[Federal Register Volume 70, Number 151 (Monday, August 8, 2005)]
[Rules and Regulations]
[Pages 45545-45565]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-15553]


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LEGAL SERVICES CORPORATION

45 CFR Part 1611


Financial Eligibility

AGENCY: Legal Services Corporation.

ACTION: Final rule.

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SUMMARY: The Legal Services Corporation (``LSC'' or ``Corporation'') is 
amending its regulations relating to financial eligibility for LSC-
funded legal services and client retainer agreements. The 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 recipients in implementing the 
regulation 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: This final rule is effective September 7, 2005.

FOR FURTHER INFORMATION CONTACT: Mattie C. Condray, Senior Assistant 
General Counsel, Office of Legal Affairs, Legal Services Corporation, 
3333 K. St., NW., Washington, DC 20007-3522; (202) 295-1624 (phone); 
(202) 337-6519 (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. Part 1611 also sets 
forth requirements related to client retainer agreements.

Procedural Background

    On June 30, 2001, LSC initiated a Negotiated Rulemaking and 
appointed a Working Group comprised of representatives of LSC 
(including the Office of Inspector General), the National Legal Aid and 
Defenders Association, the Center for Law and Social Policy, the 
American Bar Association's Standing Committee on Legal Aid and Indigent 
Defendants and a number of individual LSC recipient programs. The 
Negotiated Rulemaking Working Group met three times throughout 2002 and 
developed a Draft Notice of Proposed Rulemaking (NPRM) which was the 
basis for the NPRM published by LSC on November 22, 2002 proposing 
significant revisions to Part 1611 (67 FR 70376).\1\ Futher action on 
the rulemaking was suspended, in deference to a request by 
Representative James Sensenbrenner, Chairman of the U.S. House of 
Representatives Judiciary Committee, that LSC suspend action on the 
rulemaking pending the confirmation of new LSC Board of Directors 
members appointed by President Bush.
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    \1\ For additional discussion of the Negotiated Rulemaking 
Working Group, see 67 FR 70376 (November 22, 2002).
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    After the confirmation of nine new board members and the 
appointment of a new LSC President, the reconstituted Operations and 
Regulations Committee resumed consideration of the Part 1611 rulemaking 
in early 2004. At the meeting of the full Board of Directors on April 
30, 2005, the Board approved the republication of a revised NPRM for 
public comment. That NPRM was published on May 24, 2005 (70 FR 29695).
    LSC received thirteen (13) comments on the NPRM, including nine 
comments from individual LSC grant recipients, one comment from a 
senior attorney with a recipient commenting in his personal capacity, 
one comment from a member of the public, and comments from the Center 
for Law and Social Policy on behalf of the National Legal Aid and 
Defenders Association, and the American Bar Association's Standing 
Committee on Legal Aid and Indigent

[[Page 45546]]

Defendants. With minor exceptions (discussed in greater detail below), 
the commenters strongly supported the proposed revisions. Upon receipt 
of the comments, LSC prepared a Draft Final Rule discussing the 
comments and making permanent the proposed revisions. The Draft Final 
Rule was considered by the Operations and Regulations Committee of the 
Board of Directors at its meeting of July 28, 2005, and the Final Rule 
was adopted by the Board of Directors at its meeting of July 30, 2005.

Revisions to Part 1611

    While specific revisions are discussed in greater detail in the 
Section-by-Section analysis below, it should be noted that the 
revisions reflect several overall goals of the original Negotiated 
Rulemaking 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 
recipients in implementing the regulation, facilitate compliance and 
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 as an issue separate from decisions on 
whether to accept a particular client for service. In particular, LSC 
is significantly reorganizing and simplifing 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 clarify 
the regulation and include substantive changes to make intake simpler 
and less burdensome and render basic financial eligibility 
determinations easier for recipients to make. LSC is also moving the 
existing provisions on group representation, with some amendment, to a 
separate section of the regulation. Finally, LSC is simplifying and 
clarifying the retainer agreement requirement.

Title of Part 1611

    LSC is changing the title of Part 1611 from ``Eligibility'' to 
``Financial Eligibility.'' This 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 
recipient 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. Finally, LSC received one comment suggesting that 
because this Part contains LSC's requirements pertaining to when and 
how recipients must execute retainer agreements with clients (a subject 
not directly related to financial eligibility determinations), that the 
title of this Part should refer to retainer agreements. While the 
requirements for retainer agreements are included in this Part, it 
primarily addresses financial eligibility and LSC disagrees that 
retainer agreements should be specifically included in the title of 
this Part.

Section-by-Section Analysis

Section 1611.1--Purpose

    LSC is revising 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 is removing 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 
recipients 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. Moreover, 
section 504(a)(9) of the FY 1996 appropriations act, Public Law 104-134 
(incorporated by reference in the current appropriations act and 
implemented by regulation at 45 CFR Part 1620) provides that recipients 
are to make service determinations in accordance with written 
priorities, which take into account factors other than the relative 
poverty among applicants. 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 determinations 
by a recipient to provide services to a particular applicant, LSC has 
determined that such language should be removed from the regulation. 
LSC is also adding language specifying that this Part also sets forth 
financial standards for groups seeking legal assistance supported by 
LSC funds. Finally, LSC is adding a reference to the retainer agreement 
requirement in the purpose section to provide a notice at the beginning 
of the regulation that this subject is included in Part 1611. LSC 
received several comments specifically supporting and no comments 
objecting to these changes. LSC adopts the revisions as proposed.

Section 1611.2--Definitions

    LSC is adding definitions for several terms and amending 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)--Advice and Counsel
    LSC is adding a definition of the term ``advice and counsel'' as 
that term appears in proposed section 1611.9, Retainer Agreements. 
Under the new definition, ``advice and counsel'' is defined as limited 
legal assistance that involves the review of information relevant to 
the client's legal problem(s) and counseling the client on the relevant 
law or action(s) to take to address the legal problem(s). Advice and 
counsel does not encompass drafting of documents or making third-party 
contacts on behalf of the client. Thus, for example, advising a client 
of what notice a landlord is required to provide to a tenant before 
evicting the tenant would fall under ``advice and counsel,'' but making 
a phone call to a landlord to prevent the landlord from evicting a 
tenant would not be considered ``advice and counsel.'' Several 
commenters specifically supported this proposed definition, and no 
commenters opposed the proposed definition. Accordingly, LSC adopts the 
definition as proposed.
    Three of the commenters who specifically supported this proposed 
definition did express a concern, however, about the statement in the 
preamble to the NPRM in which LSC stated that LSC anticipates that 
advice and counsel will generally be characterized by a one-time or 
very short term relationship between the attorney and the client. These 
commenters noted that there are any number of situations in which a 
recipient attorney has to do some research in order to properly advise 
a client or in which the attorney provides advice and counsel to a 
client on a limited number of occasions, but over a somewhat extended 
period of time.

[[Page 45547]]

These commenters suggested deleting any reference to an anticipated 
time period in relation to the intended meaning of ``advice and 
counsel.''
    The use of the word ``generally'' in the sentence the commenters 
objected to was intended to convey that LSC is aware that there are 
circumstances in which a case would qualify as ``advice and counsel'' 
notwithstanding that the advice and counsel may be provided over a 
somewhat extended time period. Nonetheless, it is the case that many, 
if not most, advice and counsel cases involve a short-term relationship 
between the attorney and the client. Even if the attorney must do some 
research prior to providing advice, LSC does not expect that the need 
to do research will create a relationship which extends for a 
significant period of time in most cases. Indeed, part of the 
justification for exempting advice and counsel cases from the retainer 
agreement requirement has been the fact that such relationships are of 
generally short duration, such that requiring the recipient to ensure 
an executed retainer agreement is obtained may take longer than the 
time it takes for the attorney to provide the advice and counsel to the 
client. If, instead, it was the case that advice and counsel cases 
typically last for a long time, the opportunity to obtain retainer 
agreements would not be lacking. Thus, LSC continues to anticipate that 
in most cases ``advice and counsel'' will be characterized by a one-
time or short term relationship between the attorney and the client, 
but recognizes that this may not always be the case. Whether a 
particular case meets the definition of ``advice and counsel'' or not 
will continue to be determined on a case-by-case basis, considering the 
facts and circumstances.
Section 1611.2(b)--Applicable Rules of Professional Responsibility
    LSC is adding a definition of the term ``applicable rules of 
professional responsibility'' as that term appears in proposed sections 
1611.8, Change in Financial Eligibility Status and 1611.9, Retainer 
Agreements. 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 jurisdiction 
where the recipient either provides legal services or maintains its 
records. LSC received no comments objecting to this definition and 
adopts the definition as proposed.
Section 1611.2(c)--Applicant
    Consistent with the intention 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 has 
decided 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 is adding a definition of applicant providing that an 
applicant is an individual seeking legal assistance supported with LSC 
funds. Groups, corporations and associations are specifically excluded 
from this definition, as the eligibility of groups is addressed wholly 
within section 1611.6.
    Recipients 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 is not changing this (in fact, 
this principle is restated in section 1611.4(a)) and believes that the 
use of the term applicant as adopted herein will help to clarify the 
application of the rule.
    LSC received no comments objecting to these changes and adopts the 
revisions as proposed.
Section 1611.2(d)--Assets
    LSC is adding a definition of the term assets to the regulation. 
The new 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 recipients as to 
what is meant by the term assets, yet provide considerable latitude to 
recipients 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.
    Although the term is not defined in the regulation, current section 
1611.6(c) states that ``assets considered shall include all liquid and 
non-liquid assets * * *'' The intent of this requirement is that 
recipients 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 
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 converting the asset to cash. Thus, the 
Working Group agreed 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.
    LSC received numerous comments specifically supporting the proposed 
definition of assets. LSC, however, also received one comment 
expressing concern that defining assets as resources ``readily 
convertible to cash'' could preclude recipients from deeming all non-
primary residence real estate as an asset and require a more lengthy 
inquiry into the property's ready convertibility to cash. LSC notes at 
the outset that under the current rules, recipients are already 
required to ``take into account impediments'' to access to the 
resources. Thus, to the extent that the monetary value of a particular 
applicant's real property is not available to an applicant, recipients 
should already be taking that inaccessibility into account in reviewing 
the applicant's resources. Nonetheless, LSC believes that recipients 
currently have sufficient discretion to establish a rebuttable 
presumption that an applicant's non-primary residence real property is 
a resource readily convertible to cash and countable toward the 
recipient's asset ceiling and also to determine that a particular piece 
of property is not readily convertible to cash and, as such, should not 
be considered a resource available to the applicant for the purpose of 
the asset ceiling. Nothing in the rule being adopted today disturbs 
that discretion. Accordingly, LSC adopts the definition as proposed.
Section 1611.2(e)--Brief Services
    LSC is adding a definition of the term ``brief services'' as it is 
used in section 1611.9, Retainer Agreements. LSC notes that brief 
services is legal assistance characterized primarily by being 
distinguishable from both extended service and advice and counsel. 
Under the new definition, brief service is the performance of a 
discrete task (or tasks) which are not incident to continuous 
representation in a case but which involve more than the mere provision 
of advice and counsel. Examples of brief

