The Economics of Civil Legal Services

 

The provision of legal assistance to those unable to afford adequate legal counsel is a key component of our society’s effort to achieve “equal justice under law.” Providing adequate and reliable support to our state’s civil legal services programs enhances the fairness, equality and accessibility of New York’s justice system. In today’s climate, the human need for legal support is undeniable. The ongoing economic crisis is having a tremendous impact on the demand for these services, as more and more New Yorkers are encountering issues that they need legal assistance with.  

      As important, however, is that CLS programs serve as an engine for economic growth. The significant cost savings that can be achieved by state and local governments as a result of CLS programs makes a compelling economic case for reform.  

      The Cost-Effectiveness of Civil Legal Services 

      Funding for CLS often is highly cost-effective. A growing body of research shows that CLS investments can generate economic activity and yield considerable savings for state and local governments. The most recent figures (2007) show that IOLA-supported legal service providers recouped over $200 million in benefits for their clients with only $167 million in total funding, a 25% return on investment.1 This figure does not account for broader societal savings or corresponding economic impacts that could double the on-budget savings.  

      Nor do the nearly 430,000 low-income clients that receive IOLA-supported assistance represent the total CLS-eligible population in NYS. Less than 12% of CLS-eligible New Yorkers received legal assistance in 2007.2 If CLS providers could reach a greater share of CLS-eligible clients who need their services, the economic benefit of CLS programs would swell accordingly.  A conservative estimate is that economic growth and related cost savings could far exceed $200 million/year if New York adequately funded CLS.  

      Civil legal aid programs offset state costs and maximize the flow of dollars into the state in a number of ways. Generally, CLS “drivers” for these economic benefits fall into two broad categories – income maintenance and housing protection. While evidence for budget savings and economic benefits is incomplete, the following examples show that each case-type presents an opportunity for New York to increase the flow of dollars into the state, increase state and local tax revenues, reduce public expenditures, and stimulate spending and investment in our economy.  

      1. INCOME ASSISTANCE CASES 

      CLS providers offer assistance to individuals and families in a variety of income maintenance cases, helping them secure federal benefits and entitlements such as Social Security and food stamps. Over 50% of dollar benefits won for clients of IOLA-supported CLS providers in 2007 were from federal programs (over $110 million).3 These cases funnel federal dollars into New York and relieve state-funded assistance programs that provide interim assistance when federal benefits are wrongfully denied or terminated. 

      Federal Disability Benefits 

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    • The Office of Temporary and Disability Assistance’s 2005 Biennial Report to the Legislature reported that the Disability Benefit Project reduced public assistance costs by $10.5 million and resulted in a gain of $14.6 million for the state and localities – more than twice the initial investment.4

 

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    • A February 1997 report by the Department of Social Services estimated that since 1984 the NYS Disability Advocacy Program had saved $120 million (gross) in State welfare costs, by providing counsel to applicants for federal social security disability benefits and thereby increasing their likelihood of a favorable ruling from small to 88%. Estimated net savings in 1995-96 were $7.95 million (total savings in State welfare costs of $13.7 million, less the approximate $5.74 million cost of funding counsel).5

 

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    • Through the NYS Disability Advocacy Program, the work of the Rochester branch of Empire Justice Center won Monroe County $502,781 in interim assistance reimbursements from the Federal government.6

 

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    • In fiscal year 2004, the Disability Benefit Project of the Massachusetts Legal Aid Corporation obtained $4.5 million in retroactive federal disability benefits for its clients, and a total of $3.2 million in ongoing monthly benefits, for a totally of $7.7 million.7

 

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    • In 2007, Legal Aid of Nebraska obtained $1 million in retroactive federal benefits, and $295,000 in ongoing monthly benefits for its clients, for a total of about $1.3 million.8

 

      Food Stamp Benefits 

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      • For every family of three that receives Food Stamps, as much as $5,556 in federal dollars is generated in nutritional support and subsequent expenditures in the local economy.9

 

    Child Support Cases 

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      • While there is not yet conclusive data, expansion of counsel to collect unpaid child support could directly rescue tens of thousands of women and young children from poverty, with corresponding reductions in the need for public assistance and related social services.

 
 

      2. HOUSING PROTECTION CASES 

      CLS programs are extraordinarily effective in helping homeowners and renters avoid foreclosure and eviction, averting costs to house the homeless and preventing sustained falls in property values. Since the vitality of New York’s economy is partly dependent on a stable housing market, investments in CLS housing protection programs can have a widespread positive impact on New York’s economic recovery.  

