Have you ever wondered how legal services organizations are funded? If you have ever sold or purchased a home, or hired an attorney and paid a retainer, you may have heard reference to an attorney “escrow” account, or “trust” account. Sometimes these accounts are also referred to as IOLA accounts. IOLA stands for Interest on Lawyer Account. Attorneys routinely receive third-party funds to be held in trust for future use. When the amount of money is small and to be held for a short term, an attorney will use an IOLA account to hold the funds.
There are nearly 200 banks in New York that provide these types of accounts for lawyers to use in their practice. The accounts follow a different set of rules and regulations than a business operating account, or other types of fiduciary accounts such as a guardianship account. State finance law, judiciary law and the rules of professional conduct dictate when attorneys must use escrow accounts, and how banks are required to treat and report on these accounts.
In New York, there is also something called the IOLA Fund, which was created in 1983 for the purpose of enhancing legal services and access to justice for New Yorkers. The interest earned from attorney IOLA accounts is transmitted by the banks directly to the IOLA Fund. In fiscal year 2023, 81 legal services organizations that receive grants from the IOLA Fund closed more than 307,000 cases, benefitting more than 639,000 New Yorkers.
The governor ‘s Executive Budget proposes that $100 million be transferred from the IOLA Fund to the State General Fund. It is unclear if the maneuver is legal. The 15-member board of the IOLA Fund, who are appointed by the governor, have unanimously opposed the governor’s plan to transfer these funds from one budget line to another. The board issued a statement explaining that over the 40 years of the IOLA Fund existence, New York state has faced many challenges. “Despite these challenges, IOLA’s funds cannot and should not be diverted to the General Fund and must be used exclusively for the provision of civil legal services for low-income New Yorkers, in accordance with its mission and governing statute,” the IOLA Fund Board said. The board emphasizes that the fund should be used as intended, as a dedicated “fiduciary fund,” to support the civil legal needs of vulnerable New Yorkers.
Attorney groups strongly oppose the governor’s plan. The state bar association president issued a press release, stating that the money is under the purview of the IOLA Fund, which supports 81 non-profit legal services organizations that help New Yorkers in their greatest time of need. “The law simply does not allow the governor to divert the money — when it comes from escrow on attorney accounts and not from the taxpayers — to the state’s general fund,” a bar assoc9iation statement said.
The IOLA Fund is not the only target in terms of cutting funding to legal services for New Yorkers. The Office of Indigent Legal Services is a state agency that supports the work of public defenders and assigned counsel, and civil defense agencies in New York State. ILS opposes many parts of the governor’s plan, including a part of the plan that would sweep about $120 million from the ILS Fund to the general fund, and not using this money for its intended purpose.
The director of ILS recently testified before the State Finance Committee and the Assembly Committee on Ways and Means. She explained that the transfer of funds “undermines the purpose of the ILS Fund as set forth in State Finance Law § 98-b (1) and also dilutes the dedicated funding available for vitally important and constitutionally required improvements in the quality of mandated criminal and Family Court representation.”
To provide some context to the funding of public defense, it was in 2007 when the New York Civil Liberties Union sued New York state, alleging that the state had systematically and structurally denied meaningful and effective representation to defendants entitled to publicly funded representation, in violation of their Sixth Amendment right to counsel. The Hurrell-Harring lawsuit settled in 2014, and the state acknowledged its obligation to provide assistance to counties to ensure that defendants’ constitutional right to counsel was not an aspirational goal, but in fact reality.
Why does all of this matter? It is through these types of funding streams that New Yorkers have meaningful representation in court. A well-funded and stable plan for representation of clients is something that we all care about. It is a law and order. If you are accused of a crime, or if authorities are questioning your parenting, you want the most capable and effective attorney you can get to represent you. If you are a litigant, you care because your liberty interests are at stake. If you are the prosecutor, you care because your job is to seek justice and you want to make sure the case is handled properly on both sides. If you are a judge, you care because you want the system of justice to work and litigants to feel that they were heard and treated fairly. These funding streams provide counties with the ability to provide better services to residents and more resources to attorneys to provide improved representation to clients.