The recent collapse of interest rates could have a devastating effect next year on legal aid for the needy, according to local and Oregon State Bar officials.

The recent collapse of interest rates could have a devastating effect next year on legal aid for the needy, according to local and Oregon State Bar officials.

The Oregon State Bar maintains IOLTA (Interest on Lawyer Trust Accounts) and awards grants to five legal aid organizations, including Jackson County Center for NonProfit Legal Services in Medford, which was slated to get $83,000 for 2009, said its executive director, Debra Lee.

The decline in interest rates, punctuated by the Dec. 16 reduction of the prime rate to between zero and .25 percent, caused banks to drop IOLTA interest to 1 to 1.5 percent. Banks in 2009 will face a challenge to maintain even that low rate, said Judith Baker, director of the Oregon Law Foundation, the charitable arm of the Oregon State Bar.

"Our IOLTA revenue is predicted to drop 66 percent in 2009," said Baker. Since the prime rate went to .25 percent or less, we aren't sure what's going to happen. I hope banks can average 1 percent, but this is unprecedented. I'm not sure we can achieve that."

Although her group hasn't received notice of its grant amount for 2009, Lee said her organization's board of directors has decided to make budget cuts now, because the interest situation is likely to get worse in 2010.

The IOLTA money comprises just under 10 percent of their $891,000 budget, Lee said. The organization also gets grants from cities, Jackson County, Rogue Valley Council of Governments, United Way and other sources.

Baker said Oregon-based banks, including Premier West and Bank of the Cascades, have "stepped up to the plate" and said they will try to keep rates at current levels.

Tom Anderson, chief administrative officer of Premier West in Medford, said the bank is paying above 1.5 percent on IOLTA accounts now, compared to 3 or 4 percent in recent years.

"We can't predict where rates are going," Anderson said. "We hope they become higher."

Elise Bouneff, vice president and professional banking manager for Bank of the Cascades in Portland, said her bank is paying just over 1 percent on IOLTA.

"We're going to try to keep rates as high as we possibly can, given current market conditions," said Bouneff, who serves on the Oregon Law Foundation board, coordinating the process between the Oregon State Bar and banks.

"We've spent a lot of time and energy creating solid relationships with banks and they're aware of the impact of IOLTA in access to justice," Bouneff said. "We'll keep rates as high as we can without detriment to banks."

Baker said the Oregon Law Foundation carries reserves, which will be relied on in 2009. But "in 2010, everything is going to get really gouged. It will be much worse "¦ a drastic reduction. When the foundation loses 75 percent of revenue in two years, it's very difficult. The fed (prime rate) has never gone below 1 percent. Point-25 is devastating."

In 2007, IOLTA received $3.6 million, Baker said. In 2008, the amount dropped to $2.3 million. The amount is projected to be $1.2 million in 2009, if banks average 1 percent interest. If banks follow the Fed's drop to .25, IOLTA would get only $300,000, she added.

"Local legal aids know they're going to be impacted. It's a huge reduction in the revenue base "¦ we're going to have to pull way back," Baker said.

John Darling is a freelance writer living in Ashland. E-mail him at