[Federal Register Volume 67, Number 226 (Friday, November 22, 2002)]
[Proposed Rules]
[Pages 70376-70388]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-29611]


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LEGAL SERVICES CORPORATION

45 CFR Part 1611


Financial Eligibility

AGENCY: Legal Services Corporation.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Legal Services Corporation (``LSC'' or ``Corporation'') 
proposes to amend its regulations relating to financial eligibility for 
LSC-funded legal services. The proposed revisions are intended to 
reorganize the regulation to make it easier to read and follow; 
simplify and streamline the requirements of the rule to ease 
administrative burdens faced by LSC grantees in implementing the 
regulaiton and to aid LSC in enforcement of the regulation; and to 
clarify the focus of the regulation on the financial eligibility of 
applicants for LSC-funded legal services.

DATES: Comments must be submitted on or before December 23, 2002.

ADDRESSES: Comments must be submitted in writing and may be sent by 
regular mail, or may be transmitted by fax or email to: Mattie C. 
Condray, Senior Assistant General Counsel, Office of Legal Affairs, 
Legal Services Corporation, 750 First St., NE., 11th Floor, Washington, 
DC 20002-4250; (202) 336-8952 (fax); [email protected] (e-mail).

FOR FURTHER INFORMATION CONTACT: Mattie C. Condray, Senior Assistant 
General Counsel, Office of Legal Affairs, Legal Services Corporation, 
750 First St., NE., 11th Floor, Washington, DC 20002-4250; (202) 336-7 
(phone); (202) 336-8952 (fax); [email protected] (e-mail).

SUPPLEMENTARY INFORMATION: Section 1007(a) of the Legal Services 
Corporation Act requires LSC to establish guidelines, including setting 
maximum income levels, for the determination of applicants' financial 
eligibility for LSC-funded legal assistance. Part 1611 implements this 
provision, setting forth the requirements relating to determination and 
documentation of client financial eligibility.
    The current version of 1611 was adopted in 1983. In 1995, LSC 
published a proposed revision to part 1611 which represented a major 
overhaul of the regulation (60 FR 3798, January 15, 1995). The product 
of significant discussions and negotiation among LSC staff and 
representatives of the field, the proposed rule reflected an attempt to 
clarify and simplify the rule without changing most of the underlying 
policies and concepts of the rule. Following publication of the NPRM, 
however, no further action on the proposed revisions to part 1611 was 
taken. Many outstanding issues prompting the 1995 rulemaking remain 
extant and there are additional issues which have arisen since then. In 
addition, there are statutory changes which need to be incorporated 
into the regulation. In light of the above, the LSC Board of Directors 
identified 45 CFR part 1611, Eligibility, as an appropriate subject for 
rulemaking on January 27, 2001. On June 30, 2001, the LSC President and 
the Chair of the Operations and Regulations Committee of the Board of 
Directors made a determination to proceed with a Negotiated Rulemaking 
to consider amendments to part 1611. In accordance with the LSC 
Rulemaking Protocol, LSC published a notice in the Federal Register 
formally soliciting suggestions for appointment to the Negotiated 
Rulemaking Working Group from the regulated community, its clients, 
advocates, the organized bar and other interested parties (66 FR 46976, 
September 10, 2001).
    After receiving submissions of interest, a Working Group was 
appointed. The members of the Working Group are: Legal Services 
Corporation, Washington, DC (represented by Mattie C. Condray, Senior 
Assistant General Counsel, Office of Legal Affairs; John Eidleman, 
Acting Vice President for Compliance and Administration; Anh Tu, 
Program Counsel, Office of Program Performance; and Danilo Cardona, 
Director, Office of Compliance and Enforcement); Legal Services 
Corporation, Office of Inspector General, Washington, DC (represented 
by Laurie Tarantowicz, Assistant Inspector General and Legal Counsel); 
Center for Law and Social Policy, Washington, DC (represented by Linda 
Perle, Senior Attorney--Legal Services); National Legal Aid and 
Defenders Association, Washington, DC (represented by Jon Asher, Member 
NLADA Regulations Committee and Executive Director of Colorado Legal 
Services); Legal Aid of North Carolina, Raleigh, NC (represented by 
George Hausen, Executive Director); Northwest Justice Project, Seattle, 
WA (represented by Deborah Perluss, Director of Advocacy/General 
Counsel); Blue Ridge Legal Services, Inc., Harrisonburg, VA 
(represented by John Whitfield, Executive Director); West Texas Legal 
Services, Fort Worth, TX (represented by Vernon Lewis, Deputy 
Director); Land of Lincoln Legal Assistance Foundation, Inc., Alton, IL 
(represented by Joseph Bartylak, Executive Director); Atlanta Legal Aid 
Society, Atlanta, GA (represented by Steven Gottlieb, Executive 
Director); and the American Bar Association's Standing Committee on 
Legal Aid and Indigents and Defendants (represented by Phyllis Holmen, 
Member SCLAID and Executive Director, Georgia Legal Services Program).
    The Working Group held three meetings: January 7-8, 2002; February 
11-12, 2002; and April 11-12, 2002. All three meetings were noticed in 
the Federal Register and were open to public observation. The Working 
Group conducted its work under the guidance of a professional 
facilitator. The facilitator, although selected by and under contract 
to LSC pursuant to LSC's Rulemaking Protocol, did not represent LSC on 
the Working Group and served

[[Page 70377]]

as a neutral with the continuing support of the Working Group.
    The Working Group developed a Draft NPRM which was considered by 
the Operations and Regulations Committee of the Board of Directors at 
its meeting on November 8, 2002. The Committee suggested two major 
revisions to the Draft NPRM (discussed below) and this NPRM (as 
revised) was approved for publication by the Board of Directors at its 
meeting on November 9, 2002. Except as noted, all of the specific 
proposed revisions contained herein represent the consensus opinion of 
the Working Group.
    While specific revisions are discussed in greater detail in the 
Section-by-Section analysis, below, it should be noted that the 
proposed revisions reflect several overall goals of the Working Group: 
reorganization of the regulation to make it easier to read and follow; 
simplification and streamlining of the requirements of the rule to ease 
administrative burdens faced by LSC grantees in implementing the 
regulation and to aid LSC in enforcement of the regulation; and 
clarification of the focus of the regulation on the financial 
eligibility of applicants for LSC-funded legal services. In particular, 
LSC is proposing to significantly reorganize and simplify the sections 
of the rule which set forth the various requirements relating to 
establishment of recipient annual income and asset ceilings, authorized 
exceptions and determinations of eligibility. These changes are 
intended to improve the clarity of the regulation and include 
substantive changes to make intake simpler and less burdensome and 
basic financial eligibility determinations easier for recipients to 
make. LSC is also proposing to move the existing provisions on group 
representation, with some amendment, to a separate section of the 
regulation.
    LSC also proposes to eliminate the retainer agreement requirement 
currently found at Sec.  1611.8 of the regulation. The retainer 
agreement requirement was the subject of significant discussion in the 
Working Group. Representatives of the field agreed with the LSC 
representatives that a retainer agreement may be appropriate under 
certain circumstances, but argued that this regulatory requirement is 
not required by statute, is not justified under applicable rules of 
professional responsibility, may be unnecessarily burdensome in some 
instances and is not related to financial eligibility determinations. 
They contended that, barring a statutory mandate, decisions about the 
use of retainer agreements, like those involving many other matters 
relating to the best manner of providing high quality legal assistance, 
should be determined by a recipient's Board, management and staff, with 
guidance from the Corporation. They urged LSC to delete this 
requirement. The LSC representatives, however, were of the opinion that 
the existing provision in the regulations requiring the execution of 
retainer agreements is professionally desirable, authorized in 
accordance with LSC's mandate under section 1007(a)(1) of the Act to 
assure the maintenance of the highest quality of service and 
professional standards, and appropriate to assure that there are no 
misunderstandings as to what services are to be rendered to a 
particular client. Retainer agreements protect the attorney and 
recipient in cases of an unfounded malpractice claim and protect the 
client if the attorney and the recipient should fail to provide legal 
assistance measuring up to professional standards. In the end, the 
Working Group was unable to reach consensus on this issue and the Draft 
NPRM retained a provision generally requiring the execution of retainer 
agreements, along with proposing requirements for client service 
notices and PAI referral notices in lieu of retainer agreements under 
certain circumstances.
    In its deliberations on the Draft NPRM, the Operations and 
Regulations Committee determined that while it agreed that retainer 
agreements are professionally desirable, it did not find it necessary, 
either by statute or policy, for LSC to continue to impose such a 
requirement on recipients. The Committee recommended that the entire 
proposed Sec.  1611.7 in the Draft NPRM, entitled Retainer Agreements, 
Client Service Notices and Referral Notices, be stricken from the draft 
prior to publication. In approving the recommendation of the Committee, 
the Board directed that this action be taken and any conforming 
amendments necessary be made prior to publication of the NPRM for 
comment. This NPRM reflects this direction. LSC specifically invites 
comment on this issue.
    One other general issue merits discussion. Section 509(h) of the FY 
1996 LSC appropriations act, Pub. L. 104-134, provides that, among 
other records, eligibility records ``shall be made available to any 
auditor or monitor of the recipient * * * except for such records 
subject to the attorney-client privilege.'' This provision has been 
retained in each subsequent appropriations measure and continues to be 
in force. The Office of the Inspector General has been interested in 
having this language expressly incorporated into part 1611.
    The Working Group took up the issue and discussed the fact that 
there is some measure of disagreement about the scope and extent of the 
access authority granted to the OIG by the statute. Mindful of this 
disagreement, the Working Group determined that an appropriate approach 
would be simply to propose language that tracked very closely that of 
the statute and the Working Group was close to reaching consensus on 
what would have been proposed Sec.  1611.10, Access to Records. The 
Working Group acknowledged that such an approach would not settle all 
of the questions about the meaning of the access provisions, but agreed 
that it was the best way to incorporate the statutory requirements 
without causing undue delay in completing its work on this proposed 
rule. Simultaneously, however, in the course of a similar discussion 
taking place in a separate negotiated rulemaking on LSC's alien 
eligibility regulations, 45 CFR part 1626, it became apparent that the 
1626 Working Group would not be able to agree to such an approach, with 
several participants favoring either leaving an access provision out of 
the regulation or drafting a provision that reflects a more thorough 
discussion and interpretation of 509(h).
    This situation created a problem for LSC because LSC is not willing 
either to adopt two differing regulations implementing the same 
statutory provision, or to have an access to records provision relating 
to 1611 eligibility records but not an access to records provision 
relating to 1626 eligibility records when both regulations are in the 
process of revision. Either of these situations would invite 
unnecessary implementation problems for LSC, the OIG and recipients. 
Moreover, upon reflection LSC has determined that, as 509(h) covers 
significantly more than eligibility records, conducting a full 
discussion of the meaning of 509(h) in the context of either 1611 or 
1626, which deal only with eligibility issues, is not appropriate. The 
OIG's authority under the statute is not affected by a decision not to 
incorporate express access to records provisions in either 1611 or 
1626. Consequently, LSC does not propose to include regulatory language 
implementing 509(h) with respect to records covered by this part. 
Similarly, LSC does not propose to add language regarding 509(h) access 
to the retainer agreement, client service notice and referral notice 
provisions of proposed Sec.  1611.7.
    Although the field representatives to the Working Group concur in 
this decision, the OIG dissents. As noted

