The Fractured History of Civil Legal Services in New York

 

This paper traces the history of New York CLS programs since the creation of IOLA in 1983.  This paper shows that New York CLS always has lacked a “home” in government, and this condition has grown increasingly complex over the years as new programs and funding streams have layered atop existing ones with minimal if any coordination or oversight.  To date, there is no clear structure for CLS, no executive agency responsible for service quality or efficiency, no stable funding stream, and no unitary stakeholder in any branch that claims “ownership” of the program.  By contrast, in other states, increasing CLS dockets and the prominence of CLS programs have led to initiatives to stabilize and strengthen CLS programs.  

      This paper also shows that precipitous declines in federal and state CLS funding have prompted cycles of reform to cushion the system and preserve services.  Some of these reforms yielded today’s patchwork system of programs and funding streams. 
 

      1983 – NEW YORK INTEREST ON LAWYER ACCOUNT (“IOLA”) 

      Interest on Lawyer Trust Account (“IOLTA”) programs began in Australia in the late 1960s, and in Canada in the early 1970s, to raise funds for indigent legal services.   IOLTAs harness private funds, mainly bank interest paid on un-segregated attorney trust accounts (i.e. deposits too small or held for too short a time to justify their own standalone accounts).  Florida was the first state to establish an IOLTA program (by 1981 action of the Florida Bar); California, Idaho and Maryland soon followed.   

      Today all 50 states, the District of Columbia and the Virgin Islands have IOLTA programs.  Currently, 36 jurisdictions require lawyers to participate, 14 others allow opt outs, and the remaining two have voluntary rather than mandatory programs. 

      New York’s IOLA Program 

      New York’s Interest on Lawyer Accounts (“IOLA”) program began in 1983, in response to Reagan Administration cuts to U.S. Department of Justice funding.  Initially New York created a voluntary IOLA program;1 after the IRS ruled that interest paid on these accounts would not expose the attorney or client to taxation, the Legislature made participation mandatory as of 1989.2  The IOLA statute has since remained unchanged. 

      New York’s IOLA statute requires that at least 75% of each year’s IOLA funds be paid by “Civil Legal Service Grant” formula based on geographic distribution of indigents as measured by the federal government.3  The IOLA Board allocates the remaining “Administration of Justice” funds to groups under-served by CLS programs (e.g. elderly, disabled).4  Nonprofit providers receive IOLA grants based on many criteria, including: 

  • Community demographics and need for legal services; 
  • Affiliation with bar groups, volunteer legal programs and other providers;  
  • Organizational structure, corporate documents, affirmative action programs, other sources of funding, and client/community input and support; 
  • Community outreach, staffing, procedures for the provision of legal services, quality control, supervision and training; 
  • Program budget specifying proposed use of funds, program timetable and a self-assessment plan to monitor implementation.5

 

      In the 25 years since IOLA first distributed funds in 1984, IOLA has provided more than $228 million to CLS providers statewide.  In the most recent (2009) grant year, $24.3 million in CLS grants were awarded to 20 organizations and $6.9 million in Administration of Justice grants were awarded to 53 organizations.  

      IOLA Funding 

      The IOLA Fund is inherently sensitive to fluctuations in the economy.  Declining economic activity can shrink the principal of trust deposits, and IOLA revenues fall when interest rates decline.  The current economic contraction exposes IOLA to both of these forces, at the very time that the economy causes demand for CLS to soar.   

      As a result, without legislative action, IOLA’s 2010 grant cycle will have only $6.5 million available for distribution – a 75% cut from the prior year.  Expecting this decline, IOLA used accounting adjustments (e.g. a 15-month grant cycle in 2009 to carry into the first quarter of 2010) to cushion this year’s impact.  Owing to insufficient funds, this adjustment may not be available for 2011, when the fall-off is likely to be even worse.  For this reason, the Senate successfully prevailed on the Judiciary to include in its 2010-2011 budget a one-time appropriation of $15 million to cover the IOLA gap. 

      As shown below, prior IOLA funding cuts (whether due to interest rate reductions or otherwise) triggered reforms to cushion the CLS system against IOLA downturns. 
 

      1984 – EXPANSION OF DISABILITY ADVOCACY (OTDA) 

      In 1984, the Legislature established the Disability Advocacy Program (“DAP”), which provides legal representation for New Yorkers whose federal disability benefits were denied or may be discontinued.6  DAP provides legal assistance to disabled New Yorkers seeking benefits under the Social Security Disability Insurance Program (Title II of the Social Security Act) or Supplemental Security Income Program (Title XVI).  DAP provides grants awarded by the Commissioner of the Office of Temporary and Disability Assistance (“OTDA”) to nonprofit groups, public agencies and social service districts to provide this representation.   

