    [House Hearing, 108 Congress]
    [From the U.S. Government Publishing Office]

        LEGAL SERVICES CORPORATION: INQUIRY INTO THE ACTIVITIES OF THE
    CALIFORNIA RURAL LEGAL ASSISTANCE PROGRAM AND TESTIMONY RELATING TO THE
                            MERITS OF CLIENT CO-PAY

    =======================================================================

                                    HEARING

                                   BEFORE THE

                                SUBCOMMITTEE ON
                       COMMERCIAL AND ADMINISTRATIVE LAW

                                     OF THE

                           COMMITTEE ON THE JUDICIARY
                            HOUSE OF REPRESENTATIVES

                          ONE HUNDRED EIGHTH CONGRESS

                                 SECOND SESSION

                                   __________

                                 MARCH 31, 2004

                                   __________

                                 Serial No. 100

                                   __________

             Printed for the use of the Committee on the Judiciary

        Available via the World Wide Web: http://www.house.gov/judiciary

                                     ______

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                           COMMITTEE ON THE JUDICIARY

                F. JAMES SENSENBRENNER, Jr., Wisconsin, Chairman
    HENRY J. HYDE, Illinois              JOHN CONYERS, Jr., Michigan
    HOWARD COBLE, North Carolina         HOWARD L. BERMAN, California
    LAMAR SMITH, Texas                   RICK BOUCHER, Virginia
    ELTON GALLEGLY, California           JERROLD NADLER, New York
    BOB GOODLATTE, Virginia              ROBERT C. SCOTT, Virginia
    STEVE CHABOT, Ohio                   MELVIN L. WATT, North Carolina
    WILLIAM L. JENKINS, Tennessee        ZOE LOFGREN, California
    CHRIS CANNON, Utah                   SHEILA JACKSON LEE, Texas
    SPENCER BACHUS, Alabama              MAXINE WATERS, California
    JOHN N. HOSTETTLER, Indiana          MARTIN T. MEEHAN, Massachusetts
    MARK GREEN, Wisconsin                WILLIAM D. DELAHUNT, Massachusetts
    RIC KELLER, Florida                  ROBERT WEXLER, Florida
    MELISSA A. HART, Pennsylvania        TAMMY BALDWIN, Wisconsin
    JEFF FLAKE, Arizona                  ANTHONY D. WEINER, New York
    MIKE PENCE, Indiana                  ADAM B. SCHIFF, California
    J. RANDY FORBES, Virginia            LINDA T. SANCHEZ, California
    STEVE KING, Iowa
    JOHN R. CARTER, Texas
    TOM FEENEY, Florida
    MARSHA BLACKBURN, Tennessee

                 Philip G. Kiko, Chief of Staff-General Counsel
                   Perry H. Apelbaum, Minority Chief Counsel
                                     ------

               Subcommittee on Commercial and Administrative Law

                          CHRIS CANNON, Utah Chairman

    HOWARD COBLE, North Carolina         MELVIN L. WATT, North Carolina
    JEFF FLAKE, Arizona                  JERROLD NADLER, New York
    JOHN R. CARTER, Texas                TAMMY BALDWIN, Wisconsin
    MARSHA BLACKBURN, Tennessee          WILLIAM D. DELAHUNT, Massachusetts
    STEVE CHABOT, Ohio                   ANTHONY D. WEINER, New York
    TOM FEENEY, Florida

                      Raymond V. Smietanka, Chief Counsel

                            Susan A. Jensen, Counsel

                            Diane K. Taylor, Counsel

                      James Daley, Full Committee Counsel

                       Stephanie Moore, Minority Counsel

                                C O N T E N T S

                                  ----------

                                 MARCH 31, 2004

                               OPENING STATEMENT

                                                                       Page
    The Honorable Chris Cannon, a Representative in Congress From the
      State of Utah, and Chairman, Subcommittee on Commercial and
      Administrative Law.............................................     1
    The Honorable Melvin L. Watt, a Representative in Congress From
      the State of North Carolina, and Ranking Member, Subcommittee
      on Commercial and Administrative Law...........................     2

                                   WITNESSES

    Ms. Helaine M. Barnett, President, Legal Services Corporation
      Oral Testimony.................................................     5
      Prepared Statement.............................................     7
    Mr. Jose R. Padilla, Executive Director, California Rural Legal
      Assistance, Inc.
      Oral Testimony.................................................    15
      Prepared Statement.............................................    17
    Ms. Jeanne Charn, Director, Hale and Dorr Legal Services Center,
      and Director, Bellow-Sachs Access to Legal Services Project,
      Harvard Law School
      Oral Testimony.................................................    25
      Prepared Statement.............................................    27

                                    APPENDIX
                   Material Submitted for the Hearing Record

    Letter submitted by Members of the Congressional Hispanic Caucus.    45
    Letter submitted by the Brennan Center for Justice at New York
      University School of Law.......................................    49
    Letter submitted by the Mexican American Legal Defense and
      Education Fund (MALDEF)........................................    54
    Letter submitted by the League of United Latin American Citizens.    57
    Letter submitted by the Farmworker Justice Fund, Inc.............    60
    Letter submitted by the California Catholic Conference...........    63
    Letter submitted by the Mexican American Bar Association.........    66
    Letter submitted by 12 Law Professors............................    69
    Letter submitted by the National Hispanic Leadership Agenda......    75
    Report of Leonard J. Koczur, Acting Inspector General, Legal
      Services Corporation...........................................    78
    Photographs submitted by California Rural Legal Assistance Inc...   133
    Supplemental Prepared Statement of Jeanne Charn, Director, Hale
      and Dorr Legal Services Center, and Director, Bellow-Sacks
      Access to Civil Legal Services Project, Harvard Law School.....   139
    Response to Post-Hearing Questions from Helaine M. Barnett,
      President, Legal Services Corporation..........................   141
    Response to Post-Hearing Questions from Jose R. Padilla,
      Executive Director, California Rural Legal Assistance, Inc.....   151
    Response to Post-Hearing Questions from Jeanne Charn, Director,
      Hale and Dorr Legal Services Center, and Director, Bellow-Sachs
      Access to Legal Services Project, Harvard Law School...........   160

        LEGAL SERVICES CORPORATION: INQUIRY INTO THE ACTIVITIES OF THE
    CALIFORNIA RURAL LEGAL ASSISTANCE PROGRAM AND TESTIMONY RELATING TO THE
                            MERITS OF CLIENT CO-PAY

                                  ----------

                           WEDNESDAY, MARCH 31, 2004

                      House of Representatives,
                             Subcommittee on Commercial
                                and Administrative Law,
                                    Committee on the Judiciary,
                                                        Washington, DC.
        The Subcommittee met, pursuant to notice, at 1:03 p.m., in
    Room 2141, Rayburn House Office Building, Hon. Chris Cannon
    (Chair of the Subcommittee) presiding.
        Mr. Cannon. The Subcommittee will come to order.
        The Subcommittee on Commercial and Administrative Law is
    meeting this afternoon to receive testimony from various
    sources as part of its continuing oversight of Legal Services
    Corporation and the activities of its grantees. The focus of
    today's hearing is on the potential benefits of a co-pay system
    whereby clients partially subsidize the cost of their legal
    representation. In addition, the hearing will focus on certain
    recent complaints brought against the California Rural Legal
    Association and the efforts undertaken to resolve and hopefully
    prevent the recurrence of these problems.
        The Legal Services Corporation was formed by Congress to
    distribute Federal money to provide legal services for civil
    legal assistance to those who otherwise may not be able to
    afford legal representation. LSC does not provide services
    directly but, instead, acts as the funding source to various
    grantees organized across the country who in turn provide the
    actual legal services.
        Congress relies on the LSC to effectively oversee the
    activities of its grantees by ensuring they act in accordance
    with the scope and purpose of restrictions that Congress has
    periodically imposed upon their activities. This is intended to
    maximize the efficient delivery of services with the highest
    degree of client representation and professionalism in the
    discharge of legal representation. Congressionally mandated
    restrictions specify which cases a grantee may undertake.
        In our discussions today, we hope to obtain a better
    appreciation of the potential benefits that may be derived from
    requiring LSC clients to pay some portion of the cost of legal
    services they receive. Such a co-pay system that can be applied
    to LSC grantees could have several positive results. First and
    foremost, the client, by paying a portion of the cost of
    representation, might expect and demand a higher level of
    professionalism and performance from his or her attorney, thus
    causing the grantee to provide better service. In addition,
    more funds could be available to serve eligible clients.
    Finally, such a system may make grantees less dependent on
    fluctuating Federal appropriations and help stabilize the LSC
    funding process.
        Additionally, we hope to gain insight into the activities
    of the California Rural Legal Association, or CRLA, since the
    restrictions were enacted pursuant to the 1996 Appropriations
    Act. LSC grantees are partnered with groups active in
    restricted activities under a so-called community justice
    program.
        The partnership approach requires strict scrutiny by LSC
    and Congress to ensure that congressionally mandated
    restrictions are not being circumvented. Based upon the report
    filed by LSC's Inspector General, CRLA has been, in spirit if
    not in fact, failed to comply with certain of these
    restrictions. Issues are presented as to whether this is the
    cause of willful disobedience, negligent management, or a
    breakdown in communication and understanding between LSC and
    its grantees.
        I now turn to my colleague Mr. Watt, the distinguished
    Ranking Member of the Subcommittee, and ask him if he has any
    opening remarks.
        Mr. Watt. Thank you, Mr. Chairman, and thank you for
    convening this hearing.
        The Legal Services Corporation is an important part of our
    legal system, providing free, quality representation for the
    poor and assisting in expanding the number of lawyers with the
    appropriate understanding and expertise to serve the needs of
    the poor and underprivileged. And for that, I'm always grateful
    to have a hearing so that we can highlight the wonderful things
    that the Legal Services Corporation and legal services lawyers
    throughout the country are doing for poor people who cannot
    afford to have representation otherwise.
        I have a longstanding association with Legal Services going
    all the way back to working in the Hill community in New Haven,
    Connecticut, when I was in law school, and then going to the
    board of directors of our local Legal Services Corporation in
    Charlotte, North Carolina, Mecklenburg County Legal Services.
    So I know the value that the Legal Services Corporation and its
    lawyers and other legal services lawyers play in the
    administration of justice in our system.
        I do, however, have two concerns about today's hearing that
    are somewhat troubling to me. First, I'm concerned about the
    decision to call one of the witnesses, Mr. Padilla. He is the
    executive director of the California Rural Legal Assistance
    program, CRLA, as it is called. It is a legal services grantee
    and, as such, is subject to various restrictions imposed by
    Congress on its activities. And last fall, the Office of
    Inspector General issued a report of its investigation into
    whether California Rural Legal Assistance violated some of
    those restrictions.
        CRLA has responded and the process is ongoing, and I
    believe that bringing Mr. Padilla before this Committee to
    respond to inquiries about the allegations is inappropriate and
    threatens to influence the outcome of an ongoing investigation.
    It would be tantamount to calling witnesses in a trial that is
    going on before a court.
        So I think we could be very counterproductive in what we
    are doing. I believe that Legal Services Corporation governing
    body is perfectly capable of monitoring compliance with the
    regulations and that we should tread lightly as we proceed with
    this hearing so as not to prejudice or influence the outcome of
    the investigation, which, as I have indicated, is ongoing.
        Second, if we are going to tread on these waters, it seems
    to me that we should tread with a degree of balance that may
    not--we may not be able to have. When I learned that we were
    going into this inquiry, we sought the testimony of a former
    Legal Services Corporation president, Mr. John McKay, who has
    substantial knowledge of the CRLA and this process for
    investigating complaints. Mr. McKay would have provided
    valuable testimony about the internal machinery of the Legal
    Services Corporation and how it has effectively resolved
    concerns about compliance with the law and regulations
    governing the Legal Services Corporation up to and including
    defunding those grantees who refuse to take corrective action
    when they are found to be in violation.
        We have here today on the panel the current Chair of the
    Legal Services Corporation, Ms. Barnett, whom I admire and
    respect greatly, and in the audience, Mr. Frank Strickland, who
    I also have utmost confidence in. Unfortunately, they are new
    to this process and would not be able to give the kind of
    testimony that Mr. McKay would have been able to give on this
    important subject.
        And it's unfortunate that Mr. McKay, who is now the U.S.
    Attorney for the Western District of Washington, was denied
    clearance to testify by the Department of Justice. This
    Administration seems to be not real sure whether it wants
    anybody in the Administration to testify about anything,
    apparently. Perhaps if we had had a little bit more time, we
    could have gotten this resolved. But they refused to allow him
    to come to testify, and I know, Mr. Chairman, that you share
    our concern about establishing and maintaining cooperation
    among our co-equal branch of Government. And I know you are
    also disappointed that this witness could not be here to
    testify. But I think it leaves us--leaves open the possibility
    that we could not get the entire picture of what we are here to
    inquire about, even if it is an appropriate inquiry.
        Finally, Mr. Chairman, I would just say one thing on
    whether we should be consider--whether we should consider
    imposing a co-pay structure on the Legal Services Corporation.
    I am a firm opponent of that and believe that instituting a
    system of co-pay, even on a voluntary basis, might lead to the
    end of a comprehensive free legal services system in this
    country. And I know that there are people who are being served
    by legal services lawyers who simply don't have the capacity to
    do it. It's not because they don't want to pay for their legal
    services. They simply don't have the wherewithal to do so.
        I look forward to hearing the testimony of the witnesses
    and hope that we will tread lightly and not do damage to an
    ongoing investigation as we proceed. And I yield back Mr.
    Chairman.
        Mr. Cannon. I thank the gentleman.
        Without objection, the gentleman's entire statement will be
    placed in the record. Also, without objection, all Members may
    place their statements in the record at this point. Any
    objection?
        Hearing none, so ordered.
        And without objection, the Chair will be authorized to
    declare recesses of the Subcommittee today at any point.
        Hearing none, so ordered.
        I ask unanimous consent that Members have 5 legislative
    days to submit written statements for inclusion into the
    hearing record. So ordered.
        I now am pleased to introduce the witnesses for today's
    hearing.
        Our first witness is Helaine Barnett, the newly appointed
    president of Legal Services Corporation. Ms. Barnett has
    devoted her life to providing legal services to the indigent.
    For 27 years, she has served as an advocate and manager for the
    Legal Aid Society of New York City, which is the oldest and
    largest legal aid organization in the country. Ms. Barnett is a
    graduate of Barnard College and received her law degree from
    New York University School of Law.
        Our next witness is Jose Padilla, executive director of the
    California Rural Legal Assistance program. Mr. Padilla has been
    the executive director of CRLA since 1984 and worked as a staff
    attorney prior to that, resulting in a total of 25 years of
    affiliation with CRLA. Mr. Padilla has received numerous awards
    and honors, including being listed as one of the 100 most
    influential lawyers in California--a nation unto itself, I
    might point out.
        A child of migrant workers in California's Imperial Valley,
    Mr. Padilla has maintained a deep commitment to representing
    the interests of migrant workers. Mr. Padilla received his
    undergraduate degree from Stanford University and his law
    degree from the University of California at Berkeley, Boalt
    Hall School of Law.
        I might just interject that Mr. Padilla and I spent some
    time speaking yesterday. We had a very pleasant discussion and
    have agreed that the purpose of America and of Government is to
    give people opportunity, and education is a core concept there.
    And so we look forward to Mr. Padilla's testimony today.
        Our last witness is Jeanne Charn. She is the director of
    the Hale and Dorr Legal Services Center as well as the director
    of the Bellows-Sachs Access to Civil Legal Services Project,
    both of which are located at Harvard Law School. These programs
    were conceived by Ms. Charn and her late husband, Mr. Gary
    Bellows, appointed assistant dean for clinical programs at
    Harvard Law School in 1973. Ms. Charn has been part of the
    Harvard Law tradition for nearly 30 years. In addition, Ms.
    Charn has served as a consultant to the Legal Services
    Corporation. A native of Illinois, Ms. Charn obtained her
    undergraduate degree from the University of Michigan and her
    law degree from the Harvard Law School.
        I would also like to take this opportunity to note the
    attendance of Mr. Frank Strickland, Chairman of LSC's Board of
    Directors. Mr. Strickland, we appreciate your taking the time
    from your active law practice to make this trip from Atlanta to
    monitor this hearing. We appreciate your being there. I
    personally had the pleasure to meet with you and to discuss the
    work of LSC. You've made yourself available to my staff. We
    very much appreciate your cooperation and efforts on behalf of
    LSC. Again, thank you for your attendance.
        In addition, I would like to note that there is no minority
    witness at today's hearing. This late-breaking development
    appears to have resulted from the Department of Justice's
    confusion as to the propriety of the requested witness
    testifying. I can assure you that I intend to follow up on this
    matter with my colleague, Mr. Watt, to ensure that such
    problems do not occur in the future.
        We have a prerogative in Congress. We on a bipartisan basis
    tend to assert that prerogative with great clarity. Every
    Administration has its confusions about this, which we tend to
    be able to clarify and to regularly do so. And so we will work
    together to do that, and I apologize for the fact that we don't
    have a minority witness. I agree with the Ranking Member that
    that would have made this hearing more beneficial, and we shall
    try other ways to include some of the ideas that we may have
    missed by not having him here today.
        I extend to each of you my warm regards and appreciation
    for your willingness to participate in today's hearing. In
    light of the fact that your written statements will be included
    in the record, I request that you limit your oral remarks to
    about 5 minutes. So, accordingly, feel free to summarize your
    most salient points in your testimony. We do have a lighting
    system, and it is green for 4 minutes and then turns yellow for
    a minute, then turns red. That doesn't mean you have to stop,
    if you'll just sort of wrap at that point. I have a tendency to
    tap, not to stop you, but to just remind you that it's moving
    on. I think that we're all benefited by a hearing that moves
    fairly quickly today.
        After all the witnesses have presented their remarks, the
    Subcommittee Members in the order they arrived will be
    permitted to ask questions of the witnesses subject to the 5-
    minute limit.
        Ms. Barnett, would you now proceed with your testimony?

