| Bar Bulletin |
May,
2003 |
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MSBA News |
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Legal Services
Funding Update
~IOLTA
Crisis Averted - Funding Threats Still Loom~
By Janet
Stidman Eveleth
In a landmark
decision in March, the United States Supreme Court ruled that Interest on
Lawyers’ Trust Accounts (IOLTA), which funds civil legal services for this
nation’s poor, is indeed constitutional. With the Court’s 5-4 decision in
Allen D. Brown et al v. Legal Foundation of Washington et al., this
country’s legal services community averted what would have been a
catastrophe. Yet with current federal and state budget deficits and
extremely low IOLTA bank interest rates, a crisis still looms for civil
legal services funding for the indigent.
The Legal Service
Corporation (LSC) is this nation’s primary funding source for civil legal
services to the indigent, followed by IOLTA revenue. But funding from both
of these sources is diminishing due to federal government budget cuts and
rock bottom bank interest rates on IOLTA accounts. Ironically, legal
services revenue is decreasing at a time when the indigent’s legal
problems are escalating because of Maryland’s
tough economic times.
In Maryland,
federal LSC funding goes to support the Legal Aid Bureau. IOLTA revenue,
which is mandatory for all attorney trust accounts in Maryland, is the
primary funding source for the Maryland Legal Services Corporation (MLSC),
which financially supports a network of 28 legal services programs,
including the Legal Aid Bureau. IOLTA revenue normally accounts for 60
percent of MLSC funding. The balance is generated through a filing fee
surcharge and an annual appropriation from the State Unclaimed Property
Fund.
According to MLSC
Executive Director Robert J. Rhudy, “in the coming fiscal year, MLSC
expects to receive about $3 million in IOLTA revenue, $2.3 million from
the state’s filing fee surcharge and its annual $500,000 from the state
property fund.” In better times, IOLTA revenue generated as much as $5.2
million, but because of low bank interest rates it has been dropping
sharply. However, without IOLTA money to help support legal services for
the poor, the state of Maryland would now be struggling with a much worse
legal services crisis.
For the last
decade, the Washington Legal Foundation has argued that IOLTA is
unconstitutional and has pursued legal channels in an attempt to prove
that IOLTA takes clients’ property and violates private property rights.
The litigation path took this case all the way to the United States
Supreme Court. On March 27, 2003, this country’s highest court disagreed,
ruling by a narrow margin that IOLTA as well as the estimated $160 million
it generates annually for legal services is constitutional.
If IOLTA had been
declared unconstitutional, Maryland would have lost a vital legal services
funding mechanism that supports roughly 60 percent of the MLSC’s network
of legal services. The results would have been disastrous for Maryland’s
legal community, hitting the state’s needy population the hardest. MLSC
has already endured a sizeable drop in IOLTA revenue due to plummeting
bank interest rates in recent years, and the situation continues to
worsen. Last year, MLSC was forced to cut over $1 million in grants and
legal services.
Rhudy anticipates
another round of legal services cuts in the coming year which may go as
high as 15 percent if interest rates continue to fall. These cuts will
deny access to justice to an even greater number of the state’s poor at a
time when many are losing their homes and jobs and face a multitude of
legal problems in these recessionary times.
There is one bright
spot on the horizon, however. The Maryland General Assembly set a legal
services precedent during its 2003 legislative session by allocating
$300,000 for civil legal services as part of the Maryland Judiciary’s
budget. This funding will be channeled through MLSC to supplement its
network of legal service programs for the poor.
Recognizing the
importance of access to justice for all citizens and the dire need for
civil legal services on the part of the state’s indigent population, the
Legislature established the principle of state government funding for
civil legal services through the legislative process. During the 2003
session, this was one of the few instances where money was actually added,
underscoring the significance of this legislative action. It reflects the
Legislature’s commitment to provide vital civil legal services to the
indigent.
Thus, in future
years, the Legislature will hopefully allocate additional funding to
address the escalating legal needs of the poor and help the indigent gain
access to justice in Maryland. This gesture will ease the funding crisis
that plagues the legal services community and enhance services to the
Marylanders who so desperately need them. But even though IOLTA’s
constitutionality is safe and additional state funding has been dedicated
to legal services for the poor, a funding crisis still looms.
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