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With revenue sources down, MLSC is bracing for cuts

An organization that provides legal assistance for low-income children in special education will need as much resilience as its young clients as it, like other nonprofits in the state, prepares for a 5 percent cut in grant money from the Maryland Legal Services Corp.

Selene Almazan

Selene A. Almazan, co-executive director of the Maryland Coalition for Inclusive Education, said the MCIE will try to fight the reduction through increased marketing and fundraising.

However, it won’t be easy, the lawyer said.

The cut, out of $56,000 given to the coalition by Maryland Legal Services, might not seem like a lot in dollars. But a 5 percent cut “means we’ll have to make up that money from someplace else,” said Almazan. “It will mean additional fundraising. It is going to be difficult to absorb.”

Almazan’s group will not be the only one seeking other grantors and donations from law firms and individuals to make up for the money it has been told not to expect from Maryland Legal Services in fiscal 2013, which begins July 1. Nonprofit groups that provide free legal aid to crime victims, battered women, prison inmates and tenants facing eviction say they will also be scrambling for funds following the unwelcome — but not unexpected — announcement from the corporation’s executive director.

Late last month, Susan M. Erlichman told Maryland Legal Services’ existing grantees to submit requests for fiscal 2013 that reflect a 5 percent reduction from the current funding levels. The grantees were also warned the cuts might be deeper in fiscal 2014.

“We are hoping that we can keep the cuts between 5 and 10 percent,” Erlichman said. “If we can keep it to five that would be our desire but that really depends on what happens the next six months as far as income.”

Maryland Legal Services, hit with dwindling revenue sources, is spending $1.6 million of its reserves this year and next, Erlichman said. If the trend continues, it will run out of money in fiscal 2014, she said.

“This is very, very frightening,” she said last week.

The organization is suffering from unanticipated stagnation in both of its main revenue sources: the interest paid on attorneys’ client trust accounts and the surcharge on court filing fees, Erlichman said.

“It’s just the perfect storm,” she added. “With these two things combined, we will be spending deeply from our reserves.”

The corporation’s situation is its most dire since 2010, when interest rates below 0.25 percent threatened to reduce from $6.7 million to $2 million the revenue the agency derives from Interest on Lawyer Trust Accounts.

To offset the anticipated loss, the General Assembly in 2010 enacted legislation to increase the surcharge on circuit court filings by $30 and district court filings by $8, and to earmark that revenue for Maryland Legal Services.

But Maryland Legal Services didn’t expect the Federal Reserve Board to leave interest rates so low for such a long time. And while it averaged several years’ filing fees to estimate that the surcharge would provide $6.1 million annually, it has averaged only $4.9 million a year, Erlichman said.

The shortfall from an unexpected drop in court filings and an increase in the number of times filing fees were waived, she said. Statistics from the Administrative Office of the Courts bear that out.

In fiscal 2011, the number of cases filed in Maryland circuit courts (excluding Montgomery and Prince George’s counties) totaled 81,369, down from 104,906 a year earlier and 93,581 in fiscal 2009.

Meanwhile, fees in the same circuit courts were waived in 1,727 cases in fiscal 2011, an increase from 1,361 in fiscal 2010 and 568 in fiscal 2009.

The administrative office did not have data for Montgomery and Prince George’s County because those figures are on a separate system, a judiciary spokeswoman said.

Filings in Maryland District Court, which are kept on a calendar year, fell from 261,403 in 2009 to 214,171 in 2011, while fee waivers rose from 18,061 to 19,052 in the same period.

Adding to the MLSC’s woes is the pending expiration of the filing-fee surcharge in July 2013, unless the General Assembly extends it, and the Fed’s recent announcement that interest rates will remain that low through 2014.

Amid the economic storm, MLSC forecasts revenues of about $15.4 million for both this fiscal year and next, but expenses of $17 million annually, which would compel the agency to tap $3.2 million into its reserves during that span, Erlichman said.

If the trend continues, MLSC would be out of funds by fiscal 2014, without deeper cuts in its grants, she added.

“This recession is more intractable than the folks in the business schools are telling us,” she added. “We need to see that we spend responsibly.”

Retired Court of Appeals Judge Irma S. Raker, who heads the Maryland Judiciary’s Access to Justice Commission, underscored MLSC’s financial straits.

“The Access to Justice Commission works very hard to ensure that the economically disadvantaged in Maryland, whose numbers are growing, get access to justice,” Raker said. “Any diminution in resources is very unfortunate and only exacerbates the justice gap. We’ll do everything we can to alleviate this.”

