02 March 2013

Legal Services & The Sequester

In addition to priest, friar, and student of canon law, one of the hats I wear is member of the Board of Directors of the Legal Services Corporation (LSC). I have been a member since 2010, and it's been a very rewarding experience.

There has been a great deal of talk about the Sequester and its effects.  I wanted to take an opportunity to look at the effects on one tiny sliver of the U.S. Budget:  the annual appropriation to the LSC.  This is not meant to be political or polemical, or advocating any particular course of action, but merely informative.  All of this is based on publicly available date and information.

First, some discussion of the Sequester itself.  The Sequester deals only with discretionary spending, and is a long-term plan to decrease spending triggered automatically on March 1.  Most of the news stories discuss only this year, but by its terms the Sequester aims to cut $1.2 Trillion over 9 years.  This year, only $85 Billion is subject to those cuts in this first year.  (That's about 7% of the total.)  The Sequester is split just about 60/40 between non-defense and defense spending.  LSC falls into the "discretionary" and "non-defense" categories.  That means, this year it is subject to an automatic 5% cut.  But 5% from what?  Not the 2013 continuing resolution (CR) appropriation it is currently subject to, but the 2012 budget passed last year.  That means, it does not include the ever so slight increase in the current CR.  So that the total cut to LSC is actually a fraction less than 5%, more like 4.964%.

But here's another wrinkle, the LSC doles out its grants monthly, on a calendar year schedule, beginning in January.  It has already given 4 months of grants to grantees.  Therefore, it needs to incorporate the 5% cuts in the remaining 8 months.  That means that going forward, it will feel to grant recipients more like a nearly 7.5% cut.

But the cuts also need some context to them.  It is very rare that the LSC is the only funder of a Legal Services grantee.  Rather, most of them receive funding from other sources, especially from something called the Interest On Lawyers Trust Accounts (IOLTA).  (For a description of what these are, there is a Wikipedia article).  The revenue from these, as the name implies, comes from interest charged.  Currently, the monetary policy of the U.S. government is to keep interest rates as low as possible.  This is a controversial decision, but there are good reasons for it.  (For example, given the size of the U.S. Debt, higher interest rates would mean that servicing the debt would becomes much more expensive.)  That has the consequence of drying up revenue from these IOLTA sources.  Before the collapse of the housing markets, interest rates were much higher, providing a significant source of funds to local legal services providers.  In some states, that has now been reduced as much as 75%.

In addition to supply, there is also the question of demand.  Americans who are at or below 125% of the U.S. Poverty level are eligible for the services of the LSC.  In 2012 the cutoff was, for individuals $13,963/year, and for families of four, $28,813/year.  In 2012 that meant about 66 million Americans, or about 20% of the population.  That itself is an increase of about 29% since 2007.

In the end, the Sequester will cut from local field grants a bit over $16 Million and return the LSC to the funding levels it had in 2005/2006.

The graph above shows the historical funding of LSC since its inception in 1976, including the Sequester funding.