[[Page 45548]]

services include activities such as the drafting of documents or 
personalized assistance with the completion of pleadings being prepared 
and filed by pro se litigants, and making limited third-party contacts 
on behalf of a client over, in most instances, a short time period.
    LSC received two comments specifically supporting the proposed 
definition. LSC received one comment noting that the proposed 
definition does not address the relative simplicity or brevity of 
documents which may be drafted by a recipient within the scope of brief 
service. This commenter was concerned that the definition was contrary 
to the Case Service Reporting (CSR) definition of ``brief services.'' 
This commenter suggested changing the definition or adding a statement 
that the definition in the regulation should not apply to the CSR. LSC 
notes that this definition of ``brief services'' is, while not 
identical, specifically intended to be fully consistent with the 
definition of ``brief services'' in the CSR. As such, LSC disagrees 
that the definitions are inconsistent and LSC adopts the definition as 
proposed.
Section 1611.2(f)--Extended Service
    LSC is adding a definition of the term ``extended service'' as that 
term is used in section 1611.9, Retainer Agreements. As defined, 
extended service means legal assistance characterized by the 
performance of multiple tasks incident to continuous representation in 
which the recipient undertakes responsibility for protecting or 
advancing the client's interests beyond advice and counsel or brief 
services. Examples of extended service include representation of a 
client in litigation, administrative adjudicative proceeding, alternate 
dispute resolution proceeding, or extended negotiations with a third 
party. LSC received no comments objecting to the proposed definition 
and adopts the definition as proposed.
Section 1611.2(f)--Governmental Program for Low Income Individuals or 
Families
    LSC is changing 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. LSC received no comments objecting to 
this change and adopts the revision as proposed.
Section 1611.2(g)--Governmental Program for Persons With Disabilities
    LSC is adding a definition of the term ``governmental program for 
persons with disabilities.'' LSC is including in the authorized 
exceptions to the annual income ceilings an exception relating to 
applicants seeking to obtain or maintain govermental benefits for 
persons with disabilities. Accordingly, it is appropriate to include a 
definition for this term. The 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.'' LSC received no comments objecting to the proposed 
definition and adopts the definition as proposed.
Section 1611.2(h)--Income
    LSC is revising 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 recipients 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 provision, without 
creating a substantive change in the meaning of either term. LSC has 
decided to use ``household'' instead of ``family unit'' because it is a 
simpler, more understandable 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.'' Specifically, OLA External Opinion No. EX-2000-1011 
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 definition makes this clear.
    LSC received one comment specifically supporting the change from 
``household or family unit'' to ``household.'' This commenter suggested 
that the change would provide ``more flexibility'' to recipients. LSC 
notes that the change in the terminology used in the regulation in this 
instance is not creating any substantive change. As noted above, 
recipients already have considerable discretion and flexibility to 
determine the scope of an applicant's household; the change in 
terminology being adopted with this final rule neither increases nor 
decreases that discretion and flexibility. LSC adopts the change in 
terminology as proposed.
    Throughout the course of the rulemaking field representatives have 
suggested deleting the words ``before taxes'' from the definition of 
income. Five commenters reiterated this position in comments on the 
NPRM, while one commenter specifically opposed deleting ``before 
taxes'' from the definition of income. Such a change is desirable, the 
proponents 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 agrees with the other commenter 
that the definition of income is not the appropriate place in the 
regulation to deal with this issue.
    Taking the phrase ``before taxes'' out of the definition of income 
would effectively change the meaning of income from gross income to net 
income after taxes. The term income has meant gross income since the 
original adoption of the financial eligibility regulation in 1976. See 
41 FR 51604, at 51606, November 23, 1976. The maximum income guidelines 
are based on the Department of Health and Human Services (DHHS) Federal 
Poverty Guidelines amounts. DHHS'' Federal Poverty Guidelines are, by 
law, based on the Census Bureau's Federal Poverty Thresholds, which are 
calculated using gross income before taxes. 42 U.S.C. 9902(2); Office 
of Management and Budget Directive No. 14 (May 1978). Changing the 
definition of income effectively from gross to net after taxes would 
introduce two different uses of the term income into the regulations 
(one use in the income guidelines published annually by LSC in Appendix 
A to Part 1611 and another use in the text of the regulation). This is 
problematic in two ways.

[[Page 45549]]

    First, with respect to the annual income ceiling limits, 
unilaterally changing the standard from gross to net income after taxes 
would arguably exceed LSC's authority. LSC is required by the LSC Act 
to set its maximum income guidelines in consultation with the Office of 
Management and Budget and the Governors of the states. 42 U.S.C. 
2996f(a)(2)(A). The annual income ceiling agreed to by LSC, OMB and the 
Governors (set at 125% of the Federal Poverty Guidelines amounts) was 
arrived at based on gross income; changing to a net income after taxes 
standard would effectively increase the annual ceiling amounts beyond 
what was agreed. LSC is concerned that it could only undertake such an 
action in consultation with OMB and the Governors, which consultation 
has not happened.
    Second, adopting a net income after taxes standard would, as one 
commenter noted, increase the upper income limit as well. This would 
have the effect of further increasing the potential eligible applicant 
pool. Although LSC believes that the slight increase in the eligible 
applicant pool which will result from increasing the upper income limit 
from 187.5% to 200% of the Federal Poverty Guidelines amounts is 
justifiable (see discussion of section 1611.5, below), LSC is concerned 
that an additional increase in the eligible applicant pool is not 
necessary to effectively deal with the practical problem that taxes, 
indeed, represent funds unavailable to the applicant.
    It was suggested in several comments that adopting a net income 
after taxes standard is preferable because it would be easier for 
recipients as they would only have to consider ``take home pay'' in 
computing income at intake. However, as one commenter noted, take home 
pay is often not simply pay net of taxes; there are other deductions 
from gross pay which an applicant could have (e.g., 401(k) deductions, 
medical savings account deductions, insurance premium deductions, child 
support, garnishments). In such cases, the recipient would not be able 
to simply determine that income equaled take home pay, but would have 
to identify and add amounts for such deductions from gross pay back in 
when determining the applicant's income. In addition, some, but not 
all, of such other deductions from pay could qualify as factors under 
the allowable exceptions to the annual income ceiling amounts. LSC is 
concerned that this would add confusion in the income determination 
process, contrary to the intent of this rulemaking.
    None of the comments supporting removal of ``before taxes'' from 
the definition of income addressed the problems discussed above. 
Moreover, LSC believes that the practical problem (that taxes, indeed, 
are funds unavailable to the applicant), is better addressed by 
treating taxes as a separate factor which can be considered by the 
recipient in making financial eligibility determinations. (This matter 
is presented in greater detail in the discussion of section 1611.5, 
below.) Further, although LSC does not consider defining income as 
gross income (rather than net after taxes) as presenting any ``apparent 
preference'' for non-working applicants, permitting current taxes to be 
a factor to be considered by the recipient in making financial 
eligibility determinations eliminates any such apparent preference that 
may be perceived as existing. Accordingly, LSC declines to remove the 
words ``before taxes'' from the definition of income.
    In addition, LSC is moving 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 
understand, particularly as the term ``total cash receipts'' is used 
only in the definition of income. In incorporating the language on 
``total cash receipts,'' LSC is retaining the current definition of the 
term without any substantive amendment, but reorganizing it to make it 
easier to understand. Specifically, LSC is separating the definition 
into two sentences, one of which sets forth those 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 list of items included is not 
intended to be exhaustive, while the list of items to be excluded is 
intended to be exhaustive. LSC received no comments objecting to these 
changes and adopts the revisions as proposed.
    Finally, LSC wishes to restate in this preamble 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. See 25 U.S.C. 1407-1408; 25 
U.S.C. 117a-117c. 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 funds or interests of individual Native 
Americans in trust or restricted lands should not be considered as a 
resource for the purpose of LSC financial 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 of determining 
LSC financial eligibility.
Total Cash Receipts
    LSC is deleting the definition of ``total cash reciepts,'' 
currently at section 1611.2(h), as a separately defined term in the 
regulation. Rather, LSC has reorganized the information contained in 
the definition and moved 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. LSC received no comments objecting to this change and 
adopts the revision as proposed.

Section 1611.3--Financial Eligibility Policies

    LSC is creating a new section 1611.3, Financial Eligibility 
Policies, based on requirements currently found in sections 1611.5(a), 
1611.3(a)-(c) and 1611.6. The comments generally supported these 
revisions, although LSC received a few comments suggesting some changes 
to what was proposed. LSC adopts the revisions as proposed, with 
certain amendments, as discussed below.

[[Page 45550]]

    The new section 1611.3 addresses in one section recipients' 
responsibilities for adopting and implementing financial eligibility 
policies. Under the new section, the current requirement that 
recipients' governing bodies have to adopt policies for determining 
financial eligibility is retained. However, LSC is changing the current 
requirement for an annual review of these policies and instead will now 
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. LSC believes that a triennial review requirement will be 
sufficient to ensure that financial eligibility policies remain 
relevant and will encourage a more thorough and thoughtful review when 
such review is undertaken. The section also adds an express requirement 
that recipients adopt implementing procedures. While this is already 
implicit in the current regulation, LSC believes it is preferable for 
this requirement to be expressly stated. Such implementing procedures 
may be adopted either by a recipient's governing body or by the 
recipient's management. LSC received several comments supporting these 
changes and no comments objecting to them. Accordingly, LSC adopts the 
revisions as proposed.
    Section 1611.3 also contains certain minimum requirements for the 
content of recipient's financial eligibility policies. Specifically, 
LSC is requiring that the recipient's financial eligibility policy 
must:
     Specify that only applicants for service determined to be 
financially eligible under the policy may be further considered for 
LSC-funded service;
     Establish annual income ceilings of no more than 125% of 
the current DHHS Federal Poverty Guidelines amounts;
     Establish asset ceilings; and
     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 applicant and shall not consider any assets 
jointly held with the abuser.