[[Page 70378]]

above, the OIG has been interested in incorporating the 509(h) 
authority in the regulations for some time. The OIG disagrees with 
LSC's position that conducting a full discussion of the meaning of 
509(h) in the context of either 1611 or 1626 is inappropriate. Rather, 
the OIG is of the opinion that since one of the goals of this 
rulemaking (and the 1626 rulemaking) is to clarify the requirements 
applicable to recipients relating to eligibility records and since 
access to eligibility records is provided by 509(h), the 1611 and 1626 
negotiated rulemakings provide an opportunity to clarify the statutory 
authority. Failing a full discussion of 509(h) in the current 
regulatory context, the OIG believes that including an access provision 
which closely trackes the statutory language would make clear that the 
documentation and records recipients are required to maintain under 
parts 1611 and 1626 are eligibility records to which LSC has access 
under 509(h).
    Moreover, the OIG is of the opinion that even if a consensus could 
not be reached during the negotiated rulemaking process, LSC 
nonetheless should include an access provision in the rule. Negotiated 
rulemaking has at its ultimate goal the resolution of differences of 
all issues by consensus. Yet, the negotiated rulemaking process 
anticipates that consenses may not be achieved on all issues, and in 
such cases, LSC, as the entity responsible for implementing the law, 
promulgates the rule it deems appropriate. The OIG believes this is 
especially warranted in the case of access, where the anticipated lack 
of ability to reach consensus highlights the very problem the 
rulemaking should address and resolve. The OIG notes that the 
discussions among the Working Group members make clear that there are 
differences in interpretation regarding the access to which LSC is 
authorized. The OIG further notes that those differences have resulted 
in problems and delays when access to grantee information is sought, 
causing the unnecessary expenditure of time and resources for all 
involved. The OIG believes that attempting to avoid the problem by not 
including an access provision in the rule resolves nothing.
    LSC acknowledges that not including an access provision in Sec.  
1611 does not resolve the issues relating to the meaning and scope of 
the 509(h) access provision. Indeed, as noted above, LSC has determined 
that, as section 509(h) covers a range of records beyond financial 
eligibility records, it is not appropriate for LSC to use this 
rulemaking to explore and resolve these contentious and important 
issues.

Title of Part 1611

    LSC proposes to change the title of part 1611 from ``Eligibility'' 
to ``Financial Eligibility.'' This proposed change is intended, first, 
to make clear that with respect to individuals seeking LSC-funded legal 
assistance, the standards of this part deal only with the financial 
eligibility of such persons. LSC believes this change will help clarify 
that a finding of financial eligibility under part 1611 does not create 
an entitlement to service. Rather, financial eligibility is merely a 
threshold question and the issue of whether any otherwise eligible 
applicant will be provided with legal assistance is a matter for the 
program to determine with reference to its priorities and resources. In 
addition, this part does not address eligibility based on citizenship 
or alienage status; those eligibility requirements are set forth in 
part 1626 of LSC's regulations, Restrictions on Legal Assistance to 
Aliens.

Section-by-Section Analysis

Section 1611.1 Purpose

    LSC is proposing to revise this section to make clear that the 
standards of this part concern only the financial eligibility of 
persons seeking LSC-funded legal assistance and that a finding of 
financial eligibility under part 1611 does not create an entitlement to 
service. In addition, LSC proposes to remove the language in the 
current regulation referring to giving preferences to ``those least 
able to obtain legal assistance.'' Although the original LSC Act 
contained language indicating that programs should provide preferences 
in service to the poorest among applicants, that language was deleted 
when the Act was reauthorized in 1977 and has remained out of the 
legislation ever since. Thus, as there is no statutory basis for a 
preference for those least able to afford assistance and because LSC 
believes that the regulation should focus on financial eligibility 
determinations without reference to issues relating to service 
determinations, this language should be removed from the regulation. 
Finally, LSC proposes to add language specifying that this part also 
sets forth financial standards for groups seeking legal assistance 
supported by LSC funds.

Section 1611.2; Definitions

    LSC proposes to add definitions for several terms and to amend the 
definitions for each of the existing terms currently defined in the 
regulation. LSC believes that the new definitions and the amended 
definitions will help to make the regulation more easily 
comprehensible.

Section 1611.2(a) Applicable Rules of Professional Responsibility

    LSC proposes to add a definition of the term ``applicable rules of 
professional responsibility'' as that term appears in proposed Sec.  
1611.7, Change in Financial Eligibility Status. This definition is 
intended to make clear that the references in the regulation refer to 
the rules of ethics and professional responsibility applicable to 
attorneys in the jursidiction where the recipient either provides legal 
services or maintains its records.

Section 1611.2(b) Applicant

    Consistent with the intention throughout to keep the focus of the 
regulation on the standards and criteria for determining the financial 
eligibility of persons seeking legal assistance supported with LSC 
funds, LSC proposes to use the term ``applicant'' throughout the 
regulation to emphasize the distinction between applicants, clients, 
and persons seeking or receiving assistance supported by other than LSC 
funds. Accordingly, LSC proposes to add a definition of applicant 
providing that an applicant is an individual seeking legal assistance 
supported with LSC funds. Groups, corporations and associations would 
be specifically excluded from this definition, as the eligibility of 
groups would be addressed wholly within proposed Sec.  1611.8.
    Programs currently may provide legal assistance without regard to a 
person's financial eligibility under part 1611 when the assistance is 
supported wholly by non-LSC funds. LSC does not propose to change this 
(in fact, LSC proposes to restate this principle in proposed Sec.  
1611.4(a)) and believes that the use of the term applicant as proposed 
herein will help to clarify the application of the rule.

Section 1611.2(c) Assets

    LSC proposes to add a definition of the term assets to the 
regulation. The proposed definition, ``cash or other resources that are 
readily convertible to cash, which are currently and actually available 
to the applicant,'' is intended to provide some guidance to programs as 
to what is meant by the term assets, yet provide considerable latitude 
to programs in developing a description of assets that addresses local 
concerns and conditions. The key concepts intended in this definition 
are (1) ready convertibility to cash; and (2) availability of the 
resource to the applicant.

[[Page 70379]]

    Although the term is not defined in the regulation, current Sec.  
1611.6(c) states that ``assets considered shall include all liquid and 
non-liquid assets. * * *'' The intent of this requirement is that 
programs are supposed to consider all assets upon which the applicant 
could draw in obtaining private legal assistance. While there was no 
intent to change the underlying requirement, in discussing the issues 
of assets and asset ceilings in the Working Group it became apparent 
that the terms ``liquid'' and ``non-liquid'' were obscuring the 
understanding of the regulation. To some, the term ``non-liquid'' 
implied something not readily convertible to cash, while to others the 
term implied an asset that was simply something other than cash, 
without regard to the ease of convertibility of the asset. Thus, the 
Working Group decided that the terms ``liquid'' and ``non-liquid'' 
should be eliminated and that the regulation should focus instead on 
the ready convertibility of the asset to cash.
    The other key concept in the definition of asset is the 
availability of the resource to the applicant. Although the current 
regulation notes that the recipient's asset guidelines ``shall take 
into account impediments to an individual's access to assets of the 
family unit or household,'' the Working Group was of the opinion that 
this principle could be more clearly articulated. LSC believes that the 
proposed language accomplishes that purpose.

