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News & Press: ABAG's "Adventures in Philanthropy" Blog

Adventures in Philanthropy: "Legal Safety Net Needs Stable Funding"

Monday, February 13, 2012   (0 Comments)
Posted by: Betsy Nelson
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February 12, 2012

By Betsy Nelson, Special to The Daily Record 

It likely comes as no surprise to anyone that poor people haven't seen their fate improve since the advent of the Great Recession.

Nor would most people be surprised to learn that there are more people living in poverty in the United States today than at any other time in our country's history.

When we add to this the millions of Americans who are not technically below the poverty level but in the last four years have lost their jobs, homes, and health insurance, it should also come as no surprise that as people struggle to meet basic human needs, more people are seeking legal assistance than ever before.

What may come as a surprise to many, however, is that when the Federal Reserve reduced interest rates to virtually zero as one tool to help spur economic growth, it had the unintended consequence of devastating what had been the second-largest funding source in the country for civil legal aid programs.

This funding source, known as Interest on Lawyer Trust Accounts (IOLTA), is familiar to attorneys but virtually unheard of in the general population.

IOLTA revenue consists of interest income, which is generated on pooled trust account funds held by attorneys that are nominal in amount or held for too short a period of time to generate net interest for the individual client. In 2007, with the Federal Funds target rate set at 5.25 percent, Maryland's IOLTA program generated close to $7 million.

Good news, bad news

In December 2008, the Federal Reserve Board reduced this rate to near zero, a historic low, and it hasn't budged since. This was good news for borrowers but disastrous news for legal aid programs and the unprecedented number of clients needing help.

Nationally, IOLTA revenue plummeted by 75 percent. In Maryland, IOLTA revenue plunged to a record low of $2 million annually — more than a 70 percent drop.

Maryland's IOLTA program is managed by the Maryland Legal Services Corporation, which provides grants to 34 legal aid providers statewide. Susan Erlichman, MLSC's executive director, explains that as bad as things are, they would be much worse if the Maryland General Assembly hadn't provided an increase in court filing fee surcharges in 2010 to help address the dramatic loss in IOLTA dollars.

But even that remedy has fallen short due to the protracted economic downturn. With more litigants unable to pay court costs and qualifying for filing fee waivers, the surcharge increase has fallen significantly short of revenue projections.

Economic vagaries

Since its inception in Maryland, the IOLTA program has generated approximately $100 million which has been used to provide critically needed legal assistance in matters such as domestic violence, foreclosure and eviction, child custody, food stamps, health care, unemployment insurance and myriad issues impacting basic human needs.

Its enactment has provided help to millions needing legal aid. But as the vagaries of the economy have demonstrated, this obscure funding source, consisting of strictly interest income, does not make for a stable funding core for the state's civil legal aid system.

What's worse is that as the economy stays weak and interest rates remain at historic lows, the need for legal aid and the IOLTA revenue available to fund programs that provide such services remain in inverse proportion to each other.

IOLTA is a wonderful program which works best in the best of times. With the Federal Reserve signaling that a robust economic recovery is years away, the need for alternative sources of funding to ensure a strong legal services safety net remains a challenge that must be met.

Betsy Nelson, president of the Association of Baltimore Area Grantmakers, writes every other week for The Daily Record. She can be reached at 410-727-1205 or bnelson@abagrantmakers.org.


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