In establishing income and asset ceilings, the recipient will 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 assets of domestic violence 
victims jointly held with their abusers, this requirement applies when 
the applicant has made the recipient aware that he or she is a victim 
of domestic violence.
    In addition, this section permits recipients to adopt financial 
eligibility policies which provide for authorized exceptions to the 
annual income ceiling pursuant to section 1611.5 and for waiver of the 
asset ceiling for an applicant in a particular case under unusual 
circumstances and when approved by the Executive Director or his/her 
designee. Finally, LSC will 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 section 1611.4(b).
    These provisions are, with two exceptions, based directly on 
current requirements with a few substantive changes. First among the 
changes, recipients will 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 recipients 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. LSC 
has determined that this requirement can be eliminated without any 
adverse effect on program compliance with or Corporation enforcement of 
the regulation. LSC received several comments supporting this change 
and no comments objecting to it. Accordingly, LSC adopts the revision 
as proposed.
    Another substantive change is that recipients will 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 used for transportation, assets used in producing 
income (such as a farmer's tractor or a carpenter's tools) 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.
    Most of the comments received reiterated the position that field 
representatives had expressed during the Working Group discussions and 
in comments to the November 2002 NPRM, that the list of excludable 
assets should be illustrative, rather than exhaustive. The commenters 
argue that having an illustrative rather than an exhaustive list will 
provide recipients with greater flexibility in developing asset 
policies and note that many recipients already exclude certain other 
assets. Commenters alternatively suggested some specific assets be 
added to the list, such as household furnishings, computers, and such 
assets which are excluded from other governmental benefit programs for 
which the applicant is eligible. A few comments also specifically 
suggested that the exclusion for vehicles should not be limited to 
vehicles needed for work. One of these commenters noted that the Social 
Security Administration has recently changed its rules on eligibility 
for Supplemental Security Income (SSI) to exclude from an SSI 
applicant's assets one vehicle used for transportation, without 
specific regard to the particular transportation use (as was previously 
the case), provided it is not strictly a recreational vehicle such as a 
dune buggy. See 70 FR 6340, at 6342-43 (February 7, 2005).
    LSC believes that some of the comments indicate that LSC was not 
clear in the NPRM about the relationship between the asset ceiling 
adopted by a recipient and the list of excludable items. Under the 
current regulation recipients are required to adopt asset ceilings 
based on the economy and the relative cost of living in the service 
area. Recipients are also to take into account special needs of the 
elderly, institutionalized and persons with disabilities, along with 
the reasonable equity value in work-related equipment used to provide 
income. Implicit in the requirement is the expectation that the 
recipient will set its ceiling at a level as to cover the value of such 
things as household furnishings, clothing and other personal affects of 
applicant (and members of applicant's households) and other such assets 
as applicants may reasonably be expected to have without liquidating in 
the attempt to secure legal assistance. Once the asset ceiling has been 
set, the recipient is expected to consider all of the applicant's 
assets against that ceiling, except for the value of a principle 
residence. The exclusion of a principle residence is intended to ensure 
that homeowners do not exceed the asset ceiling just on the value of 
the home.
    With the NPRM, LSC proposed to allow recipients to exclude from the 
asset computation a limited number of

[[Page 45551]]

additional assets which would be likely to cause an applicant to exceed 
the applicable asset ceiling without liquidation of that or other 
significant household assets. As such, LSC continues to prefer to 
retain the approach in the current regulation in which the list of 
excludable assets is set forth in toto. LSC believes that this approach 
emphasizes the policy that most assets are to be considered and 
maintains a basic level of consistency nationally with respect to this 
issue. LSC continues to expect that recipients will set asset ceilings 
and asset ceiling waiver policies so as to permit applicants to have 
reasonable amounts of assets which will not count against them in 
eligibility determinations and believes that the new language does 
afford recipients some additional flexibility in developing asset 
ceilings, consistent with the policy articulated above particularly in 
light of the amendment to the asset ceiling waiver standard discussed 
below.
    Turning to comments on the specific proposed excludable assets, LSC 
agrees that it is neither necessary nor desirable to restrict the 
exclusion for vehicles to those used for work only. There are many 
situations in which a vehicle is an applicant's only reliable, 
accessible method of transportation for vital life activities other 
than work, such as education and training activities, reaching medical 
appointments, grocery shopping, transporting children to school or 
activities, etc. As such, it is reasonable to consider such vehicles as 
among the significant assets that a recipient should be able to own and 
not have counted towards the applicant's applicable asset ceiling. 
Accordingly, LSC is amending the language in proposed 1611.2(d)(1) 
which read ``vehicles required for work'' and adopting instead the 
language ``vehicles required for transportation.'' Under this 
formulation, the value of vehicles which are not used for 
transportation, such as vehicles used purely for recreational 
activities (e.g., dune buggies, golf carts, go-karts, and the like) 
would have to be included in determining whether an applicant's assets 
exceed the recipient's applicable asset ceiling.
    LSC declines, however, to expand the list to include the exclusion 
of any assets excluded under benefits programs for low income persons 
for which the applicant is eligible. There are myriad benefit programs 
with a widely varying range of excludable assets. Some programs have 
relatively low asset ceilings, but exclude more assets from the 
calculation, while other programs exclude fewer assets, but have higher 
asset ceilings. If LSC were to include all assets excludable under all 
benefits program for low-income individuals, the relative national 
consistency which LSC believes is important would be impeded. As noted 
above, LSC believes that the revised language does afford recipients 
sufficient additional flexibility in developing asset ceiling policies.
    As noted above, LSC is changing the asset ceiling waiver standard 
slightly. The current regulation permits waiver in ``unusual or 
extremely meritorious situations;'' the new rule permits 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 
recipients. In addition, where the current rule requires all waiver 
decisions to be made by the Executive Director, LSC proposed 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 recipients have consolidated and 
now serve larger areas, it is important for recipients to have the 
discretion to delegate certain authority to regional or branch office 
managers or directors to increase administrative efficiency. LSC 
received several comments supporting this change and no comments 
objecting to it. Accordingly, LSC adopts the revision as proposed.
    The first totally new element is the language regarding victims of 
domestic violence. This new language implements 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.

Public Law 105-119, 111 Stat. 2440 (November 26, 1997). Although this 
law has been in effect since 1997, it has never been formally 
incorporated into Part 1611. Nevertheless, 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.\2\
---------------------------------------------------------------------------

    \2\ This point is demonstrated by the fact that LSC received one 
comment specifically supporting the implementation of section 506 
into Part 1611 on the basis that the new language in 1611 would 
provide recipients with enhanced ability to provide legal assistance 
to victims of domestic violence. Rather, the incorporation of this 
statutory mandate into the regulation at this time does not create 
any substantive change in the authority and responsibility 
recipients have had with respect to this issue since 1997.
---------------------------------------------------------------------------

    LSC received one comment asking whether this proposal means that 
the financial eligibility of an applicant who is the victim of domestic 
violence is to be determined solely on the basis of the applicant's 
income and assets, without regard to the income and assets of other 
members of the household (beyond the alleged perpetrator of the 
domestic violence). LSC intended that the income of the alleged 
perpetrator and assets jointly held by the applicant with the alleged 
perpetrator must be disregarded in assessing the financial eligibility 
of the applicant, but that income and assets not jointly held with the 
alleged perpetrator of other members of the household (as defined by 
the recipient) would have to be considered in the financial eligibility 
assessment. LSC acknowledges that the language of the statute (and 
LSC's originally proposed implementation thereof) could be read so as 
to suggest that only the applicant's individual income and assets may 
be counted. However, LSC believes that such a reading would require a 
substantive change to the financial eligibility requirements that 
Congress did not intend.
    At the time of adoption of section 506, the regulation permitted 
recipients to take into account an applicant's ability to access 
certain assets (including assets of alleged perpetrators of domestic 
violence) and permitted recipients to consider the applicant's lack of 
access to the alleged perpetrator's income as an ``other significant 
factor related to the inability to afford legal assistance.'' 45 CFR 
1611.6(d); 1611.5(b)(1)(E). However, in some cases, the victim's 
household income including the income of the alleged perpetrator was 
above the upper income limit, such that the recipient was not able to 
even apply the ``significant other factors'' factor to make a 
determination of eligibility and in some cases there was a problem 
related to the extent to which the victim could access household assets 
over

[[Page 45552]]

which the alleged perpetrator had joint control. Thus, the practical 
problem addressed by section 506 is that in many cases a victim of 
domestic violence cannot draw upon the income or assets of the alleged 
perpetrator (including jointly held assets) as a source of funds with 
which to obtain private legal assistance.
    As the report language accompanying Public Law 105-119 notes, 
Congress was ``aware that the current statute and regulations * * * 
already provide for such determinations to be made'' but ``given 
concerns regarding access to the legal system for victims of domestic 
violence, the conferees have included this provision to provide greater 
clarity regarding this matter.'' H. Rpt. 105-405, p. 186. This 
indicates that Congress did not intend to require significant changes 
to LSC's regulations on financial eligibility, but rather only that 
Congress, in adopting section 506, wanted to ensure that the income and 
assets of the alleged perpetrator (which are generally under the 
control of the perpetrator and which the victim cannot readily access) 
not render the victim financially ineligible for legal assistance. As 
the regulation did not then provide for disregarding the income and 
assets of other members of the victim's household not jointly held with 
the alleged perpetrator in the assessment of the victim's financial 
eligibility, LSC does not believe Congress was attempting to change the 
general requirement that LSC consider the income and assets of other 
members of the victim's household in making financial eligibility 
determinations as long as they are available to the victim.
    In light of the foregoing, LSC is amending section 1611.3(e) to 
make this clearer by revising it to read:

    Notwithstanding any other provision of this Part, or other 
provision of the recipient's financial eligibility policies, every 
recipient shall specify as part of its financial eligibility 
policies that in assessing the income or assets of an applicant who 
is a victim of domestic violence, the recipient shall consider only 
the assets and income of the applicant and members of the 
applicant's household other than those of the alleged perpetrator of 
the domestic violence and shall not include any assets held by the 
alleged perpetrator of the domestic violence, jointly held by the 
applicant with the alleged perpetrator of the domestic violence, or 
assets jointly held by any member of the applicant's household with 
the alleged perpetrator of the domestic violence.