Section 1611.2(d) Governmental Program for Low Income Individuals or 
Families

    LSC proposes to change the term that is used in the regulation from 
``governmental program for the poor'' to ``governmental program for low 
income individuals and families.'' This change is not intended to 
create any substantive change in the current definition, but merely 
reflect preferred nomenclature.

Section 1611.2(e) Governmental Program for Persons With Disabilities

    LSC is proposing to add a definition of the term ``governmental 
program for persons with disabilties.'' LSC proposes to include in the 
authorized exceptions to the annual income ceilings an exception 
relating to applicants seeking to obtain or maintain govermental 
benefits for persons with disabilties. Accordingly, it is appropriate 
to include a proposed definition for this term. The proposed 
definition, ``any Federal, State or local program that provides 
benefits of any kind to persons whose eligibility is determined on the 
basis of mental and/or physical disability,'' is intended to be similar 
in structure and application to the definition of the term 
``governmental program for low income individuals and families.''

Section 1611.2(f) Income

    LSC proposes to revise the current definition of income to refer to 
the total cash receipts of a ``household,'' instead of a ``family 
unit'' and to make clear that programs have the discretion to define 
the term household in any reasonable manner. Currently, the definition 
of income refers to ``family unit,'' while the phrase ``household or 
family unit'' appears in the section on asset ceilings. It appears that 
there is no difference intended by the use of different terms in these 
sections and LSC believes that it is appropriate to simplify the 
regulation to use the same single term in each place, without creating 
a substantive change in the meaning of either term. LSC proposes to use 
``household'' instead of ``family unit'' because it is a simpler, more 
accessible term.
    As noted above, LSC does not intend the use of the term 
``household'' to have a different meaning from the current term 
``family unit.'' Under current guidance from the LSC Office of Legal 
Affairs, recipients have considerable latitude in defining the term 
``family unit''. Specificially, OLA External Opinion No. EX-2000-011 
states:

    Neither the LSC Act nor the LSC regulations define ``family 
unit'' for client eligibility purposes. The Corporation will defer 
to recipient determinations on this issue, within reason. Recipients 
may consider living arrangements, familial relationships, legal 
responsibility, financial responsibility or family unit definitions 
used by government benefits agencies, amongst other factors, in 
making such decisions.

LSC intends that this standard would also apply to definitions of 
``household'' and the proposed definition would make this clear.
    Field representatives on the Working Group also suggested deleting 
the words ``before taxes'' from the definition of income. Such a change 
is desirable, they contend, because automatically deducted taxes are 
not available for an applicant's use and the failure to take current 
taxes into account in determining income has an adverse impact on the 
working poor. While it is undoubtedly true that automatically deducted 
taxes are not available to an applicant, LSC does not believe that the 
definition of income is the appropriate place in the regulation to deal 
with this problem. Taking the phrase ``before taxes'' out of the 
definition of income would effectively change the meaning of income 
from gross income to net income. The term income has meant gross income 
since the original adoption of the eligibility regulation in 1976. See 
41 FR 51604, at 51606, November 23, 1976. The maximum income guidelines 
are based on gross income, as are the underlying DHHS Federal Poverty 
Guidelines amounts. Changing the definition of income effectively from 
gross to net would introduce two different uses of the term income into 
the regulations. LSC believes that this action would cause greater 
confusion. Moreover, LSC believes that the practical problem (that 
taxes, indeed, represent funds unavailable to the applicant), is better 
addressed by considering taxes a fixed debt or obligation which can be 
considered by the recipient in making financial eligibility 
determinations. LSC invites comment on this issue. This matter is 
presented in greater detail in the discussion of proposed Sec.  1611.5, 
below.
    In addition, LSC proposes to move the information on what is 
encompassed by the term ``total cash receipts'' into the definition of 
income. LSC believes that having this information in the definition of 
income, rather than in a separate definition will make the regulation 
easier to use, particularly as the term ``total cash reciepts'' is used 
only in the definition of income. In incorporating the language on 
``total cash reciepts,'' LSC proposes to take the current defintion of 
the term without any substantive amendment, but reorganized to make it 
easier to understand. Specifically, LSC proposes to separate the 
definition into two sentences, one of which sets forth the list of 
things which are included in total cash receipts and one which sets 
forth those things which are specifically excluded from the definition 
of total cash receipts. It is worth noting that the sentence on items 
included is not intended to be exhaustive, while the sentence on items 
to be excluded is intended to be exhaustive.
    Finally, LSC wishes to take this opportunity to restate in this 
preamble some guidance on the treatment of Indian trust fund monies in 
making income determinations. Several provisions of Federal law 
regulate whether or not income or interests in Indian trusts are 
taxable or should be considered as resources or income for federal 
benefits. Under the terms of those laws, LSC has determined that 
recipients may disregard up to $2000 per year of funds received by 
individual Native Americans that are derived from income or interests 
in Indian trusts from being considered income for the purpose of 
determining financial eligibility of Native American applicants for 
service, and that such

[[Page 70380]]

funds or interests of individual Native Americans in trust or 
restricted lands should not be considered as a resource for the purpose 
of LSC eligibility. See LSC Office of Legal Affairs External Opinion 
99-17, August 27, 1999.
    As noted in External Opinion 99-17, the exclusion applies only to 
funds and other interests held in trust by the federal government and 
investment income accrued therefrom. The following have been found to 
qualify for the exclusion from income in determining eligibility for 
various government benefits: income from the sale of timber from land 
held in trust; income derived from farming and ranching operations on 
reservation land held in trust by the federal government; income 
derived from rentals, royalties, and sales proceeds from natural 
resources of land held in trust; sales proceeds from crops grown on 
land held in trust; and use of land held in trust for grazing purposes. 
On the other hand, per capita distributions of revenues from gaming 
activity on tribal trust property are not protected because such funds 
are not held in trust by the federal government. Thus, such 
distributions are considered to be income for purposes determining LSC 
financial eligibility.
Total Cash Receipts
    LSC proposes to delete the definition of ``total cash reciepts,'' 
currently at Sec.  1611.2(h), as a separately defined term in the 
regulation. Rather, LSC proposes to reorganize the information 
contained in the definition and move it directly into the definition of 
``income.'' As noted above, the only place the term ``total cash 
reciepts'' is used is in the defintion of ``income'' and LSC believes 
that having a separate definition for ``total cash reciepts'' is 
cumbersome and unnecessary.

Section 1611.3 Financial Eligibility Policies

    LSC proposes to create a new Sec.  1611.3, Financial Eligibility 
Policies, based on requirements currently found in Sec. Sec.  
1611.5(a), 1611.3(a)-(c) and 1611.6. The new Sec.  1611.3 would address 
in one section recipients' responsibilities for adopting and 
implementing financial eligibility policies. Under the proposed new 
section, the current requirement that recipients' governing bodies have 
to adopt policies for determining financial eligibility would be 
retained. LSC proposes, however, to change the current requirement for 
annual review of these policies and instead require recipients' 
governing bodies to conduct triennial reviews of policies. The Working 
Group agreed that an annual review was unnecessary and has tended to 
result in rather pro forma reviews of policies. In contrast, a 
triennial review requirement would be sufficient to ensure that 
financial eligibility policies remain relevant and would encourage a 
more thorough and thoughtful review when such review is undertaken. The 
section would also add an express requirement that recipients would be 
required to adopt implementing procedures. While this is already 
implicit in the current regulation, LSC believes it would be better for 
this requirement to be expressly stated. Such implementing procedures 
could be adopted either by a recipient's governing body or by the 
recipient's management.
    Proposed Sec.  1611.3 would also contain certain minimum 
requirements for the content of recipient's financial eligibility 
policies. Specifically, LSC proposes that the recipient's financial 
eligibility policy must:
    [sbull] Specify that only applicants for service determined to be 
financially eligible under the policy may be further considered for 
LSC-funded service;
    [sbull] Establish annual income ceilings of no more than 125% of 
the current Department of Health and Human Services Federal Poverty 
Guidelines amounts;
    [sbull] Establish asset ceilings; and
    [sbull] Specify that, notwithstanding any other provisions of the 
regulation or the recipient's financial eligibility policies, in 
assessing the financial eligibility of an individual known to be a 
victim of domestic violence, the recipient shall consider only the 
income and assets of the individual applicant and shall not consider 
any jointly held assets.

