[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]
RESPONSE BY CHARITABLE ORGANIZATIONS TO THE RECENT TERRORIST ATTACKS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON OVERSIGHT
of the
COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
__________
NOVEMBER 8, 2001
__________
Serial No. 107-47
__________
Printed for the use of the Committee on Ways and Means
U.S. GOVERNMENT PRINTING OFFICE
76-594 WASHINGTON : 2002
___________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
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COMMITTEE ON WAYS AND MEANS
BILL THOMAS, California, Chairman
PHILIP M. CRANE, Illinois CHARLES B. RANGEL, New York
E. CLAY SHAW, Jr., Florida FORTNEY PETE STARK, California
NANCY L. JOHNSON, Connecticut ROBERT T. MATSUI, California
AMO HOUGHTON, New York WILLIAM J. COYNE, Pennsylvania
WALLY HERGER, California SANDER M. LEVIN, Michigan
JIM McCRERY, Louisiana BENJAMIN L. CARDIN, Maryland
DAVE CAMP, Michigan JIM McDERMOTT, Washington
JIM RAMSTAD, Minnesota GERALD D. KLECZKA, Wisconsin
JIM NUSSLE, Iowa JOHN LEWIS, Georgia
SAM JOHNSON, Texas RICHARD E. NEAL, Massachusetts
JENNIFER DUNN, Washington MICHAEL R. McNULTY, New York
MAC COLLINS, Georgia WILLIAM J. JEFFERSON, Louisiana
ROB PORTMAN, Ohio JOHN S. TANNER, Tennessee
PHIL ENGLISH, Pennsylvania XAVIER BECERRA, California
WES WATKINS, Oklahoma KAREN L. THURMAN, Florida
J.D. HAYWORTH, Arizona LLOYD DOGGETT, Texas
JERRY WELLER, Illinois EARL POMEROY, North Dakota
KENNY C. HULSHOF, Missouri
SCOTT McINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
KEVIN BRADY, Texas
PAUL RYAN, Wisconsin
Allison Giles, Chief of Staff
Janice Mays, Minority Chief Counsel
______
Subcommittee on Oversight
AMO HOUGHTON, New York, Chairman
ROB PORTMAN, Ohio WILLIAM J. COYNE, Pennsylvania
JERRY WELLER, Illinois MICHAEL R. McNULTY, New York
KENNY C. HULSHOF, Missouri JOHN LEWIS, Georgia
SCOTT McINNIS, Colorado KAREN L. THURMAN, Florida
MARK FOLEY, Florida EARL POMEROY, North Dakota
SAM JOHNSON, Texas
JENNIFER DUNN, Washington
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public
hearing records of the Committee on Ways and Means are also published
in electronic form. The printed hearing record remains the official
version. Because electronic submissions are used to prepare both
printed and electronic versions of the hearing record, the process of
converting between various electronic formats may introduce
unintentional errors or omissions. Such occurrences are inherent in the
current publication process and should diminish as the process is
further refined.
C O N T E N T S
__________
Page
Advisories announcing the hearing................................ 2
WITNESSES
Internal Revenue Service, Steven Miller, Director, Exempt
Organizations, Tax Exempt/Government Entities Division......... 57
______
American Bar Association Section of Taxation, Michael Hirschfeld. 84
American Institute of Philanthropy, Daniel Borochoff............. 74
American Red Cross, Michael Farley............................... 20
BBB Wise Giving Alliance, Herman Art Taylor...................... 80
New York, New York, Hon. Eliot Spitzer, Attorney General......... 48
Salvation Army, Tom Jones........................................ 26
September 11th Fund, Joshua Gotbaum.............................. 10
SUBMISSIONS FOR THE RECORD
American Target Advertising, Inc., Manassas, VA, Mark J.
Fitzgibbons, statement......................................... 99
Citizens Concerned About HOPE Worldwide, Lawrenceville, GA,
statement...................................................... 106
Community Foundation for the National Capital Region, Terri Lee
Freeman, statement............................................. 108
Crowley, Hon. Joseph, a Representative in Congress from the State
of New York, statement......................................... 109
Federline, Pamela, Des Moines, WA, statement..................... 110
Gosnay, M.C., Marble Falls, TX, letter........................... 111
Herger, Hon. Wally, a Representative in Congress from the State
of California, statement....................................... 112
Independent Sector, Sara Melendez, statement..................... 113
National Association of State Charity Officials, New York, NY,
Karin Kunstler Goldman, statement.............................. 115
Oklahoma City Community Foundation, Nancy Anthony, statement and
attachments.................................................... 115
Philanthropic Research, Inc. (GuideStar), Williamsburg, VA,
statement...................................................... 119
Robin Hood Foundation, New York, NY, David Saltzman, statement... 123
Theatre Communications Group, New York, NY; American Symphony
Orchestra League; Association of Performing Arts Presenters;
Dance/USA; International Society for Performing Arts, Rye, NY;
League of Historic American Theatres, Baltimore, MD; and OPERA
America, joint statement....................................... 127
RESPONSE BY CHARITABLE ORGANIZATIONS TO THE RECENT TERRORIST ATTACKS
----------
THURSDAY, NOVEMBER 8, 2001
House of Representatives,
Committee on Ways and Means,
Subcommittee on Oversight,
Washington, DC.
The Subcommittee met, pursuant to notice, at 9:30 a.m., in
room 1100 Longworth House Office Building, Hon. Amo Houghton
(Chairman of the Subcommittee) presiding.
[The advisory, revised advisory, and revised #2 advisory
follow:]
ADVISORY
FROM THE COMMITTEE ON WAYS AND MEANS
SUBCOMMITTEE ON OVERSIGHT
CONTACT: (202) 225-3625
FOR IMMEDIATE RELEASE
November 1, 2001
No. OV-7
Houghton Announces Hearing on the Response by
Charitable Organizations to the Recent
Terrorist Attacks
Congressman Amo Houghton (R-NY), Chairman, Subcommittee on
Oversight of the Committee on Ways and Means, today announced that the
Subcommittee will hold a hearing on the response by charitable
organizations to the recent terrorist attacks. The hearing will take
place on Thursday, November 8, 2001, in room 2318 Rayburn House Office
Building, beginning at 10:00 a.m.
Oral testimony at this hearing will be from invited witnesses only.
Witnesses will include a representative from the Internal Revenue
Service (IRS), the New York Attorney General, charitable organization
watchdog groups, and leading charitable organizations. However, any
individual or organization not scheduled for an oral appearance may
submit a written statement for consideration by the Committee and for
inclusion in the printed record of the hearing.
BACKGROUND:
Since September 11th, many charitable organizations have taken
action to raise funds and provide assistance to victims of the
tragedies and their families. The American people have reached out
through these charities by donating more than $1 billion to the relief
efforts.
Charitable organizations are regulated both by the IRS and by State
law. The IRS has implemented a process to provide speedy approval of
the new groups seeking to provide assistance and has an ongoing
responsibility to monitor the conduct of charitable organizations.
Questions have been raised about the distribution of funds intended to
assist those affected by the terrorist attacks. These include whether
there should be coordination of the charitable response, whether
applications for assistance are too cumbersome or duplicative, whether
funds are flowing quickly enough to those in need, and what are
appropriate uses of these funds by charities.
In announcing the hearing, Chairman Houghton stated: ``I want to
believe that if a person gives money to help another--through a
charitable organization--that money should end up as quickly as
possible in the hands of the one who needs it.''
FOCUS OF THE HEARING:
The hearing will focus on the activities of charitable
organizations in response to the recent terrorist attacks.
DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:
Please Note: Due to the change in House mail policy, any person or
organization wishing to submit a written statement for the printed
record of the hearing should send it electronically to
``[email protected]'', along with a fax copy to
202/225-2610 by the close of business, Monday, November 26, 2001. Those
filing written statements who wish to have their statements distributed
to the press and interested public at the hearing should deliver their
200 copies to room B-317 Rayburn House Office Building, in an open and
searchable package 48 hours before the hearing. The U.S. Capitol Police
will refuse messenger deliveries to all House Office buildings.
FORMATTING REQUIREMENTS:
Each statement presented for printing to the Committee by a
witness, any written statement or exhibit submitted for the printed
record, or any written comments in response to a request for written
comments must conform to the guidelines listed below. Any statement or
exhibit not in compliance with these guidelines will not be printed,
but will be maintained in the Committee files for review and use by the
Committee.
1. Due to the change in House mail policy, all statements and any
accompanying exhibits for printing must be submitted electronically to
``hearingclerks.waysandmeans@ mail.house.gov'', along with a fax copy
to 202/225-2610, in WordPerfect or MS Word format and MUST NOT exceed a
total of 10 pages including attachments. Witnesses are advised that the
Committee will rely on electronic submissions for printing the official
hearing record.
2. Copies of whole documents submitted as exhibit material will not
be accepted for printing. Instead, exhibit material should be
referenced and quoted or paraphrased. All exhibit material not meeting
these specifications will be maintained in the Committee files for
review and use by the Committee.
3. A witness appearing at a public hearing, or submitting a
statement for the record of a public hearing, or submitting written
comments in response to a published request for comments by the
Committee, must include on his statement or submission a list of all
clients, persons, or organizations on whose behalf the witness appears.
4. A supplemental sheet must accompany each statement listing the
name, company, address, telephone and fax numbers where the witness or
the designated representative may be reached. This supplemental sheet
will not be included in the printed record.
The above restrictions and limitations apply only to material being
submitted for printing. Statements and exhibits or supplementary
material submitted solely for distribution to the Members, the press,
and the public during the course of a public hearing may be submitted
in other forms.
Note: All Committee advisories and news releases are available on
the World Wide Web at ``http://waysandmeans.house.gov''.
The Committee seeks to make its facilities accessible to persons
with disabilities. If you are in need of special accommodations, please
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four
business days notice is requested). Questions with regard to special
accommodation needs in general (including availability of Committee
materials in alternative formats) may be directed to the Committee as
noted above.
* * * NOTICE--CHANGE IN LOCATION * * *
ADVISORY
FROM THE COMMITTEE ON WAYS AND MEANS
SUBCOMMITTEE ON OVERSIGHT
CONTACT: (202) 225-7601
FOR IMMEDIATE RELEASE
November 5, 2001
No. OV-7-Revised
Change in Location for Subcommittee Hearing on
the Response by Charitable Organizations to
the Recent Terrorist Attacks
Congressman Amo Houghton (R-NY), Chairman, Subcommittee on
Oversight of the Committee on Ways and Means, today announced that the
Subcommittee hearing on the response by charitable organizations to the
recent terrorist attacks, scheduled for Thursday, November 8, 2001, at
10:00 a.m., in room 2318 Rayburn House Office Building, will now be
held in the main Committee hearing room, 1100 Longworth House Office
Building.
DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:
Please Note: Due to the change in House mail policy, any person or
organization wishing to submit a written statement for the printed
record of the hearing should send it electronically to
``[email protected]'', along with a fax copy to
202/225-2610, by the close of business, Monday, November 26, 2001.
Those filing written statements who wish to have their statements
distributed to the press and interested public at the hearing should
deliver their 200 copies to the Subcommittee on Oversight in room 1136
Longworth House Office Building, in an open and searchable package 48
hours before the hearing. The U.S. Capitol Police will refuse messenger
deliveries to all House Office buildings.
All other details for the hearing remain the same. (See
Subcommittee Advisory No. OV-7 released on November 1, 2001.)
* * * NOTICE--CHANGE IN TIME * * *
ADVISORY
FROM THE COMMITTEE ON WAYS AND MEANS
SUBCOMMITTEE ON OVERSIGHT
CONTACT: (202) 225-7601
FOR IMMEDIATE RELEASE
November 6, 2001
No. OV-7-Revised #2
Change in Time for Subcommittee Hearing on
the Response by Charitable Organizations to
the Recent Terrorist Attacks
Congressman Amo Houghton (R-NY), Chairman, Subcommittee on
Oversight of the Committee on Ways and Means, today announced that the
Subcommittee hearing on the response by charitable organizations to the
recent terrorist attacks, scheduled for Thursday, November 8, 2001, at
10:00 a.m., in the main Committee hearing room, 1100 Longworth House
Office Building, will be held instead at 9:30 a.m.
All other details for the hearing remain the same. (See
Subcommittee Advisory No. OV-7 dated November 1, 2001, and No. OV-7
Revised dated November 5, 2001.)
Chairman Houghton. Good morning, everybody. Thank you very
much for being at our meeting. As we all know, September 11th
was an epic day for all of us, a tragic day. I know the members
of this Committee join me in extending our sympathies and our
abject feelings to the victims of terrorism and their families,
and we will be talking about that. Now, America is strong and
it is open and it is a loving Nation, and in the almost 2
months since September 11th, we and the rest of the world have
witnessed firsthand an unbelievable bond of support. Americans
have donated their time and their blood and have reached deep
in their pockets to contribute over a billion dollars to help
those people in trouble. C.S. Lewis, a favorite of mine, once
said, ``I do not believe one can settle how much we ought to
give. I am afraid the only safe rule is to give more than we
can spare. If our charities do not at all pinch us, I should
say they are too small.''
So although there is a difference of opinion, some people
who are interested in the immediate versus those who are
interested in the long term replenishment of funds, I would
like to believe that if a person gives money to help another
through a charitable organization at a particular time in a
crisis, that money should end up as quickly as possible in the
hands of those people who need it.
Now, charities serve as a vital conduit to make sure that
aid comes to the rescue when and where it is needed most during
a time of crisis. Today we will hear how the charities
responding to recent attacks have provided assistance as well
as what procedures are in place to insure that America's
confidence in the charitable system will continue. So I look
forward to hearing from our witnesses about the role of
charities in providing relief to victims of the recent
terrorist attacks, and I am now pleased to yield to our ranking
Democrat, my friend, Mr. Coyne.
[The opening statement of Chairman Houghton follows:]
Opening Statement of the Hon. Amo Houghton, a Representative in
Congress from the State of New York, and Chairman, Subcommittee on
Oversight
Good morning. September 11th was a tragic day that changed our
Nation--and our world--forever. I, and all the Members of this
Subcommittee extend our deepest heartfelt sympathies to the victims of
terrorism and their families.
America is a strong, spirited, and loving Nation. In the almost two
months since September 11th, we--and the rest of the world--have
witnessed first-hand an unbelievable American bond of support.
