Low Interest Rates and Declining Real Estate Transactions Combine to Cause Troubled Times for Leal Aide Agencies

The January 19, 2009, issue of the New York Times reports that legal services organizations are suffering from a confluence of financial events: low federal funds rates and declining real estate transactions.  Over the past few years, legal services agencies have become less reliant on government funding and replaced that funding with private funding from interest on lawyers’ trust accounts.  These accounts have been funded primarily with funds held in trust during pending real estate transactions and personal injury damage awards.  In addition, the federal reserve recently reduced the federal funds rate to nearly zero, which means that the the nearly $200 million in interest earned on these accounts and paid to legal aide agencies has plummeted.  Here is an excerpt from the article:

Legal aid for the poor was a contentious political issue in the 1970s, when Congress established the Legal Services Corporation as an outgrowth of the war on poverty. Conservatives charged that liberal lawyers were trying to use legal services, like class-action lawsuits on behalf of migrant farm workers, to change social policy. Congress has restricted how Legal Service Corporation money can be used: recipient agencies cannot be involved in class-action suits or cases involving immigration, abortion or prisoners, among others. As a result, many agencies do not accept federal dollars.

Richard A. Samp, chief counsel of the Washington Legal Foundation, a conservative law firm, said that the Iolta programs amounted to “a slush fund for legal aid groups to do the kind of work the Congress has prohibited them from doing with public money.”

His group argued before the Supreme Court that the programs were an illegal seizure of private income, but the court, in 2003, held otherwise, calling them justified for the public good.

For the entire story, see “Interest Rate Drop Has Dire Results for Legal Aid” in the January 19, 2009, issue of the New York Times.

DAB