Bleak Outlook Comes Into Focus For State Legal Aid Funders

By Jack Karp | June 7, 2020, 8:02 PM EDT

The state organizations responsible for helping fund civil legal aid knew the coronavirus would take a bite out of their budgets, but a new survey shows just how large that bite may be, with the programs saying they expect a combined revenue decline of at least $157.4 million compared with last year.

The survey, conducted by the National Association of IOLTA Programs and released at the end of May, asked the state-based organizations that are NAIP members and that help fund legal services programs to estimate their 2020 revenues in comparison to 2019, NAIP President David Holtermann told Law360.

"Since the pandemic hit, virtually all NAIP programs have reported losses to their revenue sources," NAIP said in the announcement of the survey's results.

The biggest losses have been from the Interest on Lawyer Trust Accounts program, through which NAIP's members collect the interest attorneys earn on client money they pool in bank accounts and grant that money out to legal aid organizations.

All 36 of the programs that responded to the survey said they expect IOLTA revenue to fall this year by a combined $123 million, or 46%, according to the NAIP. States that expect their IOLTA revenue to take the biggest hits include Hawaii, Indiana and Texas, according to Holtermann.

The Texas Access to Justice Foundation, which distributes that state's IOLTA money, took in just over $16 million from the program in 2019, according to the organization's executive director, Betty Balli Torres. But she projects that number to fall to around $6.5 million in 2020.

Meanwhile, the Hawaii Justice Foundation's IOLTA revenue was $1.9 million in 2019, according to Executive Director Robert LeClair. He expects that number to plummet to just $200,000 for 2020.

That's because IOLTA funding depends on interest rates — rates the Federal Reserve slashed in March as a reaction to the economic damage from the pandemic. While those rate cuts are intended to staunch some of the worst economic bleeding from COVID-19, they will also staunch the flow of funding to state IOLTA programs.

"The banks have already taken me down from about more than 1.5% across the major ones that we have down to 0.175%," LeClair said of the interest rates IOLTA accounts are now getting in the Aloha State.

The organizations warn that if interest rates stay where they are through 2021, it will further erode IOLTA funding, from $270 million in 2019 to an expected $110 million next year, a 60% decline.

"Projections for [fiscal year 2021] are dire," said Susan Erlichman, executive director of the Maryland Legal Services Corporation, who anticipates her group's IOLTA income to tumble approximately 70% by then. Torres in Texas expects her 2021 IOLTA revenue to drop by 75%.

It's not just revenue from IOLTA that the organizations are worried about, according to the survey. Many state IOLTA programs also receive funding from court filing fees, private donations and state government coffers, all of which have been decimated by the pandemic.

The closure of courthouses led 12 of the state programs to anticipate a combined drop of $18.7 million in revenue from court filing fees, from $85,145,328 in 2019 to $66,413,675 in 2020, according to the survey, with programs in Texas, Hawaii and North Carolina expecting the largest falls, according to Holtermann.

North Carolina IOLTA, for instance, saw its revenue from court filing fees in April and May come in at less than half of the previous monthly average, according to Mary Irvine, the program's executive director.

And the Maryland Legal Services Corporation, which gets 61% of its funding from filing fee revenue, according to Erlichman, expects that revenue to drop from $12.9 million in fiscal year 2019 to $10.7 million in 2020.

Meanwhile, as businesses and individuals struggle, IOLTA programs anticipate donations will dry up as well. Of the programs surveyed, 21 said they anticipate private fundraising to drop by a combined $15.7 million, or 55%.

Programs are also girding themselves for a steep decline in legislative funding as states face huge revenue shortfalls themselves.

Hawaii has been hit particularly hard because so much of its economy depends on tourism, LeClair pointed out. So with most of the state's hotels shuttered and all visitors forced to self-quarantine for 14 days, the state's Legislature, which had been on course to provide $750,000 to two legal services groups, has since "zeroed out all of the grants and aid for everybody," LeClair said.

"I don't think we're unique," he said, but "we're probably more serious than some other locations."

The result of these declines will be a reduction in grants to the frontline legal aid organizations that state programs like LeClair's fund, the programs say. Several NAIP members reported in the survey that they have already reduced grants, with programs in Maryland and Connecticut expecting grant cuts later this year, Holtermann said.

Maryland Legal Services Corporation will reduce its grants to legal services providers as soon as the fiscal year beginning July 1, Erlichman told Law360.

LeClair said the Hawaii Justice Foundation has already paid out its grants for 2020 and hopes to subsidize its 2021 grants thanks to money it saved after learning its lesson when the Fed cut interest rates following the recession in 2008. But instead of granting out the $726,500 it dispersed in 2019, according to its annual report, it will probably grant out only around $450,000 next year, LeClair said.

That's a reduction LeClair said comes at "absolutely" the worst time.

He and others anticipate legal aid organizations will soon see what Erlichman called "a tsunami of clients" desperate for help with evictions and foreclosures, unemployment insurance, food stamps, bankruptcy, collections and domestic violence as a result of the COVID-19 outbreak.

"Those of us in our IOLTA programs know that we aren't being singled out or targeted for all of this," LeClair said. "It's just an inevitable result of the COVID situation and the economic meltdown that's come from there."

It's a little early to know what the exact impact of that meltdown on legal aid will be, he cautioned, but a "hard time's coming."

Have a story idea for Access to Justice? Reach us at accesstojustice@law360.com.

--Editing by Katherine Rautenberg.

Hello! I'm Law360's automated support bot.

How can I help you today?

For example, you can type:
  • I forgot my password
  • I took a free trial but didn't get a verification email
  • How do I sign up for a newsletter?
Beta
Ask a question!