Steve Banks Calls for Restoration of State Budgets Cuts for Legal Services

Calling for the restoration of cuts in critical legal services for low-income New Yorkers, Steven Banks, Legal Aid's Attorney-in-Chief, said that amendments in the proposed State budget will be necesssary to provide the crucial assistance. Banks was quoted in the New York Law Journal.


December 26, 2008
The New York Law Journal
Civil Legal Services Community Fears Further Declines in Funding
by Joel Stashenko

ALBANY - The new budget proposed by Governor David A. Paterson is silent on spending for civil legal services for the poor, just as a precipitous drop in resources is coming into focus for 2010 at the Interest on Lawyer Account Fund.

Advocates for civil legal services aid said Mr. Paterson's proposal for the 2009-10 fiscal year comes at the worst possible time, as demand for legal services rises due to foreclosures, consumer debt, unemployment and even domestic violence due to tough economic times.

"I've been here for 10 years," said Sean C. Delany, executive director of the Lawyers Alliance for New York. "This is the worst I've seen it."

Mr. Paterson's proposed $121.1 billion budget for the fiscal year beginning April 1, 2009, contains scores of new taxes, fees and cost-cutting initiatives to close projected budget gaps of more than $15 billion (NYLJ, Dec. 17).

In the 2007-08 fiscal year, the state allocated a record $15.3 million for civil legal services.

That fell to $7.3 million for the current fiscal year, a total that was reduced by 6 percent during a round of budget cuts ordered by Mr. Paterson in August. Mr. Delany said the legal services community is fearing another round of cuts before the end of the current fiscal year.

Jeffrey Gordon, a budget spokesman for Mr. Paterson, said the administration believes the Interest on Lawyer Account [IOLA] Fund will provide sufficient resources for civil legal services. He also noted that the Legislature has traditionally added funding for legal services above what governors have proposed before lawmakers adopt state budgets.

In 2007, then-Governor Eliot Spitzer announced a regulation change making banks pay higher interest rates on the client escrow accounts held by attorneys to benefit the IOLA Fund (NYLJ, June 1, 2007).

"This regulation will ensure that, even during a down economy, increased funding will be available to support these important services," Mr. Gordon said.

The IOLA board this month approved grants of $25 million for civil legal services for 2009, the same amount as it allocated in 2008. The fund allocated $13.7 million to legal aid societies and other non-profit community groups the previous year.

Lorna Blake, executive director of IOLA, said it is apparent that the next round of allocations will be down significantly due to a fall-off in revenues coming into the fund. Those grants will be based on money earned in calendar 2009.

"We anticipate that IOLA revenue will be down quite dramatically in 2010," Ms. Blake said Wednesday in an interview. "It could be as dramatic as a 70 percent decrease. We are hoping that it is not that bad, but other IOLA states have had 60 and 70 percent decreases."

In past years, the Assembly has come to the rescue in budgets with modest or no civil legal services allocations.

But Assemblywoman Helene Weinstein, D-Brooklyn, said this week she does not know how much will be available in Assembly funding for civil legal services with the myriad of other funding obligations Assembly Democrats will be asked to meet in the tight 2009-10 budget.

"Civil legal services have always been a priority of the Democrats in the Assembly and I don't see that changing," Ms. Weinstein, chairwoman of the Assembly Judiciary Committee, said in an interview. "But obviously, it is going to be tougher to find discretionary funds that aren't already there. It is going to be hard for us to keep up our commitments that we have and make the restorations that we have made in the past. . . . We are facing a dramatic decrease in dollars, just as they [providers] are facing a dramatic increase in demand."

Promise of Enrichment

Assembly Democrats restored most of the $7.3 million that was in the current-year budget for civil legal services after Mr. Spitzer pared proposed state funding to $1 million. At the time, Mr. Spitzer argued that a surge of revenues - perhaps as much as $40 million to $50 million a year - would be available for civil legal service programs through the higher interest on IOLA accounts.

But as with so many other initiatives during Mr. Spitzer's administration, the promised enrichment of the IOLA fund did not pan out.

From October 2007 to February 2008, the fund took in more than $3 million each month or about double the average prior to the increase in interest payments. The income peaked at $5.7 million in January 2008.

But monthly interest income slipped to between $2 million and $3 million between May 2008 and October 2008, with November income falling to $1.9 million.

Ms. Blake said the bad economy has hurt income in two ways.

Less economic activity means fewer escrow account deposits and lower interest income, she said. In addition, income paid by banks on the accounts is pegged to the Federal Funds interest rate.

A year ago, the Federal Funds rate was 4.25 percent. This week it is 0.25 percent.

Fragile Funding Source

The roller-coaster ride of income into the IOLA Fund over the past 15 months shows its fragility as a funding source, Ms. Blake said in an interview.

"We can never be considered a stable funding source because we rise and fall with the economy," she said. "It is a terrible situation."

The IOLA board actually allocated $31 million earlier this month in grants to civil legal services providers, but stretched the grants into the first three months of 2010 for some providers. Ms. Blake said the year-to-year allocation stayed flat at $25 million between 2008 and 2009.

Ms. Blake said the longer-term allocations were made to give providers more funding and more certain resources in what will clearly be a challenging period for civil legal services.

For IOLA to have built a reserve it would have needed the spike in revenues between October 2007 and February 2008 to continue for another 18 months, according to Ms. Blake. As it is, the IOLA has no reserves, she said.

Ms. Weinstein said she has "very serious concerns" about IOLA, especially the amount of grants it will be able to allocate in 2010 with monthly income now having dipped below $2 million.

"Clearly, besides IOLA, we need to have institutionalized state support for civil legal services," Ms. Weinstein said.

Mr. Delany's group received a 15-month grant of $162,500 from IOLA. He said the Lawyers Alliance, with a budget of about $2.4 million, is less dependent than most legal services providers on government aid, with the majority of its funding coming from law firms and private foundations.

The Lawyers Alliance provides legal services to groups that work face to face with low-income clients. Mr. Delany said he has never seen the Lawyers Alliance in demand like it is now.

"We are inundated with calls from organizations with questions and requests for help for everything from downsizing their staffs to transferring government grants that they can no longer handle to leases they can no longer afford to pay because of their own circumstances," Mr. Delany said in an interview.

The Legal Aid Society of New York City, which got a 15-month grant of $5.6 million from IOLA this month, is facing the loss of $2.2 million in state aid it is receiving in the current state budget if the Legislature does not restore money for civil legal services, according to Steven Banks, the group's attorney-in-charge.

He said the loss of state aid would come on top of a $3 million, or 50 percent, cut in general New York City civil legal services aid the group sustained earlier this year.

The group's overall budget for civil legal services for 2008 is $31.4 million, not counting the loss of $2.2 million that is not in the 2009-10 state budget.

IOLA funding is no "panacea to replace state funds," especially with income shrinking and the fund predicting a grim grant situation in 2010, Mr. Banks said.

"I think the problem this year is that the overall cuts are so deep in the budget that the sense that the Legislature will ride to the rescue isn't necessarily going to be the case," said Mr. Banks. "There is no way out of this that is going to make a difference for low-income New Yorkers who need civil legal help except for amendments in the budget that restore this critical legal service."

Mr. Paterson's proposed budget will undergo review and hearings by the Legislature, which has been passing spending plans before or just after April 1 in recent years.