The Florida Bar Foundation received some long-awaited good news Dec. 16 when the Federal Reserve announced it would raise the federal funds rate to between 0.25 and 0.5 percent.
“This action marks the end of an extraordinary seven-year period during which the federal funds rate was held near zero to support the recovery of the economy from the worst financial crisis and recession since the Great Depression,” Fed Chairwoman Janet Yellen said.
The increase is expected to result in about $3 million of additional revenue from Florida’s Interest on Trust Accounts program over the next year, which should begin to accrue within the next two or three months depending on how quickly banks respond and what interest rates they offer within the target range. IOTA revenue has been averaging about $5.5 million annually since 2009, as compared to $43 million annually in the five years preceding the recession.
“For us this represents that first baby-step,” said Bruce B. Blackwell, Florida Bar Foundation CEO. “It’s encouraging and certainly cause for celebration, but we have a long way to go before IOTA revenue will really graduate from crawling to walking, much less running.”
The Foundation has cut grants to its legal aid grantees by 78 percent since 2010 due to the IOTA revenue decline. It also has borrowed $6 million from The Florida Bar, dipped into the investment income from its endowment, and exhausted its reserve, which held $88 million at its pre-recession peak.
“We need to make payments on the loan from The Florida Bar and begin to replenish our reserve, which proved absolutely critical over the last seven years,” Blackwell said. “While $3 million in additional IOTA revenue will help us stabilize grant funding, it may be a while yet before we can begin to increase grants. We do not make grants based on money we anticipate receiving but rather on what we have on hand.”
The Fed indicated that it would continue to raise the federal funds rate gradually, provided the nation’s economic growth continues. If it does, then IOTA revenue will increase further, making it more likely that legal aid organizations around the state will begin to see increases in Foundation grants.