              STATEMENT OF HELAINE M. BARNETT, PRESIDENT,
                       LEGAL SERVICES CORPORATION

        Ms. Barnett. Thank you, Mr. Chairman, Congressman Watt, and
    Members of the Subcommittee. I am pleased to be here today,
    along with Frank Strickland, Chairman of the Legal Service
    Corporation Board of Directors. I want to thank you for this
    opportunity to appear before you on behalf of the Legal
    Services Corporation to discuss LSC's ongoing efforts to
    promote equal access to civil justice in America and to answer,
    to the best of my abilities, any questions that Members may
    have about LSC.
        I assumed the presidency of LSC on January 20th, after 37
    years of providing legal services to the indigent in New York
    City. Having spent my entire professional career helping low-
    income people in times of legal crisis and having seen the
    critical difference that legal service attorneys make in the
    individual lives of poor clients facing homelessness, hunger,
    unemployment, and threats to their health and safety, I can say
    unconditionally that the support of Congress, this
    Subcommittee, and the Administration is crucial.
        LSC grantees assist victims of domestic violence to achieve
    liberty and self-sufficiency in a safe environment. They help
    seniors preserve maximum independence. They help uninsured
    individuals access health care. They help persons with
    disabilities obtain disability benefits that dramatically
    improve the quality of their lives. They preserve housing of
    families with children and prevent homelessness and shelter
    stays. Their clients include parents who seek custody
    arrangements to protect their children from abuse; children who
    are in foster care seeking adoption by a loving and supportive
    family; elderly consumers seeking protection from fraudulent
    loan and collection practices; small family farmers in
    financial difficulties; veterans seeking Government benefits to
    which they're entitled; victims of natural disaster.
        Without question, the Federal Government remains the single
    largest and most important funding source for civil legal
    services nationally. Yet even with Congress' support, only an
    estimate one in five eligible low-income persons across this
    country is receiving assistance when confronted with these
    pressing civil legal problems, leaving 80 percent of our poor
    with unmet legal needs.
        Moreover, the 2000 U.S. Census reported an increase in the
    number of Americans living in poverty. More than 43 million
    people are now eligible for Federal legal assistance, yet fewer
    than 3,700 LSC-funded attorneys nationwide are charged with
    providing that critical help to those most vulnerable and in
    need.
        Because of insufficient resources, LSC-funded programs are
    forced to turn away annually tens of thousands of eligible
    individuals with urgent civil legal problems. In 1996, Congress
    passed a series of reforms requiring recipients of LSC funds to
    focus on the basic day-to-day legal problems of America's poor.
    I strongly support Congress' decision to focus Federal dollars
    in this way. The LSC board and staff share a deep commitment to
    the mission of promoting equal access to our system of justice
    for low eligible--for low-income eligible Americans in
    unequivocal conformity with the mandates of Congress.
        As LSC president, I am committed to ensuring full and
    faithful compliance with all congressional requirements and
    restrictions. LSC is proud of its strong record on grantee
    oversight and compliance. By and large, our grantees are very
    diligent and careful in complying with congressional
    requirements and restrictions. Nevertheless, LSC will continue
    to devote very considerable staff resources to these activities
    in order to ensure that Federal recipients abide by the 1996
    restrictions, as well as all other laws and rules governing
    thoroughly funded legal aid entities.
        Working with our Inspector General, LSC will closely
    monitor our programs and take strong corrective action whenever
    a grantee fails to comply with the law or LSC regulations.
        LSC will also continue to devote considerable attention and
    energy to devising strategies that promote the best and most
    efficient use of Federal funds in every State. Congressional
    funding of innovative technology grants has been extremely
    successful in this regard. The Corporation has awarded grants
    that have made possible expanded access through hotlines,
    increased access to information through an array of self-help
    and community education materials to help clients help
    themselves, as well as more efficient intake structures and
    case management system.
        LSC grantees close nearly 1 million cases a year as well as
    approximately 4 million matters, such as community legal
    education sessions. Only about 10 percent of LSC-funded cases
    are resolved through a court decision, while nearly 75 percent
    are resolved through advice, counsel, or brief service.
    Oftentimes a letter or a phone call from a legal services
    attorney can resolve a problem at the outset, saving a
    substantial number of hours and dollars. We seek to provide
    meaningful assistance to individual clients while serving as an
    efficient, problem-solving program and as a model of efficient
    dispute resolution.
        This year, LSC is exploring how to better and more
    effectively promote quality in the delivery of legal services
    to the poor. We are examining how to define and measure quality
    and how we transmit the learning of this generation of leaders
    to the next.
        In conclusion, I believe there are fewer responsibilities
    more important in a democracy than ensuring equal justice under
    law. I know from personal experience that legal services
    programs are often the last line of defense for hard-working
    poor men and women and their families who desperately need our
    help and who seek some degree of self-sufficiency and a measure
    of fairness in our society. I am proud to play a role in this
    vital effort, and I look forward to working closely with
    Congress in the future and welcome your thoughts and
    suggestions with respect to the work of LSC as we pursue the
    goal of equal justice for the poor in America.
        Thank you.
        [The prepared statement of Ms. Barnett follows:]

                    Prepared Statement of Helaine M. Barnett

                                  INTRODUCTION

        Mr. Chairman, Congressman Watt, and Members of the Subcommittee,
    thank you very much for the opportunity to testify before the House
    Judiciary Subcommittee on Commercial and Administrative Law. On behalf
    of the Board of Directors and Legal Services Corporation's (LSC)
    management, we are pleased to report on LSC's accomplishments since we
    last testified before the Subcommittee in 2002 and to answer any
    questions Committee Members might have.
        Legal Services Corporation is a private, nonprofit corporation
    created by Congress with bipartisan support in 1974. LSC's charge is to
    ensure equal access to justice by supporting the provision of civil
    legal assistance to those who otherwise would not be able to afford it.
    For Fiscal Year 2004, Congress appropriated $338,848 million to LSC,
    $322,948 million of which has been allocated in grants to fund 143
    legal services programs serving every U.S. county and territory.\1\ LSC
    spends less than 4 percent of its total appropriation for the
    management and administration of the national program.
    ---------------------------------------------------------------------------
        \1\ Pre-rescission figures are used throughout this testimony.
    ---------------------------------------------------------------------------
        The LSC Board and staff are committed to our mission, as defined by
    the LSC Act, to promote equal access to our system of justice for low-
    income people throughout the United States. Given funding realities,
    LSC has focused in recent years on devising and implementing strategies
    that promote the highest and best use of federal funds in every state
    and territory. We continue to devote considerable LSC staff resources
    to compliance and enforcement activities, in order to ensure that
    federal recipients abide by congressional requirements and restrictions
    enacted in 1996, as well as all other laws and regulations governing
    federally-funded legal aid entities.

                                 ADMINISTRATION

        LSC is governed by an 11-member Board of Directors appointed by the
    President of the United States with the advice and consent of the
    Senate. By law, the Board must be bipartisan; no more than six members
    may be of the same political party. The Board appoints LSC's President,
    who serves as LSC's chief executive officer, subject to general
    policies established by the Board. The 1988 Amendments to the Inspector
    General Act (the IG Act) required LSC to establish an Office of
    Inspector General (OIG) and extended specific provisions of the IG Act
    to LSC. Accordingly, such an office was established by and for LSC. The
    Inspector General is appointed by, reports to, and serves under the
    general supervision of LSC's Board of Directors.
        Submitting written testimony are LSC President Helaine M. Barnett
    and LSC Chairman Frank B. Strickland. Ms. Barnett assumed her position
    as President of LSC on January 20, 2004. She has been a legal services
    attorney for 37 years, employed throughout that time at the Legal Aid
    Society of New York City, the country's oldest and largest legal
    services organization. For nearly three decades prior to assuming the
    LSC presidency, Ms. Barnett was involved in the management of the Legal
    Aid's Society's multi-office civil division, heading it since 1994. In
    that capacity, she oversaw the provision of legal services covering the
    full range of civil legal problems of the poor, established a major
    initiative for homeless families with children, created citywide health
    law and domestic violence projects, and mobilized the organization's
    911 Disaster Assistant Initiative. Ms. Barnett also assumed many
    additional leadership responsibilities within the legal community at
    the national, state, and local levels. She is a co-chair of the New
    York State Commission to Promote Public Confidence in Judicial
    Elections; Treasurer of the Association of the Bar of the City of New
    York; a member of the American Bar Association Governance Commission
    and House of Delegates and a past member of the ABA Board of Governors,
    where Ms. Barnett was the first and only legal services attorney to
    serve. Ms. Barnett was also a member of the ABA Executive Committee.
        Mr. Strickland is a partner in the Atlanta law firm of Strickland
    Brockington Lewis, LLP. He served for seven years on the board of the
    LSC-funded Georgia Legal Services Program and for four on the board of
    LSC-funded Atlanta Legal Aid Society. President George W. Bush
    nominated him to the LSC Board in 2002, and he was sworn in as a member
    and elected Chairman in 2003. Mr. Strickland has been a member of the
    Board of Governors of the State Bar of Georgia since 1985 and is a
    former member and chairman of the Georgia State Ethics Commission. He
    has been general counsel of the Georgia Republican Party and is a
    member of the Board of Governors of the Republican National Lawyers
    Association. In addition, he is Chairman of the Atlanta Lawyers Chapter
    of the Federalist Society. When Mr. Strickland was President of the
    Atlanta Bar Association (1985-1986), he received the American Bar
    Association's Harrison Tweed Award for coordinating the year's
    outstanding pro bono project in America--mobilizing more than 400
    volunteer lawyers to provide representation to more than 800 Cuban
    detainees in administrative parole proceedings.

                              ENSURING COMPLIANCE

        LSC's Office of Compliance and Enforcement (OCE) was established to
    ensure that congressionally-mandated restrictions and other regulations
    are adhered to by LSC grantees. OCE's responsibilities include
    reviewing compliance by grantees with the LSC Act and regulations;
    responding to public complaints; approving major expenditures by LSC
    recipients; conducting accountability training; and providing follow-up
    to certain findings and recommendations contained in grantees' audited
    financial statements. The FY04 budget for OCE is $2.47 million, which
    supports a 17-member staff comprised of a Vice President of Compliance
    and Enforcement, a Director of Compliance, a dozen attorneys, two
    fiscal analysts, two support staff and a management analyst.
        New restrictions enacted by Congress in 1996 prohibit grantees who
    accept LSC funding from, among other things, filing or litigating class
    action lawsuits, engaging in most types of lobbying, seeking or
    receiving attorneys' fees, litigating on behalf of prisoners, or
    representing undocumented aliens. LSC has implemented these
    restrictions by regulation and monitors its grantees closely to ensure
    strict adherence. The LSC Board and management have not hesitated to
    take strong and decisive action when grantees fail to comply with the
    law or LSC regulations. Fiscal sanctions have and will be imposed where
    necessary and appropriate, up to and including termination of the
    program's LSC grant.
        In 2003, OCE performed 39 on-site reviews, surpassing its ambitious
    goal of 32 annually. OCE investigates public concerns, closely reviews
    mandatory annual audits filed by each LSC grantee, and performs on-site
    reviews to ensure that all congressional restrictions on LSC-funded
    programs are enforced. OCE selects programs for on-site review based on
    a combination of a number of criteria, including complaints of non-
    compliance, referrals from the Office of the Inspector General, a
    considerable change from one year to the next in Case Services Reports,
    and other indicators. Since 2001, LSC has had the authority to conduct
    random compliance reviews as well. Finally, if OCE uncovers a serious
    violation of the restrictions, or if a grantee implements a corrective
    action plan to resolve a compliance problem, OCE will perform a follow-
    up review within one year of the last review and provide technical
    assistance to ensure effective implementation of the corrective action
    plan.
        LSC feels confident in the effectiveness of its compliance efforts.
    Because we use indicators such as complaints from Congress and the
    public to determine which programs to review, we give especially close
    attention to those grantees against which serious allegations have been
    made. In addition, the possibility of random audits occurring at any
    time is an effective safeguard against non-compliance. Finally,
    Independent Public Accountants (IPAs) perform an annual review of the
    compliance of each LSC grantee with LSC regulations and congressional
    restrictions. IPAs report any evidence of non-compliance to the
    Inspector General, who in turn refers the findings to LSC management
    for follow-up and resolution.
        Since October 1997, LSC management and the Inspector General have
    instituted an official audit follow-up process with its grantees known
    as the A-50 Follow-up Process. This process is based on Office of
    Management and Budget (OMB) Circular A-50 for agency follow-up of OIG
    reports. The process sets out a general timeline for handling OIG
    findings and resolving any differences between the OIG and LSC
    management regarding such findings. OCE receives approximately fifty A-
    50 referrals a year. The overwhelming majority of issues are resolved
    in less than 30 days to the satisfaction of both management and the
    OIG. If OCE substantially agrees with the OIG that a grantee is not in
    compliance and that a satisfactory plan has not been submitted by the
    grantee to bring it into compliance, LSC may impose a number of
    sanctions. LSC may put the grantee on a short-term funding schedule; it
    may suspend part or all of a grantee's funding for up to 30 days; and
    it may terminate funding if the grantee engages in continued serious
    violations.

                            IMPLEMENTING COMPETITION

        The central role of LSC is to manage and oversee the use of federal
    funds that support the direct provision of legal services by 143 LSC-
    funded legal services providers. Since 1996, LSC has used a system of
    competition for grants to promote the economical and effective delivery
    of services, as required by the LSC Act. This system supplanted the
    previous system of presumptive refunding of LSC grantees.
        We encourage non-incumbent legal services providers to compete for
    available grants by broadly circulating information on the availability
    of grant funds and by providing outreach and technical support to
    potential applicants. LSC announces the grants competition each year in
    national and local newspapers, on the LSC website, in the Federal
    Register, and in bar journals.
        During the competition process, LSC evaluates applications
    according to established quality standards and awards grants to those
    providers best able to efficiently provide high-quality legal services
    in accordance with all applicable legal requirements. LSC provides
    three channels through which competitive grant applicants, including
    non-incumbents, can raise questions, issues, and complaints about the
    grants process. LSC surveys all applicants who file a notice of intent
    to compete but fail to subsequently file a grant application. LSC has
    an applicant service desk that responds to applicant questions and
    concerns throughout the grants competition period. Additionally, LSC
    hosts an ``Applicant Information Session,'' which is a free telephonic
    conference used to inform potential applicants about how to file a
    viable grant application. It also provides a formal vehicle for LSC to
    respond to questions and issues regarding its grants competition
    process.
        LSC has held a grants competition each year since 1996 and recently
    completed the grants competition for calendar year 2004 funding. During
    the past eight years, there have been three competitions in which an
    incumbent LSC grantee lost to an applicant that had never previously
    received a grant from LSC. Whether or not there are multiple applicants
    for an LSC service area contract, every entity seeking LSC funds must
    submit a comprehensive application for LSC funding for a term not to
    exceed three years, and each grantee must submit an annual application
    for a renewal of LSC funding.
        Over time, we have examined the competition process to learn how it
    can be improved and how to potentially attract more applicants.
    However, many factors help explain the lack of emergence of competitors
    for LSC funds. There are many situations across the country in which
    the legal community believes that the current LSC provider is
    performing well, and there simply has been no expressed interest by
    another entity seeking to become a legal services grantee. In our
    experience, law firms with an initial interest in offering one type of
    free service to low-income clients, such as representation in custody
    and divorce, are not interested in providing a full array of legal
    services, including housing, family, consumer and income maintenance
    work. Offering such services also requires establishing costly intake
    structures, emergency access, and other core capacities. Potential
    applicants also have reported that extensive reporting requirements
    attached to LSC funding are a deterrent to applying for LSC funds. Some
    firms have made the economic determination that the limited LSC funding
    does not compensate for the time-consuming extra administrative tasks
    they would be required to perform. Congressionally mandated
    restrictions on LSC grantees also make it somewhat more difficult to
    attract qualified applicants able to compete with incumbent programs.
    In particular, some applicants have noted that the restriction on
    accepting attorneys' fees makes it difficult to stay financially
    competitive as a potential LSC service provider.

                             CASELOADS AND STAFFING

        LSC grantees close approximately 1 million cases a year on behalf
    of low-income clients and handle an additional estimated 4 million
    ``matters''--assistance that falls short of the official definition of
    a case (i.e., pro se assistance, dissemination of community legal
    education materials, referrals, mediation assistance, etc.). To serve
    the individuals and families these cases represent, LSC programs employ
    8,277 full-time staff, of whom 3,652 are attorneys. The average
    starting salary for a staff attorney is $33,489, making legal services
    lawyers among the lowest-paid members of the legal profession.\2\
    ---------------------------------------------------------------------------
        \2\ Legal Services Corporation 2002 Summary of Average Salaries by
    Job Classification for Full Time Staff. (www.rin.lsc.gov)
    ---------------------------------------------------------------------------
        Well over 50 percent of our clients are served through the advice
    and counsel efforts of our programs. Almost another 20 percent are
    assisted by brief service efforts. Fewer than ten percent of LSC
    grantee cases are resolved through a court decision. About three-
    quarters of LSC's client population are women, many with young
    children. Almost 11 percent are elderly. About one-quarter of the
    client population is African-American; about 20 percent is Hispanic;
    and approximately two percent are Native American and another two
    percent are Asian or Pacific Islander in origin.

                        IMPLEMENTING STRATEGIC PLANNING

        LSC has used its State Planning Initiative to help grantees address
    emerging client populations, diminishing resources and important new
    technological advances that are revolutionizing the practice of law and
    helping legal services practitioners reach underserved client
    populations. State Planning requires that grantees supplement and
    enhance technology structures to improve client services and access. It
    requires grantees to coordinate functions with local and state
    stakeholders, including other LSC grantees, so more eligible clients
    who need legal assistance can receive it. State Planning also stresses
    local resource development and instructs grantees to undertake efforts
    to leverage their federal dollars with non-federal resources.
        State Planning, in combination with federally mandated competition
    for LSC grants, is fully in accord with strategies set forth in
    President Bush's Management Agenda. In 2001, all federal agencies were
    instructed to leverage resources to maximize the use of limited
    government funds. The most enduring legacy of LSC's State Planning
    Initiative may be its success in achieving that directive. Through
    State Planning, LSC spawned partnerships with judges, state legislators
    and private bar members to help increase state funding and private
    contributions for legal services.

