LSNJ Seeks $17 Million to Avert Catastrophic Funding Crisis

New Jersey’s Legal Services programs face a financial challenge of historic proportions, having lost more than half their core funding, $37 million out of $73 million, as a result of the dramatic decline of their largest funding source, the Interest on Lawyers’ Trust Accounts (IOLTA) program.

In response to this funding loss, the state’s Legal Services system – under the leadership of Legal Services of New Jersey (LSNJ), the statewide coordinating office – has exhausted reserves, reprogrammed the use of funds and made substantial efforts to reduce expenditures, including staff reductions through attrition. With the help of substantial additional funding provided by the Legislature and the Governor through an increased annual appropriation for State Fiscal Year 2009 and two subsequent supplemental appropriations, Legal Services will be able to get to this June 30 without the worst of the staff and service cuts that were anticipated.

For State Fiscal Year 2010, however, drastic cuts will be necessary if additional funding is not secured. Even taking into account modest increases in funding from the federal Legal Services Corporation and a recent change in the design of the IOLTA program to set a floor to rates paid by banks, Legal Services still faces a $17 million budget shortfall for the year beginning July 1, 2009.

The order of magnitude of this shortfall far exceeds that suffered by other key government agencies involved in the justice system; and the collapse in Legal Services revenue has occurred at a time when the civil legal needs of low-income people have exploded due to the current state and national economic crisis. Legal Services programs are seeing sharply increased numbers of foreclosures and evictions; increased utility shutoffs for inability to pay; an increased number of Food Stamps applications and denials of those applications; spikes in unemployment denials; and escalating collection actions. (See Effects of the Current Economic Crisis on the Legal Needs of Eligible Clients.)

While in 2008 Legal Services programs statewide opened more than 67,000 cases, an all-time record, they still could serve no more than one in five low-income people in New Jersey seeking assistance with civil legal problems. For each one million dollar reduction in funding, at least ten full-time staff will be lost and 1,100 fewer clients will be served. To address this emergency funding need, LSNJ is seeking a $17 million appropriation from the State’s General Fund for FY2010.

Effects of the Current Economic Crisis on the Legal Needs of Eligible Clients

The following illustrate the direct effects of the economic downturn that have appeared in Legal Services’ intake:

Sharply increased foreclosures, at least one-third of which involve predatory lending (and therefore have defenses).

More than 62,500 properties faced foreclosure filings in 2008 – twice the number in 2007. This 100% rate of increase was higher than the national rate of 81%.
Between 2007 and 2008, the number of “credit access” cases handled by the state’s Legal Services programs increased by 76%.
LSNJ’s Anti-Predatory Lending Project opened 248 new cases in 2008, 78 in the last quarter alone.

Sharply increased utilities shutoffs for inability to pay, and collection actions involving fuel, which require legal intervention.

The number of cases statewide involving public utilities continued at a high level in 2008, following an increase of 33% between 2006 and 2007.

Increased evictions, the majority of which involve inability to pay rent, but also often present other defenses which can enable people to remain in their homes; and increased instances of homelessness, many of which can be averted or temporarily remedied with legal assistance.

In 2008, New Jersey’s Legal Services programs handled more than 17,000 housing cases (including nearly 12,000 landlord/tenant matters), maintaining the high level of the prior year.

Increased numbers of Food Stamp denials and related problems, threatening food security.

Between 2007 and 2008, the number of cases involving Food Stamps handled by the state’s Legal Services programs increased by 21%.

Increased domestic violence cases, often related to greater economic stress within a household.

More than 40,000 domestic violence complaints are filed in New Jersey in a typical year and, for the last year for which there are figures (2007), more than 31,000 Temporary Restraining Orders and nearly 8,000 Final Restraining Orders were issued.

Sharply increased collection actions, many of which involve predatory practices, and which support legal defenses.

Between 2006 and 2007, statewide, the number of collection cases handled by Legal Services increased by 25%, and increased again to more than 5,700 in 2008.

Increased unemployment insurance denials and wrongful discharge claims.

Between 2007 and 2008, the number of employment cases handled by the state’s Legal Services programs increased by 52%, including a 28% increase in cases involving wage claims.
At last count, LSNJ’s Workers Legal Rights and Farmworkers Projects had 434 open cases – continuing the trend of significantly increased case numbers.