New Budget Overhauls Program Used to Fund Low-Income Civil Legal Services

Most North Carolina organizations that provide free legal assistance to low-income people on issues like housing evictions, labor complaints, disaster aid, senior health, and domestic violence and abuse will lose access to a major grant-funding source under the new state budget.

The long-awaited $34.4 billion state spending plan adopted last week includes what state Rep. Marcia Morey, a Durham Democrat and former judge, described as a “legislative takeover” of the North Carolina Interest on Lawyers’ Trust Accounts, or NC IOLTA, program. 

It reroutes the bulk of the money from the 40-year-old trust, which comes from the interest accrued when lawyers hold clients’ money in escrow, to the state Office of Indigent Services fund, which supports private counsel assigned to represent low-income defendants in criminal court.

A key question looms among many past recipients of IOLTA grants and lawmakers opposed to the changes: Does the General Assembly have the power to direct those dollars—which don’t come from taxpayer funds—to a state program?

The state Bar and state Supreme Court created IOLTA in 1983 to support legal aid for veterans, women, children, and other North Carolinians dealing with non-criminal issues.

“While there is a legal mandate to fund criminal defense for the indigent, no such requirement exists for civil legal crises,” Peter Bolac, state Bar executive director, told The Assembly. “IOLTA was designed specifically to bridge that gap. The current changes will deeply impact vulnerable North Carolinians who rely on these services.”

Since its founding, the grant program has awarded more than $134 million to organizations across the state.

But last year, the Republican-led General Assembly put a year-long freeze on the funds. Republican lawmakers said later that they were concerned about the money being used to support causes that did not align with their political philosophy. Rep. Harry Warren, a Salisbury Republican, accused IOLTA of “awarding grants to leftist groups with leftist ideologies.”

The freeze led legal aid organizations to close offices, reduce staff, and consolidate programs in rural areas, according to IOLTA. Recipients of the most recent civil legal aid grants reported an average of 22% fewer cases closed and 11% fewer clients served in the first quarter of this year compared to the same period in 2025, IOLTA reported. Organizations that provide family law help reported serving 29.4% fewer clients.

“That’s a significant step backward in the journey toward fulfilling America’s promise of ‘justice for all,’” said IOLTA Executive Director Mary Irvine.

The provision in the budget redirects up to $15 million per year from IOLTA for the indigent services fund. The budget also designates that several million dollars the program earned before the July 1, 2025 freeze took effect can be distributed to legal aid organizations, but it prohibits the funds from going to “any entity that provides immigration legal services, representation or advocacy for individuals seeking gender-affirming health care, and policy or grassroots organizing.”

That would exclude most of the organizations that have received grants in the past, Irvine said, including Legal Aid, the state’s largest non-profit law firm.

Last fall, when the state House Select Committee on Oversight and Reform called the director of the State Bar and IOLTA before them to testify, some of the lawmakers on the committee had talked about looking for a way to restore funding for organizations such as Legal Aid of North Carolina that had not been singled out for engaging in advocacy. They posed the option of narrowing the freeze to just those groups that lawmakers thought had gone afield.

 “What this language shows us is that that was not the limit of the concern because this is a broad overreaction to any such concern,” Ashley Campbell, executive director of North Carolina Legal Aid, told The Assembly. “It is a complete defunding of all providers in the state, including providers who aren’t doing any of the work that folks were complaining about.”

The budget provision also gives new power to the state Senate leader and speaker of the House to each appoint two of nine members to the IOLTA Board of Trustees. The state Supreme Court chief justice, currently Republican Paul Newby, would appoint two members, one of which is the chair. The Council of the North Carolina State Bar, which until now has made all the appointments, would select the remaining three.

“It is important for lawyers to be fully aware of these changes and the impact they will have on North Carolina residents, communities, and the courts,” Bolac said.