Civil legal aid organizations, which provide tens of thousands of North Carolinians with free legal services each year, have been forced to close offices and reduce client intake after the state legislature froze millions of dollars in grant funding to them earlier this year.
A small provision in a public safety bill passed in July stopped the North Carolina Interest on Lawyers’ Trust Accounts (NC IOLTA) from awarding grants through June 30, 2026.
IOLTA is a pooled fund administered by the North Carolina State Bar which is composed of client funds such as retainers or settlement money. The interest earned on that money is typically used for charitable purposes, the vast majority of it going to civil legal aid organizations in the form of grants.
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The money in the IOLTA fund isn’t taxpayer dollars, but the state House of Representatives still took issue with some of the grantees who received that money, which some lawmakers accused of inappropriate political activity.
“We’ve heard from a number of folks that IOLTA does good work, and we have seen evidence of that,” said Rep. Harry Warren, R-Rowan, during a House oversight committee meeting on Oct. 22.
“But IOLTA has also gone somewhat rogue, awarding grants to leftist groups with leftist ideologies,” he added.
Other Republican lawmakers brought up examples of IOLTA grantees which they claimed opposed state laws requiring local law enforcement to cooperate with ICE and quoted statements from organizations’ websites which denounced systemic racism.
Many but not all IOLTA grantees are legally prohibited from engaging in political activities as 501(c)(3) nonprofits.
Despite an attempt at compromise from the state bar, the legislature still hasn’t acted to unfreeze those grants. Another oversight hearing on the matter is scheduled for later this month.
Legal aid groups react
Leaders at several civil legal aid organizations who spoke with Carolina Public Press variously called state lawmakers’ actions “short-sighted,” “weird” and “beyond devastating.” They say the ongoing freeze of IOLTA funds is not just a temporary frustration but a potentially catastrophic problem, particularly for the poor and rural communities.
Ashley Campbell, CEO of Legal Aid of North Carolina, said thousands of North Carolinians will be worse off as a result of less accessible legal services.
According to the UNC School of Law, 45 out of 100 North Carolina counties are legal deserts, meaning they have fewer than one attorney per 1,000 residents. A primary goal of IOLTA grants was to bridge that gap, she said.
Legal Aid of NC, the largest civil legal services provider in the state which handled more than 20,000 cases last year in all 100 counties, closed nine offices in mostly rural areas earlier this year because of the loss of IOLTA funds.
The organization is by far the largest recipient of IOLTA grants and faces a $6.5 million loss in funding. So far, it has laid off 50 employees, Campbell said.
Legal aid organizations across the state were already grappling with budget shortfalls from previously reliable government funds.
Several health insurance enrollment programs (a major function of many legal services organizations) were slashed this year, and the federal government didn’t provide money for disaster-related legal services following Tropical Storm Helene, as it typically does following a major storm.
“The impact on legal aid in North Carolina is much larger than the IOLTA problem,” Campbell said.
“But the IOLTA problem really pushed it from a hard situation into a complete crisis.”
Jackie Kiger, executive director at Pisgah Legal Services, said the funding freeze couldn’t have come at a worse time for the organization, which had to lay off 13 employees earlier this year.
She said the IOLTA funding freeze was “beyond devastating,” particularly because Pisgah Legal Services, which operates out of 18 counties in Western North Carolina, is still seeing increased demand for civil legal services from Helene survivors.
Not only are residents seeking help with FEMA decision appeals or private insurance matters, but knock-on economic effects of the flood have also meant more people are dealing with possible evictions or navigating social safety net programs for the first time.
“What we should be doing right now is hiring more staff to be able to meet those needs, but because of the freeze, we can’t,” Kiger said.
“So we’re in this limbo. We are stuck trying to figure out how we are trying to find different funding now for this disaster recovery work at a time when we were hopeful that there would be another opportunity for that with IOLTA.”
In some cases, the loss of IOLTA funds has crippled organizations uniquely dedicated to serving the most vulnerable individuals.
The Council for Children’s Rights, which represented thousands of Mecklenburg County juveniles in the areas of mental health, special education, juvenile justice and child welfare, shuttered this summer after suffering several losses of funding including its IOLTA grant.
Meanwhile, Disability Rights NC, a nonprofit law firm which provides free legal services to people with disabilities, laid off staff, reduced working hours and temporarily halted legal intake as a result of the loss of funds.
Corye Dunn, director of public policy at Disability Rights NC, said changes at the federal level have required more demand for the organization’s services, and it doesn’t have the resources to meet the moment.
“We had an interruption in the flow of SNAP funds, (and) we’ve had some significant changes in federal programs that our communities rely on, including the elimination of the office at the U. S. Department of Education that administers or that enforces the rights of students with disabilities,” she said.
“So, in the midst of us having funding constraints and uncertainty, our clients actually need more from us.”
On top of all of it, the other legal aid organizations that Disability Rights NC might ordinarily refer clients out to if they had limited capacity are facing the same staffing and funding issues.
The Charlotte Center for Legal Advocacy is one of those organizations that maintains partnerships with several legal aid groups. They absorbed the Council for Children’s Rights’ education law program after it dissolved earlier this year.
CEO Larissa Mañón Mervin told CPP that they are leaning on their established partner networks to get through the funding freeze. IOLTA funds were about 15% of Charlotte Legal Advocacy’s annual budget, she said.
Charlotte Legal Advocacy provides a wide range of civil legal services, including representing clients in immigration court and providing aid to undocumented victims of violent crimes and unaccompanied minors.
Mervin said the state lawmakers who supported the funding freeze because of IOLTA grantees who provided legal services to undocumented immigrants were misinformed about the scope of their work.
“Sometimes the problem is just lack of understanding and awareness and having the truthful, factual information behind the programs we provide and the services we provide,” she said.
“Some people talk about the immigration work that our program does, and what they fail to realize is that we actually have pretty close partnerships with law enforcement and other partners that are actually referring us to those cases because a lot of those cases are survivors of trafficking or abuse.”
Campbell of Legal Aid of NC echoed the point that state lawmakers have failed to recognize the value IOLTA-funded organizations provide the state. North Carolina is one of very few state legislatures in the country which doesn’t have an annual allocation to civil legal aid, and now it has further pinched the money flowing to those efforts.
She invited state lawmakers to ask her any questions they may have about Legal Aid’s services.
“If a member ever has a concern about anything that we do at Legal Aid of North Carolina, I have always asked them to reach out directly to me and for us to have a conversation about it, and I have not had anyone do that,” Campbell said.
“It’s just weird here in North Carolina,” she added, “because it’s not like this in other red states.”
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