    LSC also received a comment requesting clarification of whether the 
special rule applies in all cases involving a victim of domestic 
violence or only in cases in which the request for assistance is 
related to alleviating the domestic violence or involves the 
perpetrator as an adverse party. Neither the statute (nor the 
accompanying report language) specify that the request for legal 
assistance must relate to alleviating the domestic violence or require 
the perpetrator to be an adverse party. As such, as noted above, the 
special rule applies at any time when the applicant has made the 
recipient aware that he or she is a victim of domestic violence. LSC 
does not find it likely that applicants who are victims of domestic 
violence identify themselves as such in seeking legal assistance in 
matters wholly unrelated to the domestic violence. However, if an 
applicant seeking assistance with an unrelated matter self-identifies 
as a victim, LSC believes that this would likely be done as a way of 
explaining why certain income and/or assets are unavailable for use in 
obtaining private legal assistance. As such, the rationale of the 
special rule would appear to be satisfied and recipients should have 
the ability to disregard the perpetrator's income and assets (including 
jointly held assets) in such situations. LSC does not believe the risk 
that an applicant would self-identify as a domestic violence victim in 
order to circumvent the financial eligibility requirements is 
significant and is confident a recipient would explore the situation 
further if the recipient suspected the claims of the applicant were 
specious.
    Finally, LSC has decided 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 section 1611.4(b). This issue is discussed in greater detail 
below.

Section 1611.4--Financial Eligibility for Legal Assistance

    This section sets 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 policies, consistent with this 
Part. This section also contains 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 section further provides 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 sections 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 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 received several comments supporting these changes and 
no comments opposing these changes. Accordingly, LSC adopts the 
revisions as proposed.
    LSC is also incorporating into this section a significant 
substantive change to the regulation. Consistent with section 1611.3 as 
discussed above the regulation will now 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 governing body 
has determined that the income standards of the governmental program 
are at or below 125% of the Federal Poverty Guidelines 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 by the agency providing the benefits 
(using an eligibility determination process that is at least as strict 
as the one required under LSC regulations) and determined to be 
financially eligible for those benefits. 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 burden involved in making 
financial eligibility determinations.

[[Page 45553]]

    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 governmental program have been carefully considered 
and are incorporated into the overall financial eligibility policies 
adopted and regularly reviewed by the recipient's 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 source of 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.
    LSC received several comments supporting these changes and one 
comment suggesting expanding this authority to permit recipients to 
make a determination that an applicant is financially eligible on the 
basis of receipt of governmental benefits for low income persons even 
when the applicant has another source of income, provided that the 
applicant's additional income was counted in determining eligibility 
for a governmental benefit program for low income persons (such as 
supplemental security income (SSI), in which the benefit is decreased 
as an offset to the other income). LSC is concerned that in such 
situations it cannot be guaranteed that an applicant's income would of 
necessity remain below the recipient's applicable income ceiling. The 
SSI program, for example, does not offset all other income dollar for 
dollar. Thus, an individual living alone whose income is solely derived 
from SSI will have an income of $579/month, while an individual living 
alone receiving Social Security income of $99 will receive an SSI 
payment of $500/month, for a total income of $599/month, and an 
individual living alone, with a monthly earned income of $317 and a 
state governmental benefit payment of $15/month, will receive an SSI 
benefit of $463/month, for a total monthly income of $795/month. See, 
Understanding Supplemental Security Income, Social Security 
Administration Web site, http://www.ssa.gov/notices/supplemental-security-income/text-income-ussi.htm. With the streamlined financial 
eligibility determination requirements LSC is adopting, LSC believes 
that performing a full financial eligibility screen on persons having 
income derived from sources in addition to governmental benefits for 
low income persons does not present an undue administrative burden and 
is necessary to ensure that only those who meet the recipient's 
financial eligibility criteria (based on applicable LSC laws and 
regulations) are determined to be financially eligible for LSC-funded 
legal assistance. Accordingly, LSC declines to expand the scope of 
Sec.  1611.4(c) and adopts the revisions as proposed.
    LSC received one additional comment about the basic financial 
eligibility criteria for LSC-funded legal assistance. This commenter 
suggested that the determination of an applicant's financial 
eligibility be conditioned somehow upon the financial circumstances of 
the adverse party(ies) with whom the applicant has the problem for 
which the legal assistance is sought. LSC's financial eligibility 
requirements are based upon the statutory mandate that the eligibility 
of clients be based upon the assets and income of the applicant, the 
fixed debts, medical expenses and other factors which affect the 
applicant's ability to afford legal assistance, and the cost of living 
in the locality. See 42 U.S.C. 2996f(a)(2)(B). With the exception of 
the cost of living in the locality, all of the criteria set forth in 
the LSC Act relate to the ability of the applicant to afford legal 
assistance. There is no suggestion in either the Act itself or in its 
legislative history, that the financial circumstances of adverse 
parties are at all relevant to the determination of an financial 
eligibility of the applicant. Moreover, LSC believes that conditioning 
a determination of financial eligibility upon the financial situation 
of adverse parties would unfairly discriminate against some persons who 
are otherwise unable to afford private legal assistance and would be 
inconsistent with LSC statutory mission of fostering equal access to 
justice. See 42 U.S.C. 2996. Accordingly, LSC declines to add as a 
criteria for determining financial eligibility an assessment of the 
financial situation of potential or actual adverse parties.\3\
---------------------------------------------------------------------------

    \3\ This commenter also suggested that LSC adopt requirements 
relating to the regular sharing among the various parties to a case 
of information about costs expended by all parties (including hours 
and costs for attorney time) during the course of a recipient's 
representation of a client. This suggestion does not address 
financial eligibility determinations or the retainer agreement 
requirements. As such, it is outside the scope of this rulemaking 
and is not further addressed.
---------------------------------------------------------------------------

Section 1611.5--Authorized Exceptions to the Annual Income Ceiling

    This section provides for authorized exceptions to the annual 
income ceiling. The language, like the current language of sections 
1611.4 and 1611.5, on which it is based, is permissive. A recipient is 
at liberty to include some, none, or all of the authorized exceptions 
discussed below in its financial eligibility policies. Thus, to the 
extent a recipient chooses to avail itself of the authority provided in 
this section, a recipient is permitted to determine a particular 
applicant is financially eligible for assistance, notwithstanding that 
the applicant's income is in excess of the recipient's applicable 
income ceiling, if the applicant's situation fits within one or more of 
the authorized exceptions. In making such determinations, however, the 
recipient will also have to detemine that the applicant's assets are 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 is affirmatively stated for greater clarity. 
LSC received one comment specifically supporting this clarification and 
LSC adopts the language as proposed.
    Under the revised section, there are 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 represents 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 LSC 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

[[Page 45554]]

is over the income ceiling but under 150% of the LSC 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 is addressing 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 
unnecessary 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). LSC received 
several comments supporting these changes and no comments opposing 
them. Accordingly, LSC adopts the revisions as proposed.
    The second instance is taken from section 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 is now 
specifying in the regulation, however, that in such cases the recipient 
is 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 received several comments generally supporting this change (and 
none opposing it) but asking LSC to delete the requirement that the 
determination that the applicant's income is primarily committed to 
medical or nursing home expenses be made by the Executive Director or 
his/her designee. These commenters argued that removing this 
requirement would afford recipients greater administrative flexibility 
in making financial eligibility determinations. The existing rule, 
however, does requires that the Executive Director make determinations 
regarding whether an applicant's income is primarily committed to 
medical or nursing home expenses. LSC believes it is important to 
continue this requirement in this instance because a recipient is 
making a determination of financial eligibility for an applicant whose 
income exceeds the otherwise absolute upper limit of the income 
ceiling, and such a determination should be made by a person in 
significant authority.\4\ This is similar to the LSC view regarding 
decisions to waive the asset ceiling. LSC does understand, however, 
that it is important for recipients to have the discretion to delegate 
certain authority to regional or branch office managers or directors to 
increase administrative efficiency. This is why LSC proposed broadening 
the existing rule to permit the Executive Director to designate a 
responsible individual to make such determinations. LSC believes that 
this approach provides additional administrative flexibility to 
recipients yet is consistent with the underlying policy. Accordingly, 
LSC adopts the revision as proposed.
---------------------------------------------------------------------------

    \4\ This situation is distinguishable from the other exception 
to the absolute income limit relating to applicants seeking to 
maintain governmental benefits for low income persons. As noted 
above, in those instances, the applicant's income will already be 
rather limited, even if exceeding the absolute income ceiling. In 
the medical/nursing home expenses situation, this may not be the 
case and the applicant's income may be considerably in excess of the 
ceiling.
---------------------------------------------------------------------------

    LSC is also permitting 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 Guidelines amount. At the outset, LSC notes that this section 
changes the current upper income limit of 150% of the LSC national 
income guidelines amount, which is 150% of 125% of the Federal Poverty 
Guidelines amounts, or 187.5% of the Federal Poverty Guidelines 
amounts. Under the new regulation, the maximum upper limit increases to 
200% of the Federal Poverty Guidelines amounts. Consequently, 
recipients will be able to consider applicants having slightly higher 
incomes than was previously possible. (For example, the 2005 LSC income 
guideline for a applicant in a three member household in the 48 
contiguous states and the District of Columbia is $20,113. Under the 
existing rule, the maximum upper income limit for an applicant with a 
three member household is $30,170; under the new rule the maximum 
income limit for that household will be $32,180.) This action will 
slightly increase the pool of potential applicants for service. 
However, LSC believes that this slight increase in the eligible 
applicant pool will not have a negative impact on the quantity or 
quality of services delivered. Rather, this change recognizes the 
changing demographic of the legal services client base, which now 
increasingly includes the working poor. Moreover, amending the rule to 
increase the upper limit to 200% of the Federal Poverty Guidelines 
amounts will further simplify the regulation, which will aid grantees 
and their staff in making financial eligibility determinations. LSC 
received several comments strongly supporting this change, including 
one comment which noted that the change will allow for significant 
improvement in facilitating service collaboration and referrals among 
LSC and non-LSC service providers in many states because 200% of the 
Federal Poverty Guidelines amounts is used as an upper limit for income 
eligibility for a wide variety of programs providing services to low 
income persons. LSC received no comments opposing this change. LSC 
accordingly adopts this revision as proposed.
    Turning to the exceptions, LSC is retaining the current exception 
for individuals seeking to obtain governmental benefits for low-income 
individuals and families. Second, LSC is adding 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 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. LSC received several comments 
supporting these provisions and no comments opposing them. Accordingly, 
LSC adopts these exceptions as proposed.
    Finally, the revised regulation maintains the current authorized 
exceptions found in the factors listed in