Unfilled gaps

Executive directors of groups receiving MLSC grants were sympathetic toward the agency’s financial plight and distressed about what the planned reduction means for their operations, as well as the bigger picture.

“I am concerned for the long-term stability of legal services programs in Maryland,” said John Nethercut, of the Baltimore-based Public Justice Center Inc. “The need is increasing at the same time funds are decreasing.”

Nethercut said the center, which provides a wide range of legal services for the poor, does not rely heavily on Maryland Legal Services for its funding, which comes primarily from foundations, individuals and law firms’ donations. But Nethercut deemed the downward revenue trend for the state’s major supplier of legal service funds “disturbing.”

“There aren’t any funding sources out there that are filling the gaps,” said Nethercut, an attorney. “Ultimately people have less access to justice.”

For the Maryland Crime Victims’ Resource Center Inc., the announcement from Maryland Legal Services was the latest blow for a group that last year did not receive funding from a major source, the National Crime Victims Law Institute.

“We’re getting hit from the left and the right and the top and the bottom,” said Russell Butler, the center’s executive director. “If our legal funding gets cut, we’re in a terrible position.”

The Upper Marlboro-based center, which has received $117,000 annually from the MLSC, has had to cut two positions recently, and will lose another staff member by the end of the month, Butler added.

“We’re trying to maintain our services,” he said. “It’s just very difficult in this economy.”

The MLSC grant is the largest source of funding for the Maryland Disability Law Center, coming in at about $745,000 per year, said Virginia Knowlton, the group’s executive director.

In the troubled economy, the disability law center had trimmed two attorneys from its staff even before Erlichman announced the 5 percent reduction for fiscal 2013, said Knowlton, who is a lawyer. The center currently has 18 full- and part-time attorneys.

“I just don’t know how hard we can continue to be squeezed,” Knowlton said. “A cut of 5 percent is significant to us.”

She said MDLC has increased its efforts with past and potential donors, a difficult sell in a poor economy.

“Fundraising is an uphill climb,” Knowlton added. “You have to hear a lot of ‘no.’”

Dorothy Lennig, legal clinic director at House of Ruth Maryland, said her agency had already lost out on a competitive federal grant when Erlichman delivered the news about the 5 percent cut.

“When just one funder cuts you, you can sort of fill in,” Lennig said. “We’ve been holding our own. But each cut makes it harder to hold our own.”

Lennig said her Baltimore-based group, which has received an annual grant of $380,000 from Maryland Legal Services, has not had to lay anybody off. But it has had to leave positions unfilled when one leaves.

“We have been thoughtful about whether to fill the positions,” Lennig said. “We have to decide.”

Each vacancy in the support staff makes the group’s mission of providing legal assistance to battered women more difficult as incoming calls run the risk of not being answered, Lennig said.

“There’s just less chance we’re going to be able to serve the person when she, or he, contacts us,” she added.

Michelle Kelly, executive director of Alternative Directions Inc., said the announced 5 percent cut in the $288,000 grant it receives from Maryland Legal Services would compel the Baltimore-based inmate-assistance group to transfer one of its six employees from full time to part time.

“All the hours matter,” Kelly said, referring to the time staff members dedicate to providing legal advice or assistance to inmates. “Any type of decrease in funding really hurts.”

To compensate for the shortfall, Alternative Directions will ask other funding organizations for grants and seek donations through outreach efforts and fundraising events, Kelly said.

“We’re not going to stop our services,” she added. “This is a great need.”

The Baltimore-based Homeless Persons Representation Project Inc. stands to lose $11,875 under the 5 percent cut, said the group’s executive director.

“That’s not an insignificant amount of money for us,” added Antonia K. Fasanelli. “We work with people who are the most vulnerable in our society. We have seen a steady increase in clients every year.”

Fasanelli said she is concerned that the cuts Maryland Legal Services anticipates next fiscal year will deepen in the poor economy and if the Fed leaves interest rates so low. She joked that the acronym for the Interest on Lawyer Trust Accounts should be shortened to “OLTA” to reflect the lack of interest.

“There’s no question in my mind that the Maryland Legal Services Corporation is doing everything it can to maintain funding for legal services programs,” said Fasanelli, an attorney. “I am concerned that this is a sign of things to come if the economy does not turn around.”

Almazan, of the Maryland Coalition for Inclusive Education, said she does not want to come across as down, despite the bleak economy.

Even with the cuts, she said, “the MLSC money allows us to provide assistance to families that otherwise would not be able to have representation,” she said. “We don’t turn anybody away.”