a “super member item” carried by the Assembly Majority.  In the 2006-07 budget these funds totaled $4.6 million.  The Assembly Majority also led the effort to secure approximately $2 million from the Legal Services Assistance Fund (LSAF) for legal services in that year’s budget.

For the first time, last year’s budget saw the Unified Courts/Office of Court Administration (OCA) allocating a new $5 million appropriation for legal services and for the first time, $3 million was included in Governor Eliot Spitzer’s first Executive Budget.  By the time the budget process was over last year, the state’s general support for civil legal services totaled $15.85 million, more than doubled the prior year’s level.

This was clearly a powerful new partnership and a powerful new commitment to revitalizing the delivery of legal assistance for low income New Yorkers.

Changes to IOLA Income

Governor Spitzer also moved quickly in his first year in office to enact changes in the Interest on Lawyer Account (IOLA) regulations that now require banks to pay interest rates on IOLA accounts that are “comparable” to the rates the banks pay on similarly sized accounts.  This change has had an extremely positive impact on IOLA earnings, allowing the Fund to award $25 million in grants for the 2008 calendar year cycle, up from $13 million in 2007.
 
As a result, the 2008-09 Executive Budget assumes IOLA income will grow to $72 million in the coming fiscal year.  The Budget gives IOLA appropriate authority that will allow IOLA to spend up to $72 million if in fact the fund earns that much in the coming year.  This is the “authority” to spend, not an actual appropriation of funding.

Changes in the Executive Budget

Based on this anticipated increase in IOLA funding, the Executive Budget eliminates the following state fund appropriations:

• $4.6 million in general operating support through the Department of State budget – funding that has supported the delivery of legal services since 1993;
• $2 million from the Legal Services Assistance Fund distributed by the Division of Criminal Justice Services for core services – again – the Assembly Majority has been responsible for ensuring that this funding has been available since 2005;
• $8 million in new funding secured in last year’s budget- $5 million initially proposed by OCA and $3 million proposed in the Executive Budget;
• $1.25 million for the provision of domestic violence related legal services – $1 million allocated by the Senate Majority and $250,000 by the Assembly.

The Governor’s proposed budget would provide a single undefined appropriation of $1 million for civil legal services.

In meetings with the Executive and Legislative Leaders and in our recent testimony to the Senate Finance and Assembly Ways and Means Committees, we have noted a number of deep concerns with this approach:

• As a state, we are still failing to meet some 80% of the civil legal needs of those in our communities;
• This is a delivery system that relative to other human services has been severely underfunded for years;
• This should be a period of growth and stability, not one in which we see IOLA gains off set by state funding losses;
• State funding has become critical to the core operating funds of programs across the state;
• The state of New York should maintain its own general fund commitment to the delivery of civil legal services;
• Not all programs funded by the state are funded by IOLA;
• State funding and IOLA funding do not provide the same level of support to all programs; if state funding is lost some programs will have no IOLA funding to help support their services, other programs will suffer disproportionate losses;
• State funding will end effective April 1, 2008 while IOLA grants for 2008 have already been awarded, potentially leading to a disruptive seven-month gap in funding; and
• There is no guarantee that IOLA funds will be available for distribution in time to cover any state losses.

IOLA has already committed $25 million in grants for the 2008 calendar year and must pay those grants first with their 2008 earnings.

In addition, we have noted that there are a number of troubling trends on the horizon that could substantially blunt IOLA’s earnings: 

• the Federal Reserve’s recent and future anticipated cuts in interest rates may drive down the new rates being paid on IOLA accounts;
• given the current state of the economy, the principal balances being held in IOLA accounts could drop; and
• given that much of the IOLA activity in New York state is driven by the real estate market, the continued depression in that sector will adversely impact the funds being held in IOLA accounts.