                   PROMOTING EFFICIENCIES THROUGH TECHNOLOGY

        LSC's Technology Initiative Grant (TIG) program supports projects
    to develop, test and replicate technologies that enable programs to
    improve program efficiency and enhance client access to high-quality
    assistance in the full range of legal services. Initiated with a
    special appropriation in FY00 and funded by Congress every year since,
    the TIG program awards grants to LSC grantees through a competitive
    grant process. LSC awarded 51 TIG grants in 2003. In FY05, LSC plans to
    allocate $4 million to the TIG program. Since the program's inception,
    LSC has funded a range of pioneering and effective technology projects.
    Pro se initiatives have equipped clients with the tools and support to
    protect their legal interests on their own while increasing the
    efficiency of the courts. Web-based systems, video-conferencing and
    related approaches have increased access to justice for clients living
    in remote areas. Newly designed case management and intake systems, as
    well as other infrastructure investments, offer increased efficiencies
    that enable programs to save time and money and ultimately serve more
    clients. Finally, client-centered statewide legal services web sites
    provide legal information in 49 states and territories, thanks in part
    to TIG grants and ongoing technical assistance funded with TIG monies.
    Using these tools, clients can more easily obtain legal information
    through computers in their homes or at public venues such as libraries.
        The TIG program has increased access to legal information, self-
    help resources and other legal assistance for low-income Americans. It
    has also given traditionally hard-to-reach clients living in isolated
    areas a new avenue to pursue and obtain legal aid. TIG awards have
    allowed many LSC grantees to leverage matching funds from other
    sources. For instance, our program in Alaska received matching funds
    from the Alaska Court System to install and configure workstations in
    each of the six state courthouses. These provide access to public legal
    education and self-help materials in both English and in Yup'ik, a
    traditional Alaskan language.
        Another replicable TIG innovation is our Montana pilot project on
    teleconferencing, which has enabled the Sixteenth Judicial District
    (200 miles in diameter) to hold trials in county courthouses throughout
    the area by utilizing video conferencing technology to hear from
    witnesses who live far from the actual courthouse. Many judges
    throughout the state now hold trials via teleconferencing. Sheriffs no
    longer have to bring in witnesses and litigants who lack transportation
    and judges can make better assessments of witnesses' and litigants'
    mental capacities when they are in familiar surroundings. Overall,
    court proceedings take far less time.
        A further innovative example of a TIP project is California's I-
    CAN! project, a web-based legal services kiosk that offers convenient,
    effective access to vital legal services. Developed by the Legal Aid
    Society of Orange County, in partnership with the courts, local
    government agencies, libraries and legal services organizations, I-CAN!
    creates properly formatted pleadings, provides court tours, and
    educates users on the law and how to pursue their matter. I-CAN!
    software facilitates completion and filing of forms on complaints
    regarding parental obligations, domestic violence restraining orders,
    orders to show cause, earned income tax credits, fee waivers, license
    denial reviews; paternity petitions, small claims matters and unlawful
    detainers. Users can access the program for free on any computer
    connected to the Internet and through kiosks in courthouses, legal aid
    offices, community centers, women's shelters, and libraries. It serves
    hard to reach groups such as rural communities and individuals with
    limited or no English proficiency as some modules can be accessed in
    Spanish and Vietnamese.

                               IMPROVING QUALITY

        LSC management and the Board's Committee for the Provision of Legal
    Services launched a Quality Initiative in 2004 to study ways to enhance
    and promote the delivery of high-quality assistance by federal
    grantees. LSC is committed to identifying and subsequently spurring the
    development of certain core quality standards in its grantees. LSC will
    work with the American Bar Association and others to revise performance
    standards developed by the ABA's Standing Committee on Legal Aid and
    Indigent Defendants as well as those from other professions. Consensus
    has already been reached on certain quality benchmarks: streamlined
    case management systems, competent staff, peer review, resource
    development, consistently strong client outcomes and high client
    satisfaction. Other standards under examination include client
    involvement, workforce diversity, client accessibility, strategic use
    of scarce resources, and dissemination of best practices among
    providers. LSC will continue to examine how our most successful
    programs have achieved high quality and what is required to maintain
    it. We are providing a forum for experts to discuss the development of
    these qualities and showcasing grantees whose work demonstrates that
    they have given consistent attention to quality in staff work product,
    client concerns, and community relations.
        It is essential that LSC have a strong presence in the national
    legal services community and be visible among its grantees as we assist
    them with their profoundly important mission. Our experience has shown
    that the more readily available we are to programs, the quicker they
    are to call us with questions and report problems. We have found that
    programs are eager to learn about ways in which they can improve
    performance and conform to LSC requirements. Teaching programs how to
    succeed yields far stronger outcomes for clients and lessens compliance
    problems. Recently, we increased our quality site visits to grantees.
    Sites were selected because they showed indications of weakness in one
    or more aspects of program activity or exemplified some of the best
    qualities found in legal services organizations. Although current LSC
    resource levels permitted fewer than a dozen trips in 2003, we have
    already realized significant rewards from the effort. LSC has been able
    to give guidance on improvements and to provide mentoring, partnership,
    and assistance in ways that allow grantees to deliver quality legal
    aid. LSC has also learned how strong programs achieve their success and
    has been able to share that information with others.

                        ENSURING ACCURACY OF STATISTICS

        The Office of Information Management (OIM) is responsible for
    collecting data reported by our grantees or affecting them. Using 2000
    census data, OIM determined the appropriation funding amounts for
    grantees based on a per capita calculation of the number of eligible
    poor people in each LSC service area. OIM is also responsible for
    managing the Case Service Reports (CSR) grantees file annually. In
    1999, two U.S. Government Accounting Office (GAO) reports raised
    questions about the accuracy and validity of the CSRs. Problems
    reported by GAO stemmed in part from a lack of clarity found in past
    LSC reporting guidelines and, more generally, from insufficient
    attention by grantees to the existing reporting and documentation
    requirements.
        LSC promptly took up the issue and instituted the necessary
    measures to correct the problem. LSC developed and issued to all
    grantees more detailed guidance on CSR reporting and on improving their
    case management systems to comply fully with LSC's operational
    standards. Then LSC provided additional training to those grantees most
    in need of it. LSC also established a system for sampling CSR data so
    that grantees can diagnose and correct reporting problems and LSC can
    track the error rate both grantee-by-grantee and nationally. As a
    result, accuracy greatly improved from an 11 percent sample error rate
    for 1999 CSRs to a 4.9 percent rate for 2000 CSRs. We continued to
    improve with a 4.3 percent sample error rate for 2002 CSRs. We expect a
    projected sample error rate between 4.2 and 4.3 percent in 2003.\3\ We
    are confident that the goal of ``substantial accuracy'' has been
    achieved. LSC will continue to pay close attention to the quality of
    CSR reporting to ensure the integrity of CSR figures, which are our
    strongest hard numerical indicator of services delivered, both on a
    national and individual program basis.
    ---------------------------------------------------------------------------
        \3\ For 2002 cases, one more adjustment was made, excluding Title
    III Administration on Aging cases where collection of financial
    eligibility data is restricted by law. This adjustment reduced reported
    case closures by about another 35,000.
    ---------------------------------------------------------------------------
                              2005 BUDGET REQUEST

        For FY05, LSC requests an appropriation of $352.4 million to
    provide funding for civil legal assistance to eligible low-income
    persons throughout the United States. This represents a modest four
    percent increase over LSC's FY04 appropriation and only partially
    accounts for the increased number of eligible poor clients living in
    many LSC service areas. More than 43 million low-income Americans are
    currently eligible for federally funded assistance--a record high. In
    addition, LSC's funding over the years has been dramatically outpaced
    by inflationary increases at a rate of more than 2 to 1. Current
    funding, in 1980 real dollars, equals just $149.17 million.
        LSC's FY05 budget request is structured to allow LSC to meet three
    key goals:

              To modestly increase the availability of legal
            services to eligible persons;

              To ensure legal services clients are receiving high-
            quality legal assistance; and

              To ensure that legal services programs fully comply
            with all legal requirements.

        The FY05 request eliminates funding for the census adjustment line
    item that had been included in LSC's budget during the previous two
    fiscal years. In FY03 and FY04, as a transitional measure, extra
    funding was set aside to assist LSC-funded programs facing significant
    federal losses due to poverty population shifts. The census funding
    adjustments enabled grantees to gradually adjust to lower funding
    levels and gave program leaders an opportunity to reallocate scarce
    resources and devise strategies to raise additional non-federal funds.
    For FY05, LSC asks that its funding be distributed proportionally among
    all grantees based on per capita determinations of the eligible poor
    living in each service area.
        Federal funding is the single largest and most critical funding
    component for legal aid and low-income Americans seeking access to
    critical civil legal assistance. The federal investment has become even
    more important in recent years, which have seen a variety of non-
    federal funding sources stagnate or shrink. Many LSC-funded programs
    are forced to turn away thousands of qualified individuals with urgent
    civil legal problems. These include victims of domestic violence
    seeking protective orders, parents seeking custody arrangements to
    protect their children from abuse, elderly consumers seeking protection
    from fraudulent loan and collection practices, tenants seeking to keep
    their families off the streets, and veterans and seniors seeking vital
    government benefits. Over 3,600 legal aid attorneys throughout the
    country are charged with providing civil legal assistance to the more
    than 43 million financially eligible Americans-individuals with annual
    incomes of $11,638 or less, which is 125 percent of the federal poverty
    threshold. Despite the hard work and dedication of this skeletal
    workforce, studies show that approximately 80 percent of eligible
    clients do not have access to legal services when they have serious
    civil legal concerns.

                                HELPING CLIENTS

        LSC is best understood in terms of the clients our programs assist.
    They are all poor individuals and families who face overwhelming legal
    challenges. We have selected several client histories that are
    indicative of the range of cases that our grantees across the nation
    handle where the provision of civil legal assistance has made a
    critical difference in their lives.
        Ms. K. came to the Legal Aid Society of Orange County (LASOC) when
    she was 20 years old and the mother of a young son. She and her
    boyfriend began dating when she was 17 years old, and the severe
    physical abuse began two weeks later. He beat and kicked her
    repeatedly, hit her in the stomach when she was pregnant, isolated her
    from her family and friends, was verbally abusive, and refused to allow
    her to go out without him. He took her to and from her job and forced
    her to turn over her paycheck to him. She finally was fired because she
    was so stressed on the job from the situation at home. Despite her best
    efforts to please him, Ms. K was beaten because she did not keep a
    clean enough house or prepare meals her boyfriend liked. She finally
    left when he told her that she would be beaten when he returned home
    from work for failing to iron his shirt. LASOC assisted her in applying
    for restraining orders and custody and visitation orders. The judge
    indicated that she was the textbook domestic violence victim and
    granted the orders as requested.
        In New York, Legal Services of New York (LSNY) represented Ms. S.
    who was widowed when her husband, the primary breadwinner of the family
    and an employee of the World Trade Center, was killed on September 11,
    2001. Shortly after the tragedy, while she was still in shock and
    grieving her loss, a finance company began eviction proceedings against
    her despite the fact that she had paid her rent. She learned that a
    foreclosure proceeding against her landlord had resulted in the
    landlord's loss of the house. LSNY successfully negotiated a settlement
    with the finance company and Ms. S. was given enough time to find
    another affordable place to live.
        When Ms. A. was in junior high school she was assaulted so
    viciously that she could no longer walk. As a young adult she lived in
    her own apartment but required twenty-four hour a day living
    assistance. The state decided to decrease her home health care hours to
    save costs. Since Ms. A. was dependent on the availability of health
    care and assisted living on a twenty-four hour a day basis, the
    potential loss of her home health care benefits would give the young
    woman little choice but to enter a nursing home. With the assistance of
    Legal Aid of Western Missouri (LAWMO), Ms. A. was able to retain her
    home health care assistance and graduated from college. She now plans a
    career as a legal service attorney.
        Ms. P acquired a ten-acre parcel of property in rural Idaho prior
    to her marriage. With the help of friends and neighbors she constructed
    a small home on the property. Eventually she married. Within a week of
    the marriage, her new husband, taking advantage of her disabilities,
    convinced her to sign a quitclaim deed giving him a one-half interest
    in her property. Over time he acquired complete control of their
    finances and incurred $85,000 in debt. He grew abusive and was arrested
    for domestic violence. Upon his release from jail he filed for divorce
    and asked that ``their'' land and home be sold to cover the credit card
    debt. Idaho Legal Aid Services represented her in a multi-day trial.
    The court revoked the quitclaim deed and assigned the vast majority of
    the credit card debt to Ms. P's ex-husband.

                  CONGRESS HAS CONSIDERED AND REJECTED CO-PAY

        At the Committee's request, the LSC is addressing the adaptability
    of a co-pay system for LSC-funded grantees. Although the question of
    charging clients a fee for legal assistance is not specifically
    addressed in the LSC Act, the legislative history of the Act strongly
    indicates that federally funded legal assistance provided pursuant to
    the Act is to be free of charge. Both the House and Senate reports note
    that ``It is in the Nation's interest to encourage and promote the use
    of our institutions for the orderly redress of grievances . . . and
    that the program of providing free legal assistance to those unable to
    afford such counsel should receive continued support.'' The House
    Report goes on to state that ``regulations promulgated by the
    corporation will assure that . . . no person or group will be charged
    any fee for legal services provided by recipients under this bill.''
        LSC has followed this very clear legislative intent, and it has
    been the policy of LSC that our grantees may not charge fees for LSC-
    funded legal assistance. Our clients represent the poorest of the poor
    and most vulnerable individuals in the country and are desperately
    seeking civil legal assistance to make a critical difference in our
    lives.
        Moreover, in the mid-1990s co-pay was considered and rejected by
    Congress. Reauthorization bills introduced in both the House and the
    Senate contained provisions that would have required LSC to undertake a
    demonstration project to study co-pays, and would have permitted--but
    not required--LSC to establish a system of co-pay for some or all of
    its programs. Neither reauthorization bill passed. However, a number of
    the provisions from the reauthorization bills were ultimately included
    in the 1996 Appropriations Act. The co-pay demonstration project was
    not included.
        The legislative history of the 1996 Appropriations Act also makes
    clear that Congress intended for legal services to be provided free of
    charge. In justifying the attorneys' fees restriction, the House Report
    states, ``Further, the Committee notes that Corporation grantees are
    supported by public resources to provide free legal aid to their
    clients. Therefore, the Committee believes it is inappropriate for
    attorneys' fees to be collected for free legal aid.'' We believe
    Congress was right when it indicated that federally funded legal
    services should be provided free of charge to those in our society most
    in need. (Emphasis added.)

                       STATUS OF LSC REVIEW OF OIG REPORT

        In response to the Committee's request to consider current alleged
    infractions committed by California Rural Legal Assistance, LSC will
    report on the status of LSC's review of the OIG's and the possible
    sanctions that might be imposed on any program that has been referred
    to LSC by the OIG.
        On September 30, 2003, the OIG provided CRLA with a draft audit
    report. As is standard procedure, CRLA was given an opportunity to
    respond. On November 14, 2003, CRLA submitted comments in response to
    the OIG's report. CRLA disputed the OIG's draft findings. On December
    11, 2003, the OIG issued its final report. The OIG accepted some minor
    corrections from CRLA and dropped one finding. Otherwise, the OIG
    reiterated its previous findings. The OIG gave CRLA two months to
    provide a corrective action plan (CAP), which CRLA submitted in
    February of this year. OIG reviewed it and, on March 5, 2004, after
    deciding that CRLA's proposed CAP inadequately addressed the problems
    outlined in the report, the OIG referred the matter to LSC's Office of
    Compliance and Enforcement (OCE) through what is known as the A-50
    referral process.
        We take our responsibilities under the A-50 process very seriously.
    The A-50 process stems from a requirement in the 1996 Appropriations
    Act that LSC was to ``develop procedures to ensure effective follow-up
    that meet at a minimum the requirements of Office of Management and
    Budget Circular Number A-50.'' A-50 provides for general federal agency
    follow up procedures for IG findings.
        Following the procedures outlined in that process, OCE, in
    conjunction with LSC's Office of Legal Affairs and management, is
    currently reviewing the facts and the law presented in this case. We
    hope to conclude this review of whether or not we agree with the OIG's
    report by May 1, 2004. We will, however, conclude our work on this case
    in as short a time frame as we reasonably can.
        There are a number of possible scenarios that could arise after LSC
    completes its review of an OIG report. If we concur with the OIG's
    findings that a program violated LSC regulations, and we agree that a
    program's proposed CAP will not adequately remedy the situation, we
    would try to work with the program to develop a CAP that will bring
    them into compliance.
        If working with the program does not bring them into compliance, we
    will consider the imposition of any and all sanctions necessary to
    promptly bring the program into compliance. LSC may suspend part or all
    of the grantee's funding for up to thirty days; we could put the
    grantee on a short-term funding schedule at the end of the calendar
    year; and, if the grantee continued to engage in serious violations of
    congressional will as codified in LSC Act, appropriations acts and
    regulations, we could terminate the grantee's LSC funding.
        Another sanction available to LSC is to cease to fund the program
    during the next competitive grant cycle. LSC always takes a grantee's
    compliance history into account during the competition process.
        If after review of the OIG's report, LSC management disagrees with
    the OIG's conclusions, then as part of the A-50 process, an Audit
    Follow up Official (AFO), designated by the LSC president, tries to
    work out an agreement. If an agreement cannot be reached between the
    OIG and LSC management, then the AFO issues a decision that will be
    final.

                                   CONCLUSION

        Civil legal services programs play a critical role in helping poor
    individuals and families achieve independence and self-sufficiency and
    in obtaining critical relief. Annually, the LSC cases fall into
    traditional poverty law categories. Grantees close almost 40 percent of
    their cases in family law each year, primarily representing custodial
    parents and victims of domestic abuse seeking divorces and orders of
    protection. More than ten percent of our closed cases involve efforts
    to help elderly clients with income maintenance issues, veterans'
    benefits, disability claims, and other relief under benefits programs
    designed for older Americans. Almost one-quarter of our grantees'
    litigation is devoted to housing law issues--preventing family
    homelessness by challenging evictions, preventing foreclosures,
    improving living conditions, helping with Section 8 and other federal
    housing subsidies or through community activities to improve
    neighborhoods and develop affordable housing. Our programs' lawyers
    keep children in school by representing them in expulsion hearings and
    helping students with disabilities learn in effective and appropriate
    settings. LSC grantees make sure that the working poor have access to
    fair employment and the wages to which they are entitled. Our grantees
    also assist consumers with bankruptcy and other debt relief, including
    that caused by predatory lenders.
        In conclusion, we at LSC are proud of our partnership with Congress
    and enormously grateful for the bipartisan support we have earned over
    the past decade. We also deeply appreciate the support the Bush
    Administration has shown for our efforts to provide equal access to
    justice for low-income Americans in the most efficient and effective
    manner possible. The LSC Board and staff will continue in this
    collaborative effort and will build upon these important relationships
    in the future as we endeavor to give meaning to the goal of equal
    access to all Americans. Thank you.

        Mr. Cannon. Thank you, Ms. Barnett.
        Mr. Padilla?

     STATEMENT OF JOSE R. PADILLA, EXECUTIVE DIRECTOR, CALIFORNIA
                      RURAL LEGAL ASSISTANCE, INC.

