Gov reverses cut to indigent defense fund following outcry

Governor Kathy Hochul pulled back her proposal to take $100 million out of the state’s Interest On Lawyer Account fund following outcry from the legal community.  File photo by Mike Groll/Office of Governor Kathy Hochul

By Jacob Kaye

Governor Kathy Hochul late last week reversed her plan to take money out of a fund meant to aid indigent defense services in New York and transfer it to the state’s general cash fund.

Issuing her 30-day amendments to the executive budget she proposed a month ago, Hochul late Thursday said that she’d no longer push the legislature to take $100 million out of the state’s Interest On Lawyer Account, or IOLA fund, and move it to fund other efforts in the state.

The initial proposal was almost unanimously decried by the state’s legal community and sparked outrage in particular among the state’s public defense attorneys and organizations who said the stripping of the fund would greatly impact their already strained ability to deliver indigent legal services to New Yorkers in need.

They also questioned whether or not using the funds – which are specifically designated to be used as grants for legal defense work across the state – for other uses was legal, or if the governor had the authority to do so.

Public defense groups, as well as the greater New York legal community, celebrated the reversal on Friday.

“The IOLA Fund is grateful for the support of the entire legal community in preserving the integrity of the IOLA Fund and ensuring that the revenue from IOLA accounts remains dedicated solely to the provision of civil legal services for low-income New Yorkers,” Chris O’Malley, the executive director of IOLA said in a statement.

“We’re pleased that Governor Hochul recognized the importance of IOLA accounts in the practice of law, and the importance of the IOLA Fund in addressing the justice gap in New York,” he added.

Adriene Holder, the chief attorney of the Legal Aid Society’s Civil Practice, said that the state’s largest public defense group welcomed Hochul’s “decision to remove this problematic language from the budget that threatened to dismantle essential legal services relied upon by hundreds

of thousands of New Yorkers across our state annually.”

"Budgets reflect values and priorities,” Holder said. “In both good and bad fiscal times, budgets should never be balanced on the backs of low-income people, especially in a state that purports to prioritize the needs of underserved communities above all else."

The governor’s office did not respond to questions from the Eagle regarding its decision to reverse its proposal.

The IOLA fund is used to support over 80 nonprofit legal organizations throughout the Empire State that offer civil legal services to indigent New Yorkers.

The organizations that receive grants from the fund account for a large portion of cases in which a public defense attorney is needed. In all, IOLA grantees closed over 307,000 cases in 2023, according to the New York Legal Services Coalition. The coalition also claims that those cases generated over $3.5 billion in economic benefit to the state last year.

Though the fund only accounts for a fraction of the money needed to support civil legal defense in New York, grantees say the IOLA fund allows them to pay for critical aspects of providing indigent defense, including paying for staff or attorneys.

“The IOLA fund is an essential support to critical civil legal services across the state and its stability is of utmost importance to its grantee legal service providers,” said Jessica Rose, the executive director of Brooklyn Legal Services.

“Brooklyn Legal Services…is heartened by Governor Hochul’s appropriate corrective action in restoring IOLA funds for its intended purpose in the Executive Budget,” Rose added.

The IOLA fund is not composed of taxpayer dollars. Instead, the fund is made up of cash earned through private interest and being held in attorney escrow accounts. The interest is derived from client cash being held by attorneys to pay for court fees, settlements and other legal costs.

Because of its funding source, the money that goes into IOLA fluctuates year to year.

Last year when interest rates were high, the fund brought in $107 million in interest, according to reporting by New York Focus. However, at the start of the financial crisis in 2008, the fund only took in $2.6 million.

Because of the fluctuation in incoming cash, the fund’s managers warned against Hochul’s proposal to strip it of funds that may be needed in the near future when interest rates aren’t as high.

A week before Hochul reversed the proposal, dozens of leaders of some of New York’s most prominent law firms wrote an open letter to the governor demanding she keep the IOLA fund intact.

“We believe this proposal, if enacted, would create an existential threat to a primary funding stream for essential civil legal services while simultaneously robbing the IOLA Fund of a unique opportunity to create a reserve that could permanently protect the Fund’s ability to support those services regardless of fluctuations in the interest rate,” they wrote.

“It took twelve years after the 2008 economic crisis for IOLA fund revenue to return to its 2007 level,” they added. “The prolonged drop in interest rates created a crisis in legal services funding that a reserve fund could prevent from recurring in the future.”

The law firm leaders also argued that any attempt to take cash out of the fund and use it for something else may not be legal.

The IOLA fund was created by the legislature in a 1983 law that read: “The purpose of this act is to provide funding for the providers of civil legal services in order to ensure effective access to the judicial system for all citizens of the state to the extent practicable.”

The law also said that the “beneficial interest in [the revenue generated from IOLA accounts] will be held by the IOLA fund exclusively for charitable purposes.”

“The law simply does not allow the governor to divert this money — which comes from escrow on attorney accounts and not from the taxpayers – to the state’s general fund,” Richard Lewis, the president of the New York State Bar Association, said in a statement prior to the governor’s decision to reverse the proposal. “The New York State Bar Association supports the IOLA Board of Trustees in its unanimous opposition to this misuse of money that was set aside by law to aid low-income New Yorkers.”

Should Hochul have followed through on the cut, it would have marked the first time in the fund’s 40-year history that money was taken out of the account and used for purposes other than civil legal defense.