Three North Carolina legal aid organizations are suing state legislative leaders over a budget provision that redirects millions of dollars from programs that provide low-income residents with free civil legal services to attorneys who represent people who cannot afford a lawyer in criminal cases.
“The $15 million per year that has been diverted from community legal aid is less than five one hundredths of one percent of the overall North Carolina state budget,” the Charlotte Center for Legal Advocacy wrote in a statement about the lawsuit. “But it means so much to veterans, survivors of domestic violence, sexual assault, and human trafficking, disaster victims, and others who have been the recipients of civil legal services from these funds, as ordered by the NC Supreme Court.”
Charlotte Center for Legal Advocacy, Pisgah Legal Services and Legal Aid of North Carolina filed the lawsuit this past week against the state, House Speaker Destin Hall (R-Granite Falls), Senate leader Phil Berger (R-Eden) and others. They contend that the General Assembly overstepped its constitutional authority in redirecting the funds with its budget provision that changed how money that’s generated through the state’s Interest on Lawyers’ Trust Accounts program, known as IOLTA, can be used.
The lawsuit also challenged restrictions that could prevent legal aid organizations from receiving remaining IOLTA funding based on advocacy or other work they perform or have performed in the past — even when they have used money from other sources. The organizations argue those provisions violate free speech protections under the U.S. and North Carolina constitutions.
The case is the latest development in a fight over a funding source that has supported underserved people’s ability to defend themselves in civil court in North Carolina for decades — and one that legal aid providers say has become particularly important in western North Carolina as residents recover two years after Hurricane Helene.
From civil legal aid to criminal defense
IOLTA doesn’t rely on state tax dollars. The program collects interest generated by certain client funds that attorneys are required to temporarily hold in trust accounts. For example, it includes interest accrued on the money held in escrow for clients while loans and liens are paid off, or during real estate transactions. The North Carolina Supreme Court first established the program on a voluntary basis in 1983 and made participation mandatory in 2007.
Under the program, the money has been distributed by the North Carolina State Bar’s IOLTA program to organizations that provide civil legal assistance and to other programs that support the administration of justice.
Lawmakers froze IOLTA grantmaking for the 2025-26 fiscal year amid concerns from Republican legislators about oversight of the program and the perceived political advocacy of some organizations receiving grants. The organizations and use of funds were the center of an investigative hearing held by the House Select Committee and Oversight and Reform in October 2025.
The budget passed this summer went further. In it, lawmakers redirected IOLTA revenue received beginning July 1, 2025, to the state’s Private Assigned Counsel Fund, which pays for private attorneys appointed to represent people who cannot afford attorneys in criminal cases.
Money IOLTA received before July 1, 2025, remains available for grants for programs designed to improve the administration of justice, subject to the legislature’s new eligibility restrictions. The program can distribute up to $2.5 million from that remaining pool each fiscal year until it is depleted. (The complaint outlines $2 million but a technical correction to the budget has updated the number to $2.5 million.)
The three organizations are among six that have received more than a million dollars in the past 10 years, according to a report given by Rep. Harry Warren to the House Select Committee on Oversight and Reform. With Legal Aid of North Carolina receiving $22,066,243, Pisgah Legal Services receiving $4,517,810 and Charlotte Center for Legal Advocacy at $3,182,310 in that same time frame.
The lawsuit argues the General Assembly lacked the authority to make that change. The legal aid organizations contend that the regulation of attorneys falls within the judicial branch’s constitutional authority and that lawmakers effectively overrode the state Supreme Court’s 2007 order establishing the mandatory IOLTA program. They are asking the court to declare the budget provision unconstitutional and block its enforcement.
The lawsuit’s second claim challenges the restrictions placed on organizations seeking money from the remaining IOLTA pool. Those restrictions can make an organization ineligible based on its provision of certain immigration services, services related to gender-affirming care or forms of public advocacy. The legal aid organizations argue that the restrictions penalize them for constitutionally protected activities even when they use other money — not IOLTA funding — to perform that work.
North Carolina is the only state in the nation diverting IOLTA funds away from their intended use, according to the lawsuit.
Scrutiny before the funding shift
Lawmakers froze new grants from July 1, 2025, through June 30, 2026, while the House Oversight committee examined the program. During the oversight hearing last October, Republican lawmakers questioned the IOLTA board’s grantmaking and raised concerns about organizations getting funding even as they were separately engaging in political advocacy.
Committee chair Warren (R-Salisbury) characterized some recipients as groups with “leftist ideologies” and said lawmakers wanted to examine how the IOLTA board selected organizations for funding.
Rep. Grant Campbell (R-Concord) questioned whether prohibiting IOLTA dollars themselves from funding lobbying went far enough. Because money is fungible, Campbell argued, funding an organization’s legal work could free up its other resources for political advocacy.
