Coronavirus economic impacts expected to slash Foundation’s IOTA income; board delays some grants
Almost half of its IOTA income will likely be lost in the next fiscal year due to collapsing interest rates, part of the economic upheaval caused by the new COVID-19 pandemic, according to Florida Bar Foundation projections.
The Foundation Board of Directors, at its March 27 teleconference, began adjusting funding for pending grants to deal with both a surge in expected virus-related workload for legal aid agencies and an eventual reduction in IOTA revenues.
Executive Director Donny MacKenzie reported to the board that through the June 30 end of the 2019-20 fiscal year, he expects the Foundation to receive $13.7 million in IOTA funds. But because of lowered interest rates, slashed by the Federal Reserve to help boost the economy, that’s expected to be around $7.1 million for the 2020-21 fiscal year.
“We know invariably the rates … have crashed and we are going to see a significant decrease in IOTA funding, MacKenzie said.
Grants Committee Vice Chair Stephen Senn said that the panel recommended – and the board approved – putting on hold four grant areas totaling almost $3 million that had been recommended by staff and were to be considered by the board at the March meeting.
The grants were for children’s legal service programs at various legal aid agencies (almost $1.5 million), administration of justice grants ($844,828), the pro bono transformation and innovation grants ($644,000), and the Foundation’s Summer Fellow Program funding grants ($99,275).
The grants were worked up before the dramatic effects of the pandemic hit.
“Those changes include the economic dive and the increase in unemployment due to the COVID-19 pandemic … and there will probably be a lot of other varieties of legal needs. The legal needs are going to change dramatically in light of what’s happened over the last few weeks,” Senn said. “The other big change is cutting of interest rates to near zero, which means that IOTA funds are going to drop — substantially into the basement.
“That suggests we consider reserving some of the available funds for next year and shifting perhaps some funds … into some kind of emergency programs that are likely to be necessary.”
Congress, he said, has recognized there will be an expansion of legal aid needs by including an extra $50 million for the Legal Services Corporation in the recent $2 trillion relief bill passed by Congress and signed by President Trump.
“We should be giving similar consideration to those new realities,” Senn said.
Senn presented several recommendations to the board, which were unanimously approved with one abstention:
• Tell Foundation staff to reconsider prior grant recommendations and “consider using some of the funds for reserves or for emergency assistance grants.”
• Have staff bring their recommendations to the Grants Committee for a meeting in early April, which will be reported to the Foundation’s Executive Committee. All board members will be notified of those staff recommendations prior to the Grants Committee meeting.
• The Executive Committee, with input from board members, will make a final determination on those recommendations at its April 9 meeting.
On the reduction in IOTA funding, MacKenzie said the Foundation for years has had a policy of not allocating one year’s IOTA funding until the following budget year, which will help this year and next. The Federal Reserve recently slashed interest rates to 0 to 0.25 %, the same as the cuts to deal with the Great Recession.
“[The interest rate reduction] will have a significant impact on us in particular and all IOTA programs throughout the country,” MacKenzie said.
The interest rate cuts offset success the Foundation had with six banks that agreed to pay significantly higher than normal interest rates on their IOTA deposits, and another 177 banks that agreed to waive fees and pay comparable rates they provide other depositors, he said.
Of the $13.7 million expected in IOTA income this year, with various policies and reserves being followed, the Foundation will have about $7.4 million in IOTA funds to give away next year. But in the following 2021-22 fiscal year, it’s anticipated the IOTA program will generate only about $7.1 million. After providing for reserves and following other policies, the amount on IOTA funds available for grants will be considerably less than that $7.1 million. And those figures assume there is no reduction in the amount of money lawyers hold in their IOTA trust funds.
“We are back to 2008 and 2009 and we have to realize that,” MacKenzie said. “We need to start focusing on that.
“We tried to figure out how we can help our grantees help their people now, importantly, and also prepare for the inevitable deluge and tsunami that is coming in 60 to 90 days because of the economic fallout,” he said, adding the Foundation has sent a survey to its grantees asking how the Foundation can help and the Foundation is reaching out to other IOTA grant distributers across the country for ideas. The Foundation also has $450,000 in disaster relief funds available.
According to Foundation materials, 16 legal aid organizations had been recommended by Foundation staff for funding from the now-delayed children’s legal services grants, meeting a range of services from helping homeless children with education and health needs, to assisting foster children and those with complex legal needs.
Among the now defunded administration of justice grants are $288,913 for the Innocence Project of Florida, $250,000 for Florida Children’s First, $62,500 to help educate mobile homeowners in Miami-Dade County about their rights, and $99,275 for 12 second- and third-year law students who were recommended for summer fellowships to work on special projects that help low-income clients.