‘Staggering’ Gap in Civil Legal Assistance Looms As IOLA Fund Is Squeezed by Interest Rate Plunge

August 18- The New York Law Journal reports that the amount allocated from the Interest on Lawyer Accounts (IOLA) fund for civil legal services in New York will likely plunge nearly 70% for the 2010 calendar year.

"We really are going into next year with a crisis on our hands
because of the situation with the IOLA [Interest on Lawyer Accounts]
Fund," said Assemblywoman Helene Weinstein, D-Brooklyn, chairwoman of
the Assembly Judiciary Committee.

Collections for the IOLA Fund plunged from $1.5 million in January
2009 to just over $500,000 in February 2009 and have hovered at about
$600,000 a month since.

If the trend continues through the end of 2009, the fund will take
in about $8 million for the year, according to IOLA Executive Director
Christopher O'Malley. That would be less than one-third of the $25
million allocated from the fund for civil legal services in New York
for each of the 2008 and 2009 calendar years.

Earlier this year, the state Senate added $4.4 million to the budget
for civil legal services, but the money has yet to be allocated. In any
case, it will not come close to compensating for the plunge in IOLA
revenues.

The clouds around IOLA and similar funds around the country had been
gathering for more than a year before the storm broke eight months ago
as the national economy soured (NYLJ, Dec. 26, 2008).

Less activity in the real estate markets meant less money being held
in escrow by attorneys in accounts where interest went to the IOLA
Fund. Moreover, falling interest rates, especially the federal funds
interest rate directly pegged to what banks are supposed to pay to
IOLA, meant a lower monthly return.

"It's a great model [for a fund]," Mr. O'Malley said. "But it is
very interest-rate sensitive. Historically, interest rates fluctuate.
In all other ways, it is a great way to generate funding for civil
legal services without adding any additional burden to taxpayers."

In early 2008, when the IOLA Fund was still taking in more than $3
million each month, the federal funds rate was 4.25 percent. It is now
about 0.15 percent.

Mr. O'Malley said he does not see signs of an interest rate turnaround on the horizon.

Of further concern is the Senate's delay in dispersing $4.4 million in new funding set aside for civil legal services in the 2009-10 New York State budget. Legal Services advocates had urged the Senate to take the necessary steps to disburse the funds to civil legal service providers across the state when they met on August 6th; however, no action has yet been taken. The Senate is expected to return to session again in September.

Read more about the funding crisis in the New York Law Journal.