        Mr. Padilla. Mr. Chairman, Congressman Watt, Congressman
    Delahunt, my name is Jose Padilla. I'm the executive director
    of CRLA. I am proud to say I've been a legal aid lawyer with
    CRLA for more than 25 years, almost 20 of those years as its
    director. I am always honored to speak on its behalf and on
    behalf of the more than 85 committed advocates in our program,
    and especially on behalf of the more than half a million rural
    poor and farm workers to whom we minister legal aid, who honor
    us by allowing us to be their lawyers.
        CRLA is considered one of the more effective legal aid
    programs in the country. We are proud of that legacy of high-
    quality, ethical, and effective litigation. Congress wants to
    give poor access to courts. We bring cases to courts. Courts
    decide.
        Recent examples of our work: We enabled three wheelchair-
    bound high school students to secure district-wide building
    modifications that brought schools in compliance with the
    Americans with Disabilities Act. These students had been unable
    to navigate their campuses, use bathrooms, or participate in
    academic programs that physically accessible--that were
    physically accessible only to the able-bodied.
        We obtained a fair housing discrimination case settlement
    against a predator landlord who sought out women residing at a
    local homeless shelter and offered rental discounts in return
    for sex.
        We secured improvement to a farm labor camp housing
    hundreds of asparagus pickers which had no functioning toilets
    or showers, with a filth-laden kitchen, and recovered months of
    unpaid back wages for some 400 workers residing there.
        I provided Congressman Watt with pictures of that labor
    camp going--pictures that show housing going from filth to
    decency.
        And we provided thousands of K-3 English learners access to
    Reading First grants under No Child Left Behind, enjoining the
    State Department of Education from enforcing a ban that kept
    these funds from reaching hundreds of English-learner
    classrooms.
        But it has been a repeated fact of our history,
    Congressmen, that effective advocacy invites controversy. So we
    have come to answer any questions that you may have about
    recent audits of our program. So I briefly speak to three
    things: the first two, compliance and cooperation.
        About compliance, CRLA has always realized that we will be
    able to provide diligent and effective advocacy on behalf of
    the most vulnerable only through administering efficiently and
    effectively all aspects of financial accounting, local office
    operation, and staff activities. Protection of the Federal
    resource is the most critical responsibility that a program
    director will assume. Indeed, for someone born in a rural
    community and raised by parents who were themselves migrants,
    this obligation to protect at all cost the Federal rural legal
    service dollar weighs heavier.
        About cooperation, the recent IG audit presented many more
    issues and many requests for information than any previous
    audit that we had gone through. We cooperated fully. No
    inquiries remained unaddressed. No pending issues remained
    open. When questions arose concerning client privacy and CRLA
    ethical responsibility to its clients, those were discussed, as
    lawyers should, and resolved.
        During the 30-month audit period that extended from notice
    to final report, we expended significant resources responding
    to the OIG demands. Although CRLA has no final estimate, after
    16 of the 30 months of the audit, CRLA had expended 4,479 staff
    hours in audit-related work, at a cost of more than $113,000.
        Of course, under the LSC Act, it is the LSC board, its
    president, and management staff that make the rules and
    policies for LSC. Under the IG Act, the LSC Inspector General
    assures that the Federal dollar is protected by auditing for
    compliance with restrictions. The IG investigates, inspects,
    recommends.
        In our case, after the extensive review by the IG of
    hundreds of case files, hundreds of financial transactions,
    numerous staff interviews, and weeks of on-site field office
    visits, there was good news. No financial irregularities, no
    violation of LSC rules were found that required any form of
    penalty, nor any form of formal Federal intervention.
        The IG found that CRLA, Inc., and CRLA Foundation were
    independent entities. It found there were no improper fund
    transfers between the two. And after intensive review of CRLA's
    17200 litigation, complex cases that are brought to recover
    hundreds of thousands of dollars of unpaid wages, the IG found
    this to be a proper use of resource. Our clients, Congressmen,
    are working people, by and large. We do use legal resources to
    get wages after they've worked and employers think that they
    can get away without paying them. We do that work. That's basic
    access.
        Nevertheless, the IG did make findings in the audit that
    raise questions regarding 1610. We responded in full in
    writing. Where we could, Congressmen, we agreed. We have
    changed policies and practices. Where there was fair
    disagreement with what LSC requires, we will be looking to LSC
    for clarity regarding the findings.
        About three findings, subsidy. The IG found that when
    tenants paid rents late, although we collected the rent, we
    didn't charge a penalty; we didn't charge interest. And when we
    did, Congressmen, it was about $511. It should be noted that
    the issue of subsidy amounts to $511 in an $18 million period
    of operation.
        A second issue about client identity. We also disagreed
    where the IG findings and recommendations conflict with the
    black letter of the law regarding client identity required to
    be revealed to the public. Where clients have explicitly chosen
    not to be plaintiffs in litigation for fear of landlord or
    employer retribution, the choice must be honored. The IG's
    position appears to be inconsistent with the requirements of
    the LSC regulation, statutory language, and with our own
    ethical responsibilities.
        And, finally, Congressmen, about shared staff, we also
    disagree with the findings about shared staff and about co-
    counseling. We rigorously followed the guidelines set by LSC
    regarding shared staff. Specifically, we complied with the LSC
    guidance for 10 percent of our staff to be shared with an
    entity doing restricted work. In fact, Congressmen, during this
    period, CRLA only shared 2 percent of its staff with CRLA
    Foundation, and we have even offered to the IG that we would
    set upon ourselves a 5-percent standard even though the LSC
    standard would be 10 percent.
        So, finally, we disagree with the recommendation by the IG
    that we co-counsel in the future with this foundation with
    junior lawyers. This will create bigger supervisory and
    regulatory problems that we believe that LSC would want to
    avoid.
        Congressmen, our written testimony discusses all of these
    issues, and I am here to respond to these and any other
    questions you or Members of this Committee may have concerning
    any of that audit that we just finished.
        Thank you very much.
        [The prepared statement of Mr. Padilla follows:]

                     Prepared Statement of Jose R. Padilla

                                I. INTRODUCTION

        It is a distinct honor to submit testimony on behalf of the
    organization I have now directed for almost 20 years. This hearing
    presents inopportunity to make people aware of the work CRLA performs
    serving the legal needs of the poor. It is also an opportunity to speak
    on behalf of the almost 555,000 rural poor persons and more than
    463,000 farm workers and dependents who are the client constituents of
    CRLA. Their poverty status and the challenges facing them makes evident
    the need for CRLA's daily presence in rural communities of California.
        CRLA has a proud legacy of effective, ethical and high-quality
    representation on behalf of its rural clients, and adopts as a core
    value the democratic principle that the poor deserve legal
    representation as much as those economically better off. In recent
    examples, CRLA:

              enabled 3 wheel-chair-bound high-school students to
            secure district-wide building-modifications that brought
            schools in compliance with the Americans with Disabilities Act;
            these students had been unable to navigate their campuses, use
            bathrooms, or participate in academic programs physically
            accessible only to the able-bodied (Mitchum v. Santa Barbara
            School District, );

              obtained a fair housing discrimination case
            settlement against a predator landlord who sought out women
            residing at a local homeless shelter and offered rental
            discounts in return for sex (Project Sentinel [Cordero] v.
            Lal);

              secured improvement to a farm labor camp housing
            hundreds of asparagus pickers which had no functioning toilets
            or showers, a filth-laden kitchen with inadequate
            refrigeration, and unscreened, unsecured doorways and window
            openings, and recovered months of unpaid back wages for some
            400 workers residing there (Ramirez v. JB Farm Labor
            Contractor);

              worked with HUD to secure a fair housing enforcement
            agreement with a rural county that made available grants and
            loans of up to $30,000 per family to enable thousands of farm
            worker families living in substandard trailer parks to move
            their homes or secure new homes in newly developed mobile home
            parks(Hernandez v. Riverside County);

              provided thousands of K-3 English-learners access to
            Reading First grants under No Child Left Behind; and enjoined
            the California Department of Education from enforcing a ban
            that kept these funds from reaching hundreds of English-learner
            class rooms (Pazmino v. State Board of Education).

        In describing the foregoing cases, I wanted to share with the
    Committee the significant work that CRLA performs in the rural areas of
    California. More importantly, these few examples typify the egregious
    and shocking situations which poor rural persons, particularly
    farmworkers and mostly Latino face day in, day out.
        I recognize, however, that the invitation to testify before this
    Committee was not due to a keen interest in how a particular legal
    services agency discharges its responsibilities. Rather, the
    Committee's invitation to testify referred to allegations of violations
    of the regulations of the Legal Services Corporation. I want to address
    those issues as follows.
        I have managed CRLA as its Executive Director for almost 20 of
    CRLA's 38 years of service.\1\ During my tenure alone, CRLA has gone
    through five extensive Federal audits and a number of investigations.
    The recent OIG audit has been the longest ever, with the most extensive
    on-site review by an audit team--7 weeks on-site in four visits
    stretched over a 2-year period. Two audits in the 1980's were of 2-
    weeks duration each with larger teams of 10-15 members. During my
    tenure--and indeed since the Legal Services Corporation Act was enacted
    in 1974. no program review, audit nor investigation has found any
    instance of material non-compliance by CRLA with the Act and its
    implementing regulations.
    ---------------------------------------------------------------------------
        \1\ CRLA Inc. was incorporated March 3, 1966, and received its
    first grant from the Office of Economic Opportunity (OEO) on May 24,
    1966.
    ---------------------------------------------------------------------------
        Regarding that auditing history, I make two observations: First,
    CRLA has always realized that we will be able to provide diligent and
    effective advocacy on behalf of the most vulnerable rural communities
    only through administering efficiently and effectively all aspects of
    financial accounting, local office operation and staff activities. CRLA
    must run efficiently; otherwise, effective advocacy cannot follow.
    Second, we have always sought to protect the public dollar by creating
    internal oversight mechanisms that guarantee full compliance with
    Congress' and the Corporation's legal strictures. Our funds are not
    only public--which necessarily require protection as taxpayer money--
    but represent hours of daily public service, of daily legal service,
    that the poor themselves pay for with both taxes and lack of
    representation. CRLA fully understands that survival of national legal
    services today is a bipartisan responsibility that has required
    agreement to a restricted legal practice. Protection of the Federal
    resource is the most critical responsibility that a program Director
    assumes.
        Indeed, for someone born in a rural community and raised by parents
    who were themselves migrant farm workers, this obligation to protect--
    at all costs--the Federal rural-legal-service dollar weighs heavier.
    CRLA institutionally, and I personally, take pride in knowing that our
    understanding of, and strict adherence to, the laws and regulations
    governing national legal services--overseeing millions of Federal funds
    to one of the 10 largest programs in the nation--has protected this
    precious rural resource for the last 30 years.
        In turning now to current substantive concerns, I begin by noting
    that CRLA has not been advised regarding the specific questions we
    should address before the Subcommittee. Accordingly, I take the liberty
    of anticipating the Subcommittee's concerns, and will initially address
    two matters. First is the question of CRLA's ``cooperation'' with LSC's
    Office of the Inspector General and the process of our ``acceptance''
    of certain OIG findings and recommendations. Second, is the issues
    regarding the substantive findings in the two subsequent reviews by OCE
    and by the OIG of the relationship between CRLA and a non-LSC-funded
    entity, the California Rural Legal Assistance Foundation--and our
    compliance with the ``program integrity'' requirements of LSC
    Regulation 1610.

    A. CRLA COOPERATION WITH THE OFFICE OF INSPECTOR GENERAL
        Both the Committee on the Judiciary and this Subcommittee have
    communicated concerns to the Legal Services Corporation (hereafter,
    ``LSC'') questioning whether LSC's Office of Inspector General
    (hereafter, ``OIG'') ``requests [to CRLA] for information . . . are met
    with resistance from the grantee.'' \2\ In fact, CRLA has provided the
    OIG with all requested information; there were discussions regarding
    client rights arising from the attorney-client relationship, but those
    were resolved early in the audit. There are NO open issues whatsoever
    concerning requested information. Throughout the course of reviews by
    both oversight entities--LSC's Office of Compliance and Enforcement
    (hereafter, ``OCE'') and the OIG--CRLA has acted in good faith and in
    full cooperation.
    ---------------------------------------------------------------------------
        \2\ Letter dated November 20, 2003, to LSC Chairperson Frank
    Strickland, from Hon. James Sensenbrenner, Chairman, Committee on the
    Judiciary; and Hon. Chris Cannon, Chairman, Subcommittee on Commercial
    and Administrative Law, p. 2. The issue of ``office-sharing'' was also
    mentioned there.
    ---------------------------------------------------------------------------
        Audits occur in the midst of the dynamic of daily legal assistance
    and representation, and a law firm must always act fully consistent
    with its ethical and professional responsibilities owed its clients.
    The recent OIG audit presented many more issues and more requests for
    information than any previous audit. We cooperated fully. During the
    30-month audit period that extended from June 11, 2001 through the
    issuance of the final report on December 11, 2003, CRLA expended
    significant resources responding to the OIG demands from both the on-
    site audit team and Washington headquarters to: retrieve, review
    hundreds of closed and open client files and transmit relevant
    documents from our 22 service-office network to our central
    headquarters; review and compile client and case-related data which no
    LSC nor professional requirements obliged us to assemble or report;
    produce and review financial documentation for the 2-year audited
    period. Although CRLA has not estimated the total resources expended
    for the entire audit, at least through October, 2002 (after 16 months
    of the 30 months of audit), CRLA had expended 4479 staff hours in
    audit-related work, at a cost of $113,091.\3\
    ---------------------------------------------------------------------------
        \3\ These estimates were provided to both LSC and OIG by letter of
    October 24, 2002.
    ---------------------------------------------------------------------------
        Throughout the audit, CRLA has understood that the OIG's findings
    are to be in the form of recommendations to LSC for the latter's final
    consideration and review. That understanding is consistent with both
    the Legal Services Corporation Act and the Inspector General Act. LSC's
    Board implements the LSC Act through adopting regulations and
    periodically providing other written guidance to its grantees. The OIG
    audits recipients' compliance with the Act, LSC's regulations and
    policies, under OMB and other federal standards. OIG transmits its
    findings and recommendations to LSC in a public report, and has done so
    with regard to CRLA; we understand that report has been reviewed by the
    Subcommittee's staff. The OIG has also requested CRLA to submit a
    ``corrective action plan'' corresponding to its recommendations.
        Before describing our response to the OIG's request for the
    ``corrective action plan'', we reiterate a position we articulated
    earlier in our comments to the OIG: we believe the OIG's extensive
    review has overwhelmingly confirmed the propriety and regularity of
    CRLA's operations; we note that in no instance did OIG recommendations
    include imposition of any LSC penalty, as the OIG can--and does from
    time to time--recommend.
        As to the OIG's request for a CRLA ``corrective action plan'', with
    respect to the majority of recommendations, CRLA either accepted the
    OIG view or had already eliminated or ``corrected'' the situation of
    concern before issuance of the final report. As more fully discussed
    below, CRLA believes some OIG recommendations are inconsistent with
    provisions of the LSC Act and/or LSC formal regulations and/or LSC
    policy guidances issued to recipients. In some instances we are left
    with the conclusion that OIG recommendations flatly and facially
    contradict provisions of the Act or LSC regulations.
        CRLA formally advised the OIG on February 9 regarding both our
    acceptance of the majority of recommendations and of those few issues
    where we believe their recommendations need to be reviewed by LSC. We
    understand our response has been made available to the Subcommittee and
    reviewed by your staff. Since February 9, neither the OIG nor any other
    unit of LSC has responded to CRLA.
        Typically, in a situation like this, the LSC Board will determine
    whether CRLA or the OIG is correct in its view; that process has yet to
    be completed. It was thus surprising for CRLA to be asked to testify
    about issues that have yet to be finally determined. While normally
    CRLA would prefer to have that process before the LSC Board concluded,
    being respectful of the Committee's invitation to testify, we provide
    detailed information below on the outstanding issues.

                       II. REVIEW OF THE TWO 1610 AUDITS

    Background.
        The OIG audit is the second of two 1610 audits conducted by the
    Federal government over the last 3\1/2\ years. It is our understanding
    that both audits were initiated by complaints to members of Congress
    from the Western United Dairymen (WUD), a trade association in
    California whose mission is to look after the ``general welfare and
    longevity of dairy producers.'' Both audits asked whether Federal funds
    were being provided to the California Rural Legal Assistance Foundation
    \4\ to, ostensibly, fund the Center on Race, Poverty and the
    Environment (CRPE). The second was more succinct: ``whether CRLA and
    interrelated agencies CRPE and CRLAF have engaged in restricted
    activities with federal monies.''
    ---------------------------------------------------------------------------
        \4\ Since 1982, the relationship between CRLA Inc. and CRLAF has
    been reviewed during 5 Federal audits--in 1986, 1988, 1991, 2000 and
    2002.
    ---------------------------------------------------------------------------
        While I describe below in detail each of the audits, it is
    important to note at the outset the most telling result of these audits
    after the significant amount of Federal and recipient resources spent.
    Neither report mentions a word of the Center on Race Poverty and the
    Environment, the alleged relationship driving both reviews.

    A. 2000 AUDIT REQUESTED OF THE LEGAL SERVICES CORPORATION
        The first audit was requested on September 11, 2000, by Congressman
    William Thomas (R-Bakersfield) and was requested of LSC's Office of
    Compliance and Enforcement (OCE) (hereafter ``the LSC audit''). That
    audit was undertaken over 4 days by LSC's OCE on October 30-November 2,
    2000. Findings were issued December 18, 2000, in the name of then LSC
    President John McKay. For all practical purposes, LSC exonerated CRLA
    regarding compliance with the 1610 regulation.

            ``A review of the totality of circumstances (the threshold of
            our review) has demonstrated that CRLA did not act in violation
            of the applicable restrictions and that CRLA maintained program
            integrity with the Foundation.''

    B. 2001 AUDIT REQUESTED OF THE OFFICE of INSPECTOR GENERAL
        The second audit requested by Congressman Calvin Dooley (D-Fresno)
    went to LSC's Office of Inspector General (OIG). The OIG's review began
    with notice to CRLA on June 11, 2001, and extended 30 months, ending
    with the December 11 report. The OIG process included: on-site
    fieldwork involving four separate audit-team field visits totaling
    nearly seven weeks; production of hundreds of case files; CRLA's
    transmission to Washington of thousands of pages of case and advocacy
    materials plus hundreds of pages of specially-prepared legal memoranda
    between and after visits and literally thousands of hours of CRLA staff
    time in responding to OIG's document and other information requests.

