After months of uncertainty about the future of the Interest on Lawyers’ Trust Accounts program, Gov. Josh Stein signed off on a new state budget with a provision that will redirect IOLTA funds away from civil legal aid and put them toward the state’s criminal defense services, making North Carolina the only state in the nation to do so.
The repurposing of the IOLTA funds has been met with immediate pushback from some lawmakers, IOLTA officials and leaders of civil legal aid organizations alike. They’ve been sounding the alarm since July 2025 when North Carolina legislators first froze these funds due to so-called “inappropriate political activity,” Carolina Public Press previously reported last year.
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A recent state audit from April found no IOLTA funds were misused, but it emphasized room for improvement in post-award oversight that could reduce the risk of “improper use” of grant funds. Officials have been working on addressing the auditor’s recommendations over the past few months to show cooperation as they advocated for funding to return.
With the freeze ending on June 30, the funding for legal aid could have resumed, but the budget closes off that option.
What is indigent criminal defense?
The state is constitutionally required to provide attorneys to defendants who can’t afford them.
Before providing an attorney, the court must determine whether a defendant is indigent, but that can be ambiguous.
“Some people can afford counsel for a low-level charge but cannot afford to hire a lawyer for a more complicated and serious charge,” NC Indigent Defense Services said on its website.
“Some people have well-paying jobs but also have extraordinary ongoing expenses related to medical issues or a disabled dependent. The court must assess each individual’s circumstances.”
Once the court deems a defendant as “indigent,” an attorney is provided at no cost to them. Amanda Bunch, communications specialist for IDS, explained the difference between the two types of defenders: state-paid public defenders and private assigned counsel.
State-paid defenders are considered state employees; they have salaried positions and get state benefits. North Carolina has a total of 27 defender districts that cover 60 out of 100 counties, Bunch said. This means not all counties have access to public defenders.
Private assigned counsel, on the other hand, are not state employees. They serve private firms and will take on court-appointed cases as necessary. The state uses these private attorneys to bridge gaps in coverage in counties without public defenders. They also step in if a public defender has a conflict of interest in a case. In these circumstances, the attorneys are paid from the PAC Fund, Bunch said.
Indigent defense services have historically been funded by state-appropriated funds, funds from court fees and the collection of attorneys’ fees from defendants, Bunch said.
In 2011, the hourly rates for these attorneys were cut down from $75 per hour to $55 per hour by the state legislature. This is their gross pay, not net earnings. Before taking anything home, these attorneys have to pay self-employment taxes and overhead costs including benefits, malpractice insurance, office equipment, bar dues and more, according to a 2019 IDS report.
Because of the rate cuts, their jobs became more difficult. To reduce overhead costs, a third of public defense attorneys got rid of malpractice insurance, cut down on support staff and more. In the three years prior to this report being published, 50% of respondents reported reducing their public defense workload or stepping back from the work completely, the report said.
“The rate at which attorneys have left the public defense rosters across the state since the 2011 rate cut is a major concern for the criminal justice system, as it has led to court inefficiencies, delays, and increasing numbers of court continuances,” the report said.
“As experienced attorneys remove themselves from public defense, fewer attorneys remain to handle cases. Those who remain are pressured to join multiple lists and even to join lists in multiple counties. The result is more continuances and more court delay as attorneys cannot be in two courts simultaneously and they struggle to handle larger caseloads.”
What will the budget provision do?
The provision added by lawmakers will ensure that any IOLTA funds received from July 1, 2025 and onward will instead go toward indigent criminal defense services, specifically the PAC fund.
With the new funding, IDS staff are currently assessing how to adjust hourly rates, with plans to present their findings at a meeting next month, according to an online post.
“IDS is grateful that the General Assembly has recognized the need for additional PAC funding,” the organization said. “We will act as quickly as possible after budget certification and we look forward to raising rates as early as this fall.”
IDS could receive up to $15 million per fiscal year, with any surplus carried over to the next fiscal year, according to the provision.
