The Economy and Civil Legal Services
Analysis

– 02/01/09

imagePart of the Brennan Center's Civil Justice initiative, this page documents numerous examples of the economic downturn's impact on civil legal services for the poor. Either scroll down or click on a topic listed below to jump to a specific section. The information cited comes primarily from local news coverage listed here. Additional selected news clips on Civil Justice can be found here.

Hit hard by the economic downturn, cash-strapped legal aid organizations nationwide are experiencing a tremendous increase in people seeking their services, especially for help with foreclosure cases. As Congress moves forward with a stimulus package and bailouts for banks, let us not forget the crucial role these civil legal services provide.

Impact on Program Funding | Upswing in Legal Services Intake
Evidence Legal Needs Will Likely Increase | Outdated Restrictions Hamper Response

IOLTA Revenue and State Funding for Legal Services are Falling

Interest on Lawyer Trust Account (IOLTA) programs have become the second single largest source of revenue for civil legal aid programs across the country.  In 2007, IOLTA income amounted to $370 million nationally and accounted for almost 12 percent of the income of the nonprofit civil legal aid programs that also receive funding from the federal Legal Services Corporation (LSC).[1]  For non-LSC funded organizations, IOLTA revenue typically is even more critical.

The decline in real estate transactions, the largest contributors to IOLTA accounts, and interest rates has meant that IOLTA revenue has plummeted.  This critical income source is expected to fall by as much as 50 percent in 2009.[2]   Funding shortfalls resulting in layoffs, salary reductions, and office closures are being reported across the country.

  • California.  IOLTA revenue could be as low as $3 million in 2009 - less than half of the $7 million that has been the record low since the California IOLTA program was started in 1984 - and making layoffs at legal services organization a possibility.[3]
  • Connecticut.  IOLTA revenue, the largest sources of revenue for legal aid in Connecticut, has dropped from $21 million in 2007 to an estimated $4 million in 2009.  The state, which also funds legal services, faces a $3 billion budget deficit next fiscal year.  The three biggest providers of legal services for the poor are considering letting go of up to one-third of their 150 staff members if they cannot find other funding by midsummer.  Staff at Connecticut Legal Services is taking a 20 percent pay cut for 2009 to try to save jobs; managers are taking cuts of up to 35 percent.[4]
  • Kentucky.  The state typically provides $1.5 million in funding for the four legal aid organizations in Kentucky.  This fiscal year, that amount was cut to $500,000 to divide between the groups, and Governor Beshear has proposed cutting legal aid funding to $250,000.[5]  Legal Aid of the Bluegrass already has cut payroll by $400,000 and has eliminated five or six positions in the last six months alone.[6]
  • Massachusetts.  The Massachusetts Legal Assistance Corporation (MLAC), the largest funding source for civil legal aid in the state, is being forced to reduce its general support grants for legal aid programs by almost 40 percent in the next fiscal year due to the 54 percent drop in IOLTA revenue.  This will mean a drop in client services of at least 18 percent statewide and will leave approximately 20,000 low-income individuals and families without the legal help they need.[7]
    Greater Boston Legal Services is expecting a 13.5 percent reduction in funding, meaning they will likely serve 2,000 fewer people than they do currently.  Neighborhood Legal Services is expecting a 29 percent drop in funding.[8]  South Middlesex Legal Services will lose $260,000 of its $1.7 million total budget.[9]
  • New Jersey.  IOLTA funds typically account for  almost 60 percent of the revenue for the state's legal aid programs.  However, this year, Legal Services of New Jersey, the statewide umbrella organization for legal services, expects only $25 million in IOLTA funds this year, down from $40 million last year.  This means that LSC-funded South Jersey Legal Services, which covers seven counties, will have to cut its staff by five attorneys and shut down two offices beginning in January.  The organization will have to cut services by an expected 25 percent this year, leaving 3,000 more people without legal help.[10]  Even with a state emergency grant for legal services, legal services will still be operating at a likely $14 million deficit in the next fiscal year.[11]
  • New York.  State appropriations for civil legal services for the poor fell from $15.3 million in 2007-8 to a projected $7.3 million in 2008-9.[12]  Governor Paterson has cut all funding for civil legal services in his 2009-2010 budget. 
  • Ohio.  The state's 2008 IOLTA revenue was expected to be 50 percent, or $11 million, lower than the 2007 total of $22 million.  Estimates for 2009 put Ohio's IOLTA income at only $4 million.[13]  The Legal Aid Society of Columbus lost $1 million in funding in the past year, out of a total annual budget of $4.5 million; seven attorneys recently lost their jobs.[14]
  • Oregon.  In 2007, IOLTA received $3.6 million, which dropped to $2.3 million in 2008, and is projected to fall to $1.2 million in 2009.[15]
  • Texas.  Residents' legal needs are higher than average, given hurricane recovery-related issues, but IOLTA revenue is plummeting.[16]  The Texas Access to Justice Foundation's 2008 IOLTA revenue was projected to be $28 million, but given recent interest rate cuts, it is now projected to be $12.5 million.  Revenue for 2009 is projected to drop to $7.5 million.[17]
  • Washington. The IOLTA revenue available for state grants is expected to fall by one third in 2009, from $9 million to $6 million. [18]  While the Northwest Immigrant Rights Project has seen an upswing in requests for representation, the project will lose 17 percent of its IOLTA funding in 2009, about 10 percent of the Project's total revenue.[19]
  • Wisconsin.  LSC-funded Legal Action of Wisconsin, which serves 39 counties, has been notified that its funding from the Wisconsin Trust Account Foundation will be cut by more than 92 percent in 2009, from $897,000 to $67,000.  This could mean a staff reduction of 30 percent.[20] Wisconsin Judicare Inc., serving 33 counties, will see a reduction in IOLTA funding from its current $100,000 to $18,595.[21]