                1. GENERAL FINDINGS REGARDING AUDIT OF CRLA

        Despite the extensive review of hundreds of case files, hundreds of
    financial transactions, numerous staff interviews and weeks of on-site
    field office visits, no financial irregularities, no violation of LSC
    rules were found that required any form of penalty nor any form of
    formal Federal intervention. The OIG found that CRLA Inc. and
    California Rural Legal Assistance Foundation were independent entities.
    It found that there were no improper fund transfers between the two.
    After extensive and intensive review of CRLA 17200 litigation--complex
    cases that, in large part, are brought to recover hundreds of thousands
    of dollars of unpaid wages--the OIG found this to be a proper use of
    resources. Nevertheless, the OIG did make findings in the audit that
    raised questions regarding 1610.
        The application of 1610 involves the examination of 5 broad
    criteria to determine the existence of ``program integrity''. Those
    are'' (1) legally separate entity (2) transfer of program funds (3)
    subsidies (4) physical and financial separation and 5) certification of
    program integrity. After a 2-year examination, issues arose regarding
    two criteria. A summary of those findings were:

        (1)  Legally separate entity--CRLA and the Foundation are separate
    legal entities and have been separate for 24 years (since 1981). There
    are no overlapping board members. They have separate executive and
    deputy directors. They are headquartered in cities 90 miles apart.

        (2)  Transfer of program funds--CRLA transferred no LSC funds to
    the Foundation.

        (3)  Subsidies--The OIG determined that CRLA had failed to charge
    late rents, i.e., an indirect subsidy for not charging interest for
    late rent all of which was collected. The total involved in and
    interest on late rent payments was $511.00. CRLA's policy was uniform
    for all tenants. No favoritism was found regarding any tenant. CRLA
    sublets space to reduce rent or mortgage obligations. The $511.00 was
    collected. Given that the OIG's period of review was 2-years of
    operation, amounting to nearly $18 million of expended funds, the
    indirect subsidy appears of immaterial value.
        CRLA's experience indicates that the issue of subsidy has been
    treated inconsistently by OIG and LSC. In its December 2000 report, LSC
    found an ``indirect subsidy, which was the equivalent of a short-term,
    interest free loan''. It treated the matter in a manner consistent with
    a lack of materiality. LSC stated that:

            ``. . . CRLA and the Foundation have entered into a number of
            agreements for the benefit of each party, and that these
            agreements are at fair market value. Nonetheless, there were
            minor lapses in CRLA billing.''

    On the other hand, without explanation, the OIG report of December 11,
    treated the exact same ``indirect subsidy'' with more seriousness, by
    using it as one of 4 key factors that lead to the 1610 violation. The
    OIG stated that

            ``. . . The grantee subsidized the Foundation by routinely
            allowing late payment of rent over a long period of time.
            Between June 2001 and May 2002 the Foundation seldom paid its
            rent for three offices on time.''

    It concluded that

            ``[b]y allowing the interest free use of these funds the
            grantee subsidized the Foundation activities.''

    Respectfully, presence or absence of minor penalties for late rental
    payments is no ground for a finding of any material violation of the
    law.

        (4)  Physical and financial separation--This criterion has 3
    aspects: financial separation, shared space, and shared staffing.

              Financial accounting for the two organizations was
            found to be entirely separate.

              Regarding physical separation, CRLA was found to have
            complied with the articulated LSC criteria regarding ``physical
            separation''--separate signage, market value rent, separate
            entry, separate institutional identification. In one instance,
            the OIG questioned the fact that both tenants could access a
            shared lunchroom and concluded it was impermissible. But that
            situation, even if shared access to a lunchroom can be said to
            be a problem, has been rendered moot because the rental space
            is no longer shared.

              Shared staff arrangements are a separate sub-criteria
            examined in the audit. CRLA has separate time keeping from all
            other organizations it works with. LSC's guidelines suggest
            that recipients that are as large as CRLA, should not allow
            more than 10 % of advocacy staff to be shared with an
            organization that undertakes restricted activities, and that
            doing so will call into question the organizations'
            separation.\5\ Under the guideline, CRLA could have had up to 8
            such shared employees before it would be questioned. During the
            period at issue, CRLA had 1 attorney and 1 paralegal--only 2%.
            Nonetheless, ignoring the established LSC guideline, the OIG
            questioned the involvement of the 1 attorney and 1 volunteer
            attorney.
    ---------------------------------------------------------------------------
        \5\ This guideline is found in GUIDANCE IN APPLYING THE PROGRAM
    INTEGRITY STANDARDS, attachment to LSC Memorandum to All LSC Program
    Directors, Board Chairs re ``Certification of Program Integrity'',
    October 30, 1997, from John A. Tull, Director, Office of Program
    Operations.

        (5)  Certification of program integrity--Recipients are required to
    file a Board-approved annual certification of 1610 compliance. CRLA has
    filed these in all years required, to the present.

                2. CO-COUNSELING: A NON-1610 CRITERION

        We begin by noting that co-counseling of litigation does not appear
    as a 1610 factor under the statute, regulations or LSC guidance; the
    OIG's extensive evaluation of this practice has inserted a new program
    integrity factor of which neither CRLA nor other recipients had any
    prior notice. The Compliance Supplement For Audits of LSC Recipients
    (December 1998) used by LSC, the OIG and Independent recipient auditors
    for auditing programs does not identify co-counseling as a factor for
    assessing 1610 compliance. Recipients use this manual in preparing for
    LSC and OIG reviews. Nonetheless both LSC and the OIG have analyzed co-
    counseling in assessing compliance with 1610.
        Co-counseling is, of course, common in litigation and other types
    of legal practice, and is consistent with the Act and Regulations. CRLA
    undertakes co-counseling to satisfy our obligation under LSC
    Regulations to expend 12\1/2\% of our annualized basic field award to
    involve private attorneys in delivery of legal services. (``Private
    Attorney Involvement'' or ``PAI'', 45 C.F.R., Sec. 1614.) CRLA attempts
    to secure ``private'', i.e., non-LSC-funded, attorneys to co-counsel
    with our staff attorneys in significant litigation, but in rural
    California this is one of the very few effective ways that programs
    both leverage such resources and meet the LSC obligation.
        CRLA engages in extensive co-counseling with non-LSC-funded
    attorneys and law firms in order to: (1) satisfy our obligation under
    LSC Regulations to expend 12\1/2\% of our annualized basic field award
    to involve private attorneys; (2) obtain the benefit of experienced
    litigators who can enable a local office staffed by limited-experience
    staff to undertake representation that we could not otherwise provide;
    (3) obtain added staffing and physical resources to pursue litigation
    for which we would not otherwise have sufficient professional and
    support personnel to undertake; (4) acquaint and train members of the
    private bar in specialized areas of poverty law with the goal of
    expanding the availability of private-bar representation to low-income
    clients including the vast number of non-LSC-eligible poor people in
    rural California.
        CRLA implements litigation co-counseling arrangements through
    written co-counseling agreements, generally based upon a 9-page
    ``model'' agreement that is tailored in individual cases as appropriate
    to the particular circumstances of the case and/or the needs and
    resources of outside counsel. Upon request, we identified agreements in
    42 separate cases including six in which the Foundation co-counseled,
    and made forty-one agreements available for review. In these 42 cases
    (including some cases in which we co-counseled with more than one
    firm), CRLA co-counseled with at least 26 different law firms one of
    which was the Foundation.\6\ We co-counseled on more than one case with
    at least 9 of these firms.
    ---------------------------------------------------------------------------
        \6\ These firms included both traditional, for-profit, private law
    offices and other non-profit entities that provide legal
    representation.
    ---------------------------------------------------------------------------
        CRLA implements and monitors our co-counseling relationships
    through a series of rigorous review steps including collective review
    and approval of detailed Litigation Assessment Plans and draft
    complaints by the four Directors of Litigation, Advocacy and Training
    in conjunction with the Deputy Director; through review and approval of
    detailed, lengthy written co-counseling agreements, and through similar
    collective review of semi-annual written reports submitted by advocacy
    staff for all significant advocacy including co-counseled litigation.
        CRLA does not differentiate among firms with whom we co-counsel in
    our pursuit of the above-described goals, practices and compliance with
    professional responsibility and LSC requirements. We maintain these
    goals, practices and compliance equally with the Foundation as with all
    other co-counsel.
        The OIG recommended that CRLA staff any cases co-counseled with the
    Foundation only with its most junior attorneys. Co-counseled cases are
    generally the largest and most difficult litigation with the most
    complex issues both substantively and procedurally. The Inspector
    General's recommendations that only junior counsel participate in cases
    with the Foundation are completely counter-intuitive to his concern
    that this co-counseling results in loss of objective integrity and
    independence. Independence and CRLA institutional integrity are far
    more likely to be maintained by senior counsel who are sufficiently
    experienced in litigation and administration to confidently exercise
    the independent judgment that an inexperienced advocate simply has not
    acquired.
        CRLA informed the OIG in its Response of February 9, 2004 that it
    would strengthen certain aspects of its personnel policy, and would
    otherwise comply with Parts 1610 (and 1604 and 1635) through adherence
    to a number of policies to be incorporated into its CASE HANDLING AND
    OFFICE PROCEDURES MANUAL and/or our PERSONNEL MANUAL and/or our
    OPERATIONS MANUAL, as appropriate, and authorized as appropriate by
    Board actions.

                3. MISINTERPRETATION OF LSC REGULATION 1636: CLIENT
                        IDENTITY

        The OIG's Final Report directs CRLA to turn over to the employer,
    landlord or other defendant in a lawsuit of this kind the names of
    every individual who may have consulted with CRLA about their rights--
    even those who have not authorized CRLA to bring lawsuits and who are
    not plaintiffs in a pending or contemplated action, and even though
    revealing the identities of these non-plaintiff employees or tenants
    who considered and rejected the pursuit of formal legal remedies
    regarding their employment or housing is very likely to jeopardize that
    employment or housing, and to profoundly deter potential clients from
    consulting a lawyer to determine if they have been treated illegally in
    the future. The Inspector General's position would effectively penalize
    the consultation with legal services attorneys that the Legal Services
    Corporation Act and implementing regulations are supposed to guarantee.
        The OIG's position is inconsistent with LSC's regulations in Part
    1636, and contrary to the professional responsibilities that CRLA
    attorneys owe their clients and potential clients under state and
    federal law. Part 1636 requires CRLA to identify to adversaries and
    obtain written factual statements from plaintiffs that we represent in
    all litigation (including that brought under California's Business &
    Professions Code Sections 17200 et seq.). CRLA has complied fully with
    those requirements. Our compliance is implemented through formal policy
    incorporated in our CASE HANDLING MANUAL and through specific
    confirmation in each Litigation Assessment Plan reviewed jointly by our
    Directors of Litigation, Advocacy and Training (as described
    previously, p. 8).
        The OIG found no instance in which CRLA had failed to comply with
    these requirements. Instead, the Final Report directed CRLA to
    implement procedures by which it would obtain statements of fact from
    and identify to adversaries' clients who have consulted with CRLA
    attorneys but who have refused to become plaintiffs in litigation. The
    OIG's position is inconsistent with Part 1636 and would require CRLA
    attorneys to violate their own professional obligations under governing
    law. Part 1636 is not ambiguous. Sub-part 1636.1 provides in relevant
    part that,

            [t]he purpose of this rule is to ensure that, when an LSC
            recipient files a complaint in a court of law or otherwise . .
            . the recipient identifies the plaintiff it represents to the
            defendant and ensures that the plaintiff has a colorable claim.

    Sub-part 1636.2(a) further provides,

            When a recipient files a complaint in a court of law or
            otherwise . . . participates in litigation against a defendant
            . . . on behalf of a client who has authorized it to file suit
            in the event that the settlement negotiations are unsuccessful,
            it shall:

                 Identify each plaintiff it represents by name in any
            complaint it files . . . ; and

                 Prepare a dated written statement signed by each plaintiff
            it represents, enumerating the particular facts . . . (Emphases
            added) \7\
    ---------------------------------------------------------------------------
        \7\ The dictionary definition of a ``plaintiff'' is,
    unsurprisingly, consistent with the assumption underlying these
    regulations: ``A person who brings an action; the party who complains
    or sues in a civil action and is so named on the record . . .''
    (BLACK'S LAW DITIONARY (5th ed., 1979); ``1. one who commences a
    personal action or lawsuit to obtain a remedy for an injury to his
    rights . . . 2. the complaining party in any litigation . . .''
    (WEBSTER'S THIRD NEW INTERNATIONAL DICTIONARY (1986).)

    Eligible persons often enter into attorney-client relationships with
    CRLA for assistance in investigating and evaluating their potential
    rights or liabilities vis a vis an opposing interest, or for advice and
    counseling in dealing with an opposing interest by means other than
    litigation. Many such persons never authorize CRLA to file suit on
    their behalf, often because they have no desire to have their concerns
    publicly revealed for fear of retribution. Absent publicly filed
    litigation in which they are parties, their desire for privacy is
    recognized and respected by federal and state law. As just described,
    Part 1636 limits recipients' obligations to identify clients to their
    adversaries to the circumstances when those clients have specifically
    authorized the recipient to name them as plaintiffs in pending or
    anticipated litigation, but not when those clients are only counseled
    rather than named as parties to litigation.
        The American Bar Association's Model Rules of Professional and
    LSC's own rules that require recipients' attorneys to adhere to their
    professional duties in serving their clients and potential clients,
    support CRLA's position. The Statement of Findings in the LSC Act
    indicates that,

            attorneys providing legal assistance must have full freedom to
            protect the best interests of their clients in keeping with the
            Code of Professional Responsibility, the Canons of Ethics, and
            the high standards of the legal profession.

    (42 U.S.C., Sec. 2996, subd. (6) .) In furtherance of this mandate,
    Congress expressly required that the Legal Services Corporation

            shall not . . . interfere with any attorney in carrying out his
            professional responsibilities to his client as established in
            the Canons of Ethics and the Code of Professional
            Responsibility of the American Bar Association . . . or
            abrogate as to attorneys in programs assisted under this
            subchapter the authority of a State or other jurisdiction to
            enforce the standards of professional responsibility generally
            applicable to attorneys in such jurisdiction.

    For these reasons, CRLA expects that upon review of this position
    regarding 45 CFR1636 and the applicable professional rules, LSC will
    accept CRLA's position.
    iii. investigation requested by congressman john doolittle: 45 cfr 1617
        On January 7, 2004, Congressman John Doolittle (R-CA) filed a
    complaint with the Office of Inspector General on behalf of former
    California state legislator Dean Andal. He charged that CRLA had
    violated ``prohibitions against desegregation and class action
    lawsuits''. The OIG audited CRLA for 4 days, January 20-23. On March
    12, 2004, the OIG issued its findings which contend that although it
    was permissible for CRLA to have continued working on the case
    Hernandez v. Stockton Unified since 1977, CRLA violated the 1996
    prohibition against participation in class actions because it had
    engaged in negotiations with the Stockton Unified School District (at
    its request) to bring the case to closure.
        The Inspector General correctly notes that in 1977, LSC's Office of
    the General Counsel approved continued CRLA representation of the
    plaintiff class. (LSC letter dated May 31, 1977, from Alice Daniel,
    General Counsel, to Hon. M. Caldwell Butler, U.S. House of
    Representatives.). That letter recognized, in part, that CRLA's
    participation was to negotiate stating: ``Negotiations with respect to
    the court's findings and conclusions of law are now in progress''.
        The Hernandez litigation was filed in 1970 and resulted in a
    judgment in 1974 finding the district guilty of de jure segregation of
    Latino and African American students. The court granted a traditional
    desegregation remedy to the petitioner parents, including busing and an
    implementation plan approved in 1977 that established phased
    integration in District schools. In 1991 the judgment was amended by
    further order to eliminate busing and substitute remedial funding for
    those schools in poor neighborhoods that had earlier suffered the
    imposition of segregation. All this activity preceded Congress' 1996
    adoption of the class-action prohibition; all was appropriate LSC-
    funded activity, and indeed, constituted recipient's Private Attorney
    Involvement activity through co-counseling.
        In 2002, the District approached CRLA and petitioners requesting
    that CRLA and co-counsel facilitate final resolution of the case.
    CRLA's presence during the 2002-2003 meetings between the defendant
    District and petitioner's counsel was requested by the District and
    expected by the court which had overseen this case for years. The
    parties assumed that a negotiated agreement was far more efficient and
    less costly than litigating the issue before the court which would be
    more time consuming. Agreement was reached in early 2003 providing for
    the termination of the consent decree (because its purpose had been
    met) and a 2-year transition thereafter during which the schools that
    had received state desegregation funds would receive a reduced
    percentage of those funds until they would be split evenly with low-
    achieving schools or as the district otherwise saw fit. CRLA's role in
    these meetings and negotiations subsequent to the 1996 class-action
    prohibition did not represent either a new case nor new intervention in
    an existing case but rather undertaking our ethical duties to existing
    clients arising from the long-standing, still-open lawsuit.
        CRLA's role during those meetings and negotiations was beneficial
    to the parties' abilities to resolve and finally settle this three-
    plus-decades old litigation, and thus was in the public's interest and
    in the interest of its client community. Although reasonable minds
    could differ, CRLA understood that its presence during the negotiations
    did not constitute participation in ``adversarial proceedings'' as that
    term is used in the statute and regulations. CRLA went on record with
    the court and the opposing party about the nature of the
    prohibition,\8\ and neither was concerned that CRLA was acting outside
    the scope of permitted activity. The client community was similarly
    informed.
    ---------------------------------------------------------------------------
        \8\ In a February 24, 2003 letter to the District's counsel
    prepared before the present OIG investigation, we confirmed that CRLA
    was making no claim for past or present attorney fees or costs and
    reiterated that although we had at one time been counsel, Mr. Roos ``of
    META is the sole counsel for the Petitioners and has full authority to
    settle the case . . . or otherwise represent the Petitioners.'' Shortly
    thereafter, still prior to the present investigation, Mr. Roos
    submitted a declaration executed March 3, 2003, to the court also
    asserting that he was ``the sole attorney of record, as CRLA is barred
    by federal law from participating in class actions . . .''
    ---------------------------------------------------------------------------
                                    SUMMARY

              But for the district court's request that CRLA assist
            in bringing the case to closure, the case would have continued
            as a virtually ``inactive'' case under the existing consent
            decree; the current class action regulation allows recipients
            to ``remain informed about, or to explain, clarify, educate or
            advise others about the terms of an order granting relief''.

              CRLA, petitioners, defendants and the Court expressed
            the belief that the presence of CRLA, who had been counsel in
            the case since its inception in 1970, would be beneficial to
            putting to bed this over-3-decades-old case. The availability
            of CRLA's knowledge served their--and the public's--interests.
            In sum, CRLA believes that its role in the proceedings at issue
            was not ``adversarial'' and was desired by the parties and the
            court, benefited the public interest in enabling the parties
            and the court to finally resolve lengthy litigation, and was
            undertaken in the good-faith belief that we were complying with
            the spirit and language of the class-action and desegregation
            prohibition.

