The OPIA Blog

Funding issues for legal aid orgs. lingers as IOLTA funds hit all time low

Legal aid organizations appear to be in the center of what the National Law Journal calls a “perfect storm” of funding and resource issues. It’s all hitting at once, according to the article.

At the root of the issues facing legal aid is IOLTA (Interest on Lawyers’ Trust Accounts) funding (a primer of what IOLTA is can be found by following this link to the ABA section on IOLTA). IOLTA is, in essence, a mechanism to provide funding to charitable organizations (such as legal aid) through interest earned on pooled trust funds that are set up by attorneys. The attorneys set up these funds because they might be obligated, for example, to hold short term funds that were provided to them in trust by their clients. Confusing? Check out the ABA sight (link above) for a more in depth perspective.

So, what’s happening to these funds? They’re seeing a significant decline across the board, according to the National Law Journal article. Interest rates are incredibly low and the pool is shrinking. Some statistics the article points out: “IOLTA generated $380 million nationally for legal aid groups in 2008, but that fell to $124 million in 2010”, AND “Interest rates were at 5.25% in September 2007 and have since fallen to 0.25% or even lower” according to Betty Balli Torres, director of the National Association of IOLTA Programs.

It’s not just that IOLTA funds are declining, however; legal aid is also seeing a sharp decline in state and local funding. The only band aid provided, albeit temporarily, was an uptick in federal funding to $420 million in 2010. This does cover the huge gap, however, in funding generated from state and local funding as well as the IOLTA program.

What do you think needs to happen? It’s unclear if states will increase funding over the next few years (in fact, many governors, strapped because of their own faltering budgets, won’t view this as an essential part of their states finances), and unless interest rates for these trust accounts go up significantly (it’s hard to see why the would until at least 2012), where is the funding going to come from?