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Fund that pays for low-income legal services spirals downward

December 07, 2009
This year's economic crisis and historically low interest rates have reduced by 75 percent a fund that assists organizations that help New York's less affluent residents pay for legal services in civil proceedings.

The Senate's Crime Victims, Crime and Correction Committee and its Judiciary Committee are holding a series of hearings this month and next on what the Senate Democratic majority conference is calling a funding crisis facing New York's Interest on Lawyer Account fund. And the state Office of Court Administration has released a judiciary budget request to the Legislature that includes a proposal to provide $15 million in IOLA funding.

In 2008, there was approximately $32 million in IOLA dollars available to fund 71 programs, but the economic downturn and low interest rates is expected to leave the fund with just $6.5 million available to distribute in the 2010-2011 fiscal year.

According to the Senate majority conference, the clients of lawyers paid for with IOLA grants won nearly $250 million in wrongfully denied benefits, mostly federal benefits.

"IOLA cannot meet soaring demands for civil legal services at the very time New Yorkers most need them," said Gerard Savage, deputy chief of staff to Sen. Ruth Hassell-Thompson, D-Mount Vernon, who chairs the Crime Victims, Crime and Correction Committee. "Civil legal service providers form a vital web of programs that help protect at-risk New Yorkers and their families."

IOLA Executive Director Christopher O'Malley said individuals who are affected by the loss of funding will receive significantly less benefits, and it will have a negative impact on their lives and families. "It will affect all the providers we fund, [and] it eventually is going to cause a reduction in services."

O'Malley said he and the IOLA trustees are "extremely grateful" for Hassell-Thompson and Democratic Conference Leader John Sampson, D-Brooklyn, who chairs the Senate's Judiciary Committee, as well as the committee members, for holding hearings on the issue. O'Malley also said he and the trustees appreciate the support IOLA and legal services for low-income people have received from Assembly Judiciary Committee Chairwoman Helene Weinstein, D-Brooklyn.

According to Senate Democrats, IOLA is the single largest provider of funds for organizations providing civil legal services for low-income individuals and families throughout the state. It was created in 1983 to provide support to nonprofit civil legal service organizations.

IOLA is not paid for with taxpayer dollars; its sole source of funding is the interest generated from small or short-term escrow accounts held by lawyers in New York.

Under the program, lawyers are required to provide earnings received from their clients into the accounts for the benefit of their clients or into IOLA accounts that offer grants for civil legal services.

Savage said federal and state funds are used to help provide civil legal services to vulnerable individuals affected by foreclosure, eviction, domestic violence, unemployment, disability and Social Security problems.

IOLA funds are used to help cover the office hours for the staff of legal service providers such as the Legal Aid Society, the Legal Service Corporation of New York, the Empire Justice Center and other law firms associated with the Labor Education Action Program. If the IOLA funds continue to diminish or are no longer available, Senate Democrats say offices may be forced to close, shorten work days or lay off personnel.

The $15 million the Office of Court Administration hopes will be included in its 2010-2011 budget would "help to make up that funding gap," New York State Bar Association past President and IOLA Trustee Kathryn Grant Madigan said, referring to the money that has been lost to low interest rates.

Anne Erickson, president and chief executive officer of the Empire Justice Center, said this budget, if approved, "simply holds the line against massive cuts, given the loss of IOLA revenue because of interest rates. This is not any kind of expansion or increase; it really is a life line that will allow us to stay in place."

The Empire Justice Center advocates for, and provides, legal services to New York's poor, disabled and disenfranchised.

"If [the budget] is not adopted, we will see massive dislocation," Erickson said. "It will be extremely disruptive. As interest rates go down, as the economy takes a dive, IOLA revenue goes down, but at the same time, the need for legal assistance goes up."

With such uncertainty in how existing funding streams will perform, Erickson said, "We have to look at what other states have done in terms of dedicating certain revenue streams, but really creating an ongoing way for New York state to fund the delivery of state legal services."

The state Bar Association and IOLA board of trustees are looking into using potential cy pres awards to increase IOLA funding for the 2010-2011 fiscal year, Madigan said.

Cy pres awards refer to a court-approved method of distributing excess funds in a class-action judgment if the size of the reward is too large or when the original purpose of the award cannot be fulfilled, according to Madigan. The courts can then order these awards be used to provide legal services, she explained.

"It's going to require a multifaceted approach," Madigan added. "I think there's a deep recognition on the part of all of us that it is essential to close the huge gap within the IOLA revenues."

The first Senate hearing will be 11 a.m. to 6 p.m., Wednesday, in the Greenberg Lounge at New York University Law School's Vanderbilt Hal in Manhattan. Subsequent hearings will be conducted Dec. 16 at University at Buffalo Law School and Jan 7 in Albany.

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