While IDS will benefit from the repurposed funds, civil legal aid organizations will suffer.
In 2025, IOLTA was responsible for awarding $12 million in grants to more than 40 organizations across the state, according to its website. Moving forward, only a “small portion of funds” the program received prior to July 1, 2025, can be awarded to “programs designed to improve the administration of justice” — no more than $2 million per fiscal year, according to the budget provision, said Mary Irvine, executive director of the IOLTA program.
Because the provision ensures no future funds will be given to the program, that leaves IOLTA with only a fixed amount of money. When CPP asked how long it would take for these funds to run out and whether the program was exploring alternatives, Irvine said they were still working to determine the full impact of the change.
Lesley Albritton, chief operations officer for Legal Aid of NC, acknowledged that while the work indigent criminal defense services does is important, it’s very different from what civil legal aid does.
“If someone is charged with most types of crimes, there is a right to a court-appointed attorney, even if you cannot afford one,” she told CPP.
“There is no such right in civil cases. Indigent defense services is so important, and we on the civil side acknowledge that. The state has to fund that work anyway, so the people who do indigent defense services are by-and-large private attorneys who are getting court appointments to represent people in criminal cases, so it’s very distinct from what civil legal aid providers do.”
Jackie Kiger, executive director of Pisgah Legal Services, also acknowledged the importance of the state’s criminal defense work, but argued funding for that should come from the state budget, not IOLTA funds.
“If they have a budget gap there, they’ve got to figure something out for it,” Kiger said. “But we do not believe that this is a pot of money that should be used for that.”
Responses from officials and civil legal aid organizations
State Rep. Marcia Morey, D-Durham, told CPP last month she was hopeful that IOLTA funding would resume upon the June 30 deadline, but feared a budget provision might delay it or even dissolve the program. That fear is now coming true.
“Thousands of your constituents did not receive any legal assistance for civil matters,” she told lawmakers while debating the budget on the House floor on July 1. “What is this budget doing? It’s not just a budget, it’s a total policy change.”
State Rep. Laura Budd, D-Mecklenburg, also shared her thoughts on the House floor.
“We cannot sit here and say that we give a damn about affordable housing, homelessness, veterans, victims of domestic violence, and the list goes on and on, while we actively destroy the very system that helps provide the support and the resources for them,” she said on July 1.
Albritton told CPP that lawmakers’ decision to redirect the funds was not what Legal Aid had hoped. The largest provider of civil legal services in North Carolina, it lost more than $6 million in funding, closed nine offices and laid off 50 employees as a result of the freeze, CPP previously reported.
“We are deeply disappointed to see that the General Assembly has undone 40 years of a decision that the attorneys in the state of North Carolina made to fulfill the promise that everyone should have access to justice regardless of their income or their ability to pay for an attorney,” Albritton said.
The organization was previously responsible for preventing more than 5,900 evictions and obtaining more than 2,500 domestic violence protective orders, among other accomplishments, according to an April press release.
Mark Scott, the communications outreach specialist for the Charlotte Center for Legal Advocacy, told CPP that while the organization can understand there were many factors for the governor to consider when signing the budget, their clients will nonetheless face adverse effects.
“We have seen the faces of these real-life people and know that thousands more in our community and tens of thousands across the state will suffer because of this,” Scott said in a statement to CPP.
“Those impacted will include people already facing hardships as victims of domestic violence, victims of human trafficking, veterans, those impacted by natural disasters like Hurricane Helene and so many more vulnerable populations.”
Disability Rights NC emphasized that it lost more than $400,000 in anticipated revenue from the freeze and stressed that the recent changes would have “serious consequences,” in an online post.
Kiger also shared her disappointment and said she’s “gravely concerned” about the provision.
“I don’t believe that it belongs there, and the fact that this funding is being diverted almost completely away from civil legal aid for the poor across North Carolina is devastating,” Kiger told CPP. “It’s such a tragedy.”
