Lawmakers look to lock legal services fund after gov’s sweep
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State Senator Sean Ryan, Assemblymember Michaelle Solages and a number of legal services providers rallied in support of a bill that would effectively divorce the work of the New York State Interest on Lawyers Account Fund, or IOLA fund, from the state budget. The bill comes after Governor Kathy Hochul swept the fund of $55 million last month. Screenshot via Ryan’s office
By Jacob Kaye
A pair of lawmakers and a group of attorneys are calling on the legislature to pass into law a bill that they say would prevent the governor from stripping cash from a fund meant to support civil legal services work, just as she did in the state’s recently passed budget.
Rallying in Albany on Monday, State Senator Sean Ryan, Assemblymember Michaelle Solages and a number of legal services providers voiced their support for a bill that would effectively divorce the work of the New York State Interest on Lawyers Account Fund, or IOLA fund, from the state budget.
The legislation comes after Governor Kathy Hochul and the legislature together through a provision in the state’s Fiscal Year 2025 budget stripped $55 million from the account meant to help civil legal services providers fund their work.
The “sweep” of the IOLA fund was wildly unpopular in New York’s legal community. The move drew rebuke not only from legal services providers, but also from the New York State Bar Association and a number of other local legal groups.
The move also appeared to upset Ryan and Solages, who quickly moved to introduce the legislation aimed at preventing similar sweeps shortly after the passage of the budget.
“[We] introduced a bill to help ensure that this critical funding remains available for the purpose that was created for,” Ryan said from Albany on Monday. “This bill will allow IOLA to fund its grants without having to go through the red tape of the New York State budget process.”
“It's not a radical idea,” he added.
The fund, which was created around four decades ago, 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.
Among those who the public defenders represent are victims of domestic violence, New Yorkers facing homelessness in Housing Court, or those experiencing economic instability due to job loss, medical debt or disability.
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 previously warned against a sweep of the fund’s cash, which they say may be needed in the near future when interest rates aren’t as high.
The sweep included in this year’s budget marks the first time money has been taken from the IOLA fund and used to pay for a state-funded program.
“We're kind of playing Kabuki with the fund,” Solages said on Monday.
“This is just a wrong move by the executive and we want to make sure that future generations, future governors, future legislatures don't have this option,” she added.
The legislation, which currently sits in the Senate’s Finance Committee, would amend the state’s finance law to allow payments from the IOLA fund to be made without a budget appropriation.
According to the bill’s sponsors, the change would mean that the original legislative intent of IOLA is adhered to.
The IOLA fund was formed by the legislature in 1983. It was created “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.”
“This change will actually bring IOLA’s administrative processes in line with many of the other New York settlement funds, reserve funds and special funds,” Ryan said. “And more importantly, it will help ensure that the fund is only used for its intended purposes, making civil legal services available for vulnerable New Yorkers.”
Hochul first proposed taking $100 million from the fund earlier this year as part of her initial budget proposal.
After receiving backlash over the plan, Hochul reversed course and eliminated the proposal from her budget.
However, in the final hours of budget negotiations last month, the $55 million sweep of the IOLA fund was worked into the state’s fiscal plan. The money taken from the fund will primarily be used to boost funding for the Homeowner Protection Program, which provides free housing counseling and legal services to New York homeowners at risk of foreclosure.
“This year's budget made history, but not in a good way,” said Kristin Brown, the CEO of the Empire Justice Center and the president of the New York Legal Services Coalition. “It represents a disastrous precedent.”
According to Brown and others, civil legal services providers warned that the $55 million sweep, as well as any additional sweep that may come in the future, will greatly affect their ability to represent indigent New Yorkers in need of an attorney.
Many civil legal services organizations are currently in the throes of a staffing crisis, unable to pay attorneys as well as private firms are able to. The result – fewer attorneys left to represent indigent defendants.
“More funds, more services, higher salaries – it's the best thing we can do for low income and marginalized New Yorkers here in our great state,” Brown said. “Any dime taken from the civil justice system is just compounding our problems.”