In establishing income and asset ceilings, the recipient would have to 
consider the cost of living in the locality; the number of clients who 
can be served by the resources of recipient; the potentially eligible 
population at various ceilings; and the availability of other sources 
of legal assistance. With respect to jointly held assets of domestic 
violence victims, this requirement applies when the applicant has made 
the recipient aware that he or she is a victim of domestic violence.
    In addition, LSC proposes to permit recipients to adopt financial 
eligibility policies which provide for authorized exceptions to the 
annual income ceiling pursuant to proposed Sec.  1611.5 and for waiver 
of the asset ceiling under unusual circumstances and when approved by 
the Executive Director or his/her designee. Finally, LSC proposes to 
permit recipients to adopt financial eligibility policies which permit 
financial eligibility to be established by reference to an applicant's 
receipt of benefits from a governmental program for low-income 
individuals or families consistent with proposed Sec.  1611.4(b).
    These proposed provisions are, with two exceptions, based directly 
on current requirements with a few substantive changes. First among the 
changes, recipients would no longer be required to routinely submit 
their asset ceilings to LSC. This requirement appears to serve little 
or no purpose, as compliance with this requirement has been spotty and 
LSC has taken no action to obtain the information from programs which 
have not automatically submitted it. Moreover, the information 
collected is not being put to any routine use. In addition, LSC has not 
had a parallel requirement for the submission of income ceilings. The 
Working Group determined that this requirement could be eliminated 
without any adverse effect on program compliance with or Corporation 
enforcement of the regulation.
    Another substantive change is that recipients would be permitted to 
provide in their financial eligibility policies for the exclusion of 
(in addition to a primary residence, as provided for in the existing 
regulation) vehicles, assets used in producing income and other assets 
excluded from attachment under State or Federal law from the 
calculation of assets. In identifying other assets excluded from 
attachment under State or Federal law, LSC has in mind assets that are 
excluded from bankruptcy proceedings or other assets that may not be 
attached for the satisfaction of a debt, etc.
    There was discussion within the Working Group about the appropriate 
scope of this provision. Field representatives suggested that the list 
of exclusions should be illustrative, and not exhaustive, allowing 
programs greater discretion in developing asset ceilings. LSC 
representatives, however, prefered to retain the approach in the 
current regulation in which the list of excludable assets is set forth 
in toto, to emphasize the policy that most assets are to be considered 
and to maintain a basic level of consistency nationally with respect to 
this issue. However, the LSC representatives agreed that the regulation 
could afford recipients some additional flexibility in developing asset 
ceilings, consistent with the policy articulated above. The Working 
Group believes that the proposed language meets those objectives, 
particularly in light of the proposed amendment to the asset ceiling 
waiver standard discussed below. LSC invites comment on whether

[[Page 70381]]

the list should be illustrative or exhaustive. LSC also invites comment 
on whether additional specific assets should be included in the list of 
excludable assets and, if so, what items might be appropriate.
    LSC is also proposing to change the asset ceiling waiver standard 
slightly. The current regulation permits waiver in ``unusual or 
extremely meritorious situations;'' the proposed rule would permit 
waiver in ``unusual circumstances.'' The Working Group determined that 
the current language is unnecessarily stringent and that it is unclear 
what the difference is intended to be between ``unusual'' and 
``extremely meritorious.'' It was suggested in the Working Group that 
the standard should be ``where appropriate.'' LSC, however, felt that 
the regulation should continue to reflect the policy that waivers of 
the asset ceilings should only be granted sparingly and not as a matter 
of course. The Working Group agreed that the revised language 
accomplishes this goal, while providing some additional appropriate 
discretion to programs. In addition, where the current rule requires 
all waiver decisions to be made by the Executive Director, LSC proposes 
to permit those decisions to be made by the executive director or his/
her designee. LSC believes it is important that a person in significant 
authority be involved in making asset ceiling waiver decisions, but 
recognizes that, especially as more programs consolidate and serve 
larger areas, it is important for programs to have the discretion to 
delegate certain authority to regional or branch office directors to 
increase administrative efficiency.
    The first totally new element is the proposed language regarding 
victims of domestic violence. This proposal stems from LSC's FY 1998 
appropriations law. Specifically, section 506 of that act provides:

    In establishing the income or assets of an individual who is a 
victim of domestic violence, under section 1007(a)(2) of the Legal 
Services Corporation Act (42 U.S.C. 2996f(a)(2)), to determine if 
the individual is eligible for legal assistance, a recipient 
described in such section shall consider only the assets and income 
of the individual and shall not include any jointly held assets.

Although this law has been in effect since 1997, it has never been 
formally incorporated into part 1611. LSC notes that this provision of 
law applies regardless of whether it appears in the regulation. 
However, incorporating this language into the regulation is 
appropriate, particularly in light of the goal of this rulemaking to 
clarify the requirements relating to financial eligibility 
determinations.
    Finally, the proposal to permit recipients to adopt financial 
eligibility policies which permit financial eligibility to be 
established by reference to an applicant's receipt of benefits from a 
governmental program for low-income individuals or families consistent 
with proposed Sec.  1611.4(b) is also new. This proposal is discussed 
in greater detail below.

Section 1611.4 Financial Eligibility for Legal Assistance

    This proposed section would set forth the basic requirement that 
recipients may provide legal assistance supported with LSC funds only 
to those individuals whom the recipient has determined are financially 
eligible for such assistance pursuant to their program's policies, 
consistent with this part. This section also proposes to contain a 
statement that nothing in part 1611 prohibits a recipient from 
providing legal assistance to an individual without regard to that 
individual's income and assets if the legal assistance is supported 
wholly by funds from a source other than LSC (regardless of whether LSC 
funds were used as a match to obtain such other funds, as is the case 
with Title III or VOCA grant funds) and the assistance is otherwise 
permissible under applicable law and regulation. This proposed section 
would further provide that a recipient may find an applicant to be 
financially eligible if the applicant's assets are at or below the 
recipient's applicable asset ceiling level (or the ceiling has been 
properly waived) and the applicant's income is at or below the 
recipient's applicable income ceiling, or if one or more of the 
authorized exceptions to the ceiling applies. These provisions are 
based on existing provisions found in Sec. Sec.  1611.3, 1611.4 and 
1611.6. As revised, the new provisions do not represent a substantive 
change, but LSC believes having the basic statements as to who may be 
found to be financially eligible for assistance in one section makes 
the regulation much clearer. In addition, where the existing regulation 
uses a construction that speaks to when a recipient may provide legal 
assistance, the proposed new language emphasizes the point that the 
requirements speak only to determinations of financial eligibility and 
not to decisions regarding whether or not to actually provide legal 
assistance.
    LSC also proposes to incorporate into this section two significant 
substantive changes to the regulation. First, LSC proposes to include a 
requirement that, in making financial eligibility determinations, a 
recipient shall make reasonable inquiry regarding sources of the 
applicant's income, income prospects and assets and shall record income 
and asset information in the manner specified for determining 
eligibility in proposed Sec.  1611.6. This requirement would replace 
the process currently required by Sec.  1611.5, whereby a recipient is 
effectively required to conduct a lengthy and often cumbersome inquiry 
as to the applicant's income, assets and income prospects, including 
inquiry into a detailed list of factors relating to an applicant's 
specific financial situation and ability to afford private counsel. The 
Working Group discussed this issue at length and representatives of the 
field noted that conducting such a detailed inquiry in most cases is a 
task which is often difficult to accomplish efficiently at the point of 
intake, especially as much of intake is performed by volunteers, 
interns or receptionists. Rather, many recipients, in practice, conduct 
a somewhat abbreviated version of the otherwise required process, 
inquiring into current income, assets, income prospects and probing for 
additional information on the basis of the responses provided, based 
upon the requirements of the regulation and their knowledge of the 
applicant base and local circumstances. This approach, the field 
representatives noted, is less prone to error and assists in fostering 
an appropriate attorney-client relationship with individuals accepted 
as clients. As LSC is not finding widespread instances of service being 
provided to financially ineligible persons, it was agreed that that the 
process required by the existing regulation is unduly complicated and 
that the simplified requirement proposed would be adequate to ensure 
that recipients are making sufficient inquiry into applicants' 
financial situations to determine financial eligibility status under 
the regulation while being less adminstratively burdensome for 
recipients and more conducive to the development of the attorney-client 
relationship. LSC also believes that adoption of the proposed 
streamlined eligibility determination process will aid the Corporation 
in conducting compliance reviews.
    The other major change is that, consistent with proposed Sec.  
1611.3 as discussed above, if adopted, the regulation would permit 
recipients to determine an applicant to be financially eligible because 
the applicant's income is derived solely from a governmental program 
for low-income individuals or families, provided that the recipient's

[[Page 70382]]

governing body has determined that the income standards of the 
governmental program are at or below 125% of the Federal Poverty Level 
amounts. For many recipients, a significant proportion of applicants 
rely on governmental benefits for low-income individuals and families 
as their sole source of income. In order to qualify for these benefits, 
such persons have already been screened and determined to be 
financially eligible for those benefits by the agency providing the 
benefits through an eligibility determination process that is stricter 
than the one required under LSC regulations. In Working Group 
discussions, many representatives of the field noted that if they could 
rely on the determinations made by these agencies without having to 
otherwise make an independent inquiry into financial eligibility, it 
would substantially ease the administrative workload involved in making 
eligibility determinations.
    The Working Group also noted that current LSC practice permits 
recipients to determine that an applicant's assets are within the 
recipient's asset ceiling level without additional review if the 
applicant is receiving govermental benefits for low-income individuals 
and families, eligibility for which includes an asset test. Key to this 
practice is that the recipient's governing body has to take some 
identifiable action to recognize the asset test of the governmental 
benefit program being relied upon. This ensures that the eligibility 
standards of the other program have been carefully considered and are 
incorporated into the overall eligibility policies adopted and 
regularly reviewed by the governing body. As this practice has proved 
efficient and effective, it was determined that a parallel process 
could also be adopted for income screening and that these practices 
should be expressly included in the regulations. It is important to 
note that this provision would only apply to applicants whose sole 
income is derived from such benefits. Applicants who also have income 
derived from other sources would be subject to an independent inquiry 
and assessment of financial eligibility.

