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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
LSC RESTRIC­TION FACT SHEET #5:

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

BREN­NAN CENTER FOR JUSTICE AT NYU SCHOOL OF LAW
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