The Cost of Cuts

Reductions in legal-aid funding leave the poor vulnerable to scams and unscrupulous companies

Since we don't want to jinx his still-in-motion case, we'll give him a fake name. Jaime will do.

Not long ago, Jaime was sued by a credit agency for the overdue balance on a 2004 Dodge Durango, bought off a local used-car lot. Only thing is, Jaime didn't own a 2004 Dodge Durango, and apparently never had.

This might lead a reasonable person to deduce that our friend did not owe $4,936.03. It certainly led Jaime to that conclusion. He even offered them a portion of his Social Security number, to prove they'd fingered the wrong guy.

The credit company, however, did not budge. In these hard times, hard-ass debt collectors no doubt run into plenty of Jaimes. And according to sources for this story, those companies—with their browbeating lawyers and relentless skip-tracers—routinely collect on tabs that aren't even owed.

But as it happens, luck was on Jaime's side. He came into contact with Southern Arizona Legal Aid, a nonprofit organization that advocates for the poor. Beverly Parker, a Legal Aid attorney, certainly caught the credit company's attention when she helped Jaime file a $9,999 counterclaim, alleging violations of the federal Fair Debt Collection Practices Act.

"Basically, he's done everything he can do to tell them he's not the right person," Parker says of her client. "I think because he's Hispanic and doesn't speak English that well, these guys just thought they could get away with it."

Jaime is lucky in another way: His case was handled before Parker's 61-year-old organization and its sister Arizona agencies begin absorbing more brutal cuts in federal funding—cuts that mean more folks like Jaime will be left to the sharks.

In November, Congress approved a nearly 15 percent funding reduction for the Legal Services Corporation, which distributes grants nationwide to organizations such as Southern Arizona Legal Aid. That cut continues a trend that will leave the corporation's current budget at $348 million, down from $404 million last year, and $420 million in 2010.

More than $1.5 million of that cut will be felt among Arizona's three legal-aid organizations: Community Legal Services, DNA People's Legal Services and Southern Arizona Legal Aid.

The latest blow was not unexpected. Created by Congress in 1974, the Legal Services Corp. has long been under assault from Republicans, who label it a liberal-minded advocacy program.

But Congress isn't the only factor in this funding squeeze. Southern Arizona Legal Aid has also taken a hit from reductions in the statewide Interest on Lawyers Trust Accounts program. The program is funded from the interest on trust accounts created by lawyers for their clients, but shrinking accounts reveal that even the legal practice isn't immune to hard times. The drop is further compounded by record low interest rates. For Southern Arizona Legal Aid, that translates into an annual funding tumble, from $250,000 down to just $38,000 from the trust accounts in recent years. (See "Unjust Cuts," Feb. 3, 2011.)

The result is that increasing numbers of poor people such as Jaime will be turned away—even as the recession sparks an explosion in folks seeking help with everything from foreclosures and predatory lending to domestic violence.

That surging need is not lost on the Arizona Foundation for Legal Services and Education, created by the State Bar to distribute federal funds and otherwise assist legal aid groups. In 2010 alone, foundation-funded groups provided direct legal services to nearly 18,000 low-income Arizonans, a number that's expected to plummet with shrinking budgets.

Even before these latest cuts were announced, the foundation had been canvassing the state. It found that most residents needing assistance with home short sales or foreclosures were 55 or older. It learned that a majority of renters seeking help were battling their landlords over dire safety and health issues. And there were a lot of people like Jaime, who were getting screwed by huge credit companies.

Legal experts estimate that about 80 percent of low-income people never have access to a lawyer. That makes them choice targets for everyone from slumlords to rip-off artists, says Kevin Ruegg, the foundation's executive director. "We have people calling up because there are rats in their house and no plumbing. We have people calling up because they want to keep their children, or because they're being swindled by scam artists. This has a real impact on real people. And if they don't have an advocate, there's a real cost to the community."

When fiscal hawks look to cut legal aid, she says, "they don't understand the tidal wave that follows."

In 2010, Ruegg says, Arizona's three legal aid agencies recouped nearly $6 million for residents. Among other things, that sum included helping people get their rightful tax credits, and recover money that had been swindled from them.

"That's $6 million going to those who are called the '99 percent,'" she says. "It's a huge contribution."

That contribution is now bound to dwindle. Southern Arizona Legal Aid is already weighing further cuts to its 54-member staff as it struggles to close a $400,000 gap in its $3.7 million budget. Sixty-five percent of that funding comes from the Legal Services Corp.

This is not a novel dilemma; SALA's staff shrank by nine employees last year with the closure of its Nogales and San Luis offices. Still, the latest crisis "could not have come at a worse time," says executive director Anthony Young. "We have more people at our doorstep, and our funding is being cut."

He sees conservative politics behind the cutbacks. "Frankly," he says, "because we've been successful, I think it's an effort to make it difficult for us to achieve justice on behalf of poor people."

SALA will be forced to retool its priorities, shifting to a more-myopic emphasis on domestic-violence prevention, helping people avoid eviction or mortgage foreclosures, "and trying to protect poor people's income from improper garnishments and people who try to steal their money," Young says.

Such scams have proliferated with the mortgage crisis, as fly-by-night consultants promise to help people save their homes—while draining what little money they have left.

And there are the folks being hounded by creditors for debts they do not owe, like Jaime. The company harassing him knows he's not the man who owes them money, Young says. "It's clear that if he had not gotten a lawyer, he would now be having his income garnished, and owing this debt from a car he never purchased.

"We filed an answer in that case," Young says, "and they're now talking settlement."

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