by Beth A. Danon, Esq.
The Future of the Vermont Bar Foundation Is This: Where You Bank Matters
The Vermont Bar Foundation (“VBF”) is
almost wholly dependent on the interest lawyers earn on their client trust accounts (known as IOLTA) to make grants to civil legal service providers—such as Vermont Legal Aid, Legal Services Law Line of Ver- mont, Vermont Law School’s South Royal- ton Legal Clinic, VBA’s Statewide Pro-Bo- no Coordinator, Have Justice Will Trav- el, Women Helping Battered Women, the Bennington, Rutland, Windham County, and Windsor/Orange County Pro Bono Projects, and the Vermont Immigration and Asylum Advocates, among others—that serve Vermonters who cannot otherwise af- ford legal representation.
Since its inception thirty years ago this October, when IOLTA became mandatory for all private practice attorneys, the VBF has awarded over $16,500,000 to grantees who provide legal services to disadvan- taged Vermonters. That includes, among other things: keeping Vermonters in their homes or preventing them from being evicted; helping them with their post-Hurri- cane Irene FEMA applications and appeals; making sure they are living in homes that are safe and sanitary; helping them with their benefits, including Social Security, welfare, food stamps, and Section 8 hous- ing; rescuing them from domestic violence; preventing the exploitation of the elderly and disabled; protecting children whose parents are embroiled in custody disputes; and, helping those with asylum applica- tions who face torture or even death if de- ported. Thus, the VBF is the single, largest private contributor to the civil legal needs of indigent Vermonters.
The VBF also spearheaded the Vermont Lawyers Repayment Assistance Program (“LRAP”) through which the VBF helps qual- ifying individuals in the public service sec- tor repay law school debt. Lawyers across the state have expressed concern about an aging bar and the staggering law school debt often faced by law school graduates. Since 2007, the VBF has awarded $279,000 in individual grants that range from $500 to $5,000 per year to Vermont attorneys who practice public interest law in Vermont and who struggle to pay their school loans. Most of these attorneys are employed by the VBF’s grantees. These lawyers are usu- ally recent graduates who tell the VBF that without LRAP they could not afford to con- tinue their public interest job. Rule 1.15B of the Vermont Supreme Court’s Rules of Professional Responsibility
www.vtbar.org
for attorneys requires that every lawyer or law firm holding funds in one or more trust account to create and maintain a pooled interest-bearing trust account in a finan- cial institution in Vermont that has been approved by the Professional Responsibil- ity Board. Thereafter, the net interest in that account is then to be paid over to the VBF. Choosing a bank or credit union not only requires the lawyer or law firm to de- termine if the financial institution has been approved by the Professional Responsibil- ity Board or not, in these times of record low interest rates, it is more important than ever for lawyers to understand that where they bank matters. By that single one de- cision they can greatly increase their con- tribution to the VBF and, thereby, enhance the availability of needed legal services to disadvantaged Vermonters. This article will explain how this is so.
A Little History In 2005 and 2006, when interest rates
were at their height, bar foundations and IOLTA programs across the country woke up to the fact that financial institutions were paying much lower interest rates on their IOLTA accounts than they were on their other accounts. Many then advocated for comparability rules in one form or an- other that required lawyers and law firms to deposit their IOLTA funds with financial in- stitutions that paid rates “comparable” to their other accounts. The VBF, with the help of an outside con-
sultant from ALPS generously paid for by a grant from the Vermont Supreme Court, decided to take a different route. Rath- er than impose mandatory comparability rules, it decided on a voluntary approach. It engaged the banks and credit unions from around the state in a partnering pro- cess, educated them about the VBF and how the IOLTA money was used, and asked them to voluntarily pay competitive inter- est rates on their IOLTA accounts. Thus, at the end of 2007, the Honor Roll was estab- lished. Banks and credit unions that paid an annual net yield of 2.0% or higher and tied their rates to a recognized market indicator were recognized at the Gold Level; those that paid an annual net yield of 2.0% were recognized at the Silver Level; and, those that paid an annual net yield of 1.5% were recognized at the Bronze Level. The program was a resounding success. By 2008, the VBF had increased its reve-
THE VERMONT BAR JOURNAL • FALL 2012
nues by more than 20%, proving what VBF had suspected all along—that a voluntary, partnership approach, rather than the im- position of mandatory rules, would pro- duce better results. The VBF could increase grant amounts proportionally, instituted its LRAP program, and for the first time in its history established a reserve fund for lean- er times.
Then Came the Recession
By the end of 2008, when the economy went bust, the revenue picture for the VBF changed dramatically. After interest rates fell, banks and credit unions started to ei- ther drop down or drop off the Honor Roll. That combined with smaller deposits as transactions, especially real estate trans- actions, took a dive as well—VBF’s IOLTA revenues went from $1,291,124 in 2008 to $967,543 in 2011. This is an almost 25% drop in revenue that is predicted to con- tinue in the same downward direction until the economy improves.
This comes at a time when VBF’s grant- ees can least afford a reduction in its VBF grant money. For instance, last year, Ver- mont Legal Aid suffered a loss of $85,000 in federal domestic violence funding and a $40,000 reduction in its foreclosure fund- ing, while state funding remained $50,000 less than it was in 2008. The Legal Services Law Line faced a 14% reduction in its fed- eral funding, a loss of $82,843 in base fund- ing. Predictably, when there is a downturn in the economy, the demand for legal aid services becomes even greater. Vermont- ers facing their own increase in unemploy- ment, record level foreclosures, and an in- crease in the need for benefits, such as food stamps and fuel assistance, needed legal services in record numbers. In 2008, Vermont Legal Aid fielded 10,884 calls for help from Vermonters. In 2011, it fielded 15,429 calls. Fortunately, in 2011, the VBF could at least level fund its grantees, in- cluding Vermont Legal Aid and Law Line, by dipping into its reserves. However, its reserves will not last much longer, and in- terest rates are not predicted to increase until 2015. And, it is anybody’s guess when the economy will bounce back.
The Good News The good news is that the VBF has
fared much better than those states that imposed comparability rules. Collabora-
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