LSC worked quickly to develop new regulations to implement the restrictions imposed as part of the 1996 appropriations act. In response to a report by the General Accounting Office, LSC also tightened its case reporting requirements and resumed and significantly expanded its monitoring efforts to ensure compliance with these reporting rules as well as numerous other regulatory requirements and restrictions that had been imposed by Congress. The LSC Office of Inspector General (OIG) began a series of special program audits around a variety of specific issues.
Although the leadership of the legal services community recognized that Congressional support for continued legal services funding was, to a large degree, premised on the notion that the legal services program had been “reformed,” opposition to the restrictions remained intense within the legal services community.
In January 1997, legal services programs filed two separate lawsuits against LSC challenging the constitutionality of the new statutory prohibitions, the substantive restrictions, and the limitations that had been imposed on the use non-LSC funding. In the first of the two suits, LASH v. LSC, the federal District Court held that the statutory restrictions were constitutional, but the regulatory scheme restricting non-LSC funds violated the First Amendment. In response to the lower court decision in LASH, LSC revised its regulations and imposed a new set of “program integrity” requirements that required strict legal, financial, and physical separation between LSC-funded programs and entities that engaged in restricted activity. The Court of Appeals approved the new LSC scheme and held that the restrictions were constitutional.
In the second suit, Velazquez v. LSC, the Court of Appeals did strike down part of one of the restrictions. The Court found that the provision in the welfare reform restriction that prohibited legal services advocates from challenging welfare law as part of the representation of an individual client who was seeking relief from a welfare agency violated the First Amendment because it constituted impermissible viewpoint discrimination. In February 2002, the U.S. Supreme Court upheld that decision. After the Supreme Court issued its decision, LSC announced that it would no longer enforce the specific provision addressed by the Court, and in May 2002, LSC formally eliminated it from the welfare reform regulation.
In the years since the imposition of the restrictions, there have been numerous conversations within the legal services community and among its supporters about the impact of the restrictions on the ability of legal services providers to provide a full range of services to low-income clients. Efforts have been made in Congress by a coalition including NLADA, CLASP, the Brennan Center, the ABA and the United Auto Workers, to eliminate some or all of the restrictions. Special efforts were made to limit the reach of the restrictions to only LSC funds rather than the non-LSC funds of recipients. To date, the only change in the restrictions occurred in late 2009, when Congress eliminated the restriction on seeking attorneys’ fees. Otherwise, LSC programs have, for the most part, learned to live within the restrictions, albeit unhappily.