[[Page 45555]]

current section 1611.5. Specifically, the recipient will be permitted 
to 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 will not be required to apply 
these factors in a ``spend down'' fashion. That is, although recipients 
are permitted to do so, they are not 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 is also 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:
     The factor relating to medical expenses is restated to 
make clear that it refers only to unreimbursed medical expenses, but 
that medical insurance premiums are included;
     The factor relating to employment expenses is reorganized 
for clarity and would expressly include expenses related to job 
training or educational activities in preparation for employment;
     The factor relating to expenses associated with age or 
disability no longer refers to resident members of the family as a 
reference to the applicant or members of the applicant's household has 
been incorporated elsewhere in this section of the regulation;
     The factor relating to fixed debts and obligations is 
amended to read only ``fixed debts and obligations;''
     A new factor, ``current taxes'' is added to the list.
    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 has 
decided 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 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, LSC 
Assistant General Counsel, to Stephen St. Hilaire, Executive Director, 
Camden Regional Legal Services, Inc. Examples of such ``fixed debts and 
obligations'' would include mortgage payments, rent, child support, 
alimony, business equipment loan payments, and unpaid taxes from prior 
years. LSC intends that this term 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; in addition, LSC received several 
comments supporting the inclusion of rent as a fixed debt or obligation 
and no comments opposed. Therefore LSC will treat rent and mortgage 
expenses in a similar manner.
    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. 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. Several commenters supported adding 
utilities to the overall list of factors. Although, as the commenters 
note, applicants must pay for some measure of utilities, the same can 
be said for clothing and food, which are also certainly basic necessary 
expenses. However, these sorts of costs have never been covered by the 
types of expenses which recipients are generally permitted to consider 
in determining the ability of an applicant to afford legal assistance. 
With the exception of housing expenses (which fall under the heading of 
fixed debts and obligations, a category which does not generally 
include utilities because utility bills are not typically fixed as to 
time and amount), the other factors represent expenses for items which 
may not be particularly extraordinary, but which are for things other 
than the most basic necessities. Accordingly, LSC declines to add 
utilities to the list of fixed debts and obligations.
    Related to the treatment of utilities, two commenters supported the 
idea LSC clarify that recipients have the flexibility to consider 
unusually high utility costs as an ``other significant factor'' under 
section 1611.5(a)(vii). LSC agrees that, under certain unusual 
circumstances, utility bills could be considered an ``other significant 
factor'' affecting an applicant's ability to afford legal assistance. 
LSC does not intend that section 1611.5(a)(vii) be used to routinely 
consider applicants' utility costs. This is true even if utility costs 
are typically high for an applicant because, for example, the applicant 
lives in a very hot or very cold area of the country. However, there 
may be circumstances in which an area of the country suffers a period 
of unusually hot or cold weather, or perhaps a discreet time period in 
which heating oil or gas prices are significantly higher than the 
normal range of prevailing prices. In addition, an individual applicant 
may have unusually high utility bills because of a malfunctioning 
furnace or some other problem with their home that they cannot get 
their landlord to fix or that they cannot afford to fix themselves. In 
such unusual circumstances, it could be appropriate for a recipient to 
take into account the extra amount of utility costs incurred by an 
applicant as an ``other significant factor'' in making a financial 
eligibility determination.
    As noted above, another issue is whether to include current taxes 
within the scope of the term ``fixed debts and obligations.'' 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 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 persuasive. 
Rather, LSC believes that the exclusion of current taxes, but not prior 
unpaid taxes, from the list of factors which recipients' may consider 
under exceptions to the income ceiling 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, applicants for legal services are 
increasingly the working poor. Excluding current taxes has a 
disproportionate effect on applicants who work versus applicants who do 
not work. Consequently, in the November 2002 NPRM, LSC proposed 
including current taxes within scope of

[[Page 45556]]

the term ``fixed debts and obligations'' (as they had been prior to 
1983).
    When the Operations and Regulations Committee once again addressed 
this issue, field representatives reiterated their recommendation that 
the term ``income'' should be defined as income after taxes. LSC 
continues to believe, as noted above, that effectively defining income 
as net income, while the LSC income guidelines (and the underlying DHHS 
Federal Poverty Guidelines amounts on which the LSC guidelines are 
based) are calculated on the basis of gross income would make the 
regulation internally inconsistent. Rather, LSC believes that 
considering taxes as a factor which can be considered by the recipient 
in making financial eligibility determinations addresses the practical 
problem raised by the commenters. However, the Committee considered 
current taxes as a fundamentally different kind of expense than the 
other expenses falling within the scope of ``fixed debts or 
obligations.'' Instead, the Committee recommended, and the Board 
agreed, that current taxes should be a separate category of authorized 
exception to the annual income ceiling. Accordingly, LSC proposed 
adding a new subsection (iv) to section 1611.5(a)(4) and specifically 
invited comment on the proposed addition of an authorized exception for 
current taxes and on the appropriate scope and specific terminology 
which LSC should use to describe and define this proposed exception.
    LSC received numerous comments reiterating the position that 
``income'' should be defined as net after taxes, but that in the 
alternative (should LSC retain income as gross income) supported the 
proposal to include current taxes as a separate factor which recipients 
may consider as an authorized exception to the income ceiling. The one 
comment LSC received supporting LSC's proposal to retain the phrase 
``before taxes'' in the definition of income expressly supported also 
treating current taxes as a separate factor which recipients may 
consider as an authorized exception to the income ceiling. All of these 
commenters also supported including a discussion in the preamble of 
what taxes should be included in the scope of the term ``current 
taxes'' rather than specifying a particular list in the text of the 
regulation. LSC agrees that such an approach is preferable. LSC 
believes that permitting some flexibility in the scope of the term 
``current taxes'' is appropriate and in keeping with the intent of this 
rulemaking, although LSC also believes that the term ``current taxes'' 
should not be without limits. Thus, LSC intends that ``current taxes'' 
should include local, State and Federal income and employment taxes, 
Social Security and Medicare taxes, and local property taxes (including 
special property tax assessments) but not sales taxes or excise fees, 
such as airline ticket fees, hotel occupancy taxes, gas taxes, 
cigarette taxes, etc. Past tax debts, having become fixed debts owing, 
remain a fixed debt or obligation which recipients may consider under 
that factor.

Section 1611.6--Representation of Groups

    The eligibility of groups for legal assistance supported with LSC 
funds was a subject of extensive discussion among both the members of 
the Working Group and at the 2004 and 2005 meetings of the current 
Operations and Regulations Committee. 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.
    During the Working Group meetings, 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, 
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. 
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 prior Board's 
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. The NPRM published in 
November 2002 reflected this direction.
    When the new Operations and Regulations Committee considered this 
issue, field representatives once again supported changing the 
regulation to permit the representation of groups having as their 
primary function the provision of services to, or furthering the 
interests of, those who would be financially eligible (providing the 
group could demonstrate its inability to afford to retain private 
counsel), while LSC Management initially once again supported 
permitting only the representation of groups primarily composed of 
eligible individuals.

[[Page 45557]]

However, upon further reflection and consideration of the arguments 
made by the field and the comments made by members of the Operations 
and Regulation Committee, LSC Management ultimately recommended that 
the regulation could be broadened to permit the representation, in 
addition to groups primarly composed of eligible individuals, groups 
which have as a primary activity the delivery of services to persons 
who would be eligible. Management continued to recommend that the 
regulation not permit the representation of groups whose primary 
activity is the ``furtherance of the interests of'' persons who would 
be eligible.
    The Board agreed that permitting LSC recipients to use LSC funds 
for the representation of groups which provide services to low income 
persons is consistent with the LSC mission and could be an efficient 
use of LSC resources, provided that the legal assistance is related to 
the services the group provides. The Board also agreed that extending 
the permissible use of LSC funds for the representation of groups whose 
primary activity is the ``furtherance of the interests of'' low income 
persons would not be appropriate because of the necessarily subjective 
nature of determining what is in the ``furtherance of the interests 
of'' low income persons.
    Accordingly, LSC proposed to 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 no 
practical means of obtaining private counsel in the matter for which 
representation is sought and either:
    (1) The group, or for a non-membership group, the organizing or 
operating body of the group, is primarily composed of individuals who 
would be financially eligible for legal assistance under the Act; or
    (2) The group has as a principal activity the delivery of services 
to those persons in the community who would be financially eligible for 
LSC-funded legal assistance and the legal assistance sought relates to 
such activity.
    Under the proposal, any group seeking LSC-funded legal assistance 
would have to lack, and have no practical means of obtaining, the funds 
to obtain private counsel. LSC received no comments opposing this 
proposal and adopts it as proposed. LSC notes that there are instances 
in which a group without funds to pay for private legal counsel may, 
nonetheless, be able to obtain pro bono private counsel, although there 
are many instances in which no such pro bono private counsel is 
available. LSC understands that recipients currently take into account 
the availability of pro bono private counsel when determining whether 
to accept an eligible group as a client. LSC expects that this practice 
will continue.
    Proposed subsection (1) above, relating to the eligibility and 
representation of groups composed primarily of eligible individuals, 
represents the practice under the current section 1611.5(c). The new 
rule is intended to have the same 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 individuals who would be financially 
eligible; in the case of non-membership groups, at least a majority of 
members of the governing body would have to be individuals who would be 
financially eligible. LSC received no comments opposing this proposal 
and adopts it as proposed.
    The latter instance (proposed subsection (2), above) represents a 
variation on one of the situations permitted by the pre-1983 rule, 
although the language has been revised to focus on ``principal 
activity'' rather than ``primary purpose'' (or ``primary activity'') 
and the rule permits only the representation of groups which have as a 
principal activity the delivery of services to low income persons. 
Limiting permissible representation to groups which have as a 
``principal activity'' the provision of services to low income persons 
and the exclusion of groups which act in the ``furtherance of the 
interest of the poor'' are intended to make the analysis required in 
determining the permissibility of the representation more objective.
    All but one of the comments strongly supported the addition of 
groups having as a principal activity the delivery of services to those 
persons in the community who would be financially eligible for legal 
assistance.\5\ The commenters stated that this change, if adopted, will 
provide recipients with much needed flexibility to address pressing 
legal needs of low income persons in their communities. One comment 
noted in particular that providing legal assistance to human services 
organizations results in positive benefits to thousands of low income 
individuals and is generally very much supported by local communities. 
Examples cited by the commenter include helping a domestic violence 
shelter keep its residents' information confidential and providing 
legal assistance in the creation of an indigent health care plan 
providing free medical services to low income persons.
---------------------------------------------------------------------------

    \5\ The remaining comment did not address this aspect of the 
proposed rule.
---------------------------------------------------------------------------

    Although the Office of Inspector General (OIG) did not file 
separate comments on the NPRM, the OIG has previously raised a question 
as to whether permitting the representation of groups not comprised of 
eligible clients is problematic because, in its view, neither the LSC 
Act itself nor the legislative history endorse the premise that LSC may 
permit the representation of groups that are not composed of eligible 
clients. Although LSC appreciates the OIG's comments, LSC believes that 
the proposed regulatory requirements are consistent with the applicable 
laws. The LSC Act, on its face, does not prohibit the representation of 
groups other than those composed of otherwise eligible individuals. The 
Act only speaks to ``eligible clients'' and there is nothing in the 
text of the Act which suggests that a group which has as its principal 
activity the provision of services to persons who would be eligible for 
LSC-funded legal assistance is necessarily excluded from the scope of 
the term ``eligible clients.'' In addition, LSC believes that the 
legislative history of the Act and the 1977 LSC Act amendments is not 
dispositive on the issue of whether the statute was intended to 
prohibit the representation of groups other than those comprised of 
eligible individuals. Rather, support for the notion that Congress 
contemplated the provision of legal assistance to groups providing 
services to eligible clients can be seen in the comments Senator Riegle 
made in discussing an amendment relating to the prohibition by 
recipients on organizing:

    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.

