Rock-bottom interest rates, part of the Federal Reserve's attempt to prop up a crumbling economy, are having an unintended but devastating impact on legal programs for the poor.

Nonprofit groups in Texas are bracing for layoffs and massive cuts to their client lists in 2010 as the biggest source of legal aid funding — the interest on $1.1 billion in bank accounts in which lawyers deposit their clients' money — has all but disappeared as rates have plummeted.

Annual grants are expected to fall by at least 75 percent next year for agencies that address life-altering legal problems, including consumer scams, child-custody disputes, home foreclosures, missing child support, improper institutionalization and many other noncriminal issues.

With legal aid limited to individuals who make less than $13,538 a year — or $27,563 for a family of four — the cuts will target the community's poorest members.

"If you are unable to get into legal aid programs, you pretty much have nowhere else to go," said Betty Balli Torres, executive director of the Texas Access to Justice Foundation, a nonprofit created by the Texas Supreme Court in 1984 to distribute legal aid grants.

Interest on lawyer bank accounts is diverted into legal aid programs based on the federal funds rate, which peaked at 5.25 percent in 2007 and raised $20 million that year.

This year, legal aid programs will be lucky to get $1.5 million as the federal rate has plunged to a range between 0.00 percent and 0.25 percent.

"You see it coming and it's like, God, what are we going to do?" said Richard LaVallo, a lawyer for Advocacy Inc., which helps people with disabilities.

Advocacy Inc., facing up to $800,000 in lost income in 2010, fears the financial crisis will leave people like Ricky Vargas unprotected. Vargas, who is deaf and has an intellectual disability, was languishing in a Brownwood institution where none of the residents or staff knew sign language.

Advocacy helped Vargas, 24, negotiate the complex social services network to move into an Austin house with other deaf individuals, learn woodworking as a paid intern and prepare to take community college courses.

"This is much better because there are deaf people around me, and I can communicate and understand what's going on," he said through a sign language interpreter. "I want to work. That's one of my goals."

Advocacy Inc. helped 4,000 people last year. Unless more money is found, it will serve 500 to 600 fewer clients in 2010, executive director Mary Faithfull said.

Advocacy is already leaving five of its 105 jobs unfilled, cutting five percent from its budget, renegotiating leases and arranging with private lawyers to handle more cases, Faithfull said.

"If that doesn't do it, we will be laying off," she said. "We're looking at some real hard times here."

Another nonprofit, Volunteer Legal Services of Central Texas, could lose 40 percent of its budget and two or three employees from its six-member staff, said Trish McAllister, executive director.

"That pretty much means about 70 percent of our (5,000) clients are at risk of not being served," McAllister said. "We're looking at reducing staff. And we've obviously got some ideas in mind for raising money."

Last year, the Texas Access to Justice Foundation distributed $24.5 million to 40 legal aid groups in Texas, including $4 million to nine groups in Austin.

Grants should be unchanged this year — even though interest on the lawyers' bank accounts fell from $20 million to $12 million — because the foundation will tap into money held in reserve and smaller sources of money should continue with little change.

There will be no hiding from the shortfall next year, and probably in 2011 as well. Projections show no substantial change to the federal funds rate for at least two years, Torres said.

Legal aid officials will turn to the Legislature for help, but it's a tough budget year, with early estimates seeing an almost $4 billion shortfall.

Still, the Senate Finance Committee directed the Texas Supreme Court to compile ideas for finding more legal aid money. Raising courthouse filing fees and getting a portion of the tax on sexually oriented businesses, or the "pole tax," are under discussion.

Private lawyers will be asked to carry most of the legal aid load. The State Bar of Texas asks all lawyers to devote 50 hours a year to pro bono, or free, work. But many lawyers are being hurt by the economy, and others face a steep learning curve in a complex area of law.

As Vargas' situation demonstrates, not all legal aid involves litigation. Practitioners must negotiate a maze of social services with complicated rules and legal requirements, said LaVallo with Advocacy Inc.

"There's a minefield of legal issues," he said.