Americans have donated their time and their blood, or have reached deep
into their pockets to selflessly contribute over $1 billion to help
their fellow man.
I am so proud of this outpouring of support, and I hope it will
continue to flourish in the days, months, and years to come.
C.S. Lewis said, `` I do not believe one can settle how much we
ought to give. I am afraid the only safe rule is to give more than we
can spare. If our charities do not at all pinch us, I should say they
are too small.''
I want to believe that if a person gives money to help another--
through a charitable organization--that money should end up as quickly
as possible in the hands of the one who needs it.
Charities serve as a vital conduit to make sure that aid comes to
the rescue when and where it is needed most during a time of crisis.
Today we will hear how the charities responding to the recent terrorist
attacks have provided assistance, as well as what procedures are in
place to ensure that America's confidence in the charitable system will
continue.
I look forward to hearing from our witnesses about the role of
charities in providing relief to victims of the recent terrorist
attacks.
Mr. Coyne. Thank you very much, Mr. Chairman. The American
public has donated over $1.4 billion to charities nationwide in
response to the terrorist acts of September 11, 2001. This
action illustrates our country's commitment to providing relief
to the families of those killed or injured in the recent
terrorist attacks in New York, Pennsylvania and Virginia.
Donations at this level are unprecedented. Recently, legitimate
questions have been raised about where the money is going and
whether the victims and their families have access to the
donated funds in a timely manner. We need to make sure that the
money gets to the intended beneficiaries promptly.
The nearly 200 charities that have been set up and have set
up relief programs, the States' charity offices and the Federal
Government all have important roles in insuring effective
management of the September 11th relief fund and their efforts
on behalf of the victims. Obviously, there is a need to
coordinate fundraising and relief efforts relating to September
11th. Our witnesses today will discuss these issues, and
hopefully will provide us with the status report on the
situation, and I want to thank Subcommittee Chairman Houghton
for scheduling today's very, very important hearing. Thank you.
[The opening statement of Mr. Coyne follows:]
Opening Statement of the Hon. William J. Coyne, a Representative in
Congress from the State of Pennsylvania
Mr. Chairman, the American public has donated over $1.4 billion to
charities, nationwide, in response to the terrorist acts of September
11, 2001. This action illustrates our country's commitment to providing
relief to the families of those killed or injured in the recent
terrorist attacks in New York, Pennsylvania, and Virginia. Donations at
this level are unprecedented.
Recently, legitimate questions have been raised about where the
money is going and whether the victims and their families have access
to the donated funds in a timely manner. We need to make sure that the
money gets to the intended beneficiaries promptly.
The nearly 200 charities that have set up relief programs, the
States' charity offices, and the Federal Government, all have important
roles in insuring effective management of the September 11th relief
effort. Obviously, there is a need to coordinate fundraising and relief
efforts relating to September 11th.
Our witnesses today will discuss these issues and provide us with a
status report on the situation.
I want to thank Subcommittee Chairman Houghton for scheduling
today's important hearing.
Chairman Houghton. Thank you very much, Mr. Coyne.
Gentlemen, would you like to make an opening statement? J.D.,
would you like to start and then----
Mr. Hayworth. Mr. Chairman I want to thank you for allowing
me to rejoin the Subcommittee for this hearing. As a former
member of the Oversight Subcommittee, it is good to be back
here on this dais under your leadership with your hand firmly
on the gavel. And I know my friend from Florida and the ranking
member from New York join me in that sentiment. I would like to
thank those who have taken the time to come here to help us
understand better and make part of the public record their
perspective on what has transpired.
Following the September 11th terrorist attacks, Americans
lifted their generosity to new heights, contributing over a
billion and a half dollars, or close to one and a half billion
dollars to relief funds for victims and their families. Yet it
soon became clear that there were serious problems with the
distribution of these funds. Media reports suggest that of the
almost one and a half billion dollars raised by charities, to
date, only a small percentage, sadly, some estimate 10 percent
or less of these funds have reached intended recipients. While
the distribution of these funds is no doubt a complicated
problem that defies simplistic solutions, it is equally true
that many families are hurting and need help now. And sadly,
they are not getting it. Countless Americans are asking why
widows should have to beg for money from the charities that are
supposed to be helping them. It is a good question, one that I
hope we can help answer today.
Now there are lots of other difficult questions involved,
many of which reflect a concern over how to balance the
competing demands for speed and for fairness. They include the
important questions of how to calculate economic and non-
economic losses and how to determine which relatives will be
entitled to submit a claim as the personal representative of
the victim. Still, even with these challenges, from my
perspective, it is clear that charities have not done enough to
help the victims and the families of September 11.
However, it is also clear that the public spotlight from
the media, most notably, Bill O'Reilly, and the prospect of
these congressional hearings have already caused some movement
in the right direction. Involved charitieshave agreed to
participate in a database set up by the New York State attorney general
(AG), who joins us here today. The American Red Cross, which initially
suggested it might use some of the funds that it received for victims
and their families for other purposes, has apparently decided to
increase payments to affected people. Certainly more can and should be
done to ensure that those who were supposed to be the beneficiaries of
this unprecedented charitable outpouring will be supported through this
extremely difficult time in their lives.
We have made some progress, and I look forward again to the
testimony and to hearing ideas for what else can be done to
speed the donations to those who need them. In the wake of the
terrible tragedy, we have seen the blessings of compassion and
the incredible outpouring of generosity from Americans that has
been so unparalleled, and as yet, so much a part of our
national character. We cannot afford to have that outpouring be
eclipsed by challenges that would delay and confound that sense
of generosity.
Again, I welcome the witnesses. I appreciate the fact that
we are here, Mr. Chairman. I appreciate the opportunity to
participate in today's hearing, and I would yield back the
balance of my time.
[The opening statement of Mr. Hayworth follows:]
Opening Statement of the Hon. J.D. Hayworth, a Representative in
Congress from the State of Arizona
Thank you, Mr. Chairman, for allowing me to participate in today's
hearing. As a former member of the Oversight Subcommittee, it is a
pleasure to be here. I commend you for your outstanding leadership in
investigating whether charities that are supposed to help the victims
of the 9/11 terrorist attacks on our Nation are actually fulfilling
their mission.
Following the 9/11 terrorist attacks, Americans lifted their
generosity to new heights, contributing over a billion dollars to
relief funds for victims and their families. Yet it soon became clear
that there were serious problems with the distribution of these funds.
Media reports suggest that of the over $1.2 billion raised by
charities to date, only a small percentage--some estimate 10 percent or
less--of those funds have reached the intended recipients. While the
distribution of these funds is no doubt a complicated problem that
defies simplistic solutions, it is equally true that many families are
hurting and need help now. They are not getting it.
Countless Americans are asking why widows should have to beg for
money from the charities that are supposed to be helping them. It's a
good question, one I hope we can help answer today.
Now there are lots of other difficult questions involved, many of
which reflect a concern over how to balance the competing demands for
speed and fairness. They include the important questions of how to
calculate economic and noneconomic losses and how to determine which
relatives will be entitled to submit a claim as the ``personal
representative'' of the victim.
Still, even with these challenges, from my perspective, it is clear
that charities haven't done enough to help the victims and families of
9/11.
However, it is also clear that the public spotlight from the media,
most notably Bill O'Reilly, and the prospect of congressional hearings
have already caused some movement in the right direction. Involved
charities have agreed to participate in a database set up by the New
York Attorney General, who joins us here today. The Red Cross, which
suggested it might use some of the funds that it received for victims
and their families for other purposes, has apparently decided to
increase payments to affected people.
Certainly, more can and should be done to ensure that those who
were supposed to be the beneficiaries of this unprecedented charitable
outpouring will be supported through this extremely difficult time in
their lives. We have made some progress, and I look forward to the
testimony and to hearing ideas for what else can be done to speed the
donations to those who need them.
Thank you again, Mr. Chairman, for allowing me to participate in
today's hearing, and I yield back the balance of my time.
Chairman Houghton. Thank you. Mr. Foley, would you like to
make a statement.
Mr. Foley. Thank you, Mr. Chairman. And I welcome the
panelists today and thank them for coming to help explain to
our community the future of the funds. But I want to read a
letter that pretty much sets the tone for what I believe a lot
of Americans are feeling. The headline--it is a letter to the
editor of the USA Today: ``Red Cross Handling of Funds
Disappoints Donors. By selling ribbons, pins and other items,
my coworkers and I helped raise $186,000, which we donated to
the Red Cross Liberty Disaster Relief Fund. The total was
matched by our employer, making our total donation nearly
$375,000.
It disturbs me that the Red Cross intends to divert to
general usage as much as $80 million of the money raised
specifically for the victims of the September 11th terrorist
attack. And we strongly urge the Red Cross to reconsider its
decision. If the Red Cross cannot be trusted to use donations
given to a specific fund for the purposes they were intended,
then consider the money I donated to the Liberty Disaster
Relief Fund to be the last I ever give to the Red Cross.''
Now, that kind of sums up the feeling and attitudes that we
have to be very careful about. Your reputations are at stake.
You have done phenomenal work in our communities, and I
underscore I have contributed personally, been part of benefits
for Red Cross, Salvation Army, and you name it in Palm Beach,
Florida. But when you start hearing people make that kind of
representation that it will be the last dollar they ever give,
that is a horrific problem for us as a society, because we know
government can't do it all and we know you are there for so
many people at desperate times in their life.
And if we can't trust the basic entities that make that
relief possible, and when we do say have another hurricane in
Florida or earthquake somewhere else and the phones are silent,
there is no one on the other end dialing those donations, then
we have put ourselves in a horrific place. I do want to commend
you because I think largely your efforts have helped remedy
problems, family problems, giving counseling, grief counseling,
providing relief for the community and being on the scene. So
many groups went immediately to New York and to the Pentagon to
be there for spiritual need, for familial need, for food,
shelter and housing, and I commend you.
I also want to commend a group I typically don't single
out, but that is the American Trial Lawyers Association for
creating a lawyer care program that provides free legal advice
to those filing claims with the September 11th compensation
fund. Over 1,500 attorneys throughout the country volunteered
to represent fund claimants through the process without a fee.
Many of them have absolutely insisted there be no claims of
action or liability suits against anyone involved with this
tragedy. So I do commend them and want to place that in the
record.
I also want to thank the Chairman, Mr. Houghton, for
calling the Committee together to take part in what I think is
an important step back to hopefully bringing credibility to all
entities involved. This is huge money. This is phenomenal
dollars that have been sent in by the constituents throughout
the world, not just in America, but friends and allies have
given a great deal to make America's pain subside as much as
possible. So I look forward to the testimony and the inquiry
today. Thank you, Mr. Chairman.
Chairman Houghton. Thanks very much Mr. Foley. Mrs.
Thurman, we are delighted to have you here. You do not have a
statement, or do you?
Mrs. Thurman. Mr. Chairman, I don't. I think that what has
been said has summed up many of our concerns. But I know that
we would like to get to the witnesses so that we have the
opportunity based on the observations that have been made, to
question and certainly be able to get the responses from and to
our own constituents, because we all have the same stories that
have either been written about or talked about here today and
quite frankly, some of us need to be able to go home and
explain to our constituents because of the news or via this,
they are hearing about it too, so we need to have some answers.
So I look forward to your testimony, and certainly the
question-and-answer period of time. Thank you.
Chairman Houghton. OK. Well, thanks very much. Well I would
like to call the first panel. You are already sitting here.
I would like to introduce Mr. Michael Farley, who is vice
president of the American Red Cross; Mr. Joshua Gotbaum, who is
a new chief executive officer of the September 11th fund; and
Colonel Tom Jones, the head of the National Community Relations
Development Committee of the Salvation Army. I am going to ask
you, Mr. Gotbaum, if you would start off, if it is all right
with you gentlemen, because you have got to get a plane back to
New York. So why don't you start your testimony.
STATEMENT OF JOSHUA GOTBAUM, CHIEF EXECUTIVE OFFICER AND
EXECUTIVE DIRECTOR, SEPTEMBER 11TH FUND, NEW YORK, NEW YORK
Mr. Gotbaum. Mr. Chairman, you are enormously kind and I
thank the Committee for its understanding. I am the, as
Chairman Houghton notes, the newly appointed chief executive of
the September 11th Fund. That fund is itself a joint venture
created by the United Way of New York City and the New York
Community Trust and one of my boards, that of the United Way,
is meeting at noon in New York City.
So I thank the Committee for its forbearance and appreciate
the opportunity to talk about how we are helping the victims of
September 11th. And I think it is extremely important to start
by noting that we all have the same goal in mind; that we are
all motivated here by the desire to reach to the literally tens
of thousands of victims of September 11th, because we view
people not only that lost family members or lost their lives as
victims, but those who lost their homes, those who lost their
jobs as people who we need to find ways to support.
And their needs are different. But I think it is important
that we recognize that their needs are real. I will be brief,
Mr. Chairman, since I have submitted a prepared statement for
the record, and with the Committee's forbearance, I would like
to make that part of the record.
I would like to do, first, to talk a little bit about how
the September 11th Fund works, because we operate somewhat
differently from the American Red Cross and the Salvation Army.
Like the New York Community Trust and the United Way that
created us, we are an organization that takes contributions. We
have actually received over a million contributions, totaling
some $337 million in pledges. We have received already of those
pledges about $275 million, and it is still coming in. We take
those contributions and we find, choose and fund front line
community-based organizations that deliver services.
So we are, ourselves, a relatively small organization. The
reason we think millions of people trust us is, in part,
because they trust the New York Community Trust and the United
Way, and because we have experience with human service
agencies, disaster relief agencies, et cetera, and we know
which ones can deliver services quickly and effectively to
people. Since September 11th, we have issued 80 grants,
actually more than 80 grants; 80 grants as of a couple of days
ago, totaling $47 million to dozens of community-based
organizations whichthemselves then provide a range of services
to victims.
Immediate financial relief is obviously very important.
That is the largest area of our contribution. We funded an
organization called Safe Horizon which is on the pier, Pier 94,
about which you will hear much more, has written over 16,000
checks to individual victims and families, to cover rent,
mortgage, tuition, health care, whatever. We have also funded
lawyers to provide legal assistance, because people need access
to their bank accounts, access to wills, custody orders, and so
forth.