Programs See Sharp Increase in Demand for Legal Services

Legal aid organizations have experienced a tremendous increase in intake in conjunction with the nation's economic downturn, especially in terms foreclosure cases.

  • Florida.   Legal Aid Society of Broward has reported that calls related to foreclosure rescue abuses have spiked in the past 18 months.  The agency's foreclosure unit now fields up to 200 calls per week, up from around 50 per week in 2006.[22]
  • Iowa.  In 2007, Iowa Legal Aid closed nearly 19,000 cases, but had to turn away or "under serve" another 12,000 because of a lack of resources.  The state's poverty level recently has risen to 11 percent, and Legal Aid will likely be able to aid an even lower percentage of eligible clients.[23]
  • Maine.  Pine Tree Legal Assistance, Inc., Maine's only LSC-funded legal services provider has seen "both a tremendous increase in court filings and a tremendous increase in demand" for its services, according to the program's director.  The organization's foreclosure caseload has doubled each year since 2006, despite the fact that the organization is involved in only 10 percent of the state's total foreclosure filings.[24]
  • Massachusetts.  Neighborhood Legal Services has seen a 35 percent increase in people seeking their help during the last five months of 2008.  The program resolved 1,000 eviction cases last year.[25]
  • Michigan.  Among the senior and low-income clients that Legal Services of South Central Michigan assists, the number of homeowners experiencing foreclosure rose 30 percent since 2007.[26]
  • Ohio.  The Legal Aid Society of Cleveland reports that demand is ballooning - from 7,700 cases in 2006 to 9,400 in 2008.  Statewide, legal aid helped 213,000 people, up from 194,000 in 2007.[27]
  • Tennessee.  More than 18,000 people have sought legal help this year to address various civil legal problems ranging from losing healthcare benefits to losing homes to foreclosure.[28]
  • Texas.  Lone Star Legal Aid had 108 percent more tenant landlord cases pending from October through December of 2008 than it did over the same months in 2007.
  • Wisconsin.  According to Milwaukee Mayor Tom Barrett, "Currently in the City of Milwaukee, there are more than 1,600 bank-owned foreclosures, and foreclosure filings are up 35% this year compared to last year."  However, despite this dramatic increase in the number of families potentially facing the loss of their homes, only 3 percent of Milwaukee County borrowers in foreclosure have legal representation, according to the Legal Aid Society of Milwaukee.[29] Legal Action of Wisconsin Inc., an LSC-funded legal services provider, reports an increase of more than 75 percent in its requests for services from the first half of 2007 to the first half of 2008.[30] 

