A little while back, I got into a mind-boggling back and forth on another blog in which the proprietor asserted that poor people are the most equipped to shrug off the effects of an economic downturn. His argument was basically, hey, poor people are already poor, so they probably won’t even feel it.
Obviously, a recession means big hits to the service economy — the sector in which most poor people work — as well as increased competition for/and cutbacks in social services like food banks that poor people overwhelmingly rely on. (This is to say nothing of spikes in crime.)
Some of those cutbacks come from places most of us would never even consider, but are no less devastating.
Scores of legal aid societies that help poor people with noncriminal cases — like disputes over foreclosures, evictions and eligibility for unemployment benefits — are being forced to cut their staffs and services, even as requests for help have soared.
In an odd twist, the societies have been hit hard by the Federal Reserve’s steep reduction of its benchmark interest rate, which finally plunged last month to near zero.
The rate decline, though generally welcomed as a blow against the recession, has had an unplanned and severe effect on legal aid societies, which depend heavily on revenues that are tied to the federal funds rate. As recently as 2007, the rate was more than 5 percent and legal aid agencies reaped more than $200 million for their operations.
Now, for many legal aid groups across the country, cutbacks in staffing are expected to reach 20 percent or more over the coming months, even as requests for their services have risen by 30 percent or more.
Legal aid groups have long benefited from little-known programs that draw interest earned from short-term deposits that lawyers hold in trust for clients during, for example, real estate transactions or personal injury payouts. The interest is mainly donated to legal services for the poor.
But as the federal funds rate declined along with the number of real estate transactions, the payout has fallen precipitously. And beleaguered state governments are also curbing their aid.