California Bar Journal
CBJ - February 2009 #01.
Economic downturn puts a crimp in legal services
California Bar Journal February 2009 Economic downturn puts a crimp in legal servicesBy Diane CurtisStaff WriterThis was the year IOLTA funds were supposed to swell and California legal aid organizations, which get much of their funding from trust account interest, were going to reap the benefits of the bulging coffers.
The high hopes couldn't have been more misplaced because of circumstances that even the nation's most respected economists never saw coming: The housing market went into freefall and the economy tanked, sending interest rates to record lows. Now, instead of making plans to bolster programs and help more people (there is only one legal aid attorney for every 8,000 poor Californians), legal aid lawyers are preparing for the worst, with some projecting a loss of more than half their IOLTA grant. IOLTA funds are used throughout the country to pay for legal aid grants.
"We may have to lay off staff," says Gary Smith, executive director of Sacramento-based Legal Services of Northern California, who thinks his organization's IOLTA (Interest on Lawyer Trust Accounts) grant may drop from $600,000 to $180,000. "That's not a drop we could sustain without some very dramatic reductions." That means people facing foreclosure or having problems in obtaining food stamps or unemployment benefits or a myriad of other legal problems may never get the free legal help they need.
"We're probably going to lose about three people," says Ramon Arias, executive director of Oakland-based Bay Area Legal Aid, the largest provider of legal aid in the San Francisco Bay Area. He guesses that his organization's grant of $270,000 will be cut in half. While that may not sound like a lot at a law firm, he adds, "for us, it means a lot because the bottom line is ... the people we serve have no money" and the organization gets its funds from federal and state grants, foundations and individual donations. "We rely on the kindness of strangers," he says.
On Jan. 1, 2008, a "comparability" law took effect that permitted IOLTA to earn the rates paid on secure higher-yield bank products and not just rely on interest-bearing checking accounts, whose rates had stayed flat. First indications were that the new law, along with a push for lawyers...