Legal Need Likely to Rise Further

The funding shortfalls come at a time when legal need is on the rise.  Aside from the legal needs created by increased foreclosure rates, more families falling into poverty and requiring government benefits means more need for low-cost legal aid.

  • Unemployment. The Department of Labor put the overall unemployment rate at 7.2 percent in December 2008, up from 4.9 percent in December 2007, with the number of Americans losing their jobs in recent months rising by hundreds of thousands.[31] In October of 2008, there were 232,468 initial claims for unemployment insurance, up from 136,124 initial claims in October 2007.[32] The unemployment rate is projected to rise to 9 percent by the fourth quarter of 2009. If that is case, the Center on Budget and Policy Priorities predicts that the number of poor Americans will rise by 7.5-10.3 million.[33]
  • Food Stamps. From August 2007 to August 2008, the number of people receiving food stamps increased by 9.6 percent.[34]
  • Employer-Based Health Care. As more parents lose their jobs and their employer-provided healthcare, the demand for unemployment insurance and government-subsidized healthcare will rise, as will the need for legal representation as the newly eligible need assistance claiming these benefits.
  • Domestic Violence. Economic deterioration is known to be coupled with a rise in domestic violence. Organizations providing support for victims of domestic violence have seen increases in requests to help in recent months. "The National Domestic Abuse Hotline, headquartered in Austin, Texas, could be the canary in the coal mine. The hot line documented a whopping 21 percent increase in calls for September over the same month in 2007, said spokeswoman Retha Fielding."[35] The Legal Project, an organization that provides free legal services to low-income victims of domestic violence in Schenectady County, New York, reports that last year, the organization assisted about 700 victims.  This year, the organization will likely serve more than 800 victims.[36]

Outdated Restrictions Hamper Response

In addition to severe budget shortfalls, the quality and availability of legal services for the poor are being lowered even further by federal restrictions on the activities of LSC-funded legal services organizations. These restrictions bar LSC-funded organizations from representing certain categories of people and limit the tools these organizations can use to represent their clients. The most draconian of the restrictions, a relic of the Gingrich Congress, extends all the other restrictions to the organizations’ non-LSC money, including funds from state and local governments and private donors.

Removing key tools from legal services lawyers’ arsenals, these restrictions not only make “equal justice for all” a concept further from reality, but also hamper legal services organizations’ ability to address the unique legal needs created by the current economic crisis. Communities are hamstrung in their ability to combat predatory lending practices because legal aid clients cannot participate in class actions, and victims of consumer fraud, domestic violence and illegal housing practices are placed at a disadvantage in court because LSC-funded attorneys cannot use the oftentimes crucial leverage of attorneys’ fee claims.

For more on the impediments the restrictions pose to combating foreclosure and predatory lending, read Laura Abel’s article in The Nation and Joseph Sant’s NY Times op-ed.

To learn more about the Brennan Center's efforts to fix these onerous restrictions, click here.

Press Articles

[1] Manuel Valdes, "Legal-Aid Groups for the Poor Endure Severe Budget Reductions," The Associated Press/ Seattle Post-Intelligencer, November 27, 2008, available at http://seattlepi.nwsource.com/local/389819_legalaid28.html; "Fact Book 2007," Legal Services Corporation (Washington, DC): June 2008, p. 11.