Section 1611.5 Authorized Exceptions to the Annual Income Ceiling

    This proposed section provides for authorized exceptions to the 
annual income ceiling. The proposed language, like the current language 
of Sec. Sec.  1611.4 and 1611.5, on which it is based, is permissive. A 
recipient would be free to include some, none, or all of the authorized 
exceptions discussed below in its financial eligibility policies. Thus, 
to the extent a recipient would choose to avail itself of the authority 
provided in this proposed section, a recipient would be permitted to 
determine an applicant to be financially eligible for assistance, 
notwithstanding that the applicant's income is in excess of the 
recipient's applicable income ceiling. In making such determinations, 
however, the recipient would have to detemine that the applicant's 
assets were at or below the recipient's applicable asset ceiling (or 
the ceiling would have had to have been waived). This requirement is 
consistent with the current regulation, but would be affirmatively 
stated for clarity.
    Under the proposed section, there would be two situations in which 
an applicant's income could exceed the recipient's income ceiling 
without an absolute upper limit: (1) Where the applicant is seeking to 
maintain governmental benefits for low-income individuals and families; 
and (2) where the executive director (or his/her designee) determines, 
on the basis of documentation received by the recipient, that the 
applicant's income is primarily committed to medical or nursing home 
expenses and, in considering only that portion of the applicant's 
income which is not so committed, the applicant would otherwise be 
financially eligible.
    The first instance would be a new addition to the regulation. 
Currently, an applicant seeking to obtain governmental benefits for low 
income persons may be deemed financially eligible if the applicant's 
income does not exceed 150% of the national eligibility level. The 
existing regulation, however, does not specifically address applicants 
seeking to maintain such benefits. Thus, under the current regulation, 
an applicant whose income is over the income ceiling but under 150% of 
the national eligibility level may be deemed financially eligible for 
assistance in obtaining benefits, but not for assistance in maintaining 
them. Thus, the applicant seeking assistance to maintain benefits would 
have to be turned down, but that same applicant could then be found 
financially eligible for assistance to re-obtain such benefits once the 
benefits were lost. Accordingly, LSC proposes to address this problem 
in the regulation. However, unlike the situation in obtaining the 
benefits, in seeking to maintain benefits LSC considers an upper limit 
on income unnecssary since in such cases the applicant's income will 
necessarily be rather limited (for the applicant to have been eligible 
in the first place for the benefits he or she is seeking to maintain).
    The second instance is taken from Sec.  1611.5(b)(1)(B) of the 
current regulation addressing instances in which the applicant's income 
is primarily devoted to medical or nursing home expenses and does not 
represent a substantive change in the current regulation. LSC does 
propose to specify in the regulation, however, that in such cases the 
recipient is still required to make a determination of financial 
eligibility with regard to the applicant's remaining income. The 
existing regulation could be read to permit an applicant with an income 
of $300,000 to be deemed financially eligible if $250,000 of the income 
is devoted to nursing home expenses, notwithstanding that the 
applicant's remaining income is $50,000--substantially in excess of the 
income ceiling. This situation is not intended, and, indeed, LSC has no 
reason to believe recipients are serving such persons. However, 
consistent with the overall goal of clarifying the regulation, LSC 
believes that a requirement that an applicant must be otherwise 
financially eligible considering only that portion of the applicant's 
income which is not devoted to medical or nursing home expenses should 
be clearly set forth in the regulation.
    LSC also proposes to permit exceptions for certain situations in 
which the applicant's income is in excess of the recipient's applicable 
income ceiling, but does not exceed 200% of the applicable Federal 
Poverty Guideline amount. At the outset, LSC notes that this section 
also proposes to change the current upper income limit of 150% of the 
national income guidelines amount, which is 150% of 125% of the Federal 
Poverty Guideline amounts, or 187.5% of the Federal Poverty Guidelines 
amounts. Under the proposed new regulation, the upper limit would 
increase to 200% of the Federal Poverty Guidelines amounts. This change 
is being proposed to further simplify the language of the regulation 
and in recognition of the changing demographic of the legal services 
client base, which now increasingly includes the working poor. The 
Working Group discussed the fact that this action would slightly 
increase the pool of potential applicants for service but was of the 
opinion that this would not have a negative impact on the quantity or 
quality of services delivered.
    Turning to the exceptions, LSC proposes to retain the current 
exception for individuals seeking to obtain governmental benefits for 
low-income individuals and families. Second, LSC

[[Page 70383]]

proposes to add an exception for individuals seeking to obtain or 
maintain governmental benefits for persons with mental and/or physical 
disabilties. Many disability benefit programs provide only subsistance 
support and those individuals should be treated the same way as those 
seeking to obtain benefits available on the basis of financial need. 
However, many persons with disabilties who are eligible for disability 
benefits may not be particularly economically disadvantaged and should 
not be eligible for legal assistance simply by virtue of the 
eligibility for such disability benefits. Therefore, those applicants 
must have incomes below 200% of the applicable poverty level in order 
to be considered financially eligible for LSC-funded services.
    Finally, the proposed regulation maintains the current authorized 
exceptions found in the factors listed in Sec.  1611.5. Specifically, 
the recipient may determine an applicant whose income is below 200% of 
the applicable Federal Poverty Guidelines amount to be financially 
eligible for legal assistance supported with LSC funds based on one or 
more enumerated factors that affect the applicant's ability to afford 
legal assistance. As in the current regulation, recipients would not be 
required to apply these factors in a ``spend down'' fashion. That is, 
although recipients would be permitted to do so, they would not be 
required to determine that, after deducting the allowable expenses, the 
applicant's income is below the applicable income ceiling before 
determining the applicant to be financially eligible. The regulation 
would also be amended to clarify that the factors apply to the 
applicant and members of the applicant's household. The factors 
proposed are identical to the ones in the current regulation, with the 
following exceptions:
    [sbull] The factor relating to medical expenses would be restated 
to make clear that it refers only to unreimbused medical expenses, but 
that medical insurance premiums are included;
    [sbull] The factor relating to employment expenses would be 
reorganized for clarity and would expressly include expenses related to 
job training or educational activities in preparation for employment;
    [sbull] The factor relating to expenses associated with age or 
disability would no longer refer to resident members of the family as a 
reference to the applicant or members of the applicant's household is 
proposed to be incorporated elsewhere in this section of the 
regulation;
    [sbull] The factor relating to fixed debts and obligations would be 
amended to read only ``fixed debts and obligations.''
    With regard to ``fixed debts and obligations,'' the current 
regulation provides little guidance as to what is meant by this term, 
except to specifically include unpaid taxes from prior years. LSC 
proposes to simply use the term ``fixed debts and obligations,'' while 
providing guidance in the preamble as to what is encompassed by the 
term. LSC believes that this approach will provide recipients with 
flexibility in applying the rule, while providing for more guidance 
than could easily be contained in regulatory text.
    Prior guidance from the LSC Office of Legal Affairs has stated 
that, ``in the absence of any regulatory definition or guidance as to 
the meaning of ``fixed debts and obligations,'' the common meaning of 
the term applies'' and that it encompasses debts fixed as to both time 
and amount. See Letter of November 1, 1993 from J. Kelly Martin, 
Assistant General Counsel to Stephen St. Hilaire, Executive Director, 
Camden Regional Legal Services, Inc. Examples of such ``fixed debts and 
obligations'' would include morgage payments, child support, alimony, 
and business equipment loan payments. LSC intends that this term should 
also include rent in addition to mortgage payments. Previous OLA 
opinions have addressed mortgage payments but not rent and rent has, 
heretofore, not been considered a fixed debt. LSC now sees no rational 
distinction between the two for the purposes of this regulation and 
therefore proposes to treat these expenses in a similar manner.
    With respect to taxes, prior to 1983, part 1611 included current 
taxes along with past due unpaid taxes as a fixed debt. When the 
regulation was changed in 1983, the reference to taxes was amended to 
refer only to unpaid prior year taxes. This change was justified on the 
basis that the Sec.  1611.5 factors were intended to account only for 
``special circumstances'' affecting the ability to afford legal 
assistance. See 48 FR 54201 at 54203 (November 30, 1983). However, 
given that other types of expenses included in the list do not seem to 
be particularly ``special'' (e.g., mortgage payments; child care 
expenses), LSC no longer finds this explanation pursuasive. Rather, LSC 
believes that the exclusion of current taxes, but not prior unpaid 
taxes, from fixed debts and obligations has the effect of punishing 
those persons who are in compliance with the law in favor of persons 
who are delinquent in their legal responsibility to pay taxes. 
Moreover, as noted above, the legal services client base is 
increasingly comprises the working poor. Excluding current taxes from 
fixed debts has a disproportionate effect on applicants who work, 
versus applicants who do not work. Accordingly, LSC believes that 
including current taxes in fixed debts is appropriate to address this 
problem.
    As noted above, the Working Group considered whether current taxes 
should just be excluded from the meaning of the term income, rather 
than including them as within the meaning of ``fixed debts and 
obligations.'' Although representatives of the field preferred the 
former approach, LSC representatives preferred the latter approach. The 
Corporation has always considered income to be gross income and the 
eligibility ceilings are based on a gross income standard. Similarly, 
taxes, whether paid or unpaid, have always been considered within the 
rubric of the fixed debts and obligations exception. By proposing to 
include current taxes within the meaning of fixed debts and 
obligations, LSC proposes to return to the prior usage of that term 
from 1976 through 1983. However, as noted above, LSC invites comment on 
this issue.
    The term ``fixed debts and obligations,'' however, is not without 
limit. It is not intended to include expenses, such as food costs, 
utilities, credit card debt, etc. These types of debts are usually not 
fixed as to time and amount. Moreover, these sorts of expenses are 
typical living expenses which have not been, and are not intended to 
be, included as factors to be considered in assessing the financial 
eligibility of someone whose income exceeds the recipient's applicable 
annual income ceiling.
    The Working Group considered whether there were additional factors 
which should be enumerated in this section and several members of the 
Working Group proposed adding other factors, such as utilities, to the 
list. Although the Working Group agreed in the end not to propose 
adding any additional factors, LSC specifically invites comment on this 
matter.