We have also funded the Mental Health Association to
provide referrals to the literally thousands of people who need
grief counseling. We also think it is important and recognize
that at this time, people are confused about where they can get
help, and so one of the things that we have funded, again,
through front line organizations in this case, one called
Seedco and another, Safe Horizon, was a comprehensive guide to
where and how people can get help. And our resource referral
guide, not only is it used on the family assistance center at
Pier 94, but it is also available online.
And we are also, this week, funding Safe Horizon to set up
a hotline, staffed 24 hours a day, on a multi-lingual basis
that refers people who need help, not just to Safe Horizon, but
to the other organizations where they can get help. So we know
that there has been a considerable uncertainty about where and
how people can get help. We think that is an inevitable
consequence of the fact that so many people want to help.
But we are working very hard in our early grants to make
sure that people can get the help when they need it on an
emergency basis. And that is really my first point for this
Committee. We think we are meeting emergency needs. When
people--we don't have an organized list yet, so we can't reach
out to everybody who is there. But we have done everything
possible so that when victims come forward, they get help and
we have already distributed $47 million in grants to frontline
organizations to do that.
My second point is that in order to meet longer term needs,
and there are longer term needs, we are going necessarily to
have to work with government and with other organizations. The
September 11th Fund, I expect, will end up with about $300
million to give away. Three-hundred million dollars is an
enormous amount of money, but it is not nearly enough to meet
all of the needs of all of the victims that our donors believed
should be helped. We are necessarily going to have to work with
the Federal Government, which has been very generous with the
airline fund and elsewhere with the other charities you see
before you and others, so that we can fashion programs that
meet the long-term needs of people.
This is not, and I want to be very clear to this Committee,
this is not just an exercise in checkwriting. The task here, we
feel, is to help people rebuild their lives. That means in
addition to financial security, folks are going to need legal
counseling and financial advice; they are going to need, in
some cases, other kinds of guidance and therapy. They are going
to need help with jobs and help with homes. That is something
which we will provide. It is going to have to be done working
with other organizations. We are doing that.
My last point is I want to assure this Committee and the
public that every penny contributed to the September 11th Fund
goes to grants to help the victims of that disaster, their
families and the affected communities. In setting up the
September 11th Fund, the United Way of New York City and the
New York Community Trust said we will raise administrative
costs separately. We won't take the administrative costs of the
September 11th Fund out of the September 11th Fund.
And so as a result, my salary, that of my staff is raised
separately or donated by the New York Community Trust to the
United Way, so that we can say for this fund, every penny will
go to grants to help the victims, with not just financial
security, although that is important, but the other needs that
they have, whether they are mental health, trauma, jobs or
homes.
With that, Mr. Chairman, I have already outstayed my time
and I apologize. I look forward to answering the Committee's
questions, because we think it is extremely important that
these issues get aired. And the reason for that, if I may, get
20 seconds more, is because I will tell you as one who is
relatively new to this effort, that the most gratifying thing
about it is the extraordinary effort and contribution that the
thousands of people who are helping are making.
And I--we know that there were heroes on September 11th.
But I must tell you that the thousands of people from the Red
Cross and from the Salvation Army and from the organizations we
fund are, in my view, heroes every day, and I hope that the
Committee and the public recognizes that they are working 24/7
to bring relief to the victims of that terrible disaster.
[The prepared statement of Mr. Gotbaum follows:]
Statement of Joshua Gotbaum, Chief Executive Officer and Executive
Director, September 11th Fund, New York, New York
Good Morning. I am Joshua Gotbaum, CEO of the September 11th Fund.
Thank you for holding this hearing on an issue that concerns us all:
ensuring that we provide aid and support to the victims of September
11th, their families and affected communities. I would like to report
on the Fund's activities to date and our plans for the future.
The September 11th Fund
Let me start by explaining who we are and how we work. The
September 11th Fund was established by the United Way of New York City
and the New York Community Trust to provide a way for millions to help
meet the immediate and longer-term needs of victims, their families,
and the communities affected by the terrorist attacks of September 11.
Both of these organizations have a long history of helping people
help others. They do so by finding, choosing and funding nonprofit
organizations and agencies with the expertise and ability to provide
whatever help is needed. Using the expertise and experience of both
organizations, the September 11th Fund was able to move quickly, making
over 80 emergency grants to meet the broad array of needs that have
arisen and will continue to arise as a result of the tragedies of
September 11th.
Thus far, we have made a total of $47 million in grants--supporting
agencies that provide cash assistance, legal counseling, grief therapy,
job training and placement and other services for victims. We believe
that we've made it possible for over 16,000 people to find and get the
emergency help they need. However, the Fund must also help meet the
longer-term needs of victims, their families and affected communities,
and we are working with others to do just that. At the core, what every
one of us wants is to help people and communities rebuild their lives.
To date, more than a million people and many corporations and
foundations have pledged a total of $337 million to the September 11th
Fund \1\ More than $275 million has already been collected.
Administrative costs of the Fund have been raised separately by the New
York Community Trust and the United Way of NYC--therefore 100% of
donations to the September 11th Fund will go directly to grants to help
victims, their families and affected communities.
---------------------------------------------------------------------------
\1\ The Fund is made up of two funds--a general fund formed by the
New York Community Trust and the United Way of New York City, and a
fund from the national telethon, ``Tribute to Heroes,'' that was
broadcast on the major television networks. Both funds are intended to
aid victims and their families; the general fund also is intended to
support the communities affected by the September 11th attacks.
---------------------------------------------------------------------------
There are three points about the work that we are doing that I
would like to make:
LFirst, immediate needs are being met in the fastest way
possible, by experienced disaster relief agencies. Since the first
tragic days of the attack, the September 11th Fund has been providing
emergency grants to organizations directly serving immediate needs of
victims and their families. We have made it possible for thousands of
people to receive cash support, legal advice, grief counseling and
other emergency services.
LSecond, to address longer-term needs, the efforts of the
September 11th Fund must be coordinated with other funders and service
providers. Even though $300 million is a great deal of money, it is far
from enough to meet all the needs of all of the victims of September
11th. In order to make sure that no one is left behind, we are working
and will continue to work closely with the many government and private
organizations: to meet the needs of all of the victims, to understand
which institutions will provide help, and to see where we must act to
``fill in the gaps''.
LThird, every dollar raised by the September 11th Fund
goes directly to grants to meet the needs of victims, their families
and affected communities. We have raised all of the Fund's
administrative costs separately. In addition, the Fund relies heavily
on the knowledge and expertise of the United Way & the New York
Community Trust, as well as other experts on loan from foundations and
businesses.
Now, please allow me to detail the relief efforts of the September
11th Fund to date.
Meeting Emergency Needs
On September 11th, the United Way of New York City and the New York
Community Trust created the September 11th Fund as a joint response to
the terrorist attacks on America.
That very day, a Web site, www.september11fund.org, was created to
accept online donations and describe the Fund's purpose and goals. Over
the next three days, the Fund organizers hosted a series of meetings
with disaster relief and other nonprofit agencies to anticipate
emergency needs and coordinate efforts. We received our first grant
proposal on September 19th (even before we had published a formal
``Notice of Available Funds''). On September 22, eleven days after the
tragedies occurred, Safe Horizon began distributing checks to victims
using funding from the September 11th Fund.
In its first eight weeks, the September 11th Fund has reviewed and
awarded 80 grants totaling $47 million to meet a range of emergency
needs through established relief agencies. As a result:
Lmore than 16,000 checks have been written--most on the
spot--to individual victims and families for rent, mortgage payments,
utilities, tuition and other cash needs;
Lmore than 4,600 people have received crisis counseling;
Lmore than 2,000 adults and children, including 700 rescue
workers, have received disaster mental health services;
Lmore than 1,000 people who have lost their jobs have met
with career advisors;
Lmore than 500 children were counseled in bereavement
groups;
Lreplacement ambulances and training were provided; and
Lfuneral expenses that were not covered elsewhere have
been met.
In order to make sure people know what is available to them, we
funded:
La comprehensive resource referral guide for individuals,
families, businesses and agencies seeking information and assistance on
disaster relief. It is used at the Family Assistance Center and
elsewhere and is available online as well;
Ltoll-free hotlines for those who cannot travel to the
Family Assistance Center or other offices in New York City; and
Lefforts by groups in non-English speaking communities to
publicize where and how to get help.
As with all established grant-making institutions, grant recipients
must provide regular reports on the use of their funds, the results of
their services, and financial accounting of their expenditures.
Meeting Longer-Term Needs
While our staff--composed primarily of individuals ``donated'' from
the United Way of New York City and the New York Community Trust, as
well as the Ford Foundation and others--responds to hundreds of
proposals and meets with countless service providers and government
agencies, we are simultaneously assessing longer-term needs.
There is no doubt that we are also expected by our donors to meet
the long-term needs of victims, their families and affected
communities. Of course, victims and their families need financial
security, but checks alone are not enough. We know from Oklahoma City
and elsewhere that families also frequently need legal and financial
advice, grief counseling and help with jobs and homes. The real task is
not, as Nancy Anthony of Oklahoma City so eloquently described it
``just dividing the pie--it's helping people to rebuild their lives.''
However, even a fund with the resources of the September 11th Fund
cannot do so alone.
This brings me to my second point: longer-term assistance must be
coordinated with government and other charities, to obtain the
resources that will be required, and to ensure that the needs of
victims, their families and communities, are met fairly and equitably.
We think there will be little support for our efforts if the results
are seen as unfair or if many are left behind.
To coordinate assistance efforts, the September 11th Fund was among
the first supporters of a central database that would both make it
easier for those in need to apply for assistance, and for charitable
organizations to assess those needs and limit the duplication of
efforts. Because we are mindful of the privacy rights of individuals,
we are working closely with New York State Attorney General Eliot
Spitzer and the front line providers of support to victims: the Red
Cross, Safe Horizon, the Salvation Army, and others.
However, we do not think that victims' needs can or should wait for
a database; our first priority is meeting emergency needs as soon as
they arise. Even without a database, however, there is a remarkable
amount of coordination taking place: Government agencies from the
Federal, State and City governments work every day with the front line
charities, such as the Red Cross, Safe Horizon and Salvation Army. They
meet frequently to coordinate their programs and unplug bottlenecks. As
an organization that helps fund these efforts, we are encouraging even
greater coordination.
One of our major tasks in developing a program is to understand the
range of people and institutions affected by this tragedy and their
needs. None would argue that the family of someone who died, or someone
who was severely injured shouldn't receive aid, but most of our donors
also recognize the needs of those who lost theirjobs, who lost their
homes, or who have been traumatized as a result of helping out at
Ground Zero or the Pentagon. Others have pointed out that September
11th also destroyed the homes of hundreds of nonprofits and small
businesses.
Many of the needs of these victims can and will be provided for by
others--by government programs or special purpose charities.
Nonetheless, a traditional role for philanthropy is to help those who
``fall through the cracks.'' For example, what about the second
families of victims who are not eligible for government aid? And
elderly parents who are not technically dependents, but who were
receiving help with rent or mortgage payments? Should we not make sure
that all victims receive help?
We must also recognize that some of these needs may not be apparent
for quite some time. It may be months, sometimes even years, before a
family realizes that they need counseling. As Dan Kurtenbach of the
Resource Coordination Committee of Oklahoma City told us, ``The
majority of our work and our value to the community has been supporting
long-term needs. You will not know what those needs are for at least a
year.'' Given the magnitude of the shock that occurred on September
11th, we know that people will need help months and even years from
now. We need to ensure that we provide adequate resources for these
needs as they arise.
We are beginning the work necessary to develop this long-term
program. We have already established a Board of Directors, drawing from
the United Way, the New York Community Trust, the entertainment
industry and others from business and civic life. That Board is chaired
by Franklin Thomas, former president of the Ford Foundation. We are
hiring a small staff, and will continue to rely on the expertise of
some of the best grantmakers in the country from the New York Community
Trust, United Way, the Ford Foundation and others.
Over the next weeks and months we will make critical decisions
about funding priorities, analyze the needs of those who are affected
by the September 11th tragedy, and seek to meet those needs that are
not being met by others. We will do so, as always, by providing grants
to organizations with the expertise and ability to do so, as quickly,
efficiently, and fairly as possible.
Since developing this program necessarily involves working with
government agencies and other charities, and since some of these have
not yet decided how they can and will help, the process will take some
time. This is another reason we consider it so important to meet the
emergency needs immediately. Our emergency grants are helping do so.
Preserving Contributions for Helping Victims
Now, for my third and final point: Every penny contributed to the
September 11th Fund will go to grants to help the victims of September
11th, their families and affected communities. None of our
administrative costs come out of the Fund. Instead, several foundations
contributed funds specifically for this purpose.
The September 11th Fund is, by design, a lean organization that
relies heavily on resources donated by the United Way of New York City,
the New York Community Trust, and others. The September 11th Fund
currently operates with a (tireless) staff of four. Thanks to the
experts at the NY Community Trust, the United Way of New York City and
others who are donating their time and expertise, grants that normally
would take 4-6 months for approvals are being researched and awarded
much more quickly, sometimes within one week. This is only possible
because these staff members have years of experience in the nonprofit
community, specifically funding emergency assistance and community
needs.
Our distinguished board chairman, Franklin Thomas, and our board of
directors, made up of leaders from the philanthropic, business and
social service communities, are contributing their time, as well as
resources from their institutions.
We are proud of the work that we have done to date, and are working
energetically with others to develop a fair and effective response to
the September 11th tragedies. We know that it is important that our
program be accountable, both to the public and the millions of donors
who have put their trust in us. We invite the Committee and the public
to follow the decisions we make and the results that they generate
through our Web site, www.september11fund.org, where we post
information regularly.
In summary, the September 11th Fund is focusing on the needs of the
victims, their families and the affected communities by providing funds
to experienced front-line agencies for emergency needs. We will
continue to support coordination efforts, and are working hard with
others to develop programs for long-term needs that are effective, fair
and leave no one behind.
__________
About The September 11th Fund, The New York Community Trust and The
United Way of New York City
The September 11th Fund, based in New York City, was established by
the United Way of New York City and the New York Community Trust to
help meet the immediate and longer-term needs of victims, their
families, and communities affected by the terrorist attacks of
September 11.
The New York Community Trust is the largest community foundation in
the country, with assets of approximately $2 billion and more than
1,500 separate funds under management, some of which are donor-advised
funds held by members of the New York City government and the United
States Congress. Founded in 1924, its mission is unchanged: excellence
in charitable giving. Thousands of grants are made by the Trust each
year. In the year 2000, $145 million was disbursed, 70% in the New York
metropolitan area.
