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One measure in Gov. Kathy Hochul’s budget proposal is uniting the state’s judicial system, legal community and some lawmakers in opposition. It would take $100 million from the Low-Income Legal Services Fund and transfer it to the state’s general fund pool.
Each year, the Interest on Lawyer Account (IOLA) Fund provides tens of millions of dollars in legal assistance to New Yorkers who cannot afford it. Hochul’s budget proposal removes about a third of its available cash and jeopardizes its financial health, according to the foundation’s director.
Unlike criminal defendants, civil defendants and plaintiffs are not guaranteed the right to a lawyer, so this fund covers legal aid in hundreds of thousands of civil cases annually. With the fund now under threat, legal organizations that benefit from its grants have warned they may have to cut services.
“We will be losing one public service social worker. There is no other comparable funding source,” said Alice Fontier, managing director of Harlem Neighborhood Defense Services.
Susan Singh, legal director of the New Economy Project, said losing funding would put the hotline the organization uses to advise low-income New Yorkers on a variety of issues, including dealing with debt collection lawsuits, at risk. He said he would be exposed.
A Budget Office spokeswoman said Hochul’s cuts have no immediate impact on funding. In the governor’s budget released last month, the fund’s request to spend $60 million on legal aid this year remains approved, and some of the proposed transfer costs would come from the state court system’s budget at $18 million. It is scheduled to be redeemed. Even after the cuts, the fund’s balance will exceed $200 million, a spokeswoman said.
legally questionable
The transfer itself may be legally questionable. This fund is paid for through private interest rather than taxes. Lawyers temporarily keep their clients’ cash to pay court costs, settlements, and other legal expenses, but that money earns interest and is deposited into a fund. Each U.S. state maintains a similar fund, but in New York, it is unclear whether the governor has the authority to utilize the fund.
A budget spokesperson did not respond to questions about why the budget proposed cash transfers or whether they would be legal. He noted that the IOLA Fund has received more than $100 million in state cash over the past seven years, and this year’s proposed budget provides more than $705 million for legal services.
When the state Legislature established the IOLA Fund in 1983, it specified that the fund should be used “exclusively” to provide legal assistance to New Yorkers in need. It has never been eavesdropped on for any other reason.
“These are not easy taxes,” said Richard Lewis, president of the New York State Bar Association, which opposes the transfer. “This is not an appropriate use of these funds and is probably illegal.”
More funds needed
Although this fund is one of the major sources of legal aid in civil litigation, it meets only a small portion of New Yorkers’ needs. The civil court system is notoriously backlogged, with more than 1 million cases pending across the state as of last December. A state court system report last fall estimated that at least $842 million in additional funding is needed annually to provide effective legal assistance to all low-income New Yorkers. .
This is not the only transfer from legal services that Hochul is proposing in this year’s budget. His plan also calls for the state to take $234 million from the Poverty Legal Services Fund, which provides lawyers to low-income residents. Once in New York state’s general fund pool, about half of the money would still be dedicated to that purpose, but the $120 million would not, said Patricia Wirth, director of the Office of Poverty Legal Services.
cash on hand
Executive Director Christopher O’Malley said even if Hochul’s proposed transfer goes through, the IOLA Fund could continue to make grants at current levels for several more years using the cash it currently has. It is said that there is.
But O’Malley said increasing cash reserves is important for two reasons. First, the fund plans to award $60 million this fiscal year and aims to expand its annual grants to fill the significant gaps in legal services outlined in the court system’s report.
And secondly, the interest rates banks pay fluctuate with inflation, so the amount of money coming in each year is highly variable.
Income varies
The IOLA Fund raised $107 million in fiscal year 2023, when interest rates reached historic highs. But they earned only a fraction of that in the years after the 2008 financial crisis, when interest rates plummeted to near zero. As a result, fewer subsidies were offered. In 2017, for example, the foundation donated half its current amount. Interest rates are expected to fall this year, which will mean less cash coming in.
“We have to prepare for lower interest rates so that we don’t cut off support to our subsidy recipients,” O’Malley said. “We also have 12 years of unmet demand and needs.”
Whether Hochul’s transfer proposal will be included in the final budget will depend on the reaction of Congress. A few lawmakers have spoken out, but it remains to be seen whether the plan will be universally accepted.
“The money is not being used for its intended purpose,” Representative Jeffrey Dinowitz, chairman of the legislative oversight committee, told New York Focus. “I don’t think that’s the right way to do things.”
Opposition
The proposal also drew opposition from the court system. At a hearing last month, one New York State Supreme Court justice opposed the transfer.
Judge Joseph Zayas, the state court system’s chief administrative officer, told lawmakers he “opposes any action that defunds legal service providers.” “If you don’t have lawyers in the courtroom, it will be difficult to address the backlog.”
— This article first appeared in New York Focus, a nonprofit news publication that examines New York state politics. Subscribe to their stories at nysfocus.com/newsletter.
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