Her organization serves almost 28,000 people in the western part of the state, which was the hardest hit by Hurricane Helene two years ago. Since then, Pisgah Legal has faced increased demand for aid from those survivors, but because of the freeze, it could no longer rely on IOLTA funds to address that need, CPP previously reported.
The organization received $1.9 million in IOLTA funds before the freeze in 2025, which Kiger said was roughly 14% of Pisgah Legal’s budget. Kiger had to lay off 12 employees last August because of the freeze and other challenges, she said.
What led to this decision?
House Speaker Destin Hall said the decision to redirect IOLTA funds for criminal defense was based on the past session’s concerns that certain recipients of the funds were engaging in political activity and had “crossed the line.”
“One of the things we’ve done with this budget is increase our spending on that indigent criminal defense, and we think that cures a lot of ills in areas of the state that maybe they don’t have enough lawyers who represent court-appointed defendants, and it’s a better use of the money at the end of the day,” he told reporters on July 1.
The issue was first raised during a hearing last October while rehashing the history and purpose of the IOLTA program.
Created in 1983 by the North Carolina State Bar and the North Carolina Supreme Court, the program takes accrued interest from lawyers’ trust accounts and distributes it to legal services and other public programs across the state.
These trust accounts consist of retainer fees, settlement fees, and more and are eventually given to the appropriate parties, but the interest that these accounts earn goes to the public because lawyers cannot ethically claim it.
“Simply put, IOLTA uses that interest to help those who can’t afford legal services,” State Rep. Harry Warren, R-Rowan, said during the October 2025 hearing.
Though lawmakers acknowledged that the program does good work, they voted to freeze the funds after it seemed like they were being awarded to organizations that engaged in “inappropriate political activity,” CPP previously reported.
One example cited by Warren included the Children’s Law Center of Central North Carolina, which tries to break down “systems of oppression that don’t support equitable outcomes,” according to the October 2025 hearing.
As lawmakers questioned the motives of grant recipients such as these, they also raised questions about who the money truly belongs to.
“Whose money is it anyway?” Warren posited during the October 2025 hearing. “Does the interest earned belong to the client? Or since the State Bar is a state agency, should the money be considered part of the General Fund to be appropriated by the General Assembly?”
Morey told CPP that while indeed some IOLTA funds were awarded to groups that Warren initially described as “leftist,” these funds are not made up of taxpayer dollars, so it shouldn’t be a legislative matter, she said.
Hall argued otherwise.
“It’s most certainly not private money. The lawyers in this state who have trust accounts, they don’t voluntarily give those funds to IOLTA,” Hall told reporters on July 1.
“They’re made to by … a rule from the Supreme Court, but it’s essentially by force of law that they’re required to pay over those funds. It’s really not any different than a tax, and so it’s not as if these folks are just privately donating to these groups.”
The freeze took effect in July 2025, halting distribution of all IOLTA grant awards from July 1, 2025, through June 30, 2026. If any grants were approved before the freeze but weren’t distributed before then, those funds simply weren’t awarded at all, a state audit report said.
The freeze sparked an outcry among several civil legal aid organizations across the state with leaders calling it “beyond devastating,” CPP previously reported.
The audit
Following the allegations of “inappropriate political activity,” the state conducted an audit of the program released in April that examined how grants were being awarded and monitored by the IOLTA program after being distributed to various legal aid organizations across the state between Jan. 1, 2023, and June 30, 2025.
Ultimately, the audit found that no funds were misused during the review period and the IOLTA grant process “complied with applicable eligibility requirements.”
But it also highlighted a lack of independent verification by the program itself, an issue that was first raised in a June 2013 report by a former state auditor, Beth A. Wood.
Brianna Kraemer, deputy director of communications for the state auditor, said reports submitted to the program detailing how organizations used funds were essentially taken at face value.
Legal aid organizations across the state expressed support for more oversight, but emphasized that they already employ their own oversight and accountability measures and undergo regular independent financial audits.
Irvine said the program in 2013 was merely a “fraction” of what it is today and had “considerably fewer, smaller grants.”
