Foreclosure Cases and Drop in Giving Add to Legal-Aid Charities’ Recession Woes

While most social-service charities are feeling the dual impact of rising need and declining contributions, legal-aid societies in particular are reeling from sudden and severe drops in income. Most legal charities rely heavily on money from a special fund — one that collects interest from the money lawyers hold in escrow for their clients, such as during a real-estate transaction.

Two years ago, when interest rates were at 5 percent, legal-aid groups received more than $200-million nationally through such interest payments. But with the housing market stalled and federal interest rates approaching zero, a lot less money is available for these groups.

In Pennsylvania interest payments dropped from $22-million last year to $14.6-million. In Ohio they plummeted from $22-million in 2007 to a projected $5-million in 2009. And in Massachusetts they dropped by nearly half, to $15.5-million from $31-million the year before.

At the same time, say legal-aid lawyers, demand for service has ballooned as waves of newly unemployed and homeless people seek assistance to get government or medical benefits and prevent home foreclosures.

Meanwhile, many legal-aid societies are worried they will have trouble raising money from other sources, especially as law firms across the country are trimming their staffs because of the recession and are unlikely to give as much to charitable causes as they did in the past.

‘Ugly Choices’

Public-interest lawyers are used to being outmatched by needs, says Steven Eppler-Epstein, executive director of Connecticut Legal Services.

Last summer the Connecticut Bar Foundation surveyed the area’s indigent households and found that 40 percent had at least three civil legal problems, equating to 307,000 low-income legal problems a year. But with the capacity to handle only 25,000 cases a year, Connecticut’s legal-aid network was already overwhelmed, he says

“Then the economy changed,” says Mr. Eppler-Epstein. “As client need has grown, our funding has dropped like a stone.”

Two thirds of the center’s money comes from the lawyers’ interest funds, which statewide have dropped by about 80 percent since 2007, says Mr. Eppler-Epstein. As a result, the organization’s budget has taken a $4-million hit.

Like most other legal-aid groups, Connecticut Legal Services has seen a sudden surge in cases on behalf of tenants in foreclosed buildings.

Previously, says Mr. Eppler-Epstein, most of the group’s housing work involved people who had fallen behind on rent or had problems with their landlords. Lately, though, those cases have fallen by the wayside as the center’s lawyers race to keep the huge number of renters who face eviction in their homes.

“If they’re paying rent or not, they’re still thrown out,” he says. “That’s a real change and pressure on services.”

To avoid staff layoffs, the center has tried to close the budget gap by pinching pennies elsewhere.

The center reduced its health-benefit costs by switching to a plan with a higher deductible, while its staff lawyers took a 20-percent salary cut and managers a 25-percent-to-35-percent pay cut.

“Doing all that gets us halfway into our deficit,” says Mr. Eppler-Epstein.

He hopes to raise the remaining $2-million from appeals to foundations and local law firms. Otherwise, he says, the center will probably have to lay off a quarter of its staff by the summer. If that happens, he says, “we’re going to be faced with ugly choices” about which cases receive attention.

Worse in 2010

Legal Aid of Northwest Texas has already reduced the number of lawyers on its staff from 127 to 81 because of budget cuts, says Sam Prince, the center’s director of development.

The center will receive more than $2-million from interest funds in 2009. But because of declines in foundation grants and a $60,000 loss in contributions from law firms, the legal-aid society’s $13.7-million budget is down $1.3-million from where it was a year ago.

The situation will probably grow worse in 2010, predicts Mr. Prince, as the state is projecting a 75-percent or greater loss in revenue from the lawyers’ interest accounts.

In the meantime, says Mr. Prince, the loss of so many staff lawyers means that “35 percent of the people we might have helped with extended legal representation we can’t now.”

Although the agency does not track how many applicants it turns away, the center says applications for legal assistance grew 5 percent in the last quarter of 2008 — most of which involved foreclosure and eviction, domestic violence, and access to employment or health benefits. The legal-aid group can usually only give full representation to 20 percent to 25 percent of the people who apply, says Mr. Prince.

Those numbers matter, he says, because most of the people the center represents won’t be able to resolve legal problems on their own.

For example, Mr. Prince and his colleagues estimate that 90 percent of applications for Social Security disability benefits are denied. But when those denials are appealed through a lawyer, he says, those benefits end up being granted in 90 percent of the cases.

Greater Boston Legal Services is also turning away more people than before, says Jack Ward, the center’s associate director for finance and development.

The charity attracts money from more-diverse sources than most legal-aid societies, but declines and uncertainty in both private and government support are threatening its ability to maintain services, says Mr. Ward.

The center has lost $2-million in interest-account money for 2009, and is likely to lose another $800,000 in July. Financial difficulties at Boston law firms mean the center will have difficulty raising its usual $3-million from law firms in its yearly campaign. And the organization is facing $135,000 in proposed state budget cuts for the 2010 fiscal year.

The center has tried to keep costs down by eliminating vacant positions and freezing spending on staff training, contracts for outside services, and computer and software purchases. It has also saved $360,000 through staff salary cuts, and plans to make another $300,000 in wage cuts next year.

And in an attempt to forestall personnel cuts, the agency has raised $500,000 through an emergency appeal to board members and major donors. “Fortunately we have some reserves, so we didn’t have to start amputating arms and legs,” says Mr. Ward.