IOLTA Executive Director Mary Irvine told lawmakers that grant recipients are already prohibited from using IOLTA money for lobbying or political activity. Nevertheless, the North Carolina State Bar had considered additional restrictions on organizations engaged in grassroots lobbying, Peter Bolar, executive director of the North Carolina State Bar told lawmakers at the time.
During that hearing, lawmakers learned that IOLTA was not funded with taxpayer dollars and that the Supreme Court created the program using its authority to regulate the practice of law in North Carolina — an issue now at the center of the lawsuit’s separation of powers claim.
Some lawmakers also raised concerns about what the freeze was doing to certain legal services, such as domestic violence and human trafficking victim services. They questioned whether some money could be released for Legal Aid who provides aid in those two areas while continuing to investigate other grants.
An April 2026 audit commissioned by lawmakers, and completed by the office of Republican State Auditor Dave Boliek, found that IOLTA’s grants complied with eligibility requirements but faulted the program for inadequate oversight after the money was awarded. Auditors said IOLTA did not independently verify enough of grantees’ reported spending and outcomes to provide reasonable assurance that roughly $30.3 million was used as intended.
The State Bar noted in its response that the audit did not identify any instance of a grantee misappropriating or misusing funds. The auditor recommended stronger monitoring and independent verification of spending and outcomes.
The General Assembly seemed to ultimately choose a different course, redirecting the future IOLTA revenue entirely.
What the funding loss means for Helene recovery
For Pisgah Legal Services, which serves 18 western North Carolina counties, the funding change comes as the region continues its recovery from Hurricane Helene two years later.
The organization got more than $1.8 million in IOLTA funding during the last full grant cycle before the freeze, according to the lawsuit. That included a $700,000 special grant for legal needs created by Helene.
Jackie Kiger, executive director of Pisgah Legal Services, said IOLTA represented roughly 10 percent to 15 percent of the organization’s budget and supported work ranging from housing and public benefits appeals, to domestic violence and disaster recovery.
“Our budget is personnel. Essentially, it is the people,” Kiger said in an interview when the budget was passed in July.
Pisgah receives hundreds of calls every week from people seeking help across its service area, Kiger said. Losing IOLTA funding ultimately means fewer attorneys and advocates available to take those cases.
“It’s less people we can serve — that’s the truth of it. We have to maintain our staff, and we need our funding in order to do that,” Kiger said.
“Nonprofits face funding challenges frequently, and certainly, these last couple of years have been the hardest. But what I emphasize for Pisgah is that we have been through the hurricane. In addition to all the other challenges that you face as a nonprofit, we have really been a resource to our community,” she continued.
The lawsuit estimates Pisgah will serve at least 3,500 fewer people each year as a result of the IOLTA changes.
Kiger, who is an attorney and social worker, said she sees that loss of legal services as a public health issue.
IOLTA funding has supported work aimed at keeping people housed, helping survivors of intimate partner violence and child abuse, securing public benefits and protecting household income — problems often described as social determinants of health.
Those needs became even more acute after Helene. Some of the first sources of funding support for Hurricane Helene recovery came from the state’s IOLTA fund to Pisgah Legal Services and to Legal Aid of North Carolina, according to Kiger.
Pisgah has helped residents with FEMA claims and appeals, housing problems, insurance disputes, scams and other legal problems created or exacerbated by the storm.
Kiger said the organization handled “hundreds and hundreds” of FEMA appeals after Helene.
“We’ve met people who have yet to receive any assistance or know where the assistance was in the last couple of months, and that to me is very compelling. There’s a lot of folks that still haven’t been reached, and we need the funding and the people to be able to reach them,” Kiger said.
The problems have continued as western North Carolina rebuilds. Pisgah has encountered renters living with mold and water damage after temporary repairs, homeowners struggling with insurance claims and older adults targeted by scammers, Kiger said.
“Long-term recovery with people who’ve lost their homes, their resources, income, or who’ve been impacted in other ways from Helene — that is also at stake,” Kiger said.
Pisgah appealed directly to legislators representing western North Carolina in July, explaining those stakes in an email sent to what she said she believed was every member of the western North Carolina delegation. The email outlined Pisgah’s work and warned about the consequences of losing IOLTA.
“The people most affected would be your constituents,” Kiger wrote.
Kiger told NC Health News she heard back from some lawmakers, but not all. She did not say which legislators responded.
During floor debate over the budget, Sen. Julie Mayfield, (D-Asheville), raised similar concerns. She pointed specifically to the roughly $2 million Pisgah stood to lose and the $700,000 that had supported Helene recovery.
“Who is going to help those people now?” Mayfield asked.
That question may now be answered by the courts.
This article first appeared on North Carolina Health News and is republished here under a Creative Commons Attribution-NoDerivatives 4.0 International License.