The United Way of NYC is a volunteer-led organization dedicated to
helping New York's most vulnerable citizens become and remain self-
sufficient. UWNYC funds a network of the most effective health and
human service nonprofits in the five boroughs; mobilizes collaborative
efforts to address our community's most pressing needs and to help
nonprofits achieve maximum impact.
Chairman Houghton. Well, thanks very much. We have been
joined on the platform by Mr. Rangel, Mr. Crowley and Mr.
Hulshof and Mr. McInnis. Maybe we ought to ask questions of you
now because you really do have to catch a plane to go back. So
I will start--Bill, have you got a question you would like to
ask?
Mr. Coyne. Thank you, Mr. Chairman. Mr. Gotbaum, you
indicated that you have already disbursed $47 million.
Mr. Gotbaum. In grants to frontline charities, yes, sir.
Mr. Coyne. What type of oversight do you think is necessary
in making those grants to make sure that they are being spent
in the proper way, and the way that you intended?
Mr. Gotbaum. Part of the reason why we think people trust
the September 11th Fund, Mr. Coyne, is because of the
organizations that created us, and we are still using those
organizations. I have, at the September 11th Fund proper, a
staff of 4, and it will grow maybe to 6, 8, or 10. But it is a
small staff. But we are relying on the grant making staffs of
the New York Community Trust and the United Way. These are
folks who have spent, in some cases, literally generations
funding frontline charities.
That has two benefits. One is these are organizations that
they know. They knew Safe Horizon existed; that Safe Horizon
was already writing checks for victims of crime and so they
could go to them and say, could you expand your operation by a
factor of 10 so that we know we could write checks on the spot
for victims. So part of it is they have worked with these
organizations and they understand what their strengths are and
how to provide oversight.
The second is that as a condition of every grant, we have
appropriate financial controls. We require periodic reporting.
In the case of Safe Horizon, which is my largest grantee right
now, they have distributed almost $16 million of our money as
checks to cover rent, tuition and so forth, they report to us
literally every day on how many people they have helped, what
the average check size is and how they are spending the money.
So we feel, Mr. Coyne, that that is part of the expertise
of the organizations that we created. We vary the controls with
each grant. Some organizations report--they all have to report
on disbursements and they all have to give us accounted
financials. Some of them have to give us those financials
frequently. Some of them over a longer period of time, over
time because it depends in part on how large the grant is and
how long we expect people to use the money for. But obviously,
we recognize the fact that people are trusting us with their
contributions and we need to deliver on that trust by
exercising oversight on the grants, and that is what we are
doing.
Mr. Coyne. Thank you.
Chairman Houghton. Very good. Mr. Hayworth would you like
to ask a question?
Mr. Hayworth. Thank you, Mr. Chairman.
Mr. Gotbaum, as I was listening to your remarks, what
struck me about this, and being joined on the dais by my friend
from New York, who lost not only constituents, but family in
the World Trade Center attack, I was struck by the fact that we
are really a six-degrees-of-separation society. Quite literally
my neighbors across the street in Arizona have friends affected
by this. Contributions are coming in nationwide, and so there
is an interstate role and, some would maintain, a role for the
Federal Government to play. You mentioned in passing, in your
testimony, that there is a role for the Federal Government to
play.
Some suggest, my friend, Mr. O'Reilly talks about a charity
czar. Our colleague, Ben Gilman, I believe has drafted
legislation dealing with a type of clearinghouse in some
Federal role. What is your suggestion? What is the proper role
of the Federal Government? Do you envision a legislative role
for the Congress? Is there something that could help improve
accountability across agencies as my friend, the ranking member
mentioned, close to 200 charities are involved now? I think the
count I have heard is about 160, so many people coming together
in so many different ways. If it were up to you, what role
should the Federal Government play in this situation?
Mr. Gotbaum. Mr. Hayworth, you are right about the six-
degrees-of-separation. Last night I went on the O'Reilly show
and there was a woman there who had lost her husband with her
child, and a group of her friends had sat at vigil at her
house, consoling her after September 11th. One of those friends
actually started work for me yesterday as a volunteer at the
September 11th Fund, so you are right, it is very small. I am a
veteran, sir, of the Office of Management and Budget, so I have
actually spent considerable amount of time thinking through the
questions of when and how the Federal Government can and should
exercise oversight.
And I guess--and this is a personal view. I have not
discussed this issue with my board, so accept it as just that.
It is a personal view. I think the most important form of
oversight that you can exercise is the form that you are
exercising right now, which is shining the light and saying to
folks, explain what you will do and explain what you are doing.
We--this is the greatest disaster in American history. This is
the most public charitable endeavor in American history, and it
is, therefore, entirely appropriate that it be very, very
public and very, very scrutinized.
I draw a distinction, though, Mr. Hayworth between that and
exercising a new form of control or coordination. And I do that
for really two reasons. One is that in my experience, and I
have worked with the Federal Government a lot, it takes time
for things to get organized. And although I can see arguments
in favor of a charity czar, by the time that person were up and
organized and had an organization and figured out what they
were doing and had rules and regulations, because there will
undoubtedly be rules and regulations OK, we would be 6 months
or a year down the pike. And I don't think we have that luxury
of time to figure out how to help the victims.
And so even though it is an imperfect solution to say shine
the spotlight, hold people's feet to the fire, ask them what
they are doing, I think that you are as likely by doing that,
and forcing them to work cooperatively with the existing
Federal agencies, with the Federal Emergency Management Agency
(FEMA), and with the Airline Recovery Board, I think you are
likely to get a better, faster result than you would get if you
said I am going to legislate a charity czar and empower him or
her to do a lot. I just think that the red tape that they would
create in doing that would undo all the good wishes that you
would have in implementing.
Mr. Hayworth. Thank you, sir. Thank you, Mr. Chairman.
Chairman Houghton. Yes. I think we ought to have a couple
more questions for you, because then you have got to go. Mr.
Rangel, would you like to ask a question?
Mr. Rangel. No, Mr. Chairman. Thank you very much for the
courtesy.
Chairman Houghton. All right. Miss Thurman would you like
to----
Mrs. Thurman. Mr. Gotbaum, let me, first of all, when you--
when Mr. Coyne asked his question about the $47 million, and
you said that there had been 16,000 checks already cut, what of
that 16,000 checks is that $47 billion or million? Is that all
of it, or----
Mr. Gotbaum. Oh, excuse me. Sorry. 16,000 checks totaling--
actually, let me give you the--totaling just slightly more than
$15 million because the checks are averaging $1,000 apiece.
Mrs. Thurman. OK. And that is an important question,
because, you know, one of the things that concerns me, and we
have argued this in Washington on a couple of times, but I know
a lot of the times the charities are set up to deal with people
on a monthly basis, not necessarily a long-term basis. And what
I am concerned about is that these people are trying to go
about their everyday business, they are trying to, you know,
either go to school, put their--make sure their children go to
school, their mortgages are paid or whatever. Have you all
thought in any terms about what I think a lot of people thought
would happen, is some kind of a lump sum or something that
pulls them through, because people don't want to keep coming
back.
These are people that had been independent. They became a
victim. They don't want to feel like they are getting a
handout. They feel like people gave this money so they could
get on with their lives. Can you share with us how that is
happening? Because I think that is a very important part of
what we are hearing.
Mr. Gotbaum. Congresswoman, that is--let the record show I
did not plant this question, but I am really glad it was asked.
One of the--all of the organizations that worked immediately
after the disaster have had to face up to the fact that this,
in some respect, is a different kind of disaster and they have
had to modify the way they operate and do business.
FEMA, for example, just to toot the horn of another
organization that isn't here yet, FEMA, in order to give their
rent subsidy program, used to say you had to get an eviction
notice. You had to get a legal notice before they would help
you cover your rent. And they have realized that is draconian
and unnecessary, so what they did is they changed their own
rules and said, no, just get any letter from your landlord that
says you are late with your rent, including the first one, so
that we know that there is some need. That was really their
argument, and so they have made a change in that process.
Safe Horizon, which we have funded, and I have got to tell
you that I am really enormously proud of that organization. I
think they have done a really extraordinary job and are
continuing to do so, worked off the model that they had used,
which was that model of the New York State Crime Victims
Compensation Board. And that was a model in which people, yes,
were expected to come back within 2 weeks or a month. What I
have done is asked them to come in and actually it is going to
happen, I believe, next week, and tell me how we could operate
writing checks for the longer term so that we can not require
people come back.
Mrs. Thurman. So that has not happened?
Mr. Gotbaum. That has not happened yet.
Mrs. Thurman. But you are trying to set something in motion
so that----
Mr. Gotbaum. Absolutely. Because you are absolutely right.
People don't want to feel that they are being run through an
endless grind in order to get help.
Chairman Houghton. Let me cut in here. Mr. Hulshof has a
question he would like to ask.
Mr. Hulshof. Mr. Gotbaum, really just one question. Let me
first say I have a new found respect for someone of your
position. My spouse just took a job as an executive director of
a charitable foundation, and so all of the things that you are
grappling with on a large scale really has been brought home to
me in recent times.
I think, and not to belabor the point, others have said
this, that September 11th, I think, brought out the true
character of our Nation. We have seen the worst of times. We
have seen the best of times where people who have never even
gone to New York City before, loading up their pickup trucks,
driving across country with loads of food or stuffed animals
and the like.
A neighbor of mine, a retired composer who just donated a
piece of work to try to raise funds for the victims in New
York. But let me just--the question is this, I need your advice
because with the recent revelations about some of the moneys
maybe being diverted, I spoke to a group on Monday, 650
insurance agents who had collected--who had passed the hat and
they charged me with the responsibility of taking that money
and giving it and making sure that it got to victims. And I
think that is probably a pretty good example of the mood of the
country now, those that wish to contribute to donate or
contributed and yet they are a little skeptical or hesitant
perhaps. What advice would you give with this national
audience, to those out there who wish to contribute but who may
be a bit reluctant in light of recent news accounts?
Mr. Gotbaum. Mr. Hulshof, thank you. To your wife,
congratulations and condolences. The way we operate in the
September 11th Fund is to say, as I mentioned in my testimony,
all of the money contributed to that fund will go out as grants
to organizations to help victims. Now, that is not just checks.
And I think it is important for us to discuss that because this
is--this has to be more than just a checkwriting exercise. We
view the task, we view the reason that people entrusted us with
their charitable contributions is that we are trying to help
people rebuild their lives.
Financial security is an extremely important piece and no
one would deny that. But, these folks are going to need legal
counsel. They are, for many of them, going to need guidance and
counsel, other kinds of guidance than traditional counseling.
They are going to need help with schools and jobs and homes.
And we feel that is an essential part of the service. We think
that is an essential part of why people trust the New York
Community Trust and the United Way to provide help to victims.
So my first point is, a hundred cents of every dollar into
the September 11th Fund goes to grants to provide services to
victims. The second point is the question of whether or not
organizations can and should reserve some funds for the next
disaster, and here, frankly, I am going to--I want to say
something affirmative about the Red Cross, because I--because I
think it is important for this Committee, even as it asks
questions to recognize how essential it is and how important it
was that the Red Cross had an existing disaster fund before the
disaster.
And on September 11th, the New York Community Trust and the
United Way created September 11th Fund, started raising money,
set up an organization, started talking to charities and less
than about a week and a half later, made their first grant and
that was great. OK. But on September 11th, the Red Cross
delivered literally thousands of people to New York City and
Washington and Pennsylvania to help. And the only reason they
could do that, Mr. Hulshof, is because they had money in the
bank. And so, I realize there is a question here of how you--
how you deal with your donors and how you make sure that you
are clear and that you are keeping faith with people. But I do
hope the Committee does keep in mind that it is that reserving
of resources for the next disaster that made it possible for
them to help literally tens of thousands of people, and so that
is the second point that I would make to your folks.
Chairman Houghton. OK. Thanks very much. Good luck on your
flight. Thank you very much.
Mr. Gotbaum. Thank you very much. I appreciate----
Chairman Houghton. Thank you very much for being with us.
Now we will go on to the other witnesses. Mr. Farley of the Red
Cross, would you like to testify and then go to the Salvation
Army after that?
STATEMENT OF MICHAEL FARLEY, VICE PRESIDENT, CHAPTER
FUNDRAISING, AMERICAN RED CROSS
Mr. Farley. Thank you, Mr. Chairman, and distinguished
members of the Subcommittee. I would like to, if I could, share
with you a few ideas about what the Red Cross has done with the
funds it has received, answer questions you might have that
will be evoked from that, and then answer a couple of questions
based on some concerns that we know that have been shared with
the current practices and approaches of the Red Cross in terms
of the stewardship of the dollars that we have received.
But let me begin by saying, first of all, how overwhelming
this event was for this country and for the American Red Cross.
For us, it was managing 4 airline disasters, mobilizing 44,000
disaster workers, 43,000 of which were trained volunteers,
serving millions of meals and trying to understand what was
coming next. It was an incredibly challenging situation for us
to respond to a disaster, the likes of which we have never seen
before. We didn't really know what we were dealing with.
Fortunately, we have had decades of the discipline of disaster
response to get us on the ground, to get us started. But
frankly, once we were in the street working with the victims,
it was a lot of innovation in the moment because that is what
the situation required of us. And frankly, that is what our job
is. In a disaster response situation. Also overwhelming was the
outpouring of public support from the American people. To date
we have received over $564 million that has been directed
toward the recovery of this disaster. And I think the tone of
this hearing was set very well by the quote from the newspaper,
the letter to the editor, Congressman Hayworth's comment, the
Chairman's comments.
This is serious business and it is about trust. And that is
at the core of what makes the Red Cross successful, a
successful partner of the government because we are a
congressionally chartered institution to respond to disaster.
And it is only successful because we enjoy the trust of the
American public to do the right thing when the moment is there
for us to respond. So that is something that we cherish. And if
we are in any way considering criticisms or violation of that
trust, I can assure you we take that very seriously because it
will have a profound impact in our ability to respond in the
future.