Congressional Record of October 10, 1977, p. S 16804. (emphasis added).
    Accordingly, LSC is adopting the proposal to permit recipients to 
provide legal assistance to groups having as a principal activity the 
delivery of services to those persons who would be eligible for LSC-
funded legal assistance. In addition, LSC is adopting the proposed 
further limitation that the legal assistance must be related to the 
services delivered by the group. One commenter objected to this 
limitation.

[[Page 45558]]

This commenter stated that legal assistance in an unrelated matter 
could have a significant impact on an organization's ability to provide 
its services. LSC notes that although there may be instances in which 
an unrelated legal matter could ultimately have an impact on the 
group's delivery of services, LSC believes that this limitation is 
important. LSC believes that this limitation, along with the limitation 
relating to the group's ``principal activity,'' will avoid creating a 
potential situation whereby recipients might feel free to undertake 
broad based social change activities, but will permit recipients to 
provide legal assistance that will enable a group to pursue its goals 
of service to the eligible client community. LSC believes that these 
limitations will help ensure that LSC funds will be used to provide 
financially eligible groups with the day-to-day legal services which 
are the hallmark of LSC-funded legal assistance. Finally, LSC notes 
that if a recipient wishes to provide legal assistance to a group whose 
principal activity is the delivery of services to low income persons in 
a legal matter not related to that service, the recipient may provide 
that legal assistance with non-LSC funds, provided the legal assistance 
is otherwise permissible under applicable law and regulations.
    LSC is adding a provision to the regulation specifying the manner 
of determining the eligibility of groups. Although the practice has 
been that recipients must collect information that reasonably 
demonstrates that the group meets the eligibility requirements set 
forth in the regulation, standards for determining and documenting the 
eligibility of groups has not previously been specifically addressed in 
the regulation. LSC Management does not believe that recipients are 
representing ineligible groups, but the Working Group was nevertheless 
in agreement that it is important and appropriate for the regulation to 
expressly state the Corporation's expectations in this area. The 
November 2002 NPRM would have required a recipient to collect 
information reasonably demonstrating that the group meets the 
eligibility requirements set forth in the regulation.
    In written comments filed in response to the November 2002 NPRM, 
and again in the course of the new Operations and Regulation 
Committee's 2004 and 2005 deliberations, the OIG expressed concern that 
the proposed rule should provide eligibility criteria sufficient to 
ensure that groups seeking LSC-funded legal assistance qualify for such 
legal assistance and should require grantees to retain adequate 
documentation of such group eligibility. Although LSC believes that the 
November 2002 proposed financial eligibility standards for groups 
effectuated the principal criterion in the Act that those seeking LSC-
funded legal assistance must be financially unable to afford legal 
assistance and were in no way inconsistent with the LSC Act, LSC does 
agree with the OIG that the standards for determining the eligibility 
of groups can and should be more specific than those set forth in the 
November 2002 NPRM.
    Accordingly, in assessing the eligibility of a group, LSC proposed 
to require recipients to consider the resources available to the group, 
such as the group's income and income prospects, assets and 
obligations. LSC also proposed that for a group primarily composed of 
individuals who would be financially eligible for LSC-funded legal 
assistance under the Act, the recipient would also have to consider 
whether the characteristics of the persons primarily composing the 
group are consistent with financial eligibility under the Act. LSC 
further proposed that for a group having as a principal activity the 
delivery of services to those persons in the community who would be 
financially eligible for LSC-funded legal assistance under the Act, the 
recipient would also have to consider whether the characteristics of 
the persons served by the group are consistent with financial 
eligibility under the Act and whether the legal assistance sought 
relates to the principal activity of the group. Finally, LSC proposed 
to require a recipient to document group eligibility determinations by 
collecting information that reasonably demonstrates that the group 
meets the eligibility criteria set forth in the rule.
    All but one of the commenters supported the proposal to require 
recipients to consider the resources available to the group, such as 
the group's income and income prospects, assets and obligations.\6\ 
Several of the commenters, however, opposed the proposed requirement 
that the recipient must determine whether the characteristics of the 
group (or the characteristics of the persons receiving the services of 
the group) are consistent with financial eligibility for LSC-funded 
legal assistance. These commenters suggested that these proposals were 
not clear and could lead to disputes between LSC and recipients over 
whether the articulated standard was met. These commenters suggested 
that it would be sufficient only to require that recipients consider 
and collect information that ``reasonably demonstrates'' that the group 
meets the eligibility criteria.
---------------------------------------------------------------------------

    \6\ The other comment did not address the proposal regarding 
group eligibility.
---------------------------------------------------------------------------

    As discussed above, LSC believes that it is important that the 
regulation specify what information recipients must consider in order 
to make determinations that the eligibility criteria are met. In the 
case of individual applicants, the eligibility criteria are that 
applicants must have income and assets valued at below the set levels 
and the regulation expressly requires recipients specifically consider 
the applicant's income and assets. Similarly, since the group 
eligibility criteria include that the group or the persons served by 
the group must be those who would be financially eligible, it is 
appropriate for the regulation to expressly require that recipients 
consider whether the group or the persons served by the group are those 
who would be financially eligible.
    In discussions during the Operations and Regulations committee 
meetings on this subject, it was noted that the November 2002 NPRM 
standards for determining the eligibility of a group (which the 
commenters essentially suggest LSC adopt) were intended to reflect the 
current, unwritten practice with regard to determinations of 
eligibility of groups primarily composed of eligible individuals. The 
information adduced during those discussions indicated that recipients 
generally consider the nature and financial and other socioeconomic 
characteristics of the group in making group eligibility 
determinations, particularly in cases in which the group is 
sufficiently large as to make individualized screening a majority of 
the members of the group impracticable. LSC believed (and still 
believes) that the standard set forth in the proposed rule fairly 
reflects the current practice. Contrary to the concern expressed by the 
commenters, this practice has not proved to be problematic to date, nor 
is there any suggestion in the comments that LSC is currently ``second 
guessing'' recipients' determinations of group eligibility. LSC does 
not anticipate that incorporating the currently unwritten standard into 
the regulation will change this situation. LSC is, however, slightly 
modifying the language in the final rule to specify that it is the 
financial and other socioeconomic characteristics of the group (or the 
persons being served by the group) which recipients must consider in 
making eligibility determinations and that those particular 
characteristics must be consisent with those of persons who are 
financially eligible for LSC-funded legal asssitance.

[[Page 45559]]

    The following are examples of how the new rule on group eligibility 
will apply:

    Example 1: Group primarily composed of eligible individuals
    A public housing tenants' association seeks representation to 
require the landlord to provide required maintenance services to the 
buildings and grounds. To make a determination of eligibility, the 
recipient would have to review the resources available to the group 
(such as any assets and liabilities of the tenants' association, 
i.e., dues or other monetary donations to the association; 
outstanding bills or obligations of the association) and make a 
determination that the association lacks the financial resources 
with which to hire private counsel. In addition, the recipient would 
have to determine that a majority of the association (or the 
association's organizing body) are persons who would be financially 
eligible under the Act by considering whether the group's financial 
and other socioeconomic characteristics are consistent with those of 
persons who are financially eligible under the Act. The recipient 
could perform a standard eligibility screen on the members of the 
tenants' association (or its organizing body) or could make a 
determination that the requirement is met on the basis that 
financial eligibility for residency in the public housing complex in 
the recipient's area is consistent with the recipient's financial 
eligibility policies. The recipient would have to be able to support 
its determination of eligibility by collecting and maintaining such 
information as reasonably demonstrates that the tenants' association 
had met the eligibility criteria.
    Example 2: Group primarily composed of eligible individuals
    Five women who are currently on public assistance have come 
together as a group to open and operate a daycare center. The group 
has a grant from the state social services agency which permits the 
grant to be used of obtaining legal assistance and a line of credit 
secured by the Small Business Administration to create and operate 
this business. The group seeks legal assistance in obtaining the 
necessary permits and negotiating a lease for space for the center. 
To make a determination of eligibility, the recipient would have to 
review the resources available to the group (such as the grant, line 
of credit, other funds available, as well as liabilities, such as 
costs for obtaining licenses, space rental, etc) to see if the group 
lacks the financial resources with which to hire private counsel. In 
addition, the recipient would have to determine that a majority of 
the women are persons who would be financially eligible under the 
Act by considering the financial and other socioeconomic 
characteristics of the women. In this case, although the women 
(being recipients of public assistance) are likely persons who would 
be eligible for legal assistance under the Act, the group's grant 
and line of credit may provide enough resources to the group so as 
to enable the group to obtain private legal assistance. If the 
recipient determines that this is the case, the recipient would not 
be able to provide the group LSC-funded legal assistance.
    Example 3: Group which has as a principal activity the provision 
of services to those who would be financially eligible under the 
Act.
    A community group runs a food bank which distributes food to 
low-income persons in the community. The community group is a 
501(c)(3) organization which is run by a volunteer board of 
directors who are not personally financially eligible for LSC-funded 
legal assistance. The food bank warehouse occupies rented space. The 
group is seeking legal assistance to renegotiate its lease to obtain 
favorable long-term lease terms to allow it to remain in the 
warehouse space. To make a determination of eligibility, the 
recipient would have to review the resources available to the group 
(i.e., how much the group takes in donations, what the group's 
expenses are) and make a determination based on that information 
that the group lacks the financial resources with which to hire 
private counsel. In addition, the recipient would have to determine 
that the group has as a principal activity the provision of services 
to those would would be financially eligible for LSC-funded legal 
assistance. In this case, the recipient could consider such 
financial and other socioeconomic characteristics of the group being 
served such as homeless status, eligibility for the services 
offered, etc. The recipient would also have to consider the relative 
significance of the food bank in comparison to the other activities 
of the community group and to determine that the legal assistance 
sought related to that service. In this case, renegotiation of the 
lease appears related to the provision of the service. The recipient 
would have to be able to support its determination of eligibility by 
collecting and maintaining such information as reasonably 
demonstrates that the community group had met the eligibility 
criteria.
    Example 4: Group which has as a principal activity the provision 
of services to persons who would be financially eligible under the 
Act
    A non-profit organization runs a shelter for homeless families. 
The Board of the shelter is comprised of persons who would not be 
financially eligible for assistance under the Act. The shelter seeks 
legal assistance in defending itself against a claim for damages 
filed by a person who came to the shelter uninvited to distribute a 
menu for a local take out restaurant and slipped and fell on ice on 
the shelter's stairs. To make a determination of eligibility, the 
recipient would have to review the resources available to the group 
(i.e., how much the shelter receives in donations, the shelter's 
expenses, etc.) and make a determination based on that information 
that the group lacks the financial resources with which to hire 
private counsel. In addition, the recipient would have to determine 
that the group has as a principal activity the provision of services 
to those would be financially eligible for LSC-funded legal 
assistance. In this case, the recipient would consider the financial 
and other socioeconomic characteristics of the group being served 
(homeless status, financial eligibility for access to the shelter, 
etc.). The recipient would also have to assess whether the legal 
assistance being sought relates to the principal activity. In this 
case, the tort claim is unlikely to be related to the primary 
activity of the shelter and, as such, the recipient would not be 
able to provide LSC-funded legal assistance to the shelter.