Indeed, New Jersey, which adopted IOLA comparability in February 2006 and saw its income climb to $52 million, is already feeling the impact of these troubling economic trends.  IOLA revenue in New Jersey was down 6% in October, 9% in November and a dramatic 20% in December 2007.  In Texas the IOLTA fund was expecting to earn $25 million to $28 million in revenue this year; in just the last week, the fund cut its projection in half to $14 million after the Fed slashed interest rates.  It is expected that that figure may slip further depending on the Fed's future actions. 

While the level of New York’s IOLA funding for 2009 grants remains uncertain, the state funding that has for 15 years provided stable core operating support has been reduced to a single undefined appropriation of $1 million.  Because not all state funded programs receive IOLA funding and there is no guarantee that those that are funded by IOLA will be funded at a level comparable to the amount of support provided through the state budget, many programs providing critical services will be adversely impacted by these proposed changes.

More Global Issues

We also continue to remind our state’s policy-makers that providing access to legal assistance is critical to the core fabric of any state’s human services delivery system.  As noted by the New York State Bar Association in its seminal report of the legal needs of the poor:

“American society today is complex and the judicial system mirrors that complexity… few middle class Americans would represent themselves in court if their access to shelter, income, food or clothing were at issue… yes, the poor are confronted by such problems repeatedly and are often defeated due to the lack of counsel…”

The issues confronting the poor and those living on low incomes are, if anything, even more complex today.  Whether it’s the ever-changing landscape governing access to public assistance or health care or the newly emerging legal needs of consumers and financially strapped homeowners, the legal needs of our state’s most vulnerable populations remain critical and all too often unmet.

The reality is that most legal services programs today are providing only legal triage.  They are helping those with a 72 hour eviction notice, but are unable to intervene earlier to negotiate payment of back rent that could avoid the eviction.  They are helping victims of domestic violence untangle themselves from violent homes, but all too often only if the violence is active.  They are helping the disabled secure federal benefits, but only after a denial has been issued and the case is moving deeper into the legal arena.

Not only is it more traumatic to provide such crisis-driven assistance, it is also more expensive and less cost-effective.  The earlier a case is handled by legal services the more likely an agreement can be reached, benefits can be secured, or assistance can be given to help avoid longer-term problems.

How We Fund Legal Services Today

In order to meet the legal needs of poor and low income populations, legal aid programs across the country rely on three core funding streams: federal funding, Interest on Lawyer Account (IOLA) funds, and state funding.  In New York, those funding streams include:

• Federal Legal Services Corporation (LSC) – federal funding received by seven (7) LSC grantees in New York State.  Launched in the 1960s, the federal Legal Services Corporation (LSC) is the national construct for funding civil legal services.  These funds are distributed on a per-poor-person basis and support the general delivery of legal services based on local needs assessments.
• Interest on Lawyers Account (IOLA) – received by many legal services organizations, but not all.  Modeled after programs in Canada and Australia, IOLA is now a model of funding used throughout the country to tap into what had been non-interest bearing accounts held in escrow by attorneys and law firms.  Seventy-five percent (75%) of the annual funding must be designated for the direct delivery of services to individuals, while 25% are designated for efforts to advance the Administration of Justice.  
• State Funding - the 2007- 08 State budget provided funding for legal services through the Office of Court Administration (OCA), the Department of State (DOS), and the Division of Criminal Justice Services (DCJS) as part of the Legal Services Assistance Fund (LSAF) – again, not all programs receive funding from all of the state funding streams.

Clearly individual legal aid programs also rely on various grants and contracts and provide fund raising, but the three core funding streams support a full range of services needed to ensure a vibrant civil legal services delivery system. 

Restoration of State Funding Stability Urged

In order to maintain the state’s commitment to the delivery of legal services and to ensure continuity of services, it is essential that the Legislature restore the core state funding that civil legal services programs rely on to provide essential services to clients. 

We have and will continue to urge the Governor and the Legislature to join together to restore all state funding for civil legal services to the 2008-09 budget.