[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.
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    \1\ CRLA Inc. was incorporated March 3, 1966, and received its 
first grant from the Office of Economic Opportunity (OEO) on May 24, 
1966.
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    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.
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    \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.
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    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\
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    \3\ These estimates were provided to both LSC and OIG by letter of 
October 24, 2002.
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    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.''
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    \4\ Since 1982, the relationship between CRLA Inc. and CRLAF has 
been reviewed during 5 Federal audits--in 1986, 1988, 1991, 2000 and 
2002.
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    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.
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    \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.
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    \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\
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    \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



                                 
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