Funding source for D.C. legal aid groups continues to feel pinch from low interest rates

As interest rates remain low, an important pool of interest-bearing accounts that helps fund D.C. legal aid groups is feeling the pain.

The Interest on Lawyers Trust Accounts program, or IOLTA — which pools the interest generated from client funds being held by D.C. lawyers and distributes the money to civil legal services providers in the District — generated 14 percent more revenue in the fiscal year ending June 2012 compared with the previous year, going from $550,000 to $626,000. And the amount earned during the last six months of 2012, $422,677, appears on track to surpass that.

However, that figure is expected to flatten out or drop because the boost came from two large settlements that have now been paid out and will no longer generate interest.

“The higher levels we received [July through December 2012] were due entirely to above-average balances in two accounts that have now gone out the door,” said Katia Garrett, executive director of the D.C. Bar Foundation, the charitable arm of the D.C. Bar that is in charge of distributing IOLTA funds to legal aid providers. “Those two bank accounts were spinning off a little more revenue than usual, but we expect that to be down to normal levels.”

The program works this way: Lawyers often keep client funds in trust accounts, such as when they hold a class action settlement to be paid out over time. If the amount is large or held for a long enough period, it generates interest for the client. But when the amounts are “nominal,” or held for too short a time to generate interest, lawyers can place the funds in IOLTA accounts. All 50 states, D.C. and the U.S. Virgin Islands have their own IOLTA programs The District is among 44 jurisdictions that mandate participation. D.C. IOLTA funds go to nonprofits that serve D.C. residents with direct legal services, including help gaining access to shelter, food and safety.

The number of IOLTA accounts has grown from roughly 2,000 in 2010 to 2,500 as of December.

Last year marks the second consecutive year IOLTA funds grew, but those levels of revenue are still a far cry from the $2.4 million the program generated in 2008, before banks slashed their interest rates of up to 4 percent on deposits to no more than 1 percent. Most banks now offer 0.25 percent.

“At this point, it’s a mix of good and bad news,” Garrett said. “The good news is these accounts generated a little more revenue. The bad news is interest rates remain really low and banks are continuing to cut already-low rates.”

The hit that IOLTA is taking from low interest rates is pushing Washington’s legal community to seek other sources of revenue for legal aid groups. The D.C. Access to Justice Commission in 2010 started a program called Raising the Bar, in which they ask law firms to set aside a portion of revenue from their District office to be given to legal services providers. In 2011, 23 law firms agreed to donate between 0.075 percent and 0.11 percent of their D.C. office revenue, which generated a collective $3 million. In 2012, the number of participating firms grew to 36.

Catherine Ho covers lobbying at The Washington Post. She previously worked at the LA Daily Journal, the Los Angeles Times, the Detroit Free Press, the Wichita Eagle and the San Mateo County Times.

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