Key Points:

Community law centres may be forced to cut hours, lay off staff and start charging clients because of a cash crisis.

The 27 law centres face funding cuts of at least 44 per cent from July because of the downturn in the housing market, which finances the centres through the interest on house settlement money in lawyers' trust accounts.

The centres' income grew 88 per cent with the booming housing market from 2001 up to mid-2008. Several new centres opened, most recently an Auckland-wide service for people with disabilities based in the Mangere law centre which started last May.

But plans to expand in Northland and elsewhere have been thrown into reverse by plunging house sales and a drop in the official cash interest rate since September from 8 to 3.5 per cent.

The Legal Services Agency told law centres just before Christmas it would have to slash their funding by 44 per cent from $11 million this financial year to $6.1 million for the year starting on July 1. But that forecast was based on the cash rate falling only to 4 per cent by June this year, when some commentators now expect it to be as low as 2 per cent.

The agency is expected to tell the centre's governing boards on Thursday that their funding will now have to be slashed further unless money is found from other sources.

Service contracts manager Margaret Pearson said every 1 per cent cut in the cash rate lopped roughly $1 million off the funds for the law centres. A further $2 million cut off the pre-Christmas projection would mean a 63 per cent cut from this year's funding to just $4.1 million in the coming year.

In Mangere, where there are no other lawyers serving a population of more than 50,000, community law centre manager Bill Alden said even the projected 44 per cent cut would force drastic cutbacks.

"One scenario is closing for a day a week and reducing all staff hours of work, but of course there are some staff that wouldn't be able to cope with that. The other scenario is making two people redundant.

"We are also looking at other funding streams. There is the possibility of a Manukau City Council contract that we could move one of our staff to, a neighbourhood watch services contract that is up for tender. And we are looking at lotteries funding and other funding, but they are going to be few and far between this year."

Emosi Koloto of Nga Ture Kaitiaki Community Law Centre in Manukau City said he would have to consider charging clients, even though the law centres exist to serve low-income clients who cannot afford private lawyers. "We do charge on a koha basis now on a case-by-case basis," he said.

Otara law centre manager Robyn Martin said she might have to merge three jobs now done by a community worker, a receptionist and herself.

"I'll put my neck on the line," she said. "I'd have to go part-time, which I couldn't afford to do, so obviously I'd move."

Ms Pearson said the Legal Services Agency agreed before Christmas to use $1 million from its research and education fund to ensure that no law centre suffered cuts of more than 44 per cent, while some underfunded regions would receive lesser cuts of 4 to 30 per cent.

But she said the agency was now recalculating its figures after the latest cut in the cash rate, and was looking at other possible funding sources.

Justice Minister Simon Power has agreed to meet the law centres next week.