[2] Manuel Valdes, "Legal-Aid Groups for the Poor Endure Severe Budget Reductions," The Associated Press/ Seattle Post-Intelligencer, November 27, 2008, available at http://seattlepi.nwsource.com/local/389819_legalaid28.html

[3] Alicia Robinson, "Demand for Legal-Aid Services Rises as Funding Falls," The Press-Enterprise (Jan. 10, 2009), available at http://www.pe.com/localnews/inland/stories/PE_News_Local_E_legal11.47ec462.html

[4] "Aid For Legal Aid," The Hartford Courant (Dec. 29, 2008), available at http://www.courant.com/news/opinion/editorials/hc-legalaid.art.artdec29,0,5476697.story

[5] Beth Musgrave, "Legal Aid Faces Major Budget Cuts,"  The Lexington Herald-Leader (Dec. 22, 2008), available at http://www.kentucky.com/783/story/634803.html

[6] "State Budge Crisis Results in Steep Cuts to Legal Aid Programs," Law Reader (Dec. 25, 2008), available at http://news.lawreader.com/?p=2171

[7] "MLAC Reducing Grants to Massachusetts Legal Aid Programs by 40 Percent," Press Release, Market Watch, October 31, 2008, available at http://www.marketwatch.com/news/story/MLAC-Reducing-Grants-Massachusetts-Legal/story.aspx?guid=%7bD7078B10-B606-44D8-9721-64664818562F%7d 

[8] "Free Legal Help for Low-Income Residents Drying Up," NBC News, Boston (Nov. 30, 2008), available at http://www3.whdh.com/news/articles/local/BO96930/

[9] Kelsey Abbruzzese, "Legal Services Budget Slashed," The MetroWest Daily News (Nov. 13, 2008), available at http://www.metrowestdailynews.com/news/x1275807756/Legal-services-budget-slashed

[10] Matt Katz, "Financial Crisis Crippling Legal Aid for Poor," The Philadelphia Inquirer, September 27, 2008, available at http://www.philly.com/inquirer/front_page/20080927_Financial_crisis_crippling_legal_aid_for_poor.html

[11] "$9 Million Supplemental State Funding for Legal Services Eases Funding Crisis," Press Release, Legal Services of New Jersey, October 16, 2008, available at http://www.lsnj.org/PressReleases/StateFunding101608.cfm

[12] Joel Stashenko, "Paterson Praises Courts' Budget, Passes on Judges' Raise," New York Law Journal (Dec. 17, 2008), available at http://www.law.com/jsp/article.jsp?id=1202426817064

[13] Manuel Valdes, "Legal-Aid Groups for the Poor Endure Severe Budget Reductions," The Associated Press/ Seattle Post-Intelligencer, November 27, 2008, available at http://seattlepi.nwsource.com/local/389819_legalaid28.html

[14] Bruce Cadwallader, "Ohio's Legal Services for the Poor Growing Destitute," The Columbus Dispatch (Jan. 4, 2009), available at http://article.wn.com/view/2009/01/05/Ohios_legal_services_for_poor_left_destitute_themselves_by_d/

[15] John Darling, "Interest Rate Decline Will Hurt Legal-Aid Groups," The Mail Tribune (Jan. 4, 2009), available at http://www.mailtribune.com/apps/pbcs.dll/article?AID=/20090104/NEWS/901040328

[16] "Natural Disasters, Poverty Squeeze Resources for Free Civil Legal Services in Texas," Press Release, Market Watch (Dec. 10, 2008), available at http://www.marketwatch.com/news/story/Natural-Disasters-Poverty-Squeeze-Resources/story.aspx?guid=%7bC427CF3C-1629-420F-B777-3E34ABBD35E8%7d

[17] Aaron Nelsen, "Bank Partners Up With IOLTA," The Brownsville Herald (Nov. 18, 2008), available at http://www.istockanalyst.com/article/viewiStockNews/articleid/2814134

[18] Manuel Valdes, "Legal-Aid Groups for the Poor Endure Severe Budget Reductions," The Associated Press/ Seattle Post-Intelligencer, November 27, 2008, available at http://seattlepi.nwsource.com/local/389819_legalaid28.html