Section 1611.6 Manner of Determining Eligibility

    LSC proposes several revisions to this section. First, LSC proposes 
to delete the requirement in existing paragraph (a) of this section 
that LSC eligibililty forms and procedures must be approved by the 
Corporation. It has been LSC's experience that receiving the forms has 
not enhanced its ability to conduct oversight of recipients. These 
documents are readily available to LSC from recipients when needed. 
This

[[Page 70384]]

requirement appears only to create unnecessary work for recipients and 
LSC staff without serving any policy purpose.
    LSC also proposes to add a provision to the regulation making clear 
that a recipient agreeing to extend legal assistance to a client 
referred from another recipient may rely upon the referring program's 
determination of financial eligibility, provided that the referring 
program provides and the receiving program retains a copy of the intake 
form documenting the financial eligibility of the client. This is the 
currently accepted practice, but is addressed nowhere in the existing 
regulation. A similar provision was included in the 1995 NPRM.

Section 1611.7 Change in Financial Eligibility Status

    LSC proposes to add language to this section to provide that if a 
recipient later learns of information which indicates that a client is 
not, in fact, financially eligible, the recipient must discontinue the 
representation consistent with the applicable rules of professional 
responsibility. This addition is being proposed because sometimes, 
after an applicant has been accepted as a client, the recipient 
discovers or the client discloses information that indicates that the 
client was not, in fact, financially eligible for service. This 
situation is not covered by the existing regulation because the client 
may not have experienced a change in circumstance, but rather the 
recipient has discovered new pertinent information about the client. 
LSC notes that the proposed language, like the current regulation, is 
not intended to require a recipient to make affirmative inquiry after 
accepting an applicant as a client for information that would indicate 
a change in circumstance or the presence of additional information 
regarding the client's financial eligibility.
    The proposed regulation would require that when a client is found 
to be no longer financially eligible on the basis of later discovered 
information, the recipient shall discontinue representation supported 
with LSC funds, if discontinuing the representation is not inconsistent 
with applicable rules of professional responsibility. This proposed 
language is parallel to the current requirement regarding 
discontinuation of representation upon a change in circumstance. LSC 
wishes to note that, to the extent that discontinuation of 
representation is not possible because of professional responsibility 
reasons, a recipient may continue to provide representation supported 
by LSC funds. This is currently the case and LSC intends to make no 
change in the regulation on this point.
    In addition, LSC proposes to change the name of this section from 
``change in circumstances'' to ``change in financial eligibility 
status'' to reflect the addition of the later discovered information 
provision.

Section 1611.8 Representation of Groups

    The subject of the eligibility of groups for legal assistance 
supported with LSC funds was one of intense discussion among the 
members of the Working Group. Prior to 1983, the regulation permitted 
representation of groups that were either primarily composed of 
eligible persons, or which had as their primary purpose the furtherance 
of the interests of persons in the community unable to afford legal 
assistance. In 1983, the regulation was amended to preclude the use of 
LSC funds for the representation of groups unless they were composed 
primarily of individuals financially eligible for service and to add a 
requirement that any group seeking representation demonstrate that it 
lacks the funds or the means to obtain the funds to retain private 
counsel.
    Representatives from the field proposed that LSC revise the 
regulation to once again permit the representation of groups which, 
although not primarily composed of eligible persons, have as a primary 
function the delivery of services to, or furtherance of the interests 
of, persons in the community unable to afford legal assistance. 
Examples of such a group might be a food bank or a rural community 
development corporation working to develop affordable housing in an 
isolated community. Field representatives noted that in such cases, 
there may not be local counsel willing to provide pro bono 
representation and that the group might not otherwise be able to afford 
private counsel. Further, the field representatives noted that 
restricting recipients to representing with LSC funds only those groups 
primarily composed of eligible individuals prevents them from providing 
legal assistance in the most efficient manner possible as other groups 
may be better able to accomplish results benefitting more members of 
the eligible community than would representation of eligible 
individuals or groups composed primarily of such individuals. Field 
representatives also noted that the rule requires that the group would 
have to provide information showing that it lacks and has no means of 
obtaining the funds to retain private counsel, so that the rule would 
not permit representation of well funded groups.
    The LSC representatives were concerned that allowing the use of LSC 
funds to support the representation of groups not composed primarily of 
eligible clients would be problematic. In the examples given, the 
``primary function'' of the group is easily discernable. It may be the 
case, however, that there is or can be a wide variety of opinion on 
what the ``primary function'' of any group is and on what is ``in the 
interests'' of the eligible client community. The LSC representatives 
were concerned that the risk and effort related to articulating and 
enforcing a necessarily subjective standard would be inappropriate in 
this case. Rather, LSC representatives were of the opinion that already 
scarce legal services resources would be better devoted to providing 
assistance to eligible individuals or groups of eligible individuals. 
In the end, the Working Group did not achieve consensus on this issue 
and the Draft NPRM did not propose to permit the representation of 
groups other than those primarily composed of eligible individuals.
    In its deliberations on the Draft NPRM, the Operations and 
Regulations Committee acknowledged the legitimacy of the concerns of 
the LSC representatives, but determined that the value of permitting 
the representation of groups having a primary function of providing 
services to, or furthering the interests of, those who would be 
financially eligible outweighed any risks attendant upon such 
representation. In approving the recommendation of the Committee, the 
Board directed that the Draft NPRM be amended to propose permitting 
such representation (including any conforming amendments necessary) 
prior to publication of the NPRM for comment. This NPRM reflects this 
direction. LSC specifically invites comment on this issue.
    Accordingly, the proposed rule would permit a recipient to provide 
legal assistance supported with LSC funds to a group, corporation, 
association or other entity if the recipient has determined that the 
group, corporation, association or other entity lacks and has not 
practical means of obtaining private counsel in the matter for which 
representation is sought and any of the following:
    (1) At least a majority of the group's members are financially 
eligible for LSC-funded legal assistance; or
    (2) For a non-membership group, at least a majority of the 
individuals who are forming or operating the group are

[[Page 70385]]

financially eligible for LSC-funded legal assistance; or
    (3) The group has as its principal function or activity the 
delivery of services to those persons in the community who would be 
financially eligible for LSC-funded legal assistance; or
    (4) The group has as its principal function or activity the 
furtherance of the interests of those persons in the community who 
would be financially eligible for LSC-funded legal assistance and the 
representation sought relates to such function or activity.