      Eviction Prevention Programs 

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    • The Department of Social Services concluded in 1990 that the provision of legal services to represent low-income renters facing eviction resulted in the saving of approximately $4 for every dollar of cost. Savings resulted because represented poor tenants faced with an eviction proceeding were successful in avoiding eviction in more than 80% of all cases, compared to a much lower success rate for tenants appearing pro se.10

 

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    • A 1993 estimate found that providing counsel to all low-income tenants facing eviction in NYC would generate a net savings of $67 million.11  In current dollars, the savings is probably closer to $100 million.

 

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    • The Association of the Bar of the City of New York found that in 1996, CLS programs in NYC saved 6,000 tenants from losing their homes. The same study concluded that by preventing those evictions, the legal aid programs saved the city more than $27 million in homeless shelter costs.12

 

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    • In 2007, the Massachusetts Legal Assistance Corporation (MLAC) estimated that, of the individuals whose eviction civil legal aid programs delayed or avoided, 50% would have ended up in a homeless shelter but for the assistance of a civil legal aid lawyer. This intervention, MLAC estimated, saved Massachusetts almost $8 million in shelter costs.13

 

    Foreclosure Prevention 

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    • Over 69 million neighboring homes in the U.S. will lose property value in 2009 because of nearby foreclosures, representing approximately $502 billion in total lost property value.14 CLS programs that provide the legal support for homeowners to negotiate loan modifications with their lenders help forestall billions in lost property value due to foreclosures.  
    • Foreclosure prevention programs also directly reduce state and local costs associated with repossession, sheltering and related social services.

 

ADDITIONAL CASE-TYPE BENEFITS OF CIVIL LEGAL SERVICES 

      In addition to housing and income-related cases, CLS programs directly benefit New York State, local governments, tax bases and major industries.  For instance: 

      Domestic Relations cases 

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    • In 1996, CLS providers handled 445 cases in which representation helped prevent the termination of parental rights in New York City. Child Welfare Watch, a joint project of the Center for An Urban Future and the New York Forum, estimated that the average cost of foster care per child in 1997 was $13,070 per year, and the average length of stay in the foster care system for each child was 4.28 years. There was, therefore, a potential savings of $55,940 per child for cases in which an unwarranted placement is prevented.15  In 2009, this potential may exceed $70,000 per child.

 

    Medical-Legal Partnerships 

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    • A 2007 study found that LegalHealth, a division of the nonprofit law office New York Legal Assistance Group, which partners with New York City area hospitals, generated new revenue for hospitals by helping patients eligible for CLS qualify for Medicare and other insurance reimbursements. The study examined the costs and benefits experienced by two hospitals that collaborated with LegalHealth in 2004 and 2005. On average, the attorneys obtained $11,904 per patient for the hospitals, primarily in the form of recovered insurance benefits. In total, LegalHealth generated $345,222 in collections and $1.3 million in billings for both hospitals.  As a function of expenditures, these programs turned a 1,500% profit.16

 

    Creating Efficiencies in the Courts 

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    • CLS programs resolve an estimated two out of three client problems by providing advice or non-litigation services, or by expediting litigation that could drag on where clients represent themselves. The 2009 California expansion of CLS programs recited that improving the efficiency of the courts, which were clogging with CLS-eligible foreclosure, eviction, family law and consumer credit cases, was one of the most important reasons to invest in CLS expansions.

 
 

MOVING FORWARD: THE ECONOMIC ARGUMENT FOR REFORM 

      The savings illustrated above are but a handful of examples where adequate legal representation for low-income litigants resulted in a positive net economic benefit to state government and local communities. The aggregate economic impact of adequate legal representation may be impossible to quantify with precision given the volume of affected persons and layers of government, nonprofit and private parties involved in the delivery of these services. It is increasingly evident, however, that the financial commitment for the provision of these services generates a healthy return to local and state economies, and that such programs are among the few in the state budget capable of turning a profit. 

      It will be a goal of the upcoming policy report to attempt a more complete and accurate estimate of the total funds that state governments, local governments, major businesses and the overall economy can generate (or save) as a result of more fully investing in CLS programs.  As noted, $200 million/year probably is a conservative estimate across all economic sectors, much of which could be harnessed in direct taxpayer savings and more efficient and effective government operations. 

      It bears repeating, however, that the economic justification is just one of two reasons to consider reforms of the CLS program.  The human element – ensuring that children, families, the elderly, abuse victims, homeowners, tenants, the disabled and at-risk New Yorkers of all kinds – was the original motivating factor for indigent legal services.  This motivation – to help keep the promise of equal justice under law – will continue to shape this debate, now bolstered by growing economic evidence that good policy also might make sound economics for taxpayers, the state and its localities.