      DAP-funded representations result in recoupment of Safety Net Assistance benefits from the federal government to the state and local governments.  These retroactive awards of federal disability benefits to clients and corresponding recoupment of public funds to New York state and local governments result in millions of dollars in annual savings and economic growth. 
 

      LATE 1980s – EXPANSION OF HOMELESNESS PREVENTION (DSS) 

      Under the Cuomo Administration, the Department of Social Services (“DSS”) established the Homelessness Prevention Program (“HPP”), pursuant to consent decrees compelling the state to enhance homeless shelter opportunities and the quality of sheltering programs.7  The Cuomo Administration viewed the HPP initiative as a cost-effective solution to the burgeoning homelessness rate.  Providing funding for CLS providers to help families keep their homes in eviction and foreclosure proceedings could help prevent some measure of shelter and transitional social services whose costs otherwise would fall on the state and localities. 

      Over the years, changes in the economy and in political leadership have caused HPP resources to rise and fall.  The Pataki Administration cut funding for social services and related CLS programs; some measure of HPP funding was restored during the Spitzer and Paterson Administrations.  The most recent (2009) fiscal year provided a $5 million appropriation to HPP legal and social service programs.  It remains to be seen whether the recent uptick in homelessness rates arising from the twin housing and fiscal crises will cause an increase in HPP spending. 
 

      1993 – FIRST MEMBER ITEMS FOR CIVIL LEGAL SERVICES 

      In 1993, when interest rates (and thus available IOLA disbursements) dropped precipitously, the Assembly added $3 million in member item funding to cushion selected IOLA-supported providers against a steep reduction in funding.  Since then, the Assembly has added (or restored) several million each year for CLS providers lined-out in the state budget.  In 2009, the line-item amount was approximately $4.25 million.  These funds are in addition to Assembly “adds” for other discrete programs (e.g. domestic violence programs). 

      In like fashion, in 2009 the Senate’s new Democratic majority added $4.4 million to the 2009-2010 budget for civil and criminal legal services, and apportioned this funding 70% to CLS.  (See below.) 
 

      EARLY 2000s – DOMESTIC VIOLENCE LEGAL SERVICES (DOS) 

      At the start of the current decade, the Legislature – on initiative of the Senate – added a new funding source for legal services in Domestic Violence cases.  These funds are generally made available through the Department of State (“DOS”) by RFP, or by line-item appropriation to favored CLS providers.  In 2009, these funds amounted to $609,000 from the Assembly and a corresponding amount from the Senate. 
 

      2003 – LEGAL SERVICE ASSISTANCE FUND 

      As part of the 2003-2004 state budget, the Legislature created the Legal Service Assistance Fund (“LSAF”) to pay expenses incurred by local government and nonprofit providers of both civil and criminal legal services, or their employees.8  The LSAF was funded by an increase in the criminal history search fee and a portion of that year’s increases in selected court fees.  LSAF funds repeatedly were exposed to executive sweeps and the remainder divided by three-way deals, by which one-third supports CLS providers, one third supports student loan forgiveness for assistant district attorneys, and one third supports county prosecutorial functions. 

      In the 2009 budget, LSAF-funded loan forgiveness programs were extended to include CLS attorneys in qualifying nonprofit organizations.  Owing to executive sweeps and the growing demand on LSAF funds, however, the policy purpose of this new source of revenue has not been achieved. 
 

      2007 – NEW CLS APPROPRIATIONS AND IOLA-REFORM PROPOSALS 

      In 2007, the Spitzer Administration proposed and allocated $8 million in new CLS funding.  Of this amount, $5 million was allocated to providers based on their percent of receipts from all state sources (e.g. IOLA, member items, LSAF, etc.), and $3 million was routed to the IOLA Board to allocate based on RFPs.  This direct executive-branch appropriation to CLS programs to support IOLA was the first time that public funds were allocated system-wide on a need basis (rather than earmarked to particular groups).  This executive-branch initiative was not repeated in 2008 or 2009. 

      Also in 2007, Governor Spitzer promulgated a rule requiring that interest on IOLA accounts be comparable to interest paid on regular bank accounts. The 2007 rule was responsible for a significant increase in IOLA revenues, until the soft economy and historically low interest rates caused the IOLA Fund to shrink in 2009.   
 