The first two instances, relating to the eligibility and representation 
of groups composed primarily of eligible individuals, represent the 
current practice permitted by current Sec.  1611.5(c). The language of 
the proposed rule would expressly incorporate the interpretation of 
``primarily composed'' that has developed and been adopted in practice 
over the years since 1983. In the case of membership groups, at least a 
majority of the members would have to be eligible; in the case of non-
membership groups, at least a majority of members of the governing body 
would have to be eligible persons. The latter two instances represent 
the situations permitted by the pre-1983 rule, although the language 
would be revised to focus on the primary ``function'' rather than the 
primary ``purpose'' of the group. This choice is intended to make the 
analysis required in determining the permissibility of the 
representation more objective.
    Finally, the proposed rule would retain and restate the current 
provision of the rule that nothing in this part prohibits a recipient 
from providing legal assistance to a group without regard to the nature 
or financial eligibility of the group, if the legal assistance is 
supported by funds from a source other than LSC, and is otherwise 
permissible under applicable law and regulation.
    LSC notes that, as with other aspects of this rule, proposed Sec.  
1611.8 does not speak to eligibility of groups for legal assistance 
under other applicable law and regulations. For example, the 
eligibility of a group under proposed Sec.  1611.8 does not address 
issues related to the eligibility of the group under part 1626 of the 
Corporation's regulations, concerning citizenship and alien status 
eligibility. Similarly, the fact that a recipient may determine a group 
to be eligible for legal assistance under this part, does not address 
other questions relating to permissibility of the representation (i.e., 
this part does not confer authority for the representation of group on 
restricted matters, such as class action lawsuits or redistricting 
matters, etc.)
    The OIG dissents from the proposed Sec.  1611.8. The OIG's position 
is that, in permitting the representation of groups without a 
determination of financial eligibility of all group members, the 
proposed rule allows the representation of ineligible individuals and, 
therefore, is inconsistent with the LSC Act. The OIG contends that the 
LSC Act contemplates the representation of individuals, rather than 
groups. The LSC Act declares Congress's finding that ``there is a need 
to provide equal access to the system of justice in our Nation for 
individuals who seek redress of grievances,'' Sec. 1001(1) (emphasis 
added). The LSC Act established the Corporation ``for the purpose of 
providing financial support for legal assistance in noncriminal 
proceedings or matters to persons financially unable to afford legal 
assistance,'' Sec. 1003(a) (emphasis added). The Corporation is 
required to ``establish, in consultation with the Director of the 
Office of Management and Budget and with the Governors of the several 
states, maximum income levels (taking into account family size, urban 
and rural differences, and substantial cost-of-living variations) for 
individuals eligible for legal assistance under this title,'' Sec. 
1007(a)(2) (emphasis added.). In addition, the LSC authorizes the 
Corporation ``to provide financial assistance to qualified programs 
furnishing legal assistance to eligible clients,'' Sec. 1006(a)(1)(A), 
and defines an ``eligible client'' as ``any person financially unable 
to afford legal assistance.'' Sec. 1002(3). Although the LSC Act refers 
to ``persons,'' and certain groups, such as corporations may be 
recognized as ``persons'' under the law, loose associations of 
individuals seeking representation as a group are not. Such a group 
exists only because it has members, that is individuals each of whose 
financial eligibility can be determined in the same way as any other 
individual client.
    The OIG also expressed concern that the proposed rule does not 
address another issue growing out of allowing group representation 
without determining the financial eligibility of all group members. 
Group membership may, and likely will, change. It is easy to envision a 
case where a group might be eligible for representation when the case 
is accepted, but the composition of the group changes and ineligible 
individuals become the majority of the membership. This is particularly 
true if, as the proposed rule allows, only more than 50 percent of the 
individuals must be eligible when the case is accepted. For example, if 
a recipient accepts as a client a group of 100 members, with 51 
eligible and 49 ineligible members, the eligibility status of the group 
would change with the departure of but one eligible member. Thus, the 
OIG is of the opinion that allowing a mere majority of eligible 
individuals to determine the eligibility of the group, when there is a 
liklihood that the eligiblity status of the group could easily change 
during the course of the representation, is problematic.
    LSC disagrees and believes that the proposed regulatory 
requirements are consistent with the applicable laws. In particular, 
LSC believes that the legislative history of the 1977 LSC Act 
amendments demonstrates that Congress contemplated the representation 
of groups. In discussing an amendment relating to the prohibition by 
recipients on organizing, Senator Riegle stated:

    A similar clarification is made in section 9(c) (of the Senate 
Reauthorization Bill) regarding the prohibition on organizing 
activities. Legal Services should not directly organize groups. 
However, it should provide full representation, education and outreach 
to those organized groups who are made up of or which represent 
eligible clients. This section will remove any inhibition which may 
have been improperly used to prevent such full representation to groups 
of the poor.

Congressional Record of October 10, 1977, p. S 16804. In addition, the 
House Report accompanying the 1997 LSC Act amendments bill states that 
the bill:

[P]rohibits the use of Corporation funds for direct organizing, but 
permits advice and legal assistance to clients who may themselves be 
engaged in such activities. * * * The Committee recognizes a 
distinction between proper activities such as (1) assisting groups 
of poor people to organize by providing advice on matters of 
incorporation, by-laws, tax problems and other matters essential to 
the planning of an organization; (2) providing counsel to poor 
people regarding appropriate behavior for group members; and (3) 
encouraging poor people aggrieved by particular problems to consider 
organizing to foster joint solutions to common problems on the one 
hand, and those activities that are improper on the part of legal 
services providers in that they usurp the rightful role of poor 
people as potential members of such organizations, namely, actually 
initiating the formation or organizing directly, an association, 
group, or organization.

House Report 95-310 at p. 14.
    In terms of demonstrating and documenting eligibility of a group, 
the

[[Page 70386]]

proposed rule would require the program to collect information that 
reasonably demonstrates that the group meets the eligibility 
requirements. The OIG also dissents from this position and, for groups 
comprised of eligible individuals, if group representation as set out 
in the proposed rule is to be permitted, would require that the 
eligibility of a majority of the individuals in the group be documented 
in the same manner as is required for individual clients.
    The proposed rule would allow recipients to determine the 
eligibility of groups by collecting ``information that reasonably 
demonstrates that the group, corporation, association or other entity 
meets the eligibility requirements set forth herein.'' If LSC 
determines that groups are eligible for federally funded legal 
assistance, then, as with individuals, the OIG believes that it is 
LSC's responsibility to set out the requirements by which such 
eligibility is to be determined. The OIG believes that the proposed 
rule does not provide sufficient guidance. In addition, by allowing 
representation of groups ``primarily composed of individuals who are 
financially eligible for legal assistance,'' but then allowing that 
determination of eligibility to be assessed by some undefined 
``reasonableness'' standard (presumably something less than that which 
is required for a determination of the eligibility of individuals), the 
proposed rule may result in the representation of groups that are not 
in fact even primarily composed of eligible clients.
    LSC disagrees and believes that the proposed regulatory 
requirements are consistent with the applicable laws. LSC further notes 
that the proposed rule would, essentially, codify the current practice 
relating to financial eligibility and representation of groups 
primarily composed of eligible individuals, which has not proven to be 
problematic in the way envisioned by the OIG. LSC does not see why it 
would prove any more problematic for demonstrating the eligibility of 
groups which have as a primary function the delivery of services to, or 
furtherance of the interests of, those who would be financially 
eligible for legal assistance.

List of Subjects in 45 CFR Part 1611

    Legal services.

    For reasons set forth in the preamble, LSC proposes to amend 45 CFR 
part 1611 by revising Sec. Sec.  1611.1 through 1611.8 to read as 
follows:

PART 1611--FINANCIAL ELIGIBILITY

Sec.
1611.1 Purpose.
1611.2 Definitions.
1611.3 Financial eligibility policies.
1611.4 Financial eligibility for legal assistance.
1611.5 Authorized exceptions to the annual income ceilings.
1611.6 Manner of determining financial eligibility.
1611.7 Changes in financial eligibility status.
1611.8 Representation of groups.

    Authority: 42 U.S.C. 2996e(b)(1), 2996e(b)(3), 2996f(a)(1), 
2996f(a)(2); sec. 509(h) of Pub. L. 104-134, 110 Stat. 1321 (1996); 
Pub. L. 105-119; 111 Stat. 2512 (1998).


Sec.  1611.1  Purpose.

    This part sets forth requirements relating to the financial 
eligibility of applicants for legal assistance supported with LSC funds 
and recipients' responsibilities in making financial eligibility 
determinations. This part is not intended to and does not create any 
entitlement to service for persons deemed financially eligible. This 
part also seeks to ensure that financial eligibility is determined in a 
manner conducive to development of an effective attorney-client 
relationship. This part also sets forth standards relating to the 
eligibility of groups for legal assistance supported with LSC funds.


Sec.  1611.2  Definitions

    Applicable rules of professional responsibility means the rules of 
ethics and professional responsibility generally applicable to 
attorneys in the jurisdiction where the recipient provides legal 
services.
    Applicant means an individual who is seeking legal assistance 
supported with LSC funds from a recipient. The term does not include a 
group, corporation or association.
    Assets means cash or other resources that are readily convertible 
to cash, which are currently and actually available to the applicant.
    Governmental program for low income individuals or families means 
any Federal, State or local program that provides benefits of any kind 
to persons whose eligibility is determined on the basis of financial 
need.
    Governmental program for persons with disabilities means any 
Federal, State or local program that provides benefits of any kind to 
persons whose eligibility is determined on the basis of mental and/or 
physical disability.
    Income means actual current annual total cash receipts before taxes 
of all persons who are resident members and contribute to the support 
of an applicant's household, as that term is defined by the recipient. 
Total cash receipts include, but are not limited to, money, wages and 
salaries before any deduction; income from self-employment after 
deductions for business or farm expenses; regular payments from 
governmental programs for low income persons or persons with 
disabilities; social security payments; unemployment and worker's 
compensation payments; strike benefits from union funds; veterans 
benefits; training stipends; alimony; child support payments; military 
family allotments; public or private employee pension benefits; regular 
insurance or annuity payments; income from dividends, interest, rents, 
royalties or from estates and trusts; and other regular or recurring 
sources of financial support that are currently and actually available 
to the applicant. Total cash receipts do not include the value of food 
or rent received by the applicant in lieu of wages; money withdrawn 
from a bank; tax refunds; gifts; compensation and/or one-time insurance 
payments for injuries sustained; non-cash benefits; and up to $2,000 
per year of funds received by individual Native Americans that is 
derived from Indian trust income or other distributions exempt by 
statute.