              The court dismissed the primary case on June 18,
            2003, at which time CRLA ceased to be a part of the case in any
            capacity.\9\ CRLA closed its case file in the Hernandez matter
            effective December 31, 2003.
    ---------------------------------------------------------------------------
        \9\ The case was appealed by a group of intervenors who seek to
    deny the court the 2-year transitional jurisdiction the court sought to
    maintain by its June, 2003, order. CRLA is no longer receiving any
    judicial or party notices or any other notices related to the appeal.

              CRLA filed its withdrawal with the Stockton Superior
            Court for the County of San Joaquin on March 26, 2004.

                                   CONCLUSION

        CRLA has been privileged for some 38 years to provide the rural
    poor of California with full access to the state's civil courts and,
    thereby, to provide some semblance of justice to those not accustomed
    to such civil representation. This is what CRLA believes to be the
    simple mission of the Legal Services Corporation Act of 1974. In
    meeting this purpose, CRLA has carefully and rigorously adhered to the
    law, regulations and guidelines set by Congress and LSC. CRLA will
    continue to do so.

        Mr. Cannon. Thank you, Mr. Padilla.
        Ms. Charn?

      STATEMENT OF JEANNE CHARN, DIRECTOR, BELLOW-SACHS ACCESS TO
               LEGAL SERVICES PROJECT, HARVARD LAW SCHOOL

        Ms. Charn. Chairman Cannon, Mr. Watt, Mr. Delahunt, and
    Members of the Committee, it's a pleasure to speak to you today
    about the work that we've undertaken over the years at Harvard
    Law School. For 25 years, I've directed the major civil clinic
    at Harvard Law School, now known as the Hale and Dorr Legal
    Services Center. It's our belief that our students, as we
    introduce them to the practical aspects and skill dimensions of
    lawyering, will learn best in a fully operational law office.
        The center has a staff at any time of about 20 attorneys,
    fellows, and paralegals, and we're very pleased that part of
    our students' education, our students often have opportunities
    to work for the finest Government, private, and other law
    firms. We think it's also very important that students from
    Harvard Law School have some understanding of the needs of low-
    income people and how the law and the justice system works for
    those who have little and who otherwise could not afford the
    services of the fine lawyers that most of these students will
    become.
        Our office is in Boston. It's not on campus in Cambridge.
    It serves a quite racially and income-diverse area. It serves
    the lowest-income areas of the city of Boston.
        In addition to our student education mission, we have a
    mission of providing the highest quality service and
    functioning as a laboratory to experiment with cost- and
    quality-effective approaches to delivering services to low- and
    moderate-income people.
        Over time, we came to make a decision to serve moderate- as
    well as low-income people. This year, in Boston, the area
    median income is $82,000, in excess of $82,000. We are a high-
    cost-of-living area, and many individuals above the poverty
    line share the same problems. They need assistance in domestic
    matters, around credit problems, around threatened foreclosure
    of their homes, as very low income people do. So we serve a
    population that goes up to about three times the poverty rate.
        We do--much of the work that we do is similar to work that
    an LSC office might do. We represent tenants. We represent
    people on benefits issues. We represent people on family
    issues. We had a practice going back 15 years that focuses on
    families impacted by HIV and AIDS, one of the first programs in
    the country to do so.
        But particularly since the time that we were fortunate
    enough to form a partnership, really, with a major Boston
    corporate firm, Hale and Dorr offered money to purchase a
    permanent home for the center but, more important, began to
    volunteer large numbers of hours to assist with our learning
    and service program.
        We decided that it would be useful to see if we might
    provide assistance to small businesses, particularly minority
    business owners in previously disinvested areas, to people
    seeking to make purchase of a home, to not-for-profits, and to
    other institutions and entities that form the basic fabric of a
    low-income community and who may generate jobs and resources
    that benefit large numbers of low-income communities.
        We began to do this, and Hale and Dorr assisted us by
    providing a lot of the expertise in business and other matters
    that are typically not present in a legal aid office.
        We are predominantly funded by Harvard Law School, and
    generously funded by Harvard Law School, and the school is very
    proud of the amount of service that our office provides. We
    close between 700 and 900 full representation cases a year, and
    we advise and assist in more limited ways as many as a thousand
    clients each year.
        We have always sought and obtained statutory fees where
    appropriate in our ordinary service cases. Our mission is not
    particularly law reform or statutory change. Our mission is
    direct service to individuals around the everyday problems that
    people face.
        As part of our experimentation, particularly when we began
    representing small businesses and other entities, we introduced
    a co-payment system in that part of our practice. When we found
    that it was working and that it was accepted by clients, we
    expanded it to other areas of our practice. The reasons we did
    it were largely those mentioned by the Chair in his opening
    remarks. We thought we might gain income. We thought that it
    might empower clients to feel more entitled to diligent and
    high-quality service; that it might help them in deciding if
    there was a small or modest co-payment if they really wanted to
    take on legal action in an area. And we wanted our students to
    understand that there is a business dimension to law practice.
        We have no co-payment in emergencies. Clients who are in
    need-based benefit programs do not make co-payment, and many
    clients at or below poverty do not make clients. The vast
    majority of clients who participate in the co-payment system or
    whom we ask to make co-payments are above the poverty line.
        We do know that we've been effective in increasing
    resources available to the office, that our students have
    learned about business practice, and that clients have been
    accepting of this project. We have not studied, but we intend
    to within the next year and a half, the extent to which the co-
    payment system is received and perceived by clients in ways
    that we had hoped.
        My last comment would be that, in addition to running this
    teaching, learning, and service center in the Jamaica Plain
    area of Boston, we are--I'm also involved with an ongoing
    policy study on ways of making legal services more widely
    available. This has been my life's work for my career, making
    legal services available, and I remain hopeful as I approach 60
    that at some point in this country legal services will be
    widely and freely available, not only to the very poor but to
    all those low-income and working people above the poverty line
    who also are in desperate need of services and who cannot
    afford quality service at the market. And in such a system, I
    think it is most reasonable and appropriate that, as we--
    particularly as we move up the income scale, that clients make
    a contribution to cost of service.
        Thank you so much for your attention.
        [The prepared statement of Ms. Charn follows:]

                       Prepared Statement of Jeanne Charn

        Good afternoon, and thank you for the privilege of speaking to the
    Subcommittee on Commercial and Administrative Law. I have been asked to
    provide information on aspects of the client service program of the
    Hale and Dorr Legal Services Center of Harvard Law School, particularly
    information on client co-payments that we have instituted for some of
    the services that we provide. I begin with some background on the Hale
    and Dorr Legal Services Center of Harvard Law School and conclude with
    a brief mention of the Bellow-Sacks Access to Civil Legal Services
    Project, both of which provide important context for our experiment
    with client co-payments.

        I. THE HALE AND DORR LEGAL SERVICES CENTER OF HARVARD LAW SCHOOL

        The Hale and Dorr Center, (the Center), was founded by my late
    husband Gary Bellow and me in 1979. At that time, the office was known
    as the Legal Services Institute. Until 1982, the program was a legal
    services practice center in which twenty-four third year law students
    spent the entire year in courses and casework preparing for careers in
    LSC legal services programs around the country. Eight of the twenty-
    four students were from Harvard Law School but up to sixteen students
    were from Northeastern University Law School in Boston and from other
    law schools in the country. The Legal Services Corporation, through a
    partnership between Harvard Law School and Greater Boston Legal
    Services, was the primary funder of the program.
        Beginning in 1982, Harvard Law School became the primary sponsor
    and funder of the Center, though we have always retained a tie to
    Boston area legal services providers. The goals of the Center since
    1982 have been:

              To introduce students to law practice--Our experience
            suggests that students learn best in a realistic setting. Under
            the supervision of experienced lawyers, students represent
            clients and, in companion courses, discuss and analyze the
            judgments, ethics, responsibilities, tasks and relationships of
            law practice. We have developed the concept of a ``Teaching Law
            Office'' similar to a teaching hospital in the medical
            profession.

              To provide high quality service to clients--The
            teaching and learning methods that best meet our students needs
            also produce a great deal of service to clients who cannot
            afford to pay for good quality legal assistance. Harvard Law
            School and its clinical program is very proud of the
            contribution we make to meeting the every day legal needs of
            thousands of Boston households and individuals. On an annual
            basis, the Center typically provides extended representation to
            over 700 clients and brief service and advice to as many more.

              To be a laboratory for experimenting with approaches
            to delivery of high quality legal services--The Center
            deliberately experiments with ways of providing excellent and
            cost-effective service to as many clients as possible. We are
            committed to documenting, validating and reporting on the
            results of these efforts. Our service experiments have
            included: (i) extensive use of telephone advice beginning in
            the mid 1980s; (ii) development of regular clinics where staff
            and students assist clients appearing pro se--we have conducted
            a pro se divorce clinic for twenty years; (iii) in the late
            1980s, offering legal services to individuals and families
            affected by AIDS and HIV; (iv) early in the 1980s, focusing on
            service to victims of domestic violence in our family practice
            and collaborating with shelters and other social service
            providers as the seriousness of this problem came to be more
            widely recognized and understood; (v) collaboration with area
            medical providers to offer preventive law services and benefits
            check ups to low-income patients on site in clinics and
            hospitals; (vi) expansion of assistance to individuals and
            households up to four times the poverty level because these
            clients legal needs are similar to those of the very poor; \1\
            (vii) providing service to first time home-buyers, community
            not-for profits, affordable housing developers, and small
            businesses; (viii) development of a comprehensive quality
            assurance program that, among other things, tracks outcomes for
            all clients, sets annual performance goals for advocates and
            practice units, and evaluates every advocate and practice unit
            in terms of these annual goals; \2\ and (ix) development of a
            system of client co-payments for some areas of service, which I
            describe below.
    ---------------------------------------------------------------------------
        \1\ Boston is a very high cost of living area. In 2004, the area
    median income for a family of four is $82,600. Housing subsidy programs
    consider 80% of area median as low income and 50% of area median income
    as very low income.
        \2\ The quality assurance program is described in more detail in
    Jeanne Charn, Quality Assurance at the Provider Level: Integrating Law
    Office Approaches with Funder Needs, available at www.lsc.gov; and
    Jeanne Charn and Randi Youells, A Question of Quality, LSC Equal
    Justice Magazine, Winter 2004

        In 1992, Hale and Dorr, LLP a major Boston law firm, donated funds
    to provide a permanent home for the Center. Perhaps more important than
    the generous gift of funds for a building, Hale and Dorr began a
    partnership with the Center in which firm lawyers volunteer thousands
    of hours to serve clients and mentor students. For the past five years,
    Hale and Dorr has assigned a senior partner half time, year round to
    supervise students and to practice with staff at the Center. The first
    ``partner in residence'' retired this spring and a second partner has
    now joined us. The Center and the Hale and Dorr firm recently
    celebrated the tenth anniversary of our collaboration and we are
    developing a strategic plan for joint work in the coming years.
        The Center now has twenty or more lawyers, fellows and paralegals
    and as many as seventy students practicing and learning together each
    semester. During the summer we accept volunteer students. For the
    summer 2004, we received over a hundred applications from students in
    many law schools, volunteering for fewer than fifty internships. The
    demand for our summer program has grown as past summer interns have
    spread the word about the quality of service and learning at the
    Center.

                       II. CO-PAYMENTS FOR CLIENT SERVICE

        As the brief description of the Center's history and program
    indicates, while we share with LSC and its grantees a commitment to
    providing high quality service to households and individuals in their
    every day legal problems, we serve a broader clientele and we offer
    service in areas that are not typical of LSC grantees.
        Law school support for the Center's annual operating program in
    fiscal 2004-2005 (Harvard's fiscal year runs from July 1 through June
    30) is projected to be approximately $1,995,000. For the same period,
    the Center projects earnings from statutory attorney's fees, client
    reimbursement of costs of service (e.g. filing fees, depositions,
    experts) and income from client co-payments to be between $135,000-
    $140,000. We project to spend between $45,000 and $50,000 in out of
    pocket case related expenses. These figures are consistent with year-
    end projections for 2003-2004.
        We have always sought attorney fees where authorized by statute
    and, in the past, this was our main source of service generated income.
    We began a co-payment system in the mid-1990s, when we began to offer
    service to entities (not for profits and small businesses) and first
    time home buyers. As we found clients accepting of the co-payment
    concept in these areas of practice, we expanded to other areas. We do
    not charge co-payments to clients whose only income is need based
    benefits or to clients below the poverty line unless our representation
    produces funds from which the co-payment could be made, for example,
    settlement of a claim or receipt of back benefits due to an approved
    application. We do seek reimbursement of out of pocket costs of
    representation from clients of all income levels, with provision for
    waiver in cases of hardship. In many instances, for very low-income
    clients, costs of representation may be waived by courts or paid for
    under statues, so the Center does not incur out of pocket costs.
        We do not charge co-payments in emergency matters, such as clients
    who need immediate assistance in obtaining domestic violence
    restraining orders, because we do not want to impose even the smallest
    impediment to access for clients in crisis. Also, there are no co-
    payments for any client for preliminary consultations related to
    whether or not we will be able to provide advice or assistance beyond
    any limited advice that may be offered in a first meeting.
        As we have institutionalized the co-payment system, we are finding
    that while attorneys fees claimed under statutes has in the past
    accounted for most of the service generated income to the Center, we
    are now approaching about a third of ordinary service generated income
    from client co-payments mostly in the range of $100 to $300. We
    occasionally are awarded and paid a single large fee, which would skew
    ratios significantly towards statutory fees, but excluding the
    occasional larger fee, we are beginning to see a regular flow from co-
    payments for the services that we routinely provide.
        We decided to experiment with a system of client co-payments for a
    number of reasons. First, we hoped to increase resources to serve more
    clients. Second we hoped that clients who made even a small payment for
    service would have a greater sense of entitlement to diligent,
    responsive service. Third, we thought that it was possible that a small
    co-payment would play some role in helping clients decide if they
    really wanted to pursue legal action. Fourth, we wanted our students to
    have a realistic experience of dealing with the business aspects of law
    practice.
        The increase in resources is measurable, and we see our students
    learning how to discuss fees and costs with clients. We have found most
    clients accepting of a modest co-payment system, but we have not
    systematically surveyed or tested our goals in terms of client
    perception and attitudes. We hope to do this within the next two years,
    and will have better information at that time. We plan to continue the
    system we have in place, modifying it based on experience, and to
    conduct a careful and full review by the end of academic 2005-2006.
        Any system of co-payments requires strong fiscal systems and fiscal
    controls, and attention to safety issues in terms of funds on hand,
    even for very short times, in the office. Fortunately, Harvard Law
    School is our fiscal agent, with well-established systems and controls,
    and we have not had any safety incidents.

          III. THE BELLOW-SACKS ACCESS TO CIVIL LEGAL SERVICES PROJECT

        In 1999, a number of the faculty at Harvard Law School, including
    my late husband, met to plan a project that would look broadly at ways
    of greatly expanding access to civil legal assistance for low and
    moderate-income people. Twenty years of experience at the Hale and Dorr
    Center suggested approaches that might work on a larger scale. When my
    husband died in the spring of 2000, his classmates from the Class of
    1960 along with others who admired his life-long dedication to
    improving access to justice, generously donated funds to support a
    policy research project, which I was asked to direct. The Bellow-Sacks
    Project is entirely supported by Harvard Law School and its alumni who
    share a dedication to making access to justice available to all whom
    the market cannot serve. The Project has no bias towards any existing
    or future system or stakeholder. We have invited, and been fortunate to
    have the participation of leadership from the Legal Services
    Corporation at a number of Bellow-Sacks sponsored events in the past
    three years.
        We expect to have a preliminary report and findings by next fall.
    One important area of study has been the much larger government
    supported and led legal services programs in other countries. These
    programs serve moderate as well as very low-income clients through
    private bar involvement as well as staffed offices. Most involve client
    contributions to the cost of service at higher levels of income
    eligibility. In this sense, our client co-payment experiment should be
    understood not only as part of the program at the Hale and Dorr Center,
    but also as informing the possible contours of a larger and more
    comprehensive U. S. legal aid program that, drawing on present LSC
    efforts, will be well managed, cost-effective, and highly valued by the
    much larger number of clients it serves.

