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FACT SHEET | The Restriction Barring LSC-Funded Programs from Freely Using their Non-LSC Money

Published: June 20, 2001

LSC Restrictions Fact sheets

The Restriction Barring LSC-Funded Programs from Participating in Restricted Activities Even If These Activities Are Wholly Funded by Non-LSC Sources

“[A recipient shall not be prevented] from . . . using funds received from a source other than the Legal Services Corporation to provide legal assistance to a covered individual . . . except that such funds may not be expended by recipients for any purpose prohibited by this Act or by the Legal Services Corporation Act.”

Omnibus Consolidated Rescissions and Appropriations Act of 1996, Pub. L. No. 104–134, 504(d)(2)(B), 110 Stat. 1321, 56 (1996).

1997 LSC Regulation Addressing 1996 Appropriations Bill

“A recipient must have objective integrity and independence from any organization that engages in restricted activities. A recipient will be found to have objective integrity and independence from such an organization if . . . the recipient is physically and financially separate from the other organization.”

45 C.F.R.  1610.8(a)(1) and (3) (effective June 20, 1997).

What is the history of the restriction limiting LSC-funded programs from using their non-LSC funds for restricted activities?

  • When the Legal Services Corporation Act was enacted in 1974, Congress prohibited LSC-funded programs from using private, non-governmental funds to finance their participation in certain activities that were restricted under the Act. However, LSC-funded programs that received other public funds (e.g. other federal, state or local government grants) or tribal funds could use those funds freely. Specifically, the LSC Act prohibited LSC-funded lawyers from, among other things, pursuing cases involving challenges to selective service, non-therapeutic abortions and school desegregation. Congress also prohibited LSC-funded lawyers from participating in organizing activities.
  • In 1996, under appropriations legislation for LSC, Congress significantly expanded the restrictions to prohibit a broader array of activities and the representation of certain categories of clients. Congress prohibited LSC-funded lawyers from pursuing cases involving: legislative redistricting, challenges to welfare laws or regulations, and civil lawsuits on behalf of prisoners and many categories of immigrants. Congress also prohibited LSC-funded lawyers from participating in class actions, claiming court-ordered awards of attorneys’ fees, and engaging in lobbying. In addition, Congress extended the various restrictions to govern activities paid for by other non-LSC public funds (other than tribal funds). In other words, Congress extended the restrictions to reach all of an LSC-funded program’s funds, both LSC and non-LSC, regardless of their source or whether they were characterized as private or public.
What is the “program integrity regulation”?
  • In response to legal challenges that the extension of the restrictions to organizations’ non-LSC funds was unconstitutional, LSC issued a “program integrity regulation” in 1997. See Legal Services Corporation, LSC Statutes: Regulations of the Legal Services Corporation, Part 1610-Use of Non-LSC Funds, Transfers of LSC Funds, Program Integrity (visited June 20, 2001) . Pursuant to this regulation, LSC-funded programs are authorized to spend non-LSC funds on restricted activities, but only if the activities are conducted by another organization that has “objective independence and integrity” from the LSC-funded program. Alternatively, to finance restricted work, LSC-funded organizations may transfer their non-LSC funds to entirely separate existing organizations (i.e. essentially giving the money away).
What are the factors used by LSC in determining whether an entity receiving the non-LSC funds has “objective independence and integrity” from an LSC-funded organization?
  • Organizations receiving non-LSC funds must be legally, as well as physically and financially separate from the LSC-funded programs. LSC determines whether programs are “physically and financially separate” on a case-by-case basis, looking at such factors as whether the organizations have separate personnel, separate accounting and timekeeping records and separate physical facilities. LSC also considers whether the programs use adequate signs and other forms of identification distinguishing one organization from the other, and the extent of the restricted activities in which the non-LSC organization engages. See 45 C.F.R.  1610.8 (effective June 20, 1997).
What are the drawbacks to the physical separation requirement of the LSC’s program integrity regulation?
  • Many states and other funders do not have sufficient resources to finance physically separate legal services programs and maintain adequate coverage to meet legal needs. Even with careful planning, it can be prohibitively expensive for a state civil justice planning entity to sustain physically separate duplicate legal services offices, while at the same time ensuring that available funds are spent efficiently to assure access to justice.