    In addition, the revised rule retains and restates the current 
provision of the rule that these requirements apply only to a recipient 
providing legal assistance supported by LSC funds, provided that 
regardless of the source of funds used, any legal assistance provided 
to a group must be otherwise permissible under applicable law and 
regulation.
    LSC notes that, as with other aspects of this rule, section 1611.6 
does not speak to eligibility of groups for legal assistance under 
other applicable law and regulation. For example, the eligibility of a 
group under proposed section 1611.6 does not address issues related to 
the eligibility of the group under Part 1626 of LSC'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 a group on restricted 
matters, such as class action lawsuits or redistricting matters, etc.)
    Finally, LSC notes that in the November 2002 NPRM, this section was 
numbered 1611.8 and placed at the end of that proposed regulation. LSC 
is now placing this section before the sections on Manner of 
Determining Financial Eligibility, Change in Financial Eligibility 
Status and Retainer Agreements as those sections are applicable to both 
groups and individual applicants and clients.

Section 1611.7--Manner of Determining Financial Eligibility

    LSC is making several revisions to this section. First, LSC is 
including 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 financial eligibility in section 1611.4. This requirement 
replaces the process currently required by section 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.

[[Page 45560]]

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 based on the responses 
provided, the requirements of the regulation and their knowledge of 
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 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 administratively burdensome for recipients and more conducive to 
the development of the attorney-client relationship. LSC also believes 
that adoption of the streamlined financial eligibility determination 
process will aid the Corporation in conducting compliance reviews.
    As noted above, LSC originally proposed in the November 2002 NPRM, 
to include this provision in proposed section 1611.4, Financial 
Eligibility for Legal Assistance. Upon reflection, LSC believes that as 
this requirement is really a requirement as to how financial 
eligibility determinations are to be made, it is better included in 
this section on the manner of determining financial eligibility. LSC 
believes that this will improve the organization and clarity of the 
regulation.
    Second, LSC is deleting the requirement in existing paragraph (a) 
of this section that LSC eligibility 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 requirement appears only to create 
unnecessary work for recipients and LSC staff without serving any 
policy purpose.
    LSC is also adding 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 recipient's 
determination of financial eligibility, provided that the referring 
recipient provides and the receiving recipient retains a copy of the 
eligibility form documenting the financial eligibility of the client. 
This is the currently accepted practice, but is addressed nowhere in 
the existing regulation.
    LSC received several comments supporting these changes and no 
comments opposing them. Accordingly, LSC adopts the revisions as 
proposed.

Section 1611.8--Change in Financial Eligibility Status

    LSC is adding language to this section to provide that if a 
recipient later learns of information which indicates that a client 
never was, in fact, financially eligible, the recipient must 
discontinue the representation consistent with the applicable rules of 
professional responsibility. This addition is being adopted because 
sometimes, after an applicant or group 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 new language, like the current 
regulation, is not intended to require a recipient to make affirmative 
inquiry after accepting an applicant or group 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 regulation requires 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 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 is changing 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.
    LSC received several comments supporting these changes and no 
comments opposing them. LSC accordingly adopts the revisions as 
proposed.

Section 1611.9--Retainer Agreements

    The retainer agreement requirement, found at section 1611.8 of the 
existing regulation, 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 LSC. 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.
    After deliberations on the Draft NPRM, the Board determined to 
propose elimination of the retainer agreement

[[Page 45561]]

requirement altogether and the November 2002 NPRM published by LSC 
reflected this determination. With the exception of the comments of the 
LSC OIG, all of the comments LSC received on the November 2002 NPRM 
supported the elimination of the retainer agreement requirement.
    With the appointment of the new members of the Board of Directors 
and the new LSC President, LSC had the opportunity to reconsider this 
proposal. Field representatives reiterated their support for 
elimination of the retainer agreement requirement from the regulation, 
while LSC Management reiterated its support for retention of a retainer 
agreement requirement for extended service in the regulation, with 
certain amendments intended to clarify and streamline the requirement. 
The Board agrees with Management. LSC is committed to keeping a 
retainer agreement requirement in the regulations. LSC considers the 
practice of providing retainer agreements to be professionally 
desirable and in accordance with its mandate under Section 1007(a)(1) 
of the Act to assure the maintenance of the highest quality of service 
and professional standards and 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.
    LSC agrees, however, that there are changes that can be made in the 
retainer agreement requirement to clarify the application of the 
requirement and to lessen the burden on recipients, without interfering 
with the underlying goals of the requirements. First, LSC believes that 
it is not necessary for LSC to approve retainer agreements and proposes 
to remove the requirement at current section 1611.8(a) that retainer 
agreements be in a form approved by LSC. Instead, LSC is requiring the 
retainer agreements must be in a form consistent with the local rules 
of professional responsibility and must contain statements identifying 
the legal problem for which representation is being provided and the 
nature of the legal services to be provided. LSC believes that this 
simplification will eliminate possible sources of confusion for 
recipients in drafting retainer agreements, yet will continue to foster 
the essential communication between the recipient and the client.
    Second, LSC is clarifying the circumstances in which retainer 
agreements are required. Under current section 1611.8(b) a recipient is 
not required to execute a retainer agreement ``when the only service to 
be provided is brief advice and consultation.'' Although the plain 
language of this provision would seem to encompass situations in which 
the attorney is providing only some information and guidance on a 
suggested course of action to the client, it has over the years, come 
to include brief services such as drafting simple documents or making 
limited contacts (by phone or in writing) with third parties, such as a 
landlord, an employer or a government benefits agency, on behalf of the 
client. LSC has determined that the discrepancy between the plain 
language and the practical meaning of the exception must be corrected.
    During the public deliberations on this matter in the 2004 and 2005 
Operations and Regulations Committee meetings, LSC considered different 
approaches to resolving the discrepancy between the regulation as 
written and the prevailing practice. Field representatives suggested in 
the event that a retainer agreement requirement remains in the rule 
(although still preferring the elimination of any such requirement) 
that the language of the exception should reflect the current practice 
by expressly including brief service type activities along with advice 
and counsel. They asserted that the proposed rule should add no new 
administrative or regulatory burdens on recipients. While recognizing 
the value of retainer agreements in some circumstances, the field 
representatives also argued that the rules of professional 
responsibility in most jurisdictions do not require that a retainer 
agreement be executed or that any other form of notice be provided in 
the brief service context. Although LSC Management expressed the belief 
that while some form of written communication between the attorney and 
the client in brief services cases about the nature of the relationship 
and a clear understanding as to what services are to be rendered is 
important to achieving the highest quality of legal service and 
professional standards, it ultimately recommended against requiring 
grantees to provide specific written communications to clients when 
only brief services are being provided.
    Most of the comments LSC received on the NPRM reiterated the 
arguments previously made by field representatives. At the same time, 
however, the commenters noted that if LSC was going to remain committed 
to maintaining a retainer agreement requirement in the regulation, that 
the proposed revisions were an appropriate and helpful change from the 
current requirement. In particular, several comments supported 
proposals to exclude PAI attorneys from the scope of the requirement 
and to delete the requirement for LSC prior approval of retainer 
agreement forms.
    After considering all of the various arguments on this matter in 
LSC has determined that, on balance, written communications in brief 
services cases represents a ``best practice'' and, for the purposes of 
a regulatory requirement, the current practice by which retainer 
agreements are only required when the recipient is providing extended 
service to the client is appropriate. Accordingly, LSC is adopting the 
revisions as proposed. Under the new rule, recipients will only be 
required to execute retainer agreements when providing extended 
services to clients. Extended service is characterized by the 
performance of multiple tasks incident to continuous representation in 
a case. Examples of extended service include representation of a client 
in litigation, an administrative adjudicative proceeding, alternative 
dispute resolution proceeding, and more than brief representation of a 
client in negotiations with a third party. In addition, LSC is 
retaining the provision in the current regulation that the retainer 
agreement must be executed when representation commences or as soon 
thereafter as is practicable.
    To further clarify the regulation, LSC is including express 
language specifying that recipients are not required to execute 
retainer agreements if the only services being provided are advice and 
counsel or brief service. Advice and counsel is characterized by a 
limited relationship between the attorney and the client in which the 
attorney does no more than review information and provide information 
and guidance to the client. Advice and counsel does not encompass 
drafting of documents or making third-party contacts on behalf of the 
client. LSC notes also that it proposes to use the term ``advice and 
counsel'' instead of ``advice and consultation'' because the term 
``advice and counsel'' is a widely understood case reporting term 
throughout the legal services community and LSC believe that use of the 
standard term will be simpler and clearer. Brief service is the 
performance of a discrete task (or tasks) which are not incident to 
continuous representation in a case but which involve more than the 
mere provision of advice and counsel. Examples of brief service include 
activities, such as the drafting of documents such as a contract or a 
will for a client or the making of one or a few third-party contacts on

