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LSC’s “Private Money” Restriction Hurts Low-Income Families: Three Real Stories From Around The Nation

Published: January 9, 2004

LSC’s “Private Money” Restriction Hurts Low-Income Families
Three Real Stories From Around The Nation

What is LSC?

  • LSC is the federal Legal Services Corporation. Each year it provides more than $300 million in federal funds to independent nonprofits across the nation. These nonprofits provide legal assistance in civil matters to low-income families and individuals in need.
  • For many low-income families, legal aid is an essential lifeline that makes it possible to preserve a home against eviction by an abusive landlord, to recover back wages from a cheating employer, or to secure sufficient food for a sick child.

What is the LSC Private Money Restriction?

  • The LSC private money restriction is a federal law enacted in 1996 that prohibits nonprofit legal aid programs receiving LSC funds from using their private funds to provide certain important types of legal assistance to low-income families. It encumbers more than $300 million annually donated by private foundations, individuals, United Way organizations and bar associations, as well as by state and local governments.
  • More specifically, the restriction bars legal aid programs from using their private funds: (1) to educate people about their legal rights and then offer to help them; (2) to request, on behalf of low-income clients, court-ordered attorneys fees from parties that violate the law; (3) to seek court certification of class action lawsuits when numerous families suffer similar injuries; (4) to assist many low-income immigrant workers and families with legal problems; and (5) to communicate effectively with policymakers on behalf of clients, except in extremely narrow circumstances.

How Does the Restriction Hurt Low-Income Families?

  • The private money restriction effectively cuts the legal aid lifeline for many low-income families. It declares some families entirely ineligible for privately funded legal assistance, and it severely limits the assistance that others can receive.
  • LSC has issued one small exception to the restriction, but it hasnt solved the problem. The exception authorizes legal aid programs to establish duplicate unrestricted legal aid programs with their private funds. Yet these duplicate programs are required to operate out of physically separate offices, with separate staff and equipment. This has proven costly and burdensome: it forces programs to waste scarce resources on unnecessary and duplicative expenses, and it undermines client representation.
Following are three real stories from around the nation illustrating how the private money restriction hurts low-income families in need.
Story #1:
Mentally Disabled Children in North Carolina Denied Necessary Treatment & Schooling

Children with mental disabilities who are entitled to critically important medical and educational services under both federal and state law are often prevented from obtaining these services because of the private money restriction. Consider the case of L.T., a sixteen-year-old child in North Carolina, eligible for Medicaid, who was removed from his home six years ago because of abuse and neglect. L.T. suffers from bipolar disorder, mild mental retardation, ADHD, and oppositional defiant disorder. These problems require that he be placed in a proper day treatment program that will address his mental health and educational needs. Unfortunately for L.T.  and for at least another 28 identified children in similar circumstances in Wake County, North Carolina no such program exists.

So instead of getting help from a well-planned treatment program designed especially for children with severe mental illnesses, L.T. receives an inadequate patchwork of services. He attends a school designed for children not like him, one unable to address his special educational needs. While he lives in a group home designed just for him, the staff in the group home lack the appropriate training and skills to meet L.T.’s various needs. The result: L.T.s problems have worsened. For example, he has repeatedly run away and been exposed to life on the streets a life that, in the absence of proper treatment, L.T. has begun to embrace. His principal has reported that, on several occasions after running away, L.T. was returned to school by local drug dealers.

In seeking treatment for L.T., his civil legal representative, an attorney with Advocates for Childrens Services (an initiative of LSC-funded North Carolina Legal Aid) encountered difficult barriers. Since L.T.s county has no day treatment program, a placement outside the county or the state would be his only option. However, the state flatly refused to pay for out-of-state placement. Through vigorous advocacy, L.T.s attorney enabled L.T. to qualify for admission to an in-state facility in another county, but L.T. continues to languish because that facility does not have an open bed.