So we safeguard that trust very dearly. I would like to
share with you four commitments, if you will, that the American
Red Cross has in looking at specifically this tragedy. The
first commitment is toward providing direct relief to the
victims of this tragedy. Within 7 weeks, the American Red Cross
has distributed over $120 million to more than 26,000 families
in the form of direct cash disbursements and family grants. Of
that, funds that we have currently expended and we have
expended about $154 million today, 120 million of it is in
distributing victim assistance to the families that have been
affected by this tragedy.
The second commitment is one of accountability. In the
early days of this tragedy, we realized that this was an
extraordinary event, different from any other disaster we have
experienced. It wasn't as tragic as earthquakes, floods, fires
are. A terrorist attack is something of a totally different
nature. We knew that the outpouring of public support that we
received was specifically for our response to this tragedy. And
so in recognition of that, we established the Liberty Fund, a
separate account, not to be commingled with our usual disaster
relief fund that we use to support the operations of disaster
response in times of natural floods or other kinds of
situations. Because we knew that these funds were, and the
outpouring of support were of a very different kind. And so we
wanted to be sensitive to that.
So we established the Liberty Fund to segregate those
moneys from any other monies the Red Cross uses, either for
general support of operations or for disaster response. In
addition to that, we immediately engaged a third party external
auditor, KPMG, to make sure that we had the accounting
practices in place, and that we were advising our network of
1,050 chapters across the country to ensure that as they were
the recipients of the outpouring of public support, they had
the appropriate kinds of controls and accounting practices in
place to manage and to store the resources that were pouring in
from America.
And as we speak, we have a team of auditors working with
chapters day-to-day to assist them in managing the
contributions that they have received, using the reporting
procedures that we have set up, and remitting the kinds of--the
funds that have been received for this particular disaster in a
transparent manner. And when we are through with the receipt of
funds for this tragedy, there will be a full audit on how we
did in managing those funds. In fact, we even post what we are
doing, how much we have collected and how we have expended it
on our public Web site.
The third commitment is one of collaboration. Once we have
completed this first phase of response, I think we have a
responsibility to look and work with our other fellow nonprofit
organizations and public agencies to see how can we, together,
create a safety net, if you will, for healing that endures
after this initial period of response to the needs of the
victims. I think clearly, the New York State Attorney General
Eliot Spitzer has been a catalyst in trying to create
collaborative activities among the various nonprofit
organizations for the benefit of victim assistance. I think we
need to look at where the gaps are in service delivery based on
what each the nonprofit organizations provide, given their
mission, and their competencies, and then look at opportunities
and ways in which we might direct our resources and our talents
to support the filling of those gaps to make sure that the
needs of the victims are being addressed.
So it is a commitment to collaborate with our fellow
nonprofit organizations and public agencies for the benefit of
the victims of this tragedy. The fourth commitment is really
one of alignment, aligning what we do and how we spend the
funds that we have been given by the public with the donor
intent, using the funds for which they were intended. And that
is a very important issue for us because obviously, that is the
basis upon which trust is built in the American Red Cross. So
how are we going to insure that we are properly aligned with
donor intent? There are several things that we have in place.
First, we are asking our donors how are we doing? Are we
expending the funds you have given us in a way appropriate and
consistent with what you understood to be their intended use?
We are writing each of ourdonors in acknowledgment of their
gifts to ask them, please tell us if we are aligned with what we should
be doing with the intended purpose of your gift. We have our Board of
Governors at the national level providing oversight into the use of the
Liberty Fund to insure that not only is it accounted for properly, but
it is being disbursed in a manner that is consistent with donor intent,
and we are continuing to re-evaluate as the circumstances of this
tragedy unfold, how do we best honor the intent of the donors and use
the funds in a manner that is consistent with that.
One of the issues that has come up is, of course, direct
support for victims. And I think all of us know that the work
of the Red Cross goes beyond providing direct cash
disbursements to victims. We also provide the kind of systemic
operation that allows us to meet the needs of the victims. And
to that purpose, we support the first responders. We have
respite centers for the firefighters, the police officers, the
emergency workers who are working on the pile every day, who
need rest after their 12 hours on, 12 hours off shifts day in
and day out. And that will continue probably for a year, at
least. We also have a responsibility of mobilizing our 44,000
disaster workers----
Chairman Houghton. Could we try to finish this up?
Mr. Farley. Yes, I will. I would like to address one issue
that has come up and that has been a concern expressed over the
unexpended funds that we have collected. We spent 154,000. We
have identified about 300--excuse me, 154 million. We have
identified 300 million for disaster response purposes, and that
leaves a balance of about $264 million. And the concern has
been expressed what is going to be used for those funds? Will
the Red Cross divert those funds away from victim assistance? I
can tell you, without equivocation, that those funds, even
though they are not earmarked for specific purposes, will all
be directed to support the efforts that provide assistance to
the victims.
And one final point, Mr. Chairman on that, and I will open
this for questions. We have learned from decades of disaster
response that the needs of victims emerge years after the
tragedy occurs. Today we are dealing with 30 to 50 families
from the Oklahoma City bombing who continue to have needs, and
for that purpose, we are there working with those families, we
anticipate that there will be needs in the future for which
those funds must be distributed to be available for their
recovery.
[The prepared statement of Mr. Farley follows:]
Statement of Michael Farley, Vice President, Chapter Fundraising,
American Red Cross
Introduction
Within moments of the first plane tearing into the World Trade
Center on that terrible morning of September 11th, 2001, the tragic
events that transformed this Nation also began the largest disaster
response in the history of the American Red Cross--our Nation's oldest,
most experienced and most trusted humanitarian organization. None of us
could have anticipated the scope of such an event, nor been fully
prepared for the impact this would have on the lives and families of
those affected. As always, the Red Cross immediately began providing
emergency relief and emotional support to a Nation stunned by the
brutality of an unprecedented attack on American soil.
Chartered by Congress in 1905 to maintain a system of national and
international relief, it is the mission of the American Red Cross to
help people prevent, prepare for and respond to emergencies. The Red
Cross is an essential partner with federal response agencies during
disasters through its lead role for mass care under the Federal
Response Plan. Our primary focus is on the human needs of those
affected, and we respond to both the physical and emotional devastation
experienced by people during and after a disaster.
Immediate Response to the Events of September 11, 2001
In the initial hours following the attacks, we took the steps
necessary to establish order out of chaos and support people whose
world had just been torn apart--those in New York running from the
collapsing Trade Towers, those at the Pentagon fleeing from the intense
heat and flames, and those families urgently wanting to hear about
loved ones whose planes never arrrived.
We do not wait for people to come to us, but reach out to find
those in need. We have searched buildings around the World Trade Center
to reach the elderly afraid to leave their apartments or whose health
care workers were unable to get to them because of the perimeter
surrounding ground zero. Our Air Incident Response Teams, always on
immediate alert, were dispatched to each departure site and every
scheduled arrival site for the four flights hijacked that day to reach
out to the families of the victims. At the three disaster sites, we
found firemen, police, emergency medical crews and responders of all
sorts who needed water, food, a change of clothes, and a place to rest
as they stayed at the scene searching for survivors.
Our foremost priority is to provide assistance for the victims and
survivors of the disasters in New York, Pennsylvania and at the
Pentagon--for however long it takes. As of today, we have:
LHelped more than 25,000 families who were displaced,
injured or unemployed in the disaster-affected areas by providing food,
lodging, clothing and counseling services. We are now under biological
attack and are working with the families of those directly affected by
anthrax.
LIn the days following September 11th, Red Cross designed
a Family Gift Program to cover 3 months of financial needs--rent,
mortgages, childcare, and food--for families who lost breadwinners.
LWe have served more than 10 million meals--an average of
100,000 per day--to survivors and emergency personnel working at the
three disaster sites.
LOur mental health and spiritual care counselors have made
more than 144,000 counseling contacts; 100,000 in the New York area
alone.
L46,000 disaster workers--43,000 of them volunteers--have
been assigned to provide these services.
LIn a time of tremendous uncertainty, we ensured that
blood would be available wherever needed. We mobilized our national
blood system to preposition stocks around the New York metropolitan
area, to meet a need, which unfortunately never came, as there were few
survivors.
Outpouring of Support by the American People
Just as this heinous act was unprecedented in its destruction, the
response from the people of America is inspiring--people waiting hours
in long lines to donate blood, flooding phone lines to volunteer their
time in any way that was needed, and personally delivering financial
contributions. The generous financial and in-kind assistance that the
American Red Cross has received from individuals, companies, and
foundations is unprecedented. It must be handled with utmost openness,
accountability and integrity.
Therefore, we established the Liberty Relief Fund, a separate,
segregated account that was created to hold and disburse funds to help
people affected by the September 11th attacks, its aftermath, and other
terrorist events that could occur in the near future.
We believe the establishment of this account is the best way to
assure absolute transparency, clear accountability and demonstrate our
commitment to donor intent.
Since September 11th, the Red Cross has received pledges and
contributions totaling $564 million ($505 million received). To date,
$154 million has been spent or committed, $120 million for direct
assistance to 25,000 families in the form of cash and vouchered
assistance to cover their emergency needs including food, clothing, and
temporary shelter. Any remaining funds will be kept in the Liberty
Relief Fund account to help victims as their needs arise in the weeks
and months ahead. Newly appointed American Red Cross Interim CEO Harold
Decker has asked for a top to bottom review of the Liberty Fund to
ensure that the planned expenditures from these funds are consistent
with donor intent.
The American Red Cross has responsibly disbursed $120 million, to
25,000 families in less than 8 weeks, unprecedented in the nonprofit
world. Through our newly established Family Gift Program, we have spent
or committed $47.9 million to help more than 2,300 families through
direct financial assistance. We will continue to work with these
families beyond the initial period to evaluate longer-term support
needs. Our financial assistance is provided expeditiously through a
simple one-page gift form, which is processed, promptly with checks
issued overnight. The forms can be done by fax, phone or
electronically, and are available through the Family Assistance Center
and at other family assistance sites in New York City, or any one of
our 1,000 chapters located in communities nationwide.
Again, we do not wait for families to contact us for assistance.
Early in October, we placed advertisements in major newspapers
appealing to families to come forward and receive assistance. We've
also contacted employers of the World Trade Center, floor by floor, to
reach out to their employees, searched hospital lists and the list of
confirmed deceased. Forty Red Cross employees and volunteers are
contacting families who might qualify for cash or other assistance.
We've reached about 3,300 families, and the number grows daily.
Because this tragic event also injured and killed foreign
nationals, the Red Cross is assisting the families of these
individuals. The Red Cross international aid package includes:
financial assistance for travel to and from the United States, lodging,
meals, local transportation, crisis counseling, advocacy and referral
with U.S. agencies, repatriation of remains, funeral expenses, tracing
services, and information about embassies and consulates. We are being
assisted by our partner Red Cross and Red Crescent societies the world
over.
Legal Status and Oversight
The American Red Cross is a federal instrumentality chartered by
Congress in 1905 to meet international treaty obligations of the United
States Government under the Geneva Conventions. The Congressional
Charter has mandated a procedure for Congressional and federal
oversight of the activities and finances of the American Red Cross. The
Department of Defense U.S. Army Audit Agency audits the work of the
principal auditors, KPMG. DoD then transmits its annual report to
Congress, along with Red Cross' audited financial statements, including
KPMG's opinion. Consistent with its policy of transparency and full
public accountability, the American Red Cross publishes an annual
report, along with its audited financial statements, and posts these
documents on its public Web site.
In order to fulfill our responsibilities under the Geneva
Conventions, we are considered a federal instrumentality, and in many
respects treated like a federal entity. As such, the American Red Cross
is exempted from various state and local laws, including state and
local taxation and state charitable registration requirements. The
American Red Cross is also exempt from federal income tax under Section
501(c)(3). As a tax-exempt charitable organization, the American Red
Cross is regulated by the Internal Revenue Service and files an annual
IRS Form 990, which is also subject to public disclosure.
Following the September 11th attacks, the American people rushed to
support our efforts with an unprecedented surge of generosity. In
response, the Red Cross has put in place stringent accounting measures
at both the National Headquarters and throughout our chapters to ensure
stewardship of these funds. Our internal audit staff and KPMG, our
external auditors, began reviewing and testing control processes and
procedures for donations and disbursements the week following the
terrorist attack. That testing continues. National Headquarters is
engaging the corporate external auditor, KPMG, to begin testing
immediately those contributions remitted to Headquarters, and have
directed chapters to require the same of their auditors and independent
CPAs.
Financial Stewardship
In order to ensure that all donations collected on behalf of the
Red Cross are received and properly acknowledged for tax purposes, we
have established formal agreements with groups and businesses that have
helped to raise funds. A third-party group can conduct a fundraiser
provided their local Red Cross chapter approves it and a signed letter
of agreement has been received.
The American Red Cross and its online partners (aol.com, yahoo.com,
paypal.com, libertyunites.com, and wellsfargo.com) accept credit card
information only through a secure portal on a Web site, not through an
e-mail message. When Internet scams have been detected, we have worked
closely with the Federal Trade Commission and the Department of
Justice, and taken aggressive steps to shut them down.
Symantec, an information technology security firm, retained by Red
Cross notified us on October 17, 2001, about the Septer.Trojan computer
virus for potential credit card donors. The virus came in the form of
an executable file attached to an e-mail message that appears to come
from the American Red Cross, United Way and the September 11th Fund.
The American Red Cross Office of General Counsel contacted law
enforcement authorities immediately about this fraudulent act.
Coordination of Relief Efforts
We typically lead and champion cooperation with other relief
agencies to insure we don't duplicate efforts and to protect against
any gaps in services. The Red Cross leadership and the Attorney General
of New York, Eliot Spitzer, have been engaged in a constructive
dialogue on a means of improving access to the vast disaster relief
resources now marshaled to help the victims of the September 11th
attacks. We are hopeful that a system will be established to enable
disaster relief recipients to maximize the relief resources available
to them. In addition, Mr. Decker has requested a review of potential
steps to improve coordination between the Red Cross and other relief
agencies that would benefit the individuals and victims' families.
The Road Ahead
The American Red Cross will be with the survivors and families
affected by this tragedy for as long as it takes. Our decades of
experience with disaster victims tell us that assistance will be needed
for years to come. We need to ensure that the resources entrusted to us
by the American people will be available to meet these future needs.
Family Assistance Centers were established for the loved ones of
those lost in the World Trade Center and the Pentagon. The Center
remains operating at full strength in New York City. A one-stop relief
center, families can avail themselves of the full breadth of Red Cross
services in an environment where confidentiality, dignity and
compassion are the hallmark attributes. We are committed to this
outreach, and will work with those affected for years after this event.