      2008 – FORECLOSURE REFORM (DHCR, Banking Department, OCA) 

      As part of the 2008-09 state budget, New York’s first foreclosure reform initiative included a $25 million appropriation to the Division of Housing and Community Renewal (“DHCR”) for foreclosure prevention and housing support.  Part of this appropriation is earmarked to support CLS programs, over three years, specializing in homeowner representation and workouts in sub-prime lending situations.  The statute requires DHCR to collaborate with the NYS Banking Department and the Office of Court Administration (“OCA”) in program administration.  Approximately 60 nonprofit CLS providers have received DHCR grants by RFP.9 
 

      2009 – SENATE INITIATIVES TO SUPPORT CLS AND CLOSE IOLA DEFICIT  

  Under new Democratic leadership, the Senate proposed in March 2009 a menu of revenue actions to create a recurring revenue stream to support civil legal services.  The Assembly did not concur in the revenue actions.  Instead, the Senate added to the budget $4.4 million in member items to support CLS providers.  The Senate allocated these member items by resolution in September.  This allocation was the first time that the Legislature apportioned funds among providers on the basis of objective criteria (e.g. caseloads, IOLA receipts, etc.), by mutual agreement of upstate and downstate providers of both civil and criminal legal services.   

      Also in 2009, IOLA projected a 75% decrease in its 2010-11 budget due to near-zero interest rates and plummeting economic activity, and projected that the 2011-12 IOLA budget could be even worse.  For that reason, the Senate asked the Chief Judge to add to the proposed 2010-11 Judiciary budget a $15 million pass-through grant to IOLA to plug the hole.  Assemblywoman Helene Weinstein, chair of the Assembly Judiciary Committee, concurred in the request.  The Chief Judge granted the Senate’s request on December 1, when the Court of Appeals certified the 2010-11 Judiciary Budget.  This IOLA pass-through, if enacted as part of the 2010-11 budget, would plug IOLA’s current-year deficit.  It would not, however, provide funding for future years or address the higher CLS caseloads that difficult fiscal conditions create in foreclosure, evictions, unemployment, disability, family law and related representations. 

      As part of the 2009 budget standoff, Governor Paterson delayed the letting of CLS contracts and proposed sweeping funds not yet expended for CLS programming. 
 

ANALYSIS AND CONCLUSIONS 

      As shown above, the last 25 years have slowly accreted CLS programs to serve different constituencies at different times.  In many cases, CLS nonprofits compete for funds administered by multiple agencies and cobble together budgets fiscal year by fiscal year based on whatever funding streams may be available to them.  The various constituencies with vested interests in expanding the CLS program have yielded a broad constellation of agencies and funding streams, including but not limited to: 

  •  
    • IOLA – bank interest funds, plus charitable grants and pass-throughs
    • DOS -- RFPs for limited CLS funds
    • DHCR –foreclosure and housing-related representation
    • DCJS – RFPs for limited CLS funds
    • DSS – for homelessness prevention
    • OTDA – for disability representation
    • The Judiciary – by pass-through grant to IOLA
    • The Legislature – member items and other appropriations
    • Localities – supplementing funds for local CLS providers

 

      By all accounts, however, these funding streams are not calibrated to each other, do not necessarily require efficiency measures (whether by a particular funding recipient or across the entire system), and are not necessarily stable or predictable year to year.   

      As of this writing, while IOLA is the primary recipient of information about the provision of CLS representations, there is no complete clearinghouse for information about CLS funding, representations, programs, services, effectiveness or deficiencies.  Neither is there a single agency primarily responsible for funding, overseeing and advocating for CLS programs.  There is no office or person in the Executive Chamber formally responsible for this program, and thus no power center to press for adequate funding or reform.  Instead, all three branches are involved in various ways. 

      Should there be a unitary CLS agency in New York? 

      Whether there should be a unitary agency for CLS, or at least some nexus to guide funding and service delivery, is an open policy question.  Some providers and advocates argue that a unitary agency – whether housed in the Executive or in the Judiciary – would help ensure a seat at the table during the budget process and provide statewide coordination that too often is missing.  Such a system also could help prevent nonprofit providers, many of which are small, from having to expend considerable resources to compete for limited funds – often against each other. 

      Other providers and advocates have expressed concern that a unitary agency could hurt more than help.  They assert that the fragmented nature of funding streams allows them multiple bites at the apple and encourages specialization (e.g. for housing cases, disability cases, etc.) that might get lost in a unitary agency.  Some also claim that a unitary agency might be pressured to achieve efficiency measures that could hurt especially small CLS providers, or which might result in consolidation of the smallest providers. 

      If there is a movement to centralize CLS funding and administration, the choice of how to structure such a unitary agency also is not clear.  Whether such an agency would be better housed in the Executive Branch, the Judiciary or a hybrid multi-branch commission is an open question.  In any event, the Legislature always would be free to supplement any unitary agency with member item grants (whether to the unitary agency or to particular providers).