[[Page 45562]]

behalf of a client in a narrow time period. In advice and counsel and 
brief service cases, the interaction between the recipient and the 
client is generally limited in nature and duration so that executing a 
retainer agreement is administratively burdensome. In these situations 
it may take more time and effort for the recipient to prepare the 
retainer and ensure that the client has signed and returned an executed 
copy of the retainer agreement to the recipient than it takes for the 
recipient to provide the service to the client. At that point, the 
benefit of having the executed retainer agreement is outweighed by the 
effort required to comply with the requirement.
    Finally, LSC is adding a statement to the regulation providing that 
no written retainer agreement is required for legal services provided 
to the client by a private attorney pursuant to 45 CFR Part 1614. Until 
now, LSC has consistently interpreted the retainer agreement 
requirement as applying to cases handled by private attorneys pursuant 
to a recipient's PAI program and OLA has advised recipients that the 
best course of action is to have the client execute retainer agreements 
with both the recipient and with the private attorney (OLA Opinion 99-
03, August 9, 1999). Recipients have reported that entering into 
retainer agreements with clients with whom it does not have on-going 
direct relationships does not further the goal of the retainer 
agreement requirement and that ensuring that retainer agreements be 
executed between clients and private attorneys is unduly 
administratively burdensome. LSC agrees.
    The application of the retainer agreement requirement comes from 
the current structure of the text of the regulation. Under the current 
regulation, a recipient is required to execute a retainer agreement 
(unless otherwise excepted) ``with each client who receives legal 
services from the recipient.'' Cases referred to private attorneys 
pursuant to a recipient's PAI program remain cases of the recipient and 
the clients in those cases remain clients of the recipient and the 
client is considered to be receiving some legal services from the 
recipient. However, by amending the language of the text of the 
regulation to say that the recipient is only required to execute a 
retainer agreement ``when the recipient is providing extended service 
to the client'' the necessity of applying the requirement to PAI cases 
is removed. In cases handled by PAI attorneys, although the client can 
be said to be receiving some legal services from the recipient, the 
recipient is not providing extended services. Although this change to 
the language alone could arguably be sufficient to remove the necessity 
of applying the retainer agreement requirement to cases being handled 
by PAI attorneys, LSC believes the text of the regulation should be 
further clarified to explicitly so state.

Other

    LSC received numerous comments supporting LSC's decision not to 
incorporate the requirements of section 509(h) of LSC's FY 1996 
appropriations act. Public Law 104-134, 110 Stat. 1321 (carried forward 
in each successive appropriation, including the current appropriation, 
Public Law 108-447, 118 Stat. 2809) with respect to records covered by 
this Part. Section 509(h) 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.'' During the prior stages of this rulemaking, there 
had been some discussion and consideration of having this language 
expressly incorporated into Part 1611. LSC continues to believe that, 
as 509(h) covers significantly more than eligibility records, having a 
full discussion of the meaning of 509(h) in the context of 1611, which 
addresses only financial eligibility issues, is not appropriate. LSC is 
making final its decision not to address 509(h) requirements in this 
rule. For a fuller discussion of this issue, see the preamble to the 
November 22, 2002 NPRM, 67 FR 70376.

List of Subjects in 45 CFR Part 1611

    Legal services.


0
For reasons set forth in the preamble, LSC revises 45 CFR part 1611 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 recipient's annual income 
ceiling.
1611.6 Representation of groups.
1611.7 Manner of determining financial eligibility.
1611.8 Changes in financial eligibility status.
1611.9 Retainer agreements.
Appendix A to Part 1611--Legal Services Corporation Poverty 
Guidelines

    Authority: 42 U.S.C. 2996e(b)(1), 2996e(b)(3), 2996f(a)(1), 
2996f(a)(2); Section 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 individual 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. In addition, this part sets forth 
standards relating to the eligibility of groups for legal assistance 
supported with LSC funds. Finally, this part sets forth requirements 
relating to recipients' responsibilities in executing retainer 
agreements with clients.


Sec.  1611.2  Definitions.

    (a) ``Advice and counsel'' means legal assistance that is limited 
to the review of information relevant to the client's legal problem(s) 
and counseling the client on the relevant law and/or suggested course 
of action. Advice and counsel does not encompass drafting of documents 
or making third-party contacts on behalf of the client.
    (b) ``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.
    (c) ``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.
    (d) ``Assets'' means cash or other resources of the applicant or 
members of the applicant's household that are readily convertible to 
cash, which are currently and actually available to the applicant.
    (e) ``Brief services'' means legal assistance in which the 
recipient undertakes to provide a discrete and time-limited service to 
a client beyond advice and consultation, including but not limited to 
activities, such as the drafting of documents or making limited third 
party contacts on behalf of a client.
    (f) ``Extended service'' means legal assistance characterized by 
the performance of multiple tasks incident to continuous 
representation. Examples of extended service would include 
representation of a client in litigation, an administrative 
adjudicative proceeding, alternative dispute resolution proceeding, 
extended negotiations with a third party, or other legal representation 
in which the

[[Page 45563]]

recipient undertakes responsibility for protecting or advancing a 
client's interest beyond advice and counsel or brief services.
    (g) ``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.
    (h) ``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.
    (i) ``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, 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 policies.
    (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 Guidelines amounts. 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 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 household's principal residence, vehicles used for 
transportation, 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 for specific applicants 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 other 
provision of the recipient's financial eligibility policies, every 
recipient shall specify as part of its financial eligibility policies 
that in assessing the income or assets of an applicant who is a victim 
of domestic violence, the recipient shall consider only the assets and 
income of the applicant and members of the applicant's household other 
than those of the alleged perpetrator of the domestic violence and 
shall not include any assets held by the alleged perpetrator of the 
domestic violence, jointly held by the applicant with the alleged 
perpetrator of the domestic violence, or assets jointly held by any 
member of the applicant's household with the alleged perpetrator of the 
domestic violence.
    (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(c).
    (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) 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 Guidelines amounts and that 
the governmental program has eligibility standards which include an 
assets test.

[[Page 45564]]

Sec.  1611.5  Authorized exceptions to the annual income ceiling.

    (a) Consistent with the recipient's policies and this Part, a 
recipient may determine 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(d), or the asset 
ceiling has been waived pursuant to Sec.  1611.3(d)(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 Guidelines amount and:
    (i) The applicant is seeking legal assistance to obtain 
governmental benefits for low income individuals and families; or
    (ii) The applicant is seeking legal assistance 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 Guidelines 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 and medical insurance premiums;
    (iii) Fixed debts and obligations;
    (iv) Expenses such as dependent care, transportation, clothing and 
equipment expenses necessary for employment, job training, or 
educational activities in preparation for employment;
    (v) Non-medical expenses associated with age or disability;
    (vi) Current taxes; or
    (vii) 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  Representation of groups.

    (a) A recipient may provide legal assistance to a group, 
corporation, association or other entity if it provides information 
showing that it lacks, and has no practical means of obtaining, funds 
to retain private counsel and either:
    (1) The group, or for a non-membership group the organizing or 
operating body of the group, is primarily composed of individuals who 
would be financially eligible for LSC-funded legal assistance; or
    (2) The group has as a principal activity the delivery of services 
to those persons in the community who would be financially eligible for 
LSC-funded legal assistance and the legal assistance sought relates to 
such activity.
    (b)(1) 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 consider the 
resources available to the group, such as the group's income and income 
prospects, assets and obligations and either:
    (i) For a group primarily composed of individuals who would be 
financially eligible for LSC-funded legal assistance, whether the 
financial or other socioeconomic characteristics of the persons 
comprising the group are consistent with those of persons who are 
financially eligible for LSC-funded legal assistance; or
    (ii) For a group having as a principal activity the delivery of 
services to those persons in the community who would be financially 
eligible for LSC-funded legal assistance, whether the financial or 
other socioeconomic characteristics of the persons served by the group 
are consistent with those of persons who are financially eligible for 
LSC-funded legal assistance and the assistance sought relates to such 
activity of the group.
    (2) A recipient shall collect information that reasonably 
demonstrates that the group, corporation, association or other entity 
meets the eligibility criteria set forth herein.
    (c) The eligibility requirements set forth herein apply only to 
legal assistance supported by funds from LSC, provided that any legal 
assistance provided by a recipient, regardless of the source of funds 
supporting the assistance, must be otherwise permissible under 
applicable law and regulation.


Sec.  1611.7  Manner of determining financial eligibility.

    (a)(1) In making financial eligibility determinations regarding 
individual applicants, 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 in this section.
    (2) In making financial eligibility determinations regarding groups 
seeking LSC-supported legal assistance, a recipient shall follow the 
requirements set forth in Sec.  1611.6(b) of this part.
    (b) 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.
    (c) If there is substantial reason to doubt the accuracy of the 
financial eligibility information provided by an applicant or group, a 
recipient shall make appropriate inquiry to verify the information, in 
a manner consistent with the attorney-client relationship.
    (d) 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.  1611.8 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.  1611.8  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

[[Page 45565]]

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 
supported with LSC funds if the discontinuation is not inconsistent 
with applicable rules of professional responsibility.


Sec.  1611.9  Retainer agreements.

    (a) When a recipient provides extended service to a client, the 
recipient shall execute a written retainer agreement with the client. 
The retainer agreement shall be executed when representation commences 
or as soon thereafter as is practicable. Such retainer agreement must 
be in a form consistent with the applicable rules of professional 
responsibility and prevailing practices in the recipient's service area 
and shall include, at a minimum, a statement identifying the legal 
problem for which representation is sought, and the nature of the legal 
services to be provided.
    (b) No written retainer agreement is required for advice and 
counsel or brief service provided by the recipient to the client or for 
legal services provided to the client by a private attorney pursuant to 
45 CFR part 1614.
    (c) The recipient shall maintain copies of all retainer agreements 
generated in accordance with this section.

Appendix A to Part 1611

         Legal Services Corporation 2005 Poverty Guidelines \*\
------------------------------------------------------------------------
                                            48
                                        Contiguous
                                        States and
                                            the       Alaska     Hawaii
          Size of family unit            District      \ii\      \iii\
                                            of
                                         Columbia
                                            \i\
------------------------------------------------------------------------
1.....................................     $11,963    $14,938    $13,763
2.....................................      16,038     20,038     18,450
3.....................................      20,113     25,138     23,138
4.....................................      24,188     30,238     27,825
5.....................................      28,263     35,338     32,513
6.....................................      32,338     40,438     37,200
7.....................................      36,413     45,538     41,888
8.....................................      40,488     50,638    46,575
------------------------------------------------------------------------
\*\ The figures in this table represent 125% of the poverty guidelines
  by family size as determined by the Department of Health and Human
  Services.
\i\ For family units with more than eight members, add $4,075 for each
  additional member in a family.
\ii\ For family units with more than eight members, add $5,100 for each
  additional member in a family.
\iii\ For family units with more than eight members, add $4,688 for each
  additional member in a family.


Victor M. Fortuno,
Vice President & General Counsel.
[FR Doc. 05-15553 Filed 8-5-05; 8:45 am]
BILLING CODE 7050-01-P