  • Physical separation is also especially expensive and wasteful of resources in geographically large states. In order to maximize resources, in the past small LSC-funded programs have been able to establish offices in various parts of a state and share office space and resources with non-LSC funded lawyers. However, due to the physical separation requirement, multiple offices now must be established at significant expense in order to maintain the level of coverage previously considered essential.
  • Because LSC’s program integrity regulation uses vague criteria for determining whether the organization receiving the non-LSC funds is sufficiently “separate” from the organization receiving LSC funds, many LSC-funded programs may be reluctant to go to the expense of entering into relationships with non-LSC organizations doing restricted work without assurances from LSC beforehand that LSC will consider the program integrity regulation satisfied. Although programs can seek advance approval from LSC to find out whether a proposed arrangement will satisfy LSC’s criteria, they may nevertheless be hesitant to devote their scarce resources to developing a project with an uncertain outcome, particularly where there is a risk of defunding if LSC later determines that the LSC-funded program is engaging in restricted activities.
  • State planning entities may allocate funds to a non-LSC program on the condition that it handle restricted categories of work that the LSC-funded program is prohibited from handling. In some cases, the LSC-funded program may be relegated to operating an intake service and little more, while the non-LSC program is able to handle litigation and/or lobbying. This delineation can promote a type of caste system between LSC-funded programs and unrestricted programs, which at one level is inefficient, and can also lead to a loss of morale for LSC-funded programs and staff.
  • Some lawyers in unrestricted programs handling class actions and lobbying emphasize the need to also provide direct service or, at a minimum, to have regular contact with lawyers providing direct services in order ensure that the needs of the community are addressed. Having physically separate offices makes communication and coordination more difficult. As a result, the work of unrestricted lawyers can become less responsive to the real concerns of the community. Also, the lawyers operating under restrictions may find it difficult to effectively refer clients to advocates able to handle matters free of the various restrictions.
Why is the separation requirement of the program integrity regulation unnecessary?
  • The government’s claim that physical separation is necessary to prevent confusion about the government’s endorsement or subsidization of certain types of advocacy is not a constitutionally valid justification for burdening First Amendment rights with economic costs. The United States Supreme Court’s decision in Legal Services Corporation v. Velazquez, 531 U.S. 533 (2001), holding that in creating LSC, Congress does not seek to advance a governmental message (but rather finances private political speech of legal services clients), casts further doubt on the government’s justification for the physical separation requirement. After all, there is little reason to prevent confusion about the “government message” if the government is not transmitting any particular message. Even if the government were justified in seeking to prevent the public from concluding that the government endorses certain privately financed advocacy, this goal could be addressed, without requiring actual physical separation, by posting signs and other forms of identification in LSC-funded programs to make clear to the public which offices and activities are LSC-funded and which are not.
  • The longstanding requirement that LSC-funded programs maintain careful time records, coupled with a requirement of accurate accounting principles covering both fixed and variable costs, are sufficient by themselves without the added burden of physical separation to satisfy Congress’s demand that LSC funds not be used to subsidize the restricted activities.
Who is harmed by the separation requirement of the program integrity regulation?
  • While all clients are potentially harmed if LSC-funded programs feel compelled to use scarce resources to set up duplicate offices in order to provide a broad range of services, the requirement most directly harms low income individuals living in parts of the country where non-LSC funds would be sufficient to finance some restricted work, but are insufficient to finance entirely physically separate offices. In such instances, the available non-LSC funds ultimately continue to go to the LSC-funded programs where they remain entirely subject to the restrictions.

    This Fact Sheet was prepared by Roslyn Powell, Associate Counsel, Poverty Program, Brennan Center for Justice NYU School of Law

    Date—June 20, 2001

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