North Carolina State Bar leaders faced the third degree Wednesday in a state House committee hearing where Republicans sounded the alarm on grants for legal assistance programs going to what the GOP lawmakers view as left-leaning organizations, prompting a funding freeze that has threatened the operations of the state's largest legal aid group, which itself is not political.

The General Assembly over the summer froze grant funding from a State Bar program known as the North Carolina Interest on Lawyers' Trust Accounts, or NC IOLTA, which uses the income generated from interest on lawyers' trust accounts to fund civil legal services. Wednesday's hearing was called at the behest of lawmakers seeking to learn more about the grant application and awards process following concerns about how the money is being spent. 

The largest recipient of NC IOLTA funding is Legal Aid of North Carolina, a nonprofit that provides free legal services to individuals who could not otherwise afford it. According to Legal Aid's website, it is a nonpartisan organization that does not engage in any political advocacy or lobbying.

Republicans in the House Select Committee on Oversight and Reform, however, were more concerned Wednesday with other, smaller grant recipients that they claim do have a partisan bent or seem to promote diversity, equity and inclusion initiatives.

"IOLTA has gone somewhat rogue awarding grants to leftist groups with leftist ideologies," Rep. Harry Warren, who chairs the House select committee, said during his opening remarks.

Though Warren expressed support for the program and its potential to improve access to the legal system in North Carolina, he told members that "we need to understand how it strayed from its original mission." Peter Bolac, executive director of the North Carolina State Bar, and Mary Irvine, executive director of NC IOLTA, were asked to testify before the committee about the grant application process.

IOLTA Grant Funding Spikes

Wednesday's hearing expounded on Senate Bill 429, also known as the Public Safety Act, which passed over the summer and prohibits NC IOLTA from awarding grants from July 1 to June 30, 2026, effectively throwing the program into limbo for the foreseeable future.

In signing the bill, Democratic Gov. Josh Stein cautioned lawmakers to "protect funding for Legal Aid and other organizations."

NC IOLTA's grant funds have increased drastically over the last decade. According to a slideshow Warren displayed during the hearing, from 2016 to 2021, the program provided between $1.6 million and $3.4 million in funding to a dozen or so recipients each year.

By contrast, it doled out over $12 million in grants to 42 recipients in 2025 — $6 million of which went to Legal Aid of North Carolina.

Legal Aid CEO Ashley Campbell told Law360 in an interview after the hearing that NC IOLTA is the organization's second-largest funding source. The first is the Legal Services Organization, a public nonprofit established by Congress to fund civil legal aid nationwide. Because Legal Aid of North Carolina accepts those federal dollars, Campbell said, it is strictly prohibited from engaging in any kind of political work or advocacy.

Legal Aid of North Carolina currently has 360 employees, around 180 of whom are lawyers. Campbell called it one of the largest law firms in North Carolina and the only one that serves all 100 counties.

"We are part of the state's core justice infrastructure," she said, noting that the group's attorneys closed 24,000 cases last year.

Statewide, she said about 12% of the population lives in poverty and is eligible for Legal Aid's services. According to Campbell, "The need already far outstrips our resources."

With the threat of losing its IOLTA funding next year, Legal Aid of North Carolina is looking at closing between 8 and 10 of its 24 offices, she said. It already closed an office in Rocky Mount, North Carolina, and could be looking at laying off dozens of workers — particularly in rural areas where legal services are needed most, Campbell said.

Even if lawmakers were to eventually restore the NC IOLTA funding to Legal Aid of North Carolina, she said, it would be an uphill battle reopening those offices, particularly when it comes to recruiting lawyers to work in rural areas.

"It's not something you can immediately put back in place," she said.

Rural Legal Aid Could Take Biggest Hit

Lawmakers on Wednesday expressed particular concern that organizations in rural areas or local nonprofits like the Family Justice Centers, which provide services for victims of abuse, don't currently receive grant funding from NC IOLTA.

In response, Irvine noted that Legal Aid of North Carolina works closely with the Family Justice Centers. Bolac added that NC IOLTA only considers the grant applications it receives, but he said it has worked in recent years to better promote the grant program to new applicants.

Campbell, who attended the hearing in person, said she was encouraged to hear legislators' support for legal assistance in rural areas. She noted that half of Legal Aid's two dozen offices are in rural communities, where IOLTA grants are used to fill in gaps in funding from local governments.

"It is a core value of Legal Aid to provide services in rural areas," she said.

Without those services, Campbell said, pro se litigants will be showing up at courthouses lacking both legal representation and any knowledge of their rights. That burdens the entire court system, she said.

"As it relates to the clients we serve, the quicker we can get a resolution to this issue, the better," she said.

Democratic Rep. Allison Dahle on Wednesday highlighted the work Legal Aid of North Carolina does for victims of trafficking and domestic violence. While she said she understood her colleagues' concerns surrounding other grant recipients, she said it was imperative they find a way to fund NC IOLTA grants for Legal Aid, which both Democrats and Republicans seemed to agree performs a vital function.

"Can we at least, in this, figure out how to unfreeze money to fund Legal Aid so that people can be protected in this state, and then we can discuss the other grants?" she asked her fellow legislators.

At the close of the hearing, Bolac emphasized that the lack of NC IOLTA grant funding in 2026 will have a disparate impact on rural communities.

"If the goal is to protect the rural areas, the best way is to get this money out the door," he said.

'I'm Upset'

Some of the NC IOLTA grant recipients Republicans took issue with Wednesday include the Washington, D.C., nonprofit Amica Center for Immigrant Rights, North Carolina-based Emancipate and the North Carolina Bar Foundation. A few of those organizations have expressed a commitment to DEI or opposed local law enforcement's cooperation with U.S. Immigration and Customs Enforcement, Warren said.

According to Irvine, grant recipients agree to use funds from NC IOLTA to represent individuals in North Carolina and are otherwise barred from spending it on political activities. They sign a grant agreement and commit to providing regular updates on the cases they have accepted and the individuals they are representing with their IOLTA funds, she said.

Republican Rep. Grant Campbell highlighted the political activity of the chairman of the board at Amica, who he said tweeted about abolishing the Department of Homeland Security and has donated exclusively to Democratic candidates.

Campbell said he has concerns that NC IOLTA might be financing those kinds of activities.

In response, Bolac reiterated that NC IOLTA strictly prohibits that. But he said he recognizes that providing money for one purpose can free up funds for something else.

Bolac said NC IOLTA is considering imposing additional restrictions that would prohibit providing grants to organizations that engage in any kind of grassroots lobbying. Currently, grant recipients are only prohibited from putting IOLTA funds toward those kinds of activities, he said.

Irvine, who has been in her current position since 2017, also clarified that NC IOLTA can claw back grant funds that are misused or not spent, though she said that has only happened a couple of times in her tenure.

In addition to questioning the activities of the grant recipients, Republicans dug into the makeup of NC IOLTA's board of trustees, which reviews and approves grant applications and is majority Democrat.

Bolac said party affiliation doesn't play a role in the board selection process. He explained that members are selected by the State Bar Council, which is a group of lawyers elected by their peers across North Carolina's judicial districts. NC IOLTA's board is made up of attorneys and some non-lawyers with relevant banking experience, Bolac said.

Republican Rep. Mike Schietzelt echoed legislators' concerns about access to justice in North Carolina being impeded. He said the core issue doesn't seem to be the partisan makeup of the board but rather the fungible nature of the grants, which frees up resources for organizations to use for political activity.

"I'm upset that we're in this situation right now," Schietzelt said. "I would like to find a pathway out of it."

--Editing by Rich Mills.