        Mr. Cannon. Thank you, Ms. Charn.
        We appreciate all of your testimony, and may I just ask
    you, Ms. Charn, to follow up on what you were just saying, do
    you think there's a place for co-payment then in the Legal
    Services Corporation system?
        Ms. Charn. There may be. I would say in our case, we
    focused on other areas before we moved to co-payments. We were
    very interested in having a very high quality and efficient
    program that was both diligent, turned over cases, did it in a
    way that was client centered and met their needs; and that only
    when we were satisfied that we were making good progress on
    that front did we try any experiment with co-payments. And we
    were cautious as we went forward with it.
        There are clients in our office who would be similar to
    Legal Services-eligible clients who are involved in the co-
    payment system primarily when our representation produces for
    them resources out of which a modest co-payment might be made.
        There are many clients who are Legal Services eligible
    where we haven't yet implemented this program, and we always
    have hardship exceptions. But I think we'll know more when we
    critically study what the client view is.
        One wants to be careful not to create barriers, but I do
    think there may be gains of the sort that you mentioned around
    client ownership and sense of pride and dignity that could be
    involved with such a system. We'd like to test that out and get
    some more information on it.
        Mr. Cannon. Great. Thank you very much.
        Mr. Padilla, in the case of the office manager in your
    Oceanside office, this individual's working as a full-time
    employee for CRLA, in addition, as the head of the office and
    in a supervisory role. I assume that this individual had direct
    oversight from one of your DLATs as well as yourself. Generally
    speaking, how much interaction do you have with the foundation?
    And considering your views on the importance of immigration
    issues, were you not aware that this employee was holding a
    director position within the foundation dealing with these
    specific issues?
        Mr. Padilla. Congressman, I'm aware of--oh, I'm sorry. It
    says ``talk.''
        In our Oceanside office, I think you're referring to an
    employee that left CRLA 3, 4 years ago. And the issue there
    arose in the context of the LSC guidelines. It was about shared
    staff. And when the IG came to us, they came in asking about a
    number of shared staff. And at the end of all of that, even
    though we could have had seven or eight, we had two. One of
    those two, according to the IG, was a volunteer attorney. And
    you're making reference to a volunteer attorney that, as far as
    we understand the regulation, is not covered by the 1610
    regulation.
        So the 1610 regulation covers part-time attorneys when
    folks go part-time, but it also does not cover full-time
    employees. The director of that office, who I am sort of fully
    aware of the work and the litigation, the IG brought the
    information to my attention. We reviewed that. As a matter of
    fact, they served me with a number of newspaper articles
    involving this particular attorney. But when it came down to
    it, we told the IG that this person on their own volunteer time
    could--could do what they could do. We cannot regulate what our
    employees do on volunteer time.
        And so it just happened that in that particular regulation
    which you were asking about is that person is not a shared
    staff person because shared staff persons are persons who are
    working part-time with you and working part-time with another
    entity. So with respect to the Oceanside office, that's--I'm
    assuming that that's what you were referring to, and so that
    employee in particular was working full-time with us.
        Mr. Cannon. In a case like that, when you have an employee
    who is working for you and being paid by you but is
    volunteering outside, do you allow the utilization of LSC
    resources or CRLA resources in fulfilling those volunteer
    activities?
        Mr. Padilla. Well, no, Congressman, we don't. We're very,
    very clear with staff that when staff is doing any kind of
    work, actually both with--work that would be considered
    prohibited with entities that are doing restricted work, or
    when they're doing work with any nonprofit, we clearly, clearly
    tell our staff that they must follow the rules about respecting
    the resource, the CRLA resource. Whether that is paid by LSC
    funds, whether it's paid by State funds, whether it's paid by
    private foundations, all of that resource belongs to CRLA.
        So to the extent that they may be working with another
    entity, we clearly explain what the rules are, what our
    expectations are with respect to even reimbursement. We're told
    that to the extent that resources may be used, for example,
    something as minimal as Xeroxing, we tell folks you have to
    reimburse programs when you're using that kind--our program
    when you're using that kind of resource.
        So, Congressman, we're very clear about those rules. We are
    responsible for setting those bright lines for our attorneys
    and our advocates, and so we make sure that when they're
    working with those entities that they're protecting our
    resource, because we're the ones that employ them.
        Mr. Cannon. Thank you, Mr. Padilla.
        My time has expired, but, Ms. Barnett, I'd appreciate if
    you'd think about that answer because I'd like to come back to
    that on the second round.
        And at this point, I'd recognize the Ranking Member for 5
    minutes.
        Mr. Watt. Two rounds, Mr. Chairman?
        Mr. Cannon. Yes. Would you--the gentleman from
    Massachusetts is recognized if you have someplace else you need
    to be.
        Mr. Delahunt. I thank the Chair. I will wait to speak to
    the co-payment issue later. I still really can't understand why
    Mr. Padilla is here.
        I'm almost embarrassed that you're here, Mr. Padilla. Here
    we are discussing a discrete issue in a State, in California,
    the details of which I don't know. I presume there's some
    political overtones to it. I'm just reading some pieces from
    the Modesto Bee and something about the dairyman and class
    action suits. And here we are in front of a congressional
    Subcommittee?
        It's my understanding--and you can correct me. Maybe you
    can respond to this, Ms. Barnett. I understand there is a
    review being done by LSC.
        Ms. Barnett. Yes, Congressman. On March----
        Mr. Delahunt. That's all I needed was the ``yes.'' Now, let
    me ask you this: Has the review been concluded yet?
        Ms. Barnett. No, it has not. It is currently----
        Mr. Delahunt. Thank you. That's all I need.
        And here we are in a Subcommittee in the United States
    Congress talking about something about shared office space,
    concerns, I guess, have been expressed by Members of Congress
    as to whether CRLA--I'm even learning the acronyms in this
    short period of time--is somehow involved in a class action
    suit. I would hope and think that we could wait until the
    administrative review had been concluded before we have an
    oversight hearing.
        I've got a lot of ideas for oversight hearings. And if the
    Chair and the Chair of the full Committee would want a long
    laundry list, I think at least from my world view, that are far
    more important and significant and would be ripe, if you will,
    to use the legal term, would be ripe for oversight.
        But having said that, I will yield back the rest of my
    time. Mr. Padilla, I'm not even going to ask you any questions.
    I will yield back the rest of my time and wait for the second
    round, which hopefully will come soon, Mr. Chairman.
        Mr. Cannon. I thank the gentleman. Let me just point out
    that we hope this system will work well and the oversight
    process and the inquiries will result in people who may not be
    as supportive as LSC as we would like them to be become more
    supportive of the agency.
        Mr. Delahunt. Let me, if I can, Mr. Chairman, I want to
    state on the record, I am aware of your support, you know, for
    LSC and your concern for equal access to the justice system,
    because if we're going to have a justice system, we better have
    equal access because we'll lose the confidence of the American
    people in not just our justice system but our democracy. And I
    understand the purpose, your intention here, but at the same
    time--and I know sometimes it's incumbent upon those of us who
    serve in this body to do certain tasks. And I presume we're
    attempting to do that with a larger goal in sight. But here we
    are, we're talking about a specific case.
        Mr. Cannon. There are a number of issues that have been
    raised that I want to touch on.
        Mr. Delahunt. Sure.
        Mr. Cannon. Because it seems to me that if we establish a
    record of where we're going, we've taken LSC, I think, as a
    body from a highly controversial, very angry issue to one that
    there is a great deal of support for. I think it's good to be
    clear about where we're headed, and, you know, Mr. Padilla is
    actually a pretty tough guy, been around for a long time, and--
    --
        Mr. Delahunt. I could tell he's a tough guy.
        Mr. Cannon. We've had discussions about this. I don't think
    that anyone is objecting to where we're going on this. And we
    would like to see where LSC is headed, be clear so that we
    don't have some of the objections we've had in the past. And,
    frankly, I think the world is much better served today by the--
    what is almost close to unanimity in Congress over this agency.
    So----
        Mr. Delahunt. I guess my point, Mr. Chairman, is that when
    viewed in the larger context of our responsibilities, for us to
    be conducting this inquiry, A, is premature, without having the
    administrative oversight function that we've invested into LSC
    concluded.
        Well, you know, maybe I should exercise some restraint and
    conclude my remarks with that, Mr. Chairman.
        Mr. Cannon. I thank the gentleman.
        The Ranking Member is recognized for 5 minutes.
        Mr. Watt. Thank you, Mr. Chairman. I would say, now that I
    see this in brighter context, probably except for the
    procedural separation of powers issue on which we differ with
    the Administration, it's probably a blessing that we didn't fly
    an Assistant U.S. Attorney all the way across the country to
    deal with this. And I'd have to say it is a shame that Mr.
    Padilla had to fly all the way across the country and lose a
    whole day's work.
        So, in a sense, there is a blessing that goes with the
    Department of Justice saying we're not going to let this person
    come over here and----
        Mr. Cannon. I'd thank the minority not to give them
    excuses. [Laughter.]
        Mr. Watt. Well, I clarify that I'm upset about the process
    issue, but I think the result has turned out to be all right.
        Ms. Charn, your clinic is called Bellow-Sacks?
        Ms. Charn. That's the policy project that's looking at
    availability of legal services. We're called the Hale and
    Dorr----
        Mr. Watt. Oh, Hale and Dorr.
        Ms. Charn.--Legal Services Center.
        Mr. Watt. Legal Services Center, okay. And you all serve
    clients that are Legal Services eligible and clients that are
    not Legal Services eligible?
        Ms. Charn. Yes, that's correct.
        Mr. Watt. Okay. And about what part of your resources are
    devoted to Legal Services-eligible clients versus non-Legal-
    Service-eligible clients?
        Ms. Charn. The majority of our clients are Legal Services
    eligible or close to it. But we serve a substantial number. It
    might be a third or more. I would have to check our data for
    certain, but there are a sizable number of people who are
    above. Probably the vast majority of clients are within 200
    percent of poverty, but a few are more.
        When we're focusing on something like predatory lending,
    and we've got a client who maybe household income is $40,000
    and $20,000 and another that is $15,000 or $18,000 and they all
    have the same problem, then we'll want to--we'll want to
    represent all of those people because it often is more
    effective that way.
        Mr. Watt. I'm actually less concerned about getting into
    the issue of the co-pay here than I am understanding how you
    have been able to comply with this split services requirement.
    There are a number of legal services organizations that get
    resources from places other than the U.S. Government. And we
    have said to them, You can't mix those resources and services
    with the services that you are providing for--I actually think
    it's a ridiculous policy myself, but I'm wondering how your
    organization has been able to deal with that dichotomy, getting
    private resources--getting resources from Harvard and, I
    presume, other funding sources in addition to the Legal
    Services resources that you get.
        Ms. Charn. Let me say that the vast majority of our
    resources--our budget will be about two hundred--$2,300,000
    next year. Close to $2 million of that will come from Harvard
    Law School. We have--so we are substantially funded by the law
    school, and most of the Legal Services-eligible clients that we
    serve are served on law school money. So that's the main
    answer. We don't--we don't separate them.
        We do have----
        Mr. Watt. So your clients--your lawyers are serving Legal
    Service-eligible clients and----
        Ms. Charn. Yes.
        Mr. Watt.--non-Legal-Service-eligible clients in the same
    context? You haven't had any kind of problems and nobody's
    raised a question about it?
        Ms. Charn. Well, we have a small grant that is in a--not
    us, but a separate corporation that serves--it's evolved
    historically because originally we were actually an LSC-funded
    program way back in the 1970's.
        Mr. Watt. Perhaps I should quit asking questions about
    this. I really am not trying to create----
        Ms. Charn. I understand.
        Mr. Watt.--create problems for you. I'm just trying to
    figure out how--what the distinction is.
        Ms. Charn. There's--we have a separate corporation. It's
    not subject to co-payments or any of these things.
        Mr. Watt. Sharing the same space, though, and the same
    lawyers?
        Ms. Charn. No, not the same lawyers. It has its own staff.
        Mr. Watt. So no sharing of lawyers' time on any of these
    cases that you're working on jointly?
        Ms. Charn. No. They would be--they would be separate. They
    have--they do work that's only--that is particular to that
    unit. And it's not the same work that the rest of the office
    would do. And it may change over time, but that's a very small
    part of our program. The vast majority of our service, that's
    mainly advice assistance and screening. And then most of the
    full representation work, the vast majority is done on law
    school money. And the reason that we have room to experiment is
    that money is not restricted in any way. We are service
    oriented, we've seen value in mixed income service.
        Mr. Watt. Ms. Charn, I hope I have not created a problem--
    --
        Ms. Charn. I don't think you have.
        Mr. Watt. I hope I haven't created an investigation here by
    asking you these series of questions.
        Ms. Charn. Mr. Padilla will help me. [Laughter.]
        Mr. Watt. But if I have, I apologize. That was not my
    intent, I assure you.
        Ms. Charn. I don't think you have.
        Mr. Watt. I think my time is up on this round. I'll yield
    back to the Chair.
        Ms. Charn. Thank you very much, Congressman Watt.
        Mr. Cannon. I thank the gentleman.
        We have a series of questions. I'm going to send questions,
    if the panelists are comfortable answering those in writing,
    that may be good. I'd like to just follow up on one comment,
    and then I'm not sure anybody else wants to have a second
    round.
        But, Mr. Padilla, you talked about $511, which is this
    amount that was--I think you called it ``immaterial'' in an $18
    million funding. And I understand that you've also solved that
    problem now by having a contract that doesn't allow for the
    carry of rent, which has come sporadically, apparently.
        Would you talk just a little bit about that in this
    context? You solved the problem. It seems to me that the
    perception of interrelationship even at a nominal cost, even at
    a de minimis cost, has its problems. By fixing that, have you--
    are you suggesting or would you suggest to this panel that you
    have--you recognize these problems, small as they may be, as
    larger in the context of the perception that they create and,
    therefore, you are committed in the future to help avoid the
    perception of using LSC resources to fund these foundations?
        Mr. Padilla. Yes, Congressman. We have----
        Mr. Cannon. That will do. [Laughter.]
        Just kidding. Please go ahead.
        Mr. Padilla. Go ahead?
        Mr. Cannon. I'm sorry. We're just joking here about it. But
    I would really actually appreciate your response to that point.
        Mr. Padilla. Well, Congressman, as we mentioned before,
    surprisingly enough, when I look at these investigations and
    audits, it's one of those few times when a director--when a
    director can actually get a feedback with respect how he or she
    will follow guidelines, follow regulations. And so to the
    extent that we go through an extensive audit, we take those
    findings seriously. Five hundred and eleven dollars, I wish I
    could say, Congressman, that it was zero. But, Congressman, the
    nature of the $511 is this: Clearly, it seems to me that what
    the public does not want to see, Congress does not want to see,
    are programs that in some way or another turn over direct
    resource over to entities doing restricted work. The perception
    of anybody doing that would create more problems than we
    already have.
        But I distinguish that from an indirect subsidy. In this
    case, for us, we were following the guidelines that were being
    set by LSC. LSC in its 1610 talked about this. It talked about
    telling programs, when you are working with another entity and
    sharing space, there are certain things that you must do. You
    must have agreements where you collect market rent. We had
    those. They ask--you have to have separate signage. If there
    are suites, it must be clear to the public that there is Legal
    Aid and there is the entity doing restricted work. And so we
    followed those rules.
        Mr. Cannon. Let me just interject. You had one group where
    you had two separate entrances that came to the same group of
    desks. Are you saying that, given this audit, you're now
    looking at that and will take corrective action there as well?
        Mr. Padilla. We've already changed that, Congressman. As a
    matter of fact, there are no longer--no longer any such
    relationships with the CRLA Foundation. There is no--there are
    no shared suites. There are no longer any of those kinds of
    agreements that we've entered into. That's happened in the last
    year. At the time that the IG came in, the IG was looking at
    three such relationships. And all I am saying is that when they
    came back and you read the report, what they had a problem with
    was the issue of subsidy, that is, the $511 in late rent that
    we didn't charge. In other words----
        Mr. Cannon. That was actually interest, was it not?
        Mr. Padilla. It was interest.
        Mr. Cannon. Interest, was that--which was part of the
    contract?
        Mr. Padilla. The late rent came--the late rent was there.
    It was paid in lump sum. We collected it. And then the issue
    was: Well, why didn't you charge interest on that, because you
    are floating an interest-free loan? And so what we've now done
    is, as we enter new contracts with other nonprofits, we are now
    putting into our agreements that we will charge late rent in
    case they pay their late rent.
        Mr. Cannon. So essentially you have a commercial agreement
    with penalties or interest that--with your--with these groups
    that you rent space to?
        Mr. Padilla. Yes, Congressman. And I do have to add that
    for a legal aid like us, that we are actually purchasing
    buildings in some communities. We also have leases where we pay
    high rents. Periodically, we will have space, and in order for
    us to try to make our space work, we rent to nonprofits.
        And so you're totally correct that now we're being asked to
    treat even those relationships very commercially, and now
    we've--we now understand the rule. I don't think that LSC--
    maybe they will disagree with that rule about treating
    nonprofits in a commercial manner. But we understand it, and
    now all of our agreements that we're entering into--and as a
    matter of fact--well, with all those agreements, that's exactly
    what we have. We are now looking at these as being defined by
    commercial agreements, just like any other landlord-tenant
    relationship.
        Mr. Cannon. I thank the gentleman. Let me just say that
    there's been some joking by the panel here. I don't mean to
    suggest that this issue is taken lightly by any of us at all.
    It has clearly been an intense issue historically. We
    appreciate your comments, especially Mr. Padilla, about how
    you've made adjustments after getting the guidelines from the
    IG. I encourage the LSC to continue to be clear about
    guidelines or clarify guidelines, and in your investigations
    look at these things, because clarity saves all of us a lot of
    difficulty.
        That said, would anyone else like to participate in a
    second round? The gentleman from Massachusetts is recognized
    for 5 minutes.
        Mr. Delahunt. Thank you, Mr. Chairman.
        Can I ask you how much was the interest, Mr. Padilla? I
    didn't mean to come back to you, but I want to get my arms
    around this.
        Mr. Padilla. The interest that we----
        Mr. Delahunt. The interest on the late payment.
        Mr. Padilla. $511.
        Mr. Delahunt. Can you repeat that again, please?
        Mr. Padilla. It's $511, Congressman.
        Mr. Delahunt. Fine. And how much did your round-trip ticket
    cost here?
        Mr. Padilla. It cost about $1,200 and change.
        Mr. Delahunt. Thank you.
        Let me go to Ms. Charn for a moment. I understand your
    concept of the co-payment system. I understand there was a
    proposal before the Massachusetts Legislature which would have
    incorporated that into their Legal Services, and that it was
    resoundly rejected. Am I accurate in that?
        Ms. Charn. I believe so, yes.
        Mr. Delahunt. Okay. And you indicated, your words were
    ``Maybe it should be implicated into the LSC system.'' And I
    guess that condition of that would be a completion of a
    critical study, which I thought I heard that you were
    undergoing or had under way.
        Ms. Charn. We plan to look carefully at our own experience
    and to get some independent and systematic evaluation of
    client--client response to it.
        What I really----
        Mr. Delahunt. If I can, I don't want to----
        Ms. Charn. Sure.
        Mr. Delahunt.--delay you, and I know Mr. Padilla has got to
    get on that plane because we don't want to have him stay
    overnight again and continue to add on that. In any event--and
    I don't mean to be rude, Ms. Charn. I really want to compliment
    the program at Harvard. I'm familiar with it. Maybe you're
    unaware, but I served for 21 years as the elected district
    attorney in the greater Boston area, and we utilized many of
    the clinical programs in the metropolitan Boston area.
        Ms. Charn. I am aware of that.
        Mr. Delahunt. And Harvard was good. It was good. BC was
    just a little bit better as far as the criminal---- [Laughter.]
        --clinical program. But at the same time, I think you
    really do serve and do provide a wonderful experience for law
    students.
        I don't think you need to teach them about the business
    dimension, however, because most Harvard Law School graduates,
    at least when they finish, receive their J.D. degree, they seem
    to be doing pretty well upon their graduation.
        But, seriously--and we'll await the conclusion of that
    study that you alluded to earlier. But, you know, I think--and
    I'm glad to hear that you're servicing the moderate-income
    community because a growing--a concern of mine is really access
    to the civil justice system. For the middle class today, it's
    almost impossible, particularly when you're dealing, you know,
    with a claim against a--against a corporation. I'm not talking
    a small business but against a corporation. You do not have the
    resources. And I think that is a niche area that really has to
    be addressed.
        And it's my understanding, too, that one of the
    restrictions that Congress passed, I think it was in 1996, is
    that no longer is LSC prohibited to be involved in class
    actions. And I wonder if it's time to really, as far as legal
    clinical programs--and, again, we have many of them in the
    Boston area--to consider a consortium of those programs to
    examine a need, a vacuum, if you will, and as it particularly
    relates to LSC and the restrictions that are placed on it. Many
    of those restrictions I happen to think are unreasonable, but
    the law is the law and we respect the law.
        But we need some lawyers today who service that low- to
    moderate-income that really do need the kind of resources that
    the law schools can supply, and particularly those areas that
    could very well address a significant social need that
    oftentimes is brought about through the mechanism of a class
    action suit. Best example, the Firestone case, for example. I
    really think that would be a very exciting opportunity for a
    consortium of law schools to come together with a program to
    train future lawyers in terms of how to meet that particular--
    how to meet--not just how to meet that particular need, but to
    give them an experience that has become very rare as opposed to
    the direct aid that's provided by LSC.
        I don't know. Maybe I'm not being clear enough in terms of
    what I'm suggesting, but take, for example, the restriction on
    LSC dealing with class action suits and the need for
    particularly certain segments of our community who do not have
    the wherewithal, could never envision what a class action suits
    really means when there is an obvious problem to be addressed.
    For the law schools to support that kind of effort in clinical
    programs, because there is a vacuum, there is an opening--and,
    again, too often today, you know, our Government is not
    protecting those who really need to be protected the most,
    those that are the vulnerable. And we have to rely on lawyers.
    We have to rely on the courts. We have to rely on access to the
    system.
        Any comments?
        Ms. Charn. Well, I do share the regret that there are
    restrictions on remedies that can be pursued. I accept that
    they're there, and I think it's important that until and unless
    they're changed, there absolutely should be compliance. I think
    class action is a remedy. In some cases, it's appropriate. I
    don't think it's the be-all and end-all of what people need. I
    think that lots of people also need direct service, and we've
    been very concerned about those just above poverty who share
    exactly the same kinds of problems, are victims of the same
    sorts of situations. And I don't think--I think there can be
    cause for resentment when the very poor, albeit in small
    numbers, are eligible for things that middle-income and people
    who are working hard but couldn't begin to afford decent legal
    services don't have access. So we've been concerned about that.
        On the subject of restrictions, I think one that has some
    real practical effect is that the prohibition from seeking
    attorneys' fees in ordinary cases where it's authorized by
    local law and statute, that can be an important source of
    income, and it does bring in more income to our program than
    any part of the co-payments. And we are not--we are not looking
    at high-profile cases because we want our students to have some
    direct, hands-on experience, and you're not going to give a
    second-year law student any lead role. They'll do research, but
    they know how to do research. They don't know how to sit in a
    room with a client, bargain across the table, or make a 2-
    minute argument in a busy court as opposed to a lengthy
    argument in a high-level court.
        So we've looked at that part of the need, and I do think at
    a practical level, the inability of programs to be able to
    access attorneys' fees where it's authorized by local law is
    something that could provide resources, would be a benefit, and
    it was on that base that we built a co-payment system.
        Mr. Delahunt. I would encourage you, Ms. Charn, to
    incorporate that particular issue in terms of the study that
    you referred to earlier. I think it would be very beneficial to
    have.
        Ms. Charn. Thank you, Congressman.
        Mr. Cannon. The gentleman yields back.
        I think the Ranking Member would like to take another
    round, and I will defer to him in just a moment.
        Let me point out, Ms. Charn, that your point that people on
    the lower end get angry because some people get a benefit and
    they don't is very well taken, and it's one of the key issues
    that I think we need to focus on to keep LSC a healthy
    organization.
        I just want to make a point, Mr. Padilla. My round-trip
    ticket is about--is less than $300. We need to get you a
    Government fare somehow in this process. [Laughter.]
        And, of course, as we reduce the cost of your being here,
    the enormity of the cost of compliance or dealing with this
    audit is great. My understanding is that it cost somewhere way
    north of $113,000 to deal with this audit. I think--I don't
    know that anybody is going to complain about that. I think it's
    very important that we have clarity about the rules. Other
    people in other places will see how clear the rules have become
    and avoid problems there. And so we appreciate your--the time
    and effort you have put into this and what it does for the
    health of the whole organization.
        With that, the Chair yields 5 minutes to the gentleman.
        Mr. Watt. Thank you, Mr. Chairman. Just let me clarify,
    though, this is not another round. This is my second bite at
    the apple, as you and Mr. Delahunt have already had your
    second----
        Mr. Cannon. I would just appreciate it if you didn't take
    as big a bite as each of us took. We went way over the red
    light.
        Mr. Watt. I'm just going to take long enough to try to dig
    myself out of this hole that I dug for myself in the first
    round of questions, and I want to do it this way:
        First of all, I want to say how much I agree with the last
    comment Ms. Charn made about attorneys' fees. I think that's
    one of the more ridiculous rules that we have imposed upon
    Legal Services Corporation.
        Number two, in my continuing effort to get myself out of
    the hole with Ms. Charn, I want her to deliver to my good
    friend and former classmate, Duncan Kennedy, my highest regards
    and tell him I'll be up there for the convention. I'm looking
    forward to him hosting me there.
        Ms. Charn. Professor Kennedy came and practiced with us at
    the center, and I hope I won't be disclosing too much in saying
    that he never passed the bar. We had to have him as a
    paralegal. But he was very effective.
        Mr. Watt. Oh, is that right?
        Ms. Charn. Very, very effective.
        Mr. Watt. Well, he never was much attention--paid much
    attention to those kinds of details. His thought processes--and
    I was in the same class with him. We always thought we're
    always on a different plane than the proletariat lawyers who
    were having trouble understanding the simple concept. He had
    taken it to another concept. So it didn't surprise me that he
    ended up being a professor and I ended up being a country
    lawyer and politician. So give him my best regards. He's a
    great friend of mine, and I respect him highly--even though he
    hadn't passed the bar, it sounds like.
        Ms. Charn. He didn't take--he would have passed it. Let me
    be clear.
        Mr. Watt. Finally, I want to clarify, I guess, your
    program, the Hale and Dorr Legal Services Center, does or does
    not receive LSC support?
        Ms. Charn. A separate entity, a separate corporation
    receives LSC support. Historically, we had a strong affiliation
    with the LSC-funded programs in the area. After the Gingrich
    congress, that changed, for a variety of local reasons. But----
        Mr. Watt. The Gingrich congress is a concept I do not
    understand.
        Ms. Charn. I mean the Contract With America, the
    restrictions that came in----
        Mr. Watt. That was in 1995-96?
        Ms. Charn. Yes.
        Mr. Watt. I have never acceded to the notion that that was
    his Congress or anybody else's.
        Mr. Cannon. It did become mainstream America.
        Mr. Watt. It was--this Congress is always the American
    people's Congress, and----
        Ms. Charn. Well put.
        Mr. Watt.--this is the people's House
        Ms. Charn. Well put.
        Mr. Watt. But I understand you're talking about 1995-96.
        Ms. Charn. Yes.
        Mr. Watt. Okay. All right. Keep going.
        Ms. Charn. So I would say that, in fact, what our program
    does is, aside from that continuing small grant to a separate
    corporation, in fact, Harvard Law School is providing its own
    resources that are making available substantial services to LSC
    clients.
        Mr. Watt. Okay. So with respect to that program, you can
    charge a co-pay or whatever you want. I mean, you don't need
    Congress'----
        Ms. Charn. That's right.
        Mr. Watt. Okay. And in the LSC-funded program, you are not
    charging a co-pay----
        Ms. Charn. Certainly not.
        Mr. Watt.--because that's prohibited----
        Ms. Charn. That's prohibited.
        Mr. Watt.--by the rules.
        Ms. Charn. Exactly right.
        Mr. Watt. All right. What I'm trying--the bottom line I'm
    trying to get to on this co-pay issue is I assume and hope
    you're not suggesting that because in a separately funded
    mechanism where you do services for Legal Services-eligible
    clients and non-Legal-Services-eligible clients, you have a co-
    pay system that you would impose that same co-pay system in
    every Legal Services Corporation-funded program throughout
    America. That's not what you're suggesting, is it?
        Ms. Charn. No, I don't----
        Mr. Watt. Okay. All right. I just----
        Ms. Charn. It's not for me to suggest--we have some
    experience with it. In the future, as we evolve, I don't think
    it's unthinkable, but I have no--I'm not making any suggestion
    that that would be a priority of any kind for this legal--and I
    trust Chairman Strickland and the new president. That is really
    a matter of policy for the Congress and them. I simply report
    on an experience, and it's our role----
        Mr. Watt. And actually, in your experience--I take back
    what I said in my opening statement--you have the right to
    experiment in your program because you're not received Federal
    funds.
        Ms. Charn. That's correct.
        Mr. Watt. In that part of your program, which is why I
    wanted to go back and clear this up. I didn't want to start
    another investigation. There are two separate programs here.
        Ms. Charn. Yes.
        Mr. Watt. And one is Legal Services funded and one is not.
    So I just wanted to be clear on that.
        I think I have dug myself out of the hole. I probably put
    myself back in it by mentioning Duncan Kennedy.
        Ms. Charn. Not at all.
        Mr. Watt. But he'll understand that I was trying to get
    myself out of the hole.
        With that, I'll yield back.
        Mr. Cannon. The Chair was aware that these are separate
    programs, I might just point out.
        Mr. Watt. Okay.
        Mr. Cannon. And I had no intention of pursuing it beyond
    that.
        We thank the panel very much. We appreciate the Members of
    the Committee who have been here today asking questions,
    watching over me, making sure we stayed on the straight and
    narrow.
        Let me just say in closing that this is an important issue.
    It's been an issue that America has reacted to in many
    different ways. I think, Ms. Charn, your statement about the
    concern by people who can't get access to legal services is a
    very serious one. I appreciate the way you are dealing with it,
    and we're going to take a careful look in the future at a
    program that might mitigate that along the lines of what you've
    done with Hale and Dorr and with Harvard, and we appreciate
    that.
        Mr. Padilla, we appreciate your having come in and come
    across the country. It's not a day, let me point out. It's
    actually 3 days. You know, the Federal Government calls travel
    across the country a day's work, so we appreciate that.
        And, Ms. Barnett, we appreciate your being here and your
    participation.
        It seems to me Mr. Padilla would like to make another
    comment.
        Mr. Watt. And I need to make a unanimous consent request.
        Mr. Cannon. Okay. Why don't we go to the unanimous consent
    request and we'll let----
        Mr. Watt. All right. Mr. Chairman, I ask unanimous consent
    that we have submitted for the record letters of support for
    the California Rural Legal Assistance, Inc., as if they needed
    that, from Members of the Congressional Hispanic Caucus,
    Brennan Center for Justice at NYU School of Law, Mexican
    American Legal Defense and Educational Fund, League of United
    Latin American Citizens, Farm Worker Justice Fund, Inc.,
    California Catholic Conference, Mexican American Bar
    Association, twelve law professors, and the National Council of
    La Raza.
        Mr. Cannon. Thank you. Without objection, so ordered.
        [The ``letters of support'' are inserted in the Appendix.]
        Mr. Cannon. Mr. Padilla, do you want to make a final
    comment?
        Mr. Padilla. Yes. Chairman, just putting my whole issue
    aside, I just felt the need to make one statement about
    thanking you for your leadership. As you well know, CRLA spends
    a significant amount of time representing working people. And
    to the extent that you as a Congressman has taken leadership in
    the ag jobs bill and taken leadership in the DREAM Act, I have
    to say on behalf of the clients that we serve in California,
    people who sometimes the only sustenance that they can get--
    they need the sustenance of food, but they also need sustenance
    like faith and hope. And to the extent that you have taken the
    leadership in that area with those two pieces of legislation, I
    have to thank you on behalf of our client community, because I
    know you've taken a position on a very volatile issue. But it's
    an issue that's so critical to the people that we serve on a
    daily basis. And I just wanted to make that comment because
    this is probably the last time that I will ever be able to
    thank you so publicly because of the stance you've taken.
        Mr. Cannon. Well, I hope we could meet privately because I
    intend to get to California, but I thank you very much. And as
    we talked yesterday, let me just say, and as I said earlier in
    the hearing, we have problems in America. We need to solve
    those on many fronts. But opening up the path for people to
    move from lower income to higher income, meaning getting
    education available to them, having access to other resources,
    those things are vitally important, not to me, not to you, but
    to all Americans. It's important that all Americans have--all
    other Americans have all the opportunities that this great
    country provides.
        I would ask unanimous consent to insert the IG report in
    this matter in the record. Without objection, so ordered.
        [The ``IG report'' is inserted in the Appendix.]
        Mr. Watt. I would ask unanimous consent to insert in the
    record the exhibits that Mr. Padilla----
        Mr. Cannon. Without objection, so ordered.
        Mr. Watt.--testified about with reference to the labor camp
    at Haute, California.
        Mr. Cannon. Without objection, so ordered.
        [The material referred to is inserted in the Appendix.]
        Mr. Cannon. And on this kindly note, let us adjourn the
    hearing.
        [Whereupon, at 2:24 p.m., the Subcommittee was adjourned.]

