State Bar predicts $20M lawyers’ trust fund shortfall

The State Bar expects to see a $20 million reduction in the Interest on Lawyers' Trust Accounts this year, the agency announced Wednesday.

That money is doled out to legal nonprofits and without it these organizations say they might be driven to the brink of insolvency at a time when their services are in great need.

Last year, Interest on Lawyers' Trust Accounts, known as IOLTA, contributed $55.6 million in legal services funding for 2020, which was a record high. It represented a 400% increase in IOLTA funds compared to three years ago.

This year, IOLTA revenue is expected to dip to $22.4 million after interest rates dropped in March, according to the bar's 2021 preliminary budget.

Some 100 nonprofit organizations receive funding from the Legal Services Trust Fund funded by IOLTA, the state Equal Access Fund and the Justice Gap Fund.

For Riverside Legal Aid, money from IOLTA is the organization's primary source of funding. According to Rita H. Smith, executive director, the organization saw a 60% cut in the grant for 2021.

"We will not be able to make it through next year without additional sources of funding, so we are being forced to carry over as much of our 2020 money as possible," Smith said in an email. "We still may not make it."

Smith said that one attorney has already been laid off and that more layoffs may happen. She is also contemplating cuts to various programs, including homelessness prevention, family law and the DACA and citizen program.

Inland Counties Legal Services Inc. saw a drop of more than $1 million in funding for 2021 compared to 2020. The organization received approximately $2.7 million in IOLTA funds this year and has been granted $1.4 million in 2021.

The grant for 2021 resembles the funding the organization received in 2019.

Darrell K. Moore, executive director of Inland Counties Legal Services, said he is hopeful that additional funding from the state through the Equal Access Fund and federal funds will fill out the shortfall.

The 2020 funding was an anomaly, according to Moore.

"It is difficult for nonprofits sometimes to absorb an increase in funding, and get people hired to spend that money in such a short period of time," Moore said.

The bar's Leadership Bank Program has also helped to soften the blow, Moore said. The program consists of banks that provide increased interest, free of fees on IOLTA.

Moore remains concerned about the numbers of people seeking legal aid in the coming months. While the organization's funding is stable through 2021, he said he expects that lawsuits for unpaid debt and evictions will increase.

"Are we getting enough resources to hire enough staff to meet all the needs of the poor? No, we're not," Moore said. "But as far as continuing operations as we are, we should be fine."

The bar had planned for a significant drop in IOLTA. The agency encouraged organizations to carry over funding from 2020 into 2021, explained Salena G. Copeland, executive director at the Legal Aid Association of California.

Copeland said there are other opportunities for people to fund legal aid. Direct contributions total about $6 million per year, she said..

"But I think the problem that we all are aware of is that there's such a huge increased need right now, specifically because of the COVID crisis that this drop of funding happened at the absolutely worst time," Copeland said. "We're seeing a drop in grants for next year, which is when the courts all open and the eviction moratorium is lifted. There's not enough funding available to hire all the attorneys that are needed to help people in crisis."