[19] Manuel Valdes, "Money Woes: Poor Face Loss of Legal-Aid Services," The Seattle Times (Dec. 1, 2009), available at http://seattletimes.nwsource.com/html/localnews/2008453944_meltdownlegalaid30.html

[20] Georgia Pabst, "Legal Action of Wisconsin Struggles With Funding Loss," The Journal Sentinel (Dec. 11, 2008), available at http://www.jsonline.com/business/35943624.html

[21] Georgia Pabst, "Legal Action of Wisconsin Struggles With Funding Loss," The Journal Sentinel (Dec. 11, 2008), available at http://www.jsonline.com/business/35943624.html

[22] Vanessa Blum, "Homeowners Fighting Foreclosure are New Victims of Fraud," South Florida Sun-Sentinel (Nov. 23, 2008), available at http://www.tcpalm.com/news/2008/nov/23/homeowners-fighting-foreclosure-are-new-victims-fr/

[23] Charlotte Eby, "Iowa Legal Aid Announces New Foundation," Waterloo and Cedar Falls Courier (Dec. 9, 2008)

[24] Ari Shapiro, "Foreclosures Overwhelm Legal Aid Programs," NPR, December 2, 2008, available at http://www.npr.org/templates/story/story.php?storyId=97538818

[25] "Eviction Help Agency Facing Budget Cuts," The Boston Channel (Dec. 4, 2008), available at http://www.thebostonchannel.com/multimedia/m/21592171/eviction_help_agency_facing_budget_cuts.htm 

[26] Justin Hinkley and Elizabeth Willis, "Homelessness Rises in Calhoun County," Battle Creek Enquirer (Dec. 4, 2008), available at http://www.battlecreekenquirer.com/apps/pbcs.dll/article?AID=/20081204/NEWS01/812040316

[27] Allison Grant, "Legal Aid Societies Need Help," The Plain Dealer (Jan. 9, 2009), available at http://blog.cleveland.com/business/2009/01/legal_aid_societies_need_help.html

[28] Kate Howard, "Tenn. Bar Says More Lawyers Needed to Give Free Services," The Tennessean, November 25, 2008, available at http://tennessean.com/article/20081125/NEWS03/811250362/1009/news01

[29] Georgia Pabst, "Barrett's foreclosure moratorium request denied," The Journal Sentinel, October 31, 2008, available at http://www.jsonline.com/news/milwaukee/33639284.html

[30] "Nonprofit Legal Agency Sees Spike In Calls For Help," Channel3000.com, November 26, 2008, available at http://www.channel3000.com/news/18156079/detail.html

[31] "Employment Situation Summary," Economic News Release, Bureau of Labor Statistics, U.S. Department of Labor, (Jan. 9, 2009), available at http://www.bls.gov/news.release/empsit.nr0.htm 

[32] "Table 1. Mass layoff events and initial claimants for unemployment insurance, November 2004 to October 2008, seasonally adjusted," Economic News Release, Bureau of Labor Statistics, Department of Labor (Dec. 5, 2008), available at http://www.bls.gov/news.release/mmls.t01.htm

[33] Sharon Parrot, "Recession Could Cause Large Increases in Poverty and Push Millions into Deep Poverty," Center on Budget and Policy Priorities, November 24, 2008, available at http://www.cbpp.org/11-24-08pov.htm, p. 1

[34] Sharon Parrot, "Recession Could Cause Large Increases in Poverty and Push Millions into Deep Poverty," Center on Budget and Policy Priorities, November 24, 2008, available at http://www.cbpp.org/11-24-08pov.htm, p. 2

[35] Sally Kalson, "As Economy Falters, Rise Seen in Domestic Violence," Pittsburgh Post-Gazette, November 2, 2008, available at http://www.post-gazette.com/pg/08307/924499-51.stm

[36] Michael Goot, "Officials Fear Rise in Domestic Violence Cases," Daily Gazette, November 16, 2008, available at http://www.dailygazette.com/news/2008/nov/16/1116_domviol/

Tags: Justice, Civil Justice, Civil Legal Aid, Civil Right to Counsel