                                A P P E N D I X

                                  ----------

                   Material Submitted for the Hearing Record

        Letter Submitted by Members of the Congressional Hispanic Caucus

              Letter Submitted by the Brennan Center for Justice
                      at New York University School of Law

          Letter Submitted by the Mexican American Legal Defense and
                            Education Fund (MALDEF)

        Letter Submitted by the League of United Latin American Citizens

             Letter Submitted by the Farmworker Justice Fund, Inc.

             Letter Submitted by the California Catholic Conference

            Letter Submitted by the Mexican American Bar Association

                     Letter Submitted by 12 Law Professors

          Letter Submitted by the National Hispanic Leadership Agenda

            Report of Leonard J. Koczur, Acting Inspector General,

                           Legal Services Corporation

        Photographs Submitted by California Rural Legal Assistance Inc.

      Supplemental Prepared Statement of Jeanne Charn, Director, Hale and
    Dorr Legal Services Center, and Director, Bellow-Sachs Access to Legal
                      Services Project, Harvard Law School

        The following information is offered as a supplement to the written
    remarks and oral testimony presented to the Subcommittee on Commercial
    and Administrative Law of the House Judiciary Committee on Wednesday,
    March 31, 2004.

        On the topic of experiments at the Hale and Dorr Legal Services
    Center with client co-payments, I emphasize that we serve clients above
    125% of poverty. Some of these clients are fledgling entrepreneurs, not
    for profits and other clients not typically served by LSC funded legal
    services providers. These clients may have incomes above poverty, but
    they cannot afford decent legal services at market rates. Most of the
    Center's clients who have incomes above 125% of poverty have legal
    problems that are the same as most of our clients who are below 125% of
    poverty--they have job related issues, or they are seeking unemployment
    compensation; they seek disability assistance because they are ill or
    injured and cannot work; they seek assistance with child support,
    protection from domestic violence or assistance with divorce; they are
    homeowners threatened with foreclosure or tenants with unsafe or
    unhealthy apartments who may also be facing eviction. Housing costs in
    Boston are high so many people above the lowest income levels have
    difficulty finding and retaining decent affordable housing. With rental
    housing costs in lower income Boston neighborhoods reaching eight
    hundred to as much as one thousand dollars per month or more, we serve
    many clients who are ``shelter poor,'' that is their incomes may be
    above poverty but they have no discretionary money and could not
    possibly afford lawyer assistance.
        For tenants, we claim attorney's fees pursuant to state statutes
    and rules. All income from representation of tenants is pursuant to
    these statutes and rules. When we represent clients who have been
    victimized by predatory lending, we similarly seek attorney's fees and
    costs of litigation pursuant to local and federal statutes.
        Under 45 CFR Part 1642, LSC funded programs are not permitted to
    seek these fees. As indicated in my testimony on March 31, 2004, I
    would urge the Subcommittee to consider easing the current restrictions
    that prevent LSC grantees from seeking fees under existing statutes and
    rules, whether local or federal. These fee-shifting statutes are
    intended to encourage compliance and deter rule breaking. Permitting
    LSC grantees to seek such fees would have no impact on the present
    substantive restrictions that Congress has enacted, but would be
    consistent with the intent of the fee shifting statutes and would
    produce income to programs that would support increased service.
        While existing regulations do not permit LSC grantees to seek
    attorney's fees pursuant to statute or rule, I would point out that
    section 1642.6 of 45 CFR Part 1642 permits LSC grantees to seek
    reimbursement of out of pocket costs from ``. . . damages or statutory
    benefits . . .'' that result from the representation. LSC might
    encourage programs that may not be doing so already to regularly seek
    reimbursement of out of pocket costs when representation produces funds
    from which such costs could be paid.
        At the Hale and Dorr Center, we seek such cost recoveries from all
    clients whether above or below 125% of poverty. The clients who are
    represented with the Private Attorney Involvement (PAI) funds pursuant
    to an annual contract with Boston's Volunteer Lawyer Project (VLP) are
    never charged co-payments because VLP has only LSC funds. However, we
    do seek co payments from clients below 125% of poverty whom we
    represent with non-LSC funds. We seek co-payments from these very low-
    income clients only when our representation produces resources from
    which the co-payment can be made, for example, back benefit awards in
    disability or unemployment compensation matters. In these areas, most
    co-payment charges are for clients in the income range of 200% of
    poverty or lower.
        Finally, a note on the PAI funds received by a separate not for
    profit entity housed at the Hale and Dorr Center in Jamaica Plain from
    the LSC grantee, The Volunteer Lawyer's Project. While these funds must
    be used to serve clients consistent with LSC regulations and the LSC
    statute, participating in a PAI program funded by an LSC grantee such
    as the VLP does not restrict other funds of the private attorney. We
    have gone further and segregated the PAI funds in a separate not for
    profit entity that contracts annually with the VLP. Pursuant to
    contract, VLP requires the not for profit to serve a specific number of
    LSC eligible clients each year.
        In conclusion, I want to express my thanks to the Committee for its
    interest in the service delivery experiments of the Hale and Dorr
    Center and the broader work of the Bellow-Sacks Access to Civil Legal
    Services Project. The knowledge, thoughtfulness and obvious commitment
    of the Subcommittee Chair and members to making high quality legal
    services broadly available was heartening and of great importance to
    the future of our legal system.
    Response to Post-Hearing Questions from Helaine M. Barnett, President,

                           Legal Services Corporation

           Response to Post-Hearing Questions from Jose R. Padilla,
          Executive Director, California Rural Legal Assistance, Inc.

     Response to Post-Hearing Questions from Jeanne Charn, Director, Hale
     and Dorr Legal Services Center, and Director, Bellow-Sachs Access to

                   Legal Services Project, Harvard Law School