In other ways, our work has just begun. The site of the World Trade
Center, now called ``The Pile'', is emblematic of the work ahead and
the human needs we will serve. There, work that is physically arduous,
always dangerous and emotionally draining will continue for the next 9
to 12 months. Construction workers, firemen, police, and emergency
medical technicians are not forgotten. We are operating special respite
centers on-site. It is a place away from the noise and the dirt, where
workers can come to find food, shelter, a change ofclothes, a place to
sleep, or to read a card written with special care from a child. This
is a place to refresh the body and the spirit in order to go back, once
again, to their work. This is another example of a new service for us,
a service we adapted to the needs of those involved in this disaster.
We now find ourselves in the grip of a biological attack. We are
assisting the families of those directly affected from anthrax
exposure. We have offered immediate financial assistance through our
Family Gift Program, and we are contacting 16 victims who are or have
been hospitalized for anthrax. Further, because the current attack has
understandably created public anxiety, we are reaching out to
communities with public awareness and education materials. We will
continue to develop these materials to address the community education
requirements regarding biological and chemical agents.
Conclusion
The American Red Cross today is helping tens of thousands of people
affected by acts of terrorism in the United States. We were among the
first on the scene and we will be helping people for as long as it
takes. We thank you Chairman Houghton and Representative Coyne for
holding this timely and important hearing.
Chairman Houghton. Thank you very much, Mr. Farley. Colonel
Jones.
STATEMENT OF TOM JONES, LIEUTENANT COLONEL AND SECRETARY,
NATIONAL COMMUNITY RELATIONS AND DEVELOPMENT, SALVATION ARMY,
ALEXANDRIA, VIRGINIA
Mr. Jones. Thank you, Mr. Chairman. I am Lieutenant Colonel
Tom Jones from the national headquarters of the Salvation Army.
I am the national community relations and development
secretary. I have been a Salvation Army officer for almost 40
years. And it is an honor to be here before you, ladies and
gentlemen of this Committee, and talk about the Salvation
Army's response to the September 11th disasters.
The Salvation Army was born serving the poor in 1865 in the
slums of the east end of London, and now serves in 108
countries around the world. The Army invaded America, if you
will, in 1880, and has been serving here for 121 years, meeting
the needs of people all over this country. Today the Salvation
Army has almost 10,000 centers of operation throughout the USA.
Twenty years after we arrived in 1900, the Galveston floods
immobilizes for the first time a national Salvation Army
response with personnel all over the country, mobilized and
sent to Galveston to help meet all the needs that were there.
On September 11th of this year we saw a new and
unprecedented kind of disaster, certainly far greater and far
different than what we experienced with the Oklahoma City
bombing or Hurricane Andrew in Florida or the Midwest floods.
Within an hour, Salvation Army personnel were on the scene in
New York City at the World Trade Center and here at the
Pentagon and were on their way to the bomb crash, or to the
plane crash, rather, in Pennsylvania.
You may be surprised to know that the Salvation Army does
not operate or maintain a full-time national disaster operation
or administrative staff. We have one Salvation Army officer,
Major David Dahlberg, who is assigned as the national disaster
coordinator. He responds along with local Salvation Army
officers to disasters which happen on a local basis, and then
the Army calls in whoever we need with volunteers or officers
throughout the country. Local Salvation Army personnel take
command and provide leadership when disaster strikes their
community, and then we bring in other folk to help us.
But let me quickly get to the key points I think this
Committee is interested in. Number one, how much money has the
Salvation Army taken in? Contributions from the American public
have totaled now slightly more than $60 million, and we have
spent no dollars to raise those funds or on public relations.
All of those funds have come in through voluntary contributions
on our Web site or through the 1-800 Salvation Army number.
What oversight has been given the Army to correctly channel
those funds? All Salvation Army funds have been deposited
directly into Army bank accounts, which are subject to annual
internal and external audit procedures. All Salvation Army
operations, including disaster, are conducted under the
oversight of Salvation Army officer personnel. But in addition,
in every local community in this country where the Army
conducts service, a local advisory board of prominent community
leaders guides and helps the Army make its decisions.
Nationally, when a disaster like this happens, we turn to
the National Advisory Board, made up of 42 prominent Americans.
The current chairman is Donald Fites, the recently retired
chief executive officer of Caterpillar. The immediate past
chairman is Steven Reinemund, the chief executive officer of
PepsiCo, and the incoming chairman is Edsel Ford of Ford Motor
Company. The Disaster Services Committee on that board is
chaired by Marilyn Quayle, and includes James Lee Witt, Robert
Goodwin of Points of Light and Admiral Michael Kalleres.
Services, what is the Army doing? What have we been about
in the last few months, the last 2 months? Well, the Army
obviously was on the scene providing food and providing
counseling, providing whatever was necessary, boots and
handkerchiefs to the firefighters, the policeman and the rescue
workers. We then began to provide financial assistance in the
form of grants for rent, for mortgage payments, for utilities,
for prescriptions and whatever else was needed.
When the FAA, Federal Aviation Administration, called down
all the flights in this country, the Salvation Army
interestingly found itself at airports all over the country
providing food and counseling for people there and in many
instances taking people to Salvation Army facilities where they
spent the night or 2 or 3 nights, in one place in Kansas City a
camp that housed 250 of them.
How much have we spent? To this point, $8\1/2\ million in
direct cash grants. My friends in New York and in Washington
tell me we are spending over $500,000 a week currently to help
people, with thousands of people coming in to Pier 94 to the
Worth Center and to eight Salvation Army locations here in the
Washington area.
We project spending every bit of the $60 million during the
coming year to help people, and we will be on the job no matter
how long it takes in the days to come. It is our intent that
100 percent of the funds that were designated for this disaster
be spent to help people just as the donor wished.
Mr. Chairman, that provides you and the members of this
Committee with just a brief snapshot of the Army's response to
the September 11th disaster. Time does not permit sharing the
hundreds of stories of lives being helped and changed, not only
on the frontline at Ground Zero but at the morgue site at 1st
and 30th in New York.
Let me thank you for giving us this opportunity of speaking
before this Committee, and let me assure you that the Salvation
Army considers it a sacred privilege to serve America in times
like this. We pledge our continued support and cooperation in
whatever way we can in the days to come for as long as it
takes.
[The prepared statement of Mr. Jones follows:]
Statement of Tom Jones, Lieutenant Colonel and Secretary, National
Community Relations and Development, Salvation Army, Alexandria,
Virginia
The Salvation Army, founded in 1865 in the east end of London,
first set foot on American soil in 1880. Eight Salvation Army officers,
one man and seven women were sent by the Army's founder, General
William Booth, to establish the ministry and service of the Salvation
Army in America.
Twenty years later, September 8, 1900, the Salvation Army in the
United States formally began its first national disaster response when
a hurricane struck Galveston, Texas, killing over 5,000 people and
virtually destroying the city. For the first time, the Army mobilized
personnel, volunteers and resources throughout the country to provide
prayer, emotional counsel and practical financial and material
assistance. From that moment in time we have never looked back nor
failed to immediately respond to any disaster, whether it be fire,
flood, storm, earthquake or aviation. Today, we can add acts of
terrorism to that list.
On September 11, 2001 this country was assaulted on numerous
fronts. It began in New York City, just a few blocks away from our
roots in Battery Park. From the moment of initial impact at the World
Trade Center to the visible sighting of the plane going down in
Somerset, Salvation Army personnel and volunteers began to mobilize and
were on the scenes of disaster within 45 minutes in all three
locations. While we have developed response procedures that are
automatic for hurricanes and tornadoes, there is no blueprint for what
we have been through over the past 57 days. And yet, the results have
been rather remarkable.
It may be helpful for you to understand that The Salvation Army
does not operate nor maintain a full-time national disaster response
team or administrative staff. We have one Salvation Army officer
designated as the National Disaster Services Coordinator and he
represents The Salvation Army in a coordinating capacity with FEMA, the
FAA and other disaster related non-profit organizations. Likewise, we
have no national fundraising program designated specifically to
disaster response. Whenever disaster strikes, we respond. We are
entirely community based in that response and we remain community based
in our fundraising initiatives. Local Salvation Army personnel take
command and provide leadership when disaster strikes and when the
public responds with financial support all monies are channeled
directly to the point of need without administrative overhead. Our
experience has always been to meet the immediate needs and the American
public will usually respond in compassionate support.
We are aware that the key pieces of information you would like to
leave with today are how much money has been given to The Salvation
Army for this specific disaster response, how much has been spent and
for what has it been spent. And then, you would like to know what our
plans are for utilization of the balance of these funds.
I can report to you today that The Salvation Army has received
$60,484,323 in contributions from the American public. No donated
disaster funds have been spent on fundraising or public relations
expense for the disaster. Therefore, these funds have all been
designated for disaster relief in either New York City, the greater
Washington, DC area or Western Pennsylvania. It is our standing policy
that all designated funds must be utilized fully as intended by the
donor and as a result, the full amount of these funds will be collected
from across the United States and channeled appropriately to the three
primary disaster sites.
All Salvation Army disaster funds have been deposited directly into
Salvation Army bank accounts, all of which are subject to both internal
and external audit procedures conducted annually at every Salvation
Army unit throughout the United States. All Salvation Army operations,
including disaster, are conducted under the oversight of Salvation Army
officer leadership. In addition, every local Salvation Army operation
is supported by a local advisory board of prominent community leaders.
Oversight to national Salvation Army operations is given by a national
advisory board of 42 national leaders. The current chairman of the
national advisory board is Donald V. Fites, retired CEO of Caterpillar
Inc. The immediate past chairman is Steven S. Reinemund, CEO of PepsiCo
and the incoming chairman is Edsel B. Ford II of Ford Motor Company.
The disaster services committee of the national advisory board is lead
by Marilyn Tucker Quayle, Robert K. Goodwin, James Lee Witt and Vice
Admiral Michael P. Kalleres.
Obviously we are still aggressively working to address the
immediate needs of those who have been impacted.There are many services
being provided that are highly visible, such as feeding rescue workers,
counseling distressed police and firemen, providing financial aid to
thousands of families, but I wish to share with you a practical service
we provided all across the country and throughout Canada on September
11, 12 and 13. You will recall the decision that was made to take all
commercial planes out of the skies. They were ordered to land
immediately at designated airports, leaving hundreds of thousands of
passengers stranded in cities, never intended to visit. The Salvation
Army in many of those cities went to airports and provided free meals,
counseling and overnight housing for many stranded travelers.
Properties that we normally use as summer camps for children, were
instantly converted into safe shelter and housing for stranded
passengers. We have a report from our friends in Canada of a small
community in Newfoundland that tripled its population overnight with
stranded air passengers and the Salvation Army became their primary
source of food and lodging until they could complete their scheduled
journey.
I would like to refer you to the financial and service report that
you have been provided because it documents for you our delivery of
service to date, as well as our projection of service through the year
2003. From that report you can easily see that we have served nearly 2
million people over the past eight weeks, and based upon the daily
service levels still active in New York City I can assure you we have
surpassed the 2 million mark as of this moment. Nearly 2.5 million
meals have been delivered to rescue workers and volunteers and 55,000
individuals have received direct financial assistance for rent,
utilities, food, housing and transportation.
In our efforts to coordinate with FEMA, the local municipalities
and other response agencies, it seems that the major portion of our
response will be focused upon displaced and unemployed families who
have been described as ``collateral victims.'' We will continue to
assist those who are laboring daily at ``ground zero'' and we are
committed to staying there as long as the City of New York, FEMA and
the Medical Examiners Office need us. We will not depart until the job
is done. But, our primary role now appears to be meeting the immediate
financial needs of financially damaged families--the airlines'
employees, hotel employees, small business employees, and those of
numerous sectors--who have lost their jobs and means of income.
Once again, referring to the report we have provided you, of the
$60.4 million contributed, we have spent $8.5 million on immediate
needs. We have projected a budget for the balance of this year through
the year 2003 amounting to an additional $53.7 million in direct
assistance. As you can see it is our intent that 100% of all designated
funds contributed will be directed to the community based command
centers of New York City, New Jersey, Washington DC and Western
Pennsylvania for a community led response. We envision that 20% of
these funds will be spent on rescue and clean-up support at the
disaster sites and the remaining 80% will be spent on direct financial
aid to impacted families.
Mr. Chairman, that provides you and the esteemed members of this
Committee a brief snapshot of the Salvation Army's response to the
carnage of these terrorist strikes. It does not reveal the raw emotion
of pain and fear and anguish that has altered many lives and our
Nation. Time does not permit the sharing of hundreds upon hundreds of
stories being told and lives being rescripted. But it simply identifies
the commitment of Salvation Army officers and volunteers from
communities in every state of this great land who have responded and
remain poised to further respond. We consider it a sacred privilege to
serve America in this way and pledge our continued support and
cooperation in whatever way we can.
Thank you.
