On June 25, the Senate Appropriations Committee approved a bill that increases funding for the Legal Services Corporation (LSC) in FY 2010 and drops some speech restrictions on legal aid grant recipients that have been in place since 1996. The Senate version of the bill increases legal aid services by $10 million over FY 2009 levels, but it contains $35 million less than the Obama administration's request. The House version of the bill has $40 million more than the Senate version, but it continues a number of speech restrictions dropped by the Senate bill.

Since 1996, Congress has imposed a series of restrictions on LSC grantees that not only cover the federal funds they receive, but also any non-federal funds they raise. Except in a few circumstances, LSC grantees are restricted from engaging in lobbying, participating in agency rulemakings, bringing or participating in class-action lawsuits, representing those who are not U.S. citizens, soliciting clients in person, most activities involving welfare reform, influencing the census, and litigating on cases involving abortions, redistricting, prisoners, or people being evicted from public housing if they face criminal charges for illegal drugs. Most striking, these restrictions apply regardless of whether the activities are paid for with privately raised money. Additionally, LSC programs cannot claim, collect, and retain attorneys' fees, regardless of the funding source or other statutory provisions.

A number of groups supportive of legal services programs have tried for a number of years to get some or all of these restrictions removed. Many of these groups have also argued for additional funding for LSC. In 2009, largely due to the economic downturn and the increased need for legal services, Congress appears more amenable to increased funding and possibly addressing the restrictions.

The Senate version of the Commerce, Justice and Science FY 2010 appropriations bill provides $400 million for LSC. Of that amount, $374.6 million is for legal services, $3.4 million for technology innovation grants, $1 million for student loan repayment assistance to attract attorneys, $4 million for the LSC Inspector General, and $17 million for management and grants oversight. The bill also lifts all the restrictions on non-federal funds except for litigation on abortions and cases involving prisoners. The bill keeps in place all the restrictions with regard to federal funds.

As the Brennan Center for Justice, a leader in trying to get the LSC restrictions removed, details in A Call to End Federal Restrictions on Legal Aid for the Poor, "A set of federal funding restrictions is severely undercutting this important work, and doing so in the midst of an unprecedented national financial crisis. The time has come to eliminate the most severe of the LSC funding restrictions."

Sen. Barbara Mikulski (D-MD), who drafted the LSC provision, has been praised for removing the restrictions on non-federal funds. A Baltimore Sun editorial noted, "For the first time since 1996, it looks as if the LSC finally may be able to get back to providing the kind of essential legal services its founders envisioned and that poor people desperately need in order to secure their rights under the law."

The House approved its version of the appropriations bill on June 19 on a 259-157 vote. The bill provides $440 million for LSC. Most of the funding – $414.4 million – is for legal aid assistance, and the bill also provides funds for technology innovation grants and for loan repayment assistance to help programs recruit and retain talented attorneys. The House version of the bill continues existing limitations on the use of LSC funds but would lift the restriction on the ability of LSC-funded programs to collect attorneys' fees.

As the House bill was moving to floor action, the Obama administration released a Statement of Policy on June 16 indicating disappointment that the restrictions on use of non-LSC funds remained in the bill. According to the document, the administration "urges the Congress to also remove the riders which restrict the use of non-LSC funds by LSC grant recipients and which prevent LSC lawyers from participating in class action law suits that typically seek injunctive relief for the benefit of all members of a class by stopping illegal activity."

In May, President Obama released details of his FY 2010 budget request, which included a total of $435 million for the LSC and requested the elimination of the current restrictions on non-LSC funds, including the restrictions on attorney's fees and participation in class-action suits.

Nonetheless, the House did not change the bill to respond to the administration’s concerns.

The Washington Post has repeatedly called for reforming the LSC restrictions, and on July 13 applauded Mikulski for leading an effort to pass the appropriations bill without the LSC restrictions in the Senate. "The Senate effort is preferable to the House version because it goes further in freeing up legal aid lawyers, but it is not perfect," said the Post editorial. "Legal aid lawyers may not seek fees in cases funded with federal dollars – a nonsensical restriction that prevents legal aid clinics from generating more of their own revenue."

On July 8, the Center for American Progress released a report that calls on Congress to increase appropriations for the LSC and lift current restrictions "because the restrictions waste resources and hinder the pursuit of justice."

The Senate version of the bill next faces a vote of the full Senate, which is expected to occur before the August recess. After floor action, it will proceed to a conference with the House to be reconciled.