Sec.  1611.3  Financial Eligibility Policies

    (a) The governing body of a recipient shall adopt policies 
consistent with this part for determining the financial eligibility of 
applicants and groups. The governing body shall review its financial 
eligibility policies at least once every three years and make 
adjustments as necessary. The recipient shall implement procedures 
consistent with its policy.
    (b) As part of its financial eligibility policies, every recipient 
shall specify that only individuals and groups determined to be 
financially eligible under the recipient's financial eligibility 
policies and LSC regulations may receive legal assistance supported 
with LSC funds.
    (c)(1) As part of its financial eligibility policies, every 
recipient shall establish annual income ceilings for individuals and 
households, which may not exceed one hundred and twenty five percent 
(125%) of the current official Federal Poverty Level amounts for family 
units. The Corporation shall annually calculate 125% of the Federal 
Poverty Guidelines amounts and publish such calculations in the Federal 
Register as a revision to appendix A to this part.
    (2) As part of its financial eligibility policies, a recipient may 
adopt authorized exceptions to its annual

[[Page 70387]]

income ceilings consistent with Sec.  1611.5.
    (d)(1) As part of its financial eligibility policies, every 
recipient shall establish reasonable asset ceilings for individuals and 
households. In establishing asset ceilings, the recipient may exclude 
consideration of a family's principal residence, vehicles required for 
work, assets used in producing income, and other assets which are 
exempt from attachment under State or Federal law.
    (2) The recipient's policies may provide authority for waiver of 
its asset ceilings under unusual circumstances and when approved by the 
recipient's Executive Director, or his/her designee. When the asset 
ceiling is waived, the recipient shall record the reasons for such 
waiver and shall keep such records as are necessary to inform the 
Corporation of the reasons for such waiver.
    (e) Notwithstanding any other provision of this Part or the 
recipient's financial eligibility policies, as part of its financial 
eligibility policies, every recipient shall specify that in assessing 
the income or assets of an individual applicant who is a victim of 
domestic violence, the recipient shall consider only the assets and 
income of the individual applicant and shall not include any jointly 
held assets.
    (f) As part of its financial eligibility policies, a recipient may 
adopt policies that permit financial eligibility to be established by 
reference to an applicant's receipt of benefits from a governmental 
program for low-income individuals or families consistent with Sec.  
1611.4(d).
    (g) Before establishing its financial eligibility policies, a 
recipient shall consider the cost of living in the service area or 
locality and other relevant factors, including but not limited to:
    (1) The number of clients who can be served by the resources of the 
recipient;
    (2) The population that would be eligible at and below alternative 
income and asset ceilings; and
    (3) The availability and cost of legal services provided by the 
private bar and other free or low cost legal services providers in the 
area.


Sec.  1611.4  Financial eligibility for legal assistance.

    (a) A recipient may provide legal assistance supported with LSC 
funds only to individuals whom the recipient has determined to be 
financially eligible for such assistance. Nothing in this Part, 
however, prohibits a recipient from providing legal assistance to an 
individual without regard to that individual's income and assets if the 
legal assistance is wholly supported by funds from a source other than 
LSC, and is otherwise permissible under applicable law and regulation.
    (b) Consistent with the recipient's financial eligibility policies 
and this Part, the recipient may determine an applicant to be 
financially eligible for legal assistance if the applicant's assets do 
not exceed the recipient's applicable asset ceiling established 
pursuant to Sec.  1611.3(d)(1), or the applicable asset ceiling has 
been waived pursuant Sec.  1611.3(d)(2), and:
    (1) The applicant's income is at or below the recipient's 
applicable annual income ceiling; or
    (2) The applicant's income exceeds the recipient's applicable 
annual income ceiling but one or more of the authorized exceptions to 
the annual income ceilings, as provided in Sec.  1611.5, applies.
    (c) In making financial eligibility determinations, a recipient 
shall make reasonable inquiry regarding sources of the applicant's 
income, income prospects and assets. The recipient shall record income 
and asset information in the manner specified for determining 
eligibility under Sec.  1611.6.
    (d) Consistent with the recipient's policies, a recipient may 
determine an applicant to be financially eligible without making an 
independent determination of income or assets, if the applicant's 
income is derived solely from a governmental program for low-income 
individuals or families, provided that the recipient's governing body 
has determined that the income standards of the governmental program 
are at or below 125% of the Federal Poverty Level amounts and that the 
governmental program has eligibility standards which include an assets 
test.


Sec.  1611.5  Authorized exceptions to the annual income ceiling.

    (a) Consistent with the recipient's policies and this Part, a 
recipient may determine that an applicant whose income exceeds the 
recipient's applicable annual income ceiling to be financially eligible 
if the applicant's assets do not exceed the recipient's applicable 
asset ceiling established pursuant to Sec.  1611.3(c), or the asset 
ceiling has been waived pursuant to Sec.  1611.3(c)(2) and:
    (1) The applicant is seeking legal assistance to maintain benefits 
provided by a governmental program for low income individuals or 
families; or
    (2) The Executive Director of the recipient, or his/her designee, 
has determined on the basis of documentation received by the recipient, 
that the applicant's income is primarily committed to medical or 
nursing home expenses and that, excluding such portion of the 
applicant's income which is committed to medical or nursing home 
expenses, the applicant would otherwise be financially eligible for 
service; or
    (3) The applicant's income does not exceed 200% of the applicable 
Federal Poverty Level amount and:
    (i) The applicant is seeking to obtain governmental benefits for 
low income individuals and families; or
    (ii) The applicant is seeking to obtain or maintain governmental 
benefits for persons with disabilities; or
    (4) The applicant's income does not exceed 200% of the applicable 
Federal Poverty Level amount and the recipient has determined that the 
applicant should be considered financially eligible based on 
consideration of one or more of the following factors as applicable to 
the applicant or members of the applicant's household:
    (i) Current income prospects, taking into account seasonal 
variations in income;
    (ii) Unreimbursed medical expenses including medical insurance 
premiums;
    (iii) Fixed debts and obligations;
    (iv) Expenses necessary for employment, job training or educational 
activities in preparation for employment, such as dependent care, 
transportation, clothing and equipment expenses;
    (v) Non-medical expenses associated with age or disability; or
    (vi) Other significant factors that the recipient has determined 
affect the applicant's ability to afford legal assistance.
    (b) In the event that a recipient determines that an applicant is 
financially eligible pursuant to this section and is provided legal 
assistance, the recipient shall document the basis for the financial 
eligibility determination. The recipient shall keep such records as may 
be necessary to inform the Corporation of the specific facts and 
factors relied on to make such determination.


Sec.  1611.6  Manner of determining financial eligibility.

    (a) A recipient shall adopt simple intake forms and procedures to 
obtain information from applicants and groups to determine financial 
eligibility in a manner that promotes the development of trust between 
attorney and client. The forms shall be preserved by the recipient.
    (b) If there is substantial reason to doubt the accuracy of the 
financial eligibility information provided by an applicant or group, a 
recipient shall

[[Page 70388]]

make appropriate inquiry to verify the information, in a manner 
consistent with the attorney-client relationship.
    (c) When one recipient has determined that a client is financially 
eligible for service in a particular case or matter, that recipient may 
request another recipient to extend legal assistance or undertake 
representation on behalf of that client in the same case or matter in 
reliance upon the initial financial eligibility determination. In such 
cases, the receiving recipient is not required to review or redetermine 
the client's financial eligibility unless there is a change in 
financial eligibility status as described in Sec.  1611.7 or there is 
substantial reason to doubt the validity of the original determination, 
provided that the referring recipient provides and the receiving 
recipient retains a copy of the intake form documenting the financial 
eligibility of the client.


Sec.  1611.7  Change in financial eligibility status.

    (a) If, after making a determination of financial eligibility and 
accepting a client for service, the recipient becomes aware that a 
client has become financially ineligible through a change in 
circumstances, a recipient shall discontinue representation supported 
with LSC funds if the change in circumstances is sufficient, and is 
likely to continue, to enable the client to afford private legal 
assistance, and discontinuation is not inconsistent with applicable 
rules of professional responsibility.
    (b) If, after making a determination of financial eligibility and 
accepting a client for service, the recipient later determines that the 
client is financially ineligible on the basis of later discovered or 
disclosed information, a recipient shall discontinue representation 
suported with LSC funds if the discontinuation is not inconsistent with 
applicable rules of professional responsibility.


Sec.  1611.8  Representation of groups.

    (a) A recipient may provide legal assistance supported with LSC 
funds to a group, corporation, association or other entity if the 
recipient has determined that the group, corporation, association or 
other entity lacks and has not practical means of obtaining private 
counsel in the matter for which representation is sought and:
    (1) At least a majority of the group's members are financially 
eligible for LSC-funded legal assistance; or
    (2) For a non-membership group, at least a majority of the 
individuals who are forming or operating the group are financially 
eligible for LSC-funded legal assistance; or
    (3) The group has as its principal function or activity the 
delivery of services to those persons in the community who would be 
financially eligible for LSC-funded legal assistance; or
    (4) The group has as its principal function or activity the 
furtherance of the interests of those persons in the community who 
would be financially eligible for LSC-funded legal assistance and the 
representation sought relates to such function or activity.
    (b) In order to make a determination that a group, corporation, 
association or other entity is eligible for legal services as required 
by paragraph (a) of this section, a recipient shall collect information 
that reasonably demonstrates that the group, corporation, association 
or other entity meets the eligibility requirements set forth herein.
    (c) Nothing in this part prohibits a recipient from providing legal 
assistance to a group without regard to the nature or financial 
eligibility of the group, if the legal assistance is supported by funds 
other than LSC, and is otherwise permissible under applicable law and 
regulation.

Appendix A--Legal Services Corporation Poverty Guidelines

    Note: Appendix A: The Corporation is not requesting comments on 
the current Appendix. The Appendix is revised annually, after the 
Department of Health and Human Services issues the new Federal 
Poverty Guidelines for that year.


Victor M. Fortuno,
General Counsel and Vice President for Legal Affairs.
[FR Doc. 02-29611 Filed 11-21-02; 8:45 am]
BILLING CODE 7050-01-P