__________
The Salvation Army USA September 11th Disaster Report
Income/Expense Analysis As Of 11/05/01
Income by Location
Cash Received
------------------------------------------------------------------------
------------------------------------------------------------------------
Central Territory (11 Mid-America States) $ 2,728,746
------------------------------------------------------------------------
Eastern Territory (11 Northeastern States) 29,404,087
------------------------------------------------------------------------
Southern Territory (15 Southern States) 7,599,352
------------------------------------------------------------------------
Western Territory (13 Western States) 3,719,996
------------------------------------------------------------------------
National Headquarters 17,032,142
------------------------------------------------------------------------
Total All Cash and Pledges $60,484,323
------------------------------------------------------------------------
Expenses by Location
Specific Services Given
------------------------------------------------------------------------
------------------------------------------------------------------------
Eastern Territory (WTC/Pennsylvania):
Disaster Site Rescue Services (Meals, Supplies, $ 2,900,954
Equipment)
------------------------------------------------------------------------
Social Services to Impacted Families (Rent,
Utilities, Mortgage,
Transportation, Counseling) 3,641,646
------------------------------------------------------------------------
Southern Territory (Pentagon/Northern Virginia):
Disaster Site Rescue Services (Meals, Supplies, 311,625
Equipment)
------------------------------------------------------------------------
Social Services to Impacted Families (Rent,
Utilities, Mortgage,
Transportation, Counseling) 1,151,490
------------------------------------------------------------------------
National Crisis Response (All States):
Social Services to Impacted Families & Stranded 500,000
Travelers
------------------------------------------------------------------------
Total Expenses by Services Given (09/12/01- $ 8,505,715
10/31/01)
------------------------------------------------------------------------
Income Less Expenses to Date $51,978,608
------------------------------------------------------------------------
Forecasted Expenses 11/01-12/03 $53,727,000
------------------------------------------------------------------------
Forecasted Deficit After 2003 ( 1,748,392)
------------------------------------------------------------------------
Projected Expense Analysis
26 months--November 2001 through December 2003
Forecasted Expenses by Location
November 2001 through December 2003
----------------------------------------------------------------------------------------------------------------
2001 (Nov., 2002 (12 2003 (12 Total (26
Eastern Territory: Dec.) months) months) months)
----------------------------------------------------------------------------------------------------------------
World Trade Center Emergency
Disaster Support $ 4,000,000 $ 4,800,000 $ $ 8,800,000
----------------------------------------------------------------------------------------------------------------
New York City Social Services 5,827,000 12,000,000 5,000,000 22,827,000
----------------------------------------------------------------------------------------------------------------
New Jersey Social Services 2,000,000 4,000,000 1,500,000 7,500,000
----------------------------------------------------------------------------------------------------------------
Forecasted Expenses by Location
November 2001 through December 2003--Cont.
----------------------------------------------------------------------------------------------------------------
2001 (Nov., 2002 (12 2003 (12 Total (26
Eastern Territory: Dec.) months) months) months)
----------------------------------------------------------------------------------------------------------------
Airline Survivor Family Services 500,000 250,000 100,000 850,000
----------------------------------------------------------------------------------------------------------------
Southern Territory:
----------------------------------------------------------------------------------------------------------------
Pentagon/Reagan Airport Disaster
Support $ 250,000 $ $ $ 250,00
0
----------------------------------------------------------------------------------------------------------------
Greater DC Area Family Social
Services 3,000,000 9,000,000 1,500,000 13,500,000
----------------------------------------------------------------------------------------------------------------
Total Forecasted Expenses $15,577,000 $30,050,000 $8,100,000 $53,727,000
----------------------------------------------------------------------------------------------------------------
Actual Service Delivery Report
From September 11, 2001 through October 31, 2001
------------------------------------------------------------------------
------------------------------------------------------------------------
Meals Served at Disaster Sites 2,391,834
------------------------------------------------------------------------
Mental Health/Social Services Counseling Contacts 54,786
------------------------------------------------------------------------
Individuals Prayed With 155,783
------------------------------------------------------------------------
Volunteers Involved 22,310
------------------------------------------------------------------------
Volunteer Hours Given 721,898
------------------------------------------------------------------------
SA Officers/Employees Involved 2,507
------------------------------------------------------------------------
SA Officers Hours of Service 40,694
------------------------------------------------------------------------
Unduplicated Units of Service 1,915,877
------------------------------------------------------------------------
Chairman Houghton. Thank you very much, Colonel. I would
like to indicate that Ms. Dunn and Mr. Pomeroy and Mr. McNulty
have joined us on the panel. I would like to ask Mr. Coyne if
he'd like to inquire.
Mr. Coyne. Thank you, Mr. Chairman. Mr. Farley, in
soliciting donations for the Liberty Fund, how specific were
the solicitations in terms of types of relief that would be
provided, who would get the relief and when the victims and
their families would receive the relief?
Mr. Farley. In our public announcements about soliciting
support for our relief activities, I believe the language we
used was close to support will be directed toward the recovery
of these victims and for the emerging needs of terrorist
attacks, that resulted from these terrorist attacks. We did not
have an inventory of services, that level of clarity. We did on
October 12 issue a press release that did enumerate the kinds
of services that the Red Cross was providing and assigned a
projected cost for those services at that time.
Mr. Coyne. And in your solicitations, you never indicated
when people would get the relief?
Mr. Farley. I think the message was that relief would be
offered immediately. I know that in the case of the new program
that we created, the Family Gift Program, it had an objective
of a 48-hour turnaround. In some cases, we did it in 24 hours
once we received a one-page form from the victim, in other
cases it took longer. But the intent was that this would be
provided immediately, both in terms of the needs of the victims
as well as cash support.
Mr. Coyne. Has the Red Cross stopped soliciting funds for
the Liberty Fund?
Mr. Farley. Yes, we have.
Mr. Coyne. Is that because you feel that you have enough
money to do everything that needs to be done along with the
other charities that are involved?
Mr. Farley. That is correct.
Mr. Coyne. Thank you.
Chairman Houghton. Thanks. Mr. Hayworth.
Mr. Hayworth. Again, thanks to our witnesses, and, Mr.
Farley, I want to thank you for coming forward today. Let me at
the outset say that our reflection of response, indeed there
was--I don't know how formalized it was, but Members of
Congress went to many of their campaign contributors and said,
we need to help in this effort, and personally we raised from
supporters about $10,000 that we sent to the American Red
Cross, because so many of us reflectively think of the Red
Cross, the Salvation Army as signature charities, precisely
because of the first response you mentioned in your testimony.
It is not my intent to blind side you with a question, Mr.
Farley. I know that we are focusing on the September 11th
tragedy, the unprecedented things that have happened there,
but, again, as scrutiny has come nationally, I am in receipt of
a letter from Dianne Jacob, who is the Second District
supervisor in San Diego County, California. She points out
another important date, September 12th, when the Red Cross
responded to an audit in the wake of the Viejas fire that took
place in San Diego.
The bottom line on this, and working with Dr. Healy and the
Red Cross, Supervisor Jacob writes, and let me quote from her
letter dealing with that Viejas fire and what went on in San
Diego County, ``It was disturbing to learn that out of $400,000
in donations, less than $25,000 has gone directly to victims.''
Skipping down and continuing, ``Now this matter has gone on
unresolved for over 10 months, and I can't help but wonder if
the Red Cross can't manage a $400,000 problem, how can they
manage a $550 million challenge?''
In your own statements today in terms of what has been
raised, and I am not an auditor--I know that we have one
accountant here on the dais from North Dakota, I can defer to
him, and maybe he can check my math here--you said $154 million
has been disbursed, $120 million directly to victims. The $34
million, does that go to what could be described as overhead? I
know there are a lot of challenges. I know that you are dealing
with a lot of different personnel, with volunteers, and I don't
believe that to necessarily be sinister, of course, and I think
we have to dispel that, but there are significant questions of
overhead in terms not only of the September 11th tragedy but
what we are hearing about the Viejas fire according to
Supervisor Jacob in San Diego County, California. Is the
overhead a significant problem for you folks in terms of
dealing with tragedies?
Mr. Farley. Congressman, you have raised several issues,
and let me separate them out a bit, and then if I don't do a
good enough job, please come back at me and we will try it
again. With regard to San Diego, the San Diego chapter was in
error in the way in which they administered their disaster
relief operation, clearly, and we apologize for that. That is
not the way we do business, and it is not acceptable. We have
later on today a press conference that will be held that will
be issuing an audit to the public about what occurred in San
Diego in terms of the disaster response that was provided and
in terms of the management of the funds for that relief
operation, and there is an action plan noted in that audit with
some outcomes that need to be achieved.
Now, I do not know the details of that situation, but I
would be happy to provide the members of this Subcommittee with
any details as they are forthcoming from that release of
information, and hope that that would suffice the inquiry with
regard to the San Diego issue.
Turning to the American Red Cross and the September 11th
tragedy, I would like to report to you, Congressman, you asked,
how are we spending the money beyond the $120 million, and I
would like to share with you. One of that is overhead, and
where do the other moneys go in that allotment? Of the $154
million that we have spent at this point, about $6 million
could be identified as what you might call overhead or direct
services and support of the relief operation. And let me
describe two of those categories, if you will, so that you know
what we are talking about.
When we deploy 44,000 disaster relief workers to Ground
Zero sites, that requires of us obviously transportation costs
and so on, expense fees for them to get from one place to the
next. That is a part of that number. When we try to engage the
victims to understand where they are and to get information to
them, we create 1-800 call lines and staff them with people so
that we can reach the victims and direct them to the kinds of
services that they need for their recovery. That cost of
setting up that call line and getting the people to staff it
and run it and direct inquiries is a part of those costs. So
that accounts for probably about 4 percent or so of the total
cost of the operation that we have currently expended thus far.
So the question remains, what is left, and here is what is
left. One of the items that we have expended funds on is to
develop a strategic blood reserve, and let me explain why that
has become an issue for the American Red Cross. As you may
know, we provide about 50 percent of the country's blood
supply. When we watched the planes hit the towers at the World
Trade Center and saw the fireballs explode, the first thing
that occurred to us is that we are going to have many burn
victims as a result of this tragedy. We had a very narrow
margin of blood on reserve at that time, about 3 days of
reserve blood supply to support the blood needs of the entire
country. What that cautioned us about is if we are going to be
under a terrorist attack and our country is going to be in need
of blood product, we are incredibly vulnerable to be able to
respond to the needs of blood across the country. So we
directed some of our efforts, about $12 million of the $154
million to equip us to collect blood, because of the--as you--
many of you have given blood, and we thank you for that, but to
collect blood and then to store it so that it can be used and
directed to the time and place that it is needed most. So that
is--was the thinking behind that particular expenditure.
We also have a situation occurring in communities across
the country, where our Red Cross chapters--we have 1,050 Red
Cross chapters around the United States. Many of them had been
getting calls from school administrators who were bringing
their children into auditoriums saying, help us manage our
children's fear, because they are looking at images of planes
flying into buildings, and they don't--they think that they are
being attacked. We needed to equip our chapters to manage these
kinds of, if you will, mental health issues or counseling
issues in communities across the country. And it is one of the
many kinds of different victims that we have found when we
endure a terrorist attack. So part of our resources, about $14
million, have been expended to support our chapters in terms of
providing mental health services, setting up their own call
lines to answer inquiries from people who are calling in to
find out what was going on and a variety of other kinds of
situations that occur in the areas.
So those are some use of the funds, Congressman, and if you
would like more information about that, I would be happy to do
my best.
Mr. Hayworth. Thank you very much, Mr. Farley. Thank you,
Mr. Chairman.
Chairman Houghton. You know, these are all very interesting
questions, and we are deeply concerned of your comments, but I
do think we have to keep within the time limits. We have got a
vote now, but, Mr. Crowley, would you like to ask a question?
Mr. Crowley. Thank you, Mr. Chairman. Thank you first for
allowing me to be here today and sitting on the panel. Aside
from the--Mr. Farley, aside from the September--the Liberty
Fund, which was established solely for September 11th, what has
been the difference in terms of amount of contributions
received by the Red Cross since the 11th to this date as
opposed to last year or in comparison to last year? Do you
know?
Mr. Farley. Congressman, I can't answer that with any
specificity. Right now many of our chapters are in annual
operating support campaigns in partnership with the United Way.
The community campaigns are currently underway. In some cases,
we have seen the contributions are down. In other cases, we
have seen that they are tracking fairly closely for general
operating purposes. But the jury is still out as to what the
future might be for that.
Mr. Crowley. So my understanding is the segregated account
is not going to be used for overhead. Is that correct?
Mr. Farley. That is correct. Any expenditures for the
victim relief for the terrorist attack and the consequences
that are forthcoming, those expenses will be supported by the
Liberty Fund. Beyond that, we are not using general overhead
expenses of the American Red Cross. They are all directed to
support the efforts of the victim relief.
Mr. Crowley. Thank you. As someone who sits here today who
had a personal relationship with one of the victims, I should
let you know that ahead of time that a first cousin was killed
in the September 11th attacks. So some of this is somewhat
personal to a degree, and many of us here on the panel at least
knew someone or knew someone who knew someone who was killed on
that day. I think part of the problem is that when we look at
this is that we think of the 5,000 figure, or thereabouts, of
people who were killed on that day, when in reality you are
dealing with a much larger audience. Is that correct?
Mr. Farley. That is absolutely correct.
Mr. Crowley. So at least 25,000 people.
Mr. Farley. There are 25,000 families that have been
affected, and, if I may, there are three categories of victims
that received the initial first allotments of cash. The first
were the families who suffered a loss of a family member. The
second were families living in the impact area who were pushed
out of their homes; about 25,000 people were left basically
homeless as a result of that. And third is the economic
disruption of the businesses around the impact area. Those
three categories received the first infusion of cash support
from the American Red Cross, but there is--as you heard, there
is a ripple effect in terms of who is really the victim in this
tragedy.
Mr. Crowley. Do you have--or your organization has stated
that you have dispensed about $154 million as of today or have
made commitments to spending $154 million of the $564 million.
Is that correct?
Mr. Farley. Correct.
Mr. Crowley. You have stated as well--when I say you, the
Red Cross has stated that the rest will be held for emerging
needs. Could you describe for us what those emerging needs are?
What is the definition of emerging needs?
Mr. Farley. Emerging needs are needs that we are not really
aware of right now but will be known in the future, and I cite
the example of our experience with Oklahoma City bombing
victims. Six years from that event we are finding still
families who have come to us, either new or continue to seek
support, because of the disruption that they are finding.
Second, who would have imagined anthrax? Those are the kinds of
things that we need to be responsive to.
Mr. Crowley. The reason I ask that is because I think the
Liberty Fund was created solely, or at least in my
interpretation, for the events of September 11th and that that
is where the people expected those dollars to be spent. I think
generally the people who donated to that fund would have some
question--maybe they would be in favor of the way in which you
are going to expend those dollars, but I think for the most
part they would all know that the September 11th fund was
created for--or the Liberty Fund, as they saw it, was created
for that specific event that day. Do you have--your
organization has decided they will not partake in the
establishment in New York or cooperation with New York's
Attorney General in the database that he wishes to establish.
Why is that?
Mr. Farley. Sir, that is incorrect. We will participate in
the database. We are a partner with New York State Attorney
General Spitzer to design how that best could occur. We are
committed to be an equal partner in that process.