“With limited revenue, the program’s Board of Trustees made strategic decisions about how to allocate available resources,” Irvine said in a statement to CPP.
Though the auditor argued “similar deficiencies” remained during the current audit period, Irvine said the program has made “good-faith efforts” to address them since 2013, having tried to increase oversight while also considering the cost associated with independent verification.
“Our current policies and procedures reflect that balance,” Irvine said. “That said, we are receptive to the OSA’s recommendations and are working to propose additional monitoring procedures that would further strengthen our process.”
Dave Boliek, the state auditor, also argued in a press release that the audit showed funds were going to some organizations with “clearly partisan, political agendas.”
When asked what specific organizations and evidence from the report he was referring to, Kraemer pointed CPP to the North Carolina Justice Center and the Carolina Migrant Network as two examples, referring to them as “openly political.”
The North Carolina Justice Center is an advocacy organization whose mission is “to create lasting, equitable change for people with low incomes and those harmed by systemic oppression across our state,” according to its website.
Kraemer shared a link to a February blog post from the organization that focused on the new federal school voucher program that President Donald Trump rolled out as part of his “One Big Beautiful Bill.” She highlighted a line in the post that refers to the Trump administration as an “authoritarian and fascistic” administration that is “openly hostile to public education.”
The Carolina Migrant Network is an organization serving immigrants whose mission is “to provide legal services for individuals in removal proceedings,” according to its website. During a previous operation in Charlotte by U.S. Border Patrol, the organization reportedly “informed the public where agents were through social media alerts,” according to a Charlotte Observer article that Kraemer shared.
Now that funding is being pulled, it’s unclear right now what the IOLTA program will do with the auditor’s recommendations moving forward.
What’s next for civil legal aid services?
With a crucial funding source gone, civil legal aid organizations across the state are currently figuring out how to face the loss.
Legal Aid has been working on identifying other funding sources since the freeze. As of now, the organization is still looking, Albritton said.
“This was our second-largest funding source,” she told CPP. “Depending on the year, I think it represents around 13% of our overall budget. It’s hard to make up $6 million.”
Kiger said options for alternative funding are already scarce.
“The hard truth right now is that there’s not a lot of other options for nonprofits right now,” she said. “It’s a hard time generally speaking. Federal funding, we are seeing that dry up and less opportunities for funding.”
While disappointing, some organizations did plan for it. For its 2026 budget, Legal Aid already assumed it wouldn’t be receiving any future IOLTA funding, meaning the lack of funds shouldn’t impact current operations, according to a statement from June 30. The organization isn’t planning to lay off any more staff and hopefully won’t have to close any more offices, Albritton said.
Pisgah Legal also planned for the setback in their 2026 budget, though it’s merely a temporary fix since the organization was hopeful that funding would resume after the June 30 deadline. Now that the lack of funding appears to be a long-term, permanent change, it’s going to be hard, Kiger said.
“Are we immediately in crisis like today or tomorrow? We’re not,” she said. “But we have an uphill battle that is going to be really hard to continue to fill a gap year after year.”
Right now, Legal Aid is focusing on how to provide the best service possible with the resources they currently have, Albritton said.
“This definitely means that we’re not going to be able to handle the volume of cases that we did last year, so that’s our main focus right now, is how do we continue to do this really important work for the sake of families in North Carolina?” she told CPP. Pisgah Legal and the Charlotte Center said they are also moving forward with the same mindset.
Those who received grants in 2025 reported 22% less cases closed on average and 11% less clients served in the first quarter of this year compared to the same time the previous year. Roughly 29% less clients served have been reported by organizations helping people with domestic violence protective orders, child custody agreements and other services, according to the press release from IOLTA.
The continued lack of funding will be detrimental.
“These numbers translate to thousands of North Carolinians — families, seniors, veterans, children, people with disabilities — without access to legal aid to secure and protect their fundamental needs such as housing, health care, employment and safety from violence in 2026,” Irvine said in the press release.
“That’s a significant step backward in the journey toward fulfilling America’s promise of ‘justice for all.’”
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