Handling cases like L.T.s one at a time, over and over, is a long, frustrating, and enormously difficult task. But there is an obvious solution: a class action lawsuit brought on behalf of all the affected children in North Carolina would illuminate the problem, show it to be systemic, and possibly even convince the state and its counties to create the needed programs. L.T.s lawyers have enough private money to finance such a suit, but the LSC private money restriction bars them from doing so. Consequently, L.T., and many more children like him, continue to wait.

Story #2:
Elderly & Minority Homeowners in Chicago Denied Legal Protection from Predatory Lender

Elderly and minority homeowners across America are the main victims of illegal predatory lending schemes. These low-income homeowners are increasingly losing their homes to foreclosure because of the LSC private money restriction. This restriction prohibits lawyers in LSC-funded legal aid programs from using private funds to file class action lawsuits, and to request court-ordered attorneys fee awards, that have the power to put unscrupulous perpetrators of these schemes out of business.

Nowhere is the problem worse than in Chicago, where a 74 percent increase in home foreclosures has occurred in the past eight years. Take the case of Mae Turner, a 75 year-old homeowner of 30 years who was forced into foreclosure in April 2002, when she refused to repay a bogus $50,000 loan. The loan had been fraudulently taken out in her name by a contractor. Not only did the contractor keep the cash, he never did the work. Now Ms. Turner is fighting to keep her home and to clear her good name.

A series of lawsuits brought for Ms. Turner and other clients by lawyers at LSC-funded Legal Assistance Foundation of Metropolitan Chicago, and a set of complaints filed by Chicago and by the Illinois Attorney General, have not been powerful enough to stop this contractors lawless activities. Why? For the contractor, these small interferences are a cost of doing business it is easier to pay an occasional damages award, or a government fine, than to abandon the fraudulent scheme, which includes sending thousands of deceptive mailings to low-income homeowners throughout Chicago.

But there is an obvious solution: a class action lawsuit could compel the contractor to disclose the names of all of the victims, lead to damages and attorneys fees payments to the victims, and even produce a cease and desist order preventing the contractor from further scheming. The lawyers at the Legal Assistance Foundation have sufficient private funds to file the needed lawsuit, and to seek an appropriate attorneys fee award, but the private money restriction prevents them from doing so. The result: scores of vulnerable Chicago residents like Ms. Turner remain in danger of losing their homes.

Story #3:
Legal Aid Programs in Oregon Forced to Waste Private Funds Needed to Help Struggling Families in Rural Klamath Falls

When it comes to civil legal aid, there has never been enough money to go around. Unfortunately, the private money restriction has only made this problem worse. To take one example, judges and the local bar association in Klamath Falls, Oregon have repeatedly asked that states legal aid programs to open an office in their community. There is a pressing need for legal aid in Klamath Falls due in part to a major downturn in the local timber industry and recent drought.

Without a local legal aid office, low-income residents of Klamath Falls must hope to obtain free legal representation from a single legal aid lawyer located 137 miles away in Bend, Oregon. The lawyer must frequently rely on video conferencing to help these residents because of the great distance and the hazardousness of the road between Bend and Klamath Falls. The road has severe dust conditions in summer and ice conditions in winter. It is considered dangerous by the State Police. Indeed, one legal aid staffer traveling along the road was hospitalized two years ago after a dust storm caused a serious accident. A local legal aid office could solve these problems.

Yet the private money restriction has forced Oregons legal aid programs to divert precious funds away from opening a Klamath Falls office in order to operate duplicate legal aid programs providing a full range of critically needed legal services to families elsewhere in the state. Legal aid attorneys in Oregon have testified that they spend more than $270,000 each year on duplicative costs rent, equipment, personnel and administration to operate these dual programs in accordance with LSC rules. If the private money restriction were lifted, these duplicate programs would no longer be required and Oregons legal aid programs would realize sufficient savings to open an office in Klamath Falls. Until this occurs, vulnerable families in Klamath Falls will have to wait.