Mr. Crowley. And just one more comment, Mr. Chairman, and
then I will give it back to you, is that as someone who is very
close to this and who has been talking to my cousin's wife on a
regular basis, one of the things that she has described to me
that is very disconcerting to me, and I think the panel will
also find this disconcerting, is that someone who has lived a
very dignified life, who has had--lost a battalion chief in the
Fire Department, for instance, now finds herself in a position
where she is calling it glorified begging, for the lack of a
better word, that she has to make application upon application
to receive a great deal of the funds that she feels is owed to
her to some degree, and she comes from a family that is going
to take care of her. Her husband was a fireman, a battalion
chief and the union is going to take care of her. She is going
to have X amount of funds down the road, but it is the
immediate needs they think she is having difficulty with, and I
just want to share that, because you multiply that by 5,000,
and that is what people are going through today.
I want to thank the gentleman for his time. Thank you, Mr.
Chairman.
Chairman Houghton. Thanks very much. Ms. Dunn.
Ms. Dunn. Thank you very much, Mr. Chairman. I come from a
background of deep volunteerism, and so I have great respect
for both your options. I worked on one of the panels, the
allocation panels of United Way, I learned how great the
Salvation Army is. Lieutenant Colonel Jones, we are grateful
that you are here.
Mr. Farley, I wanted to ask you a question that has to do
with your method of fundraising. In my background I have raised
money for many, many different organizations, and in the way
that those dollars are spent, sometimes the strength of the
organization determines how the dollars are laid out. I know
that you have many responsibilities besides providing direct
aid, and sometimes the services you provide can be more
valuable than the dollars directly.
I simply want to get to the integrity of the fundraising.
Do you believe that your organization, as you began to raise
dollars in those hours and days after the 11th of September,
did so with integrity? For example, was there an implication
left in some way that all the dollars would go directly in cash
donations to families so that you would become a pass-through
organization, or do you believe that you specifically said we
are going to use these dollars in the best way we determine
through the strengths of our organization are possible,
including direct cash allocations?
Mr. Farley. It is the latter message, because the Red Cross
in its solicitations and in its gift acknowledgments office
cites a litany of things that we have done to respond to
disaster recovery operations, number of people fed,
mobilization of volunteers, in addition to cash disbursements,
and so we have tried to really communicate that this is beyond
simply a pass-through, that in fact the gifts received are for
the support of the total mobilization effort to respond to
victim needs.
Ms. Dunn. Thank you. I am looking for that. I think that is
an important answer that you just gave. I would like each of
you to respond to my second question, which is what are you
doing in terms of planning for the next disaster? Is there--and
are you using some of these funds that were donated to provide
for the next disaster that very likely will be occurring very
soon, because they happen all the time and both of you are
engaged in them, but specifically things that could happen as a
result of September 11th or tied to September 11th?
Lieutenant Colonel, why don't you start?
Mr. Jones. I will. Thank you. The Army is engaged in an
ongoing training program for its personnel. We begin training
them when they come out of our seminary, our training college
in disaster work. We are also training our volunteers, but that
money does not come out of this fund. The dollars that were
given to the Army to spend on this disaster are being spent on
this disaster. Certainly another disaster is going to happen,
and we will be there to respond. We need to be ready.
Mr. Farley. Congresswoman, we are also preparing for the
future. A year and a half prior to the terrorist attacks of
September 11th, we have established in part because of the
generosity of the public through a public Federal grant the
Clara Barton Center, which is designed specifically to help
train our personnel on how to respond to weapons of mass
destruction. It is being operated out of an annual operating
budget of the American Red Cross, not out of a disaster fund.
And that is the site where we are trying to educate ourselves
about what kinds of disciplines do we need to blend into our
current array of disaster response competencies.
We are also in terms of preparation trying to communicate
to the public as quickly as we can what are some of the
biochemical agents that might be used in the future, how do you
recognize them and how do you protect yourself from them, how
do you look at situations, how do you work with children in
dealing with children's fear. We are trying to build
competencies and partnerships and perhaps even in some cases
outsourcing of expertise to assist the American Red Cross to be
ready for whatever comes next.
Ms. Dunn. Let me ask you one last question. The dollars
that came in, the over $500 million that came in as a direct
result of your fundraising after September 11th, I know that
some of those dollars will go into your general fund. What I am
interested in, will any of those dollars be spent for any
activity of the Red Cross that doesn't directly relate to the
items you just mentioned that relate to September 11th?
Mr. Farley. All of the items of--all of the uses of the
funds that we received as a result of this tragedy will be
directed for the activities that support victim recovery, and
when I say that, I don't mean to suggest that they will be
restricted to cash disbursements. They will be beyond that, but
that is a very important clarification. None of those funds
will be used for the general operations of the Red Cross. They
will be used for the response requirements that this tragedy
and other items as we learn in the future will require of us.
Ms. Dunn. Thank you, gentlemen. Thank you, Mr. Chairman.
Chairman Houghton. Thank you very much. Not very much time.
Would you like to ask a question, Mr. Foley?
Mr. Foley. Yes, actually, I want to follow up a little bit,
because that is still troubling that you are going to use some
of this money for--such as $50 million for building blood
inventories. Now, I understand there is a tragedy and a crisis,
but the Red Cross is acting as if there are no other blood
suppliers in the Nation, and I don't think your donors expected
when they gave that money for you to start ramping up other
aspects of your operation, and that goes again to correct. It
is as if I asked somebody to donate to my campaign, a future
campaign, and they gave me the money. And then I said, you
know, I really don't have the stomach for this. I think I am
going to go to Hawaii instead on vacation. And I take your
money and I leave. And of course credibility then is shattered.
I would never be able to go to the well again and ask for
support. That is not going to happen, by the way, I state for
the record.
But these are issues that I think go to the heart of your
mission and that Red Cross stands for a lot in people's eyes. I
mean, it is a phenomenal organization, but I think we have gone
to a point where we are money drunk almost. There is so much
coming into so many funds.
Local organizations that I support find themselves
perplexed, because they are seeing their revenues dwindle,
because everything is racing and rushing to assist the victim,
and lo and behold, money is going to things that weren't
contemplated by donors. And, again, that is why when with my
opening statement--I wish Mr. Gotbaum was still here, because
he said we have to use money to pay legal fees. I made a
statement that the Academy of Trial Lawyers were donating their
services, 1,500 lawyers donating their services. We said we
need to pay lawyers. You are not going to keep free service for
too long if there is a fee involved and they are allowed to pay
it. Elaborate a little bit on that blood bank issue, because I
do think it impacts some of your competitors in the blood
market, the not-for-profit blood market.
Mr. Farley. Congressman, I don't know if you were in the
chamber when we were speaking about that, but the origin of the
idea for a blood reserve was prompted and accelerated by what
we observed on September 11th with the crash of the planes into
the buildings, the fireball of jet fuel and the victimization
of burn victims which we anticipated. And tragically, there
were not many survivors from that. It brought to mind how
vulnerable we are, as we provide 50 percent of the country's
blood supply, that we don't really have very much in reserve to
respond to a tragedy that might require a massive amount of
blood to save lives.
Mr. Foley. And let me underscore that. In my community, we
typically have 500 pints a week in the blood bank, but the
following 7 days we had over 7,000 pints. So it is not as if
these people are not willing to come back and be donors again,
but the problem remains that if we simply use these resources
to do what we have always wanted to do, well, it starts
stretching. Did you ever do a disclosure on any of your forms
that some of them may be used for other purposes?
Mr. Farley. Yes, we did. In fact, on October 12th, we
issued a press release, which itemized the uses of the--the
intended uses of the Liberty Fund and how much we anticipated
that to cost, and----
Mr. Foley. But that was October 12th. I mean, September
11th, the 4 weeks of the most generous donation weeks in our
history. So they were giving pre-October 11th. So what was the
disclosure up until that point?
Mr. Farley. I would say that there was no itemization of
what the services were in the early days of this tragedy, but I
would like to return to your point, though, that I think that
while one might argue these are all great ideas and purposes
and noble intents for activities of organizations, they may not
be appropriate for the Liberty Fund, because the Liberty Fund
was given for a particular purpose, which is narrower than what
is being proposed for it. And I would like to say that this
entire issue is being reviewed currently by our board of
Governors in consultation with our donors, and to determine
whether or not are we out of step with what we believe the
donor intent is.
Mr. Foley. Well, I hope so, because, again, I think the
majority of people that I talked to that gave money said I gave
it for victims and their families, not for community outreach,
not for expanding blood banks, not for creating other programs
that may be appropriate, but those have to be specifically
requested by your groups.
Mr. Farley. I understand.
Mr. Foley. I better go vote. Thank you. Yield back.
Mr. Hulshof. [Presiding.] Thank you, Mr. Foley. Let me
follow up, Mr. Farley, on a question that Mr. Coyne asked
earlier, and that was I think a statement that you made that
the Liberty Fund, that you feel that sufficient moneys--
donations have been collected for that Liberty Fund. Did I hear
that part of your testimony correctly?
Mr. Farley. That is correct.
Mr. Hulshof. What about the ongoing fundraising beyond your
control? For instance, last week it was Halloween. I know that
there were young people that were trick or treating for
donations to go to perhaps the Liberty Fund. I know Mr. McInnis
from Colorado who--we have got this vote going on, but young
people selling ribbons for relief, ATM or automatic teller
machines, and other solicitations. Again, for the Liberty Fund,
what is the Red Cross to do if you get specific donations
earmarked for the Liberty Fund to try to, as you said earlier,
acknowledge and respect the donors' intent?
Mr. Farley. We have not proceeded with active fundraising
with the Liberty Fund as of October 31st, but that is not to
say that if a donor wishes to contribute to the Liberty Fund
that we would not honor that intent. It would be placed in the
Liberty Fund.
Mr. Hulshof. Colonel Jones, let me ask you with really a
tribute to the Salvation Army, because it is my understanding,
and I think maybe in your testimony you indicated about 10
cents out of a dollar that is donated, only 10 cents, 10
percent are used for overhead. And I happen to know and believe
that that is a small percentage of donations just being used to
pay the bills, keep the lights on, computer terminals and the
like. How do you, how does the Salvation Army successfully do
this when other charities struggle to have that low overhead
cost?
Mr. Jones. Well, it is not easy, but we have wonderful
people, we have committed Salvation Army officers who have
given their lives to the Army. We have 3.3 million volunteers
in this country that we utilize to do all kinds of things, and
we have 45,000 dedicated employees who probably work for a lot
less than most other organizations, unfortunately. The Army has
a long history of I think being frugal and conservative in its
overhead, and we somehow manage to get the job done with the
Lord's help.
Mr. Hulshof. Is there any concern--I know as we get ready
to go into the holiday season and everybody in our community
recognizes the bell ringers that stand outside businesses. Is
there any concern that because of this huge outpouring of
support that we have seen over the last 7, 8 weeks, that that
might curtail those necessary donations around the holiday
period?
Mr. Jones. Well, that time of the year is certainly coming.
I sometimes think people think the Salvation Army just
mushrooms out of the ground on Thanksgiving Day with a kettle
and a bell and goes to sleep at Groundhog's Day. But the truth
of the business is we are in business 365 days of the year.
What we have traditionally found, however, is that immediately
after disaster, we found this in the case of Hurricane Andrew,
for instance, that actually Christmas giving went up, because
people were reminded and saw the work of the Salvation Army
firsthand being done. However, in this disaster, which is, as
we have said, unprecedented in both the scope of what happened
and in the fundraising portion, there is some concern on the
part of the Army as to whether there are still dollars in the
hands of people who are going to give them.
Having said that, we have great faith in the generosity of
the American people, who have supported and continue to support
all the work of the Army, and we believe that they will
continue to support us.
Mr. Hulshof. Let me ask a final general question of either
of you, if you choose to weigh in, and that is, as you know,
Congress acted swiftly and created a special fund for
compensation to those harmed by the attacks. Maybe, Mr. Farley,
this might be appropriate for you. As grants or cash awards are
provided, how do you see that working as far as that
compensation fund that Congress has created? How do we make
sure that we maintain the integrity, both of--from your point
of view and from ours?
Mr. Farley. Congressman, we have not as an organization
reviewed what would be the best complement of what we do to
that resource that has been created. I would say, I think there
are--some of the issues that come into play here obviously are
when you have a variety of funding sources, the availability of
one might influence the ability to tap the other, and I think
that what comes into play is a casework discipline in working
with victims to see what are the range of resources they have
access to and how can we best leverage the resources from all
sources to meet the needs of the victims. Specifically how we
would fit into that and complement that, we haven't given it
the thought that it needs, but we certainly will.
Mr. Hulshof. Thank you. Mrs. Thurman.
Mrs. Thurman. Thank you. I think the questions that I was
actually going to ask are kind of based on what you just said.
We have heard from charitable organizations. We heard from the
gentleman with the Liberty Fund, the Salvation Army,
yourselves. We are going to hear from the Attorney General. And
one thing in government that we always get in trouble about is
when we don't coordinate things, and why doesn't the left hand
know what the right hand is doing and the left foot and the
right foot. And, you know, there is a lot of concern, and as I
am adding up the amount of dollars that have been raised over
the last couple of months, there is a tremendous amount of
dollars out there.
How are we--and I will ask both of you this, because I
think we really have to get a grip on this coordination of
these services. Trial lawyers were mentioned earlier. You know,
they have put a fund together to help victims. You have got
different charitable organizations that we are giving money to
within these areas. How are we going to coordinate these? How
are we going to make this fair for all victims? I think the
worst thing that could happen is one story be told that
somebody got this amount, but this person over here didn't get
this, didn't get this. They didn't get their child's tuition
paid for, but somebody else did. Somebody's utility bill was
paid for 1 month, but somebody else's was paid for 6 months.
How are we going to coordinate this, and are we starting to put
these steps in place?
I know that it has been a short period of time. I know you
all have been under a lot of stress. I can't imagine the
stories that you are hearing about on a day-to-day basis, but
think that a lot of us are very concerned and probably we will
hear these stories over and over again. So if you both could
give me some ideas of what you think is going to happen in the
future and particularly because of the Congressional hearings
as well.
Mr. Jones. Cooperation and coordination is the name of the
game. Well, the Army does that on a local basis with, for
instance, clearinghouses at Christmastime to make sure somebody
doesn't get helped by four organizations. We are used to doing
that in local communities, and we also do it doing disaster.
Our friends at the American Red Cross and other relief
organizations we work with on a daily basis. Several weeks ago
the National Commander of the Army went with the interim
president of the United Way of America to Dr. Healy's office,
and they talked about ways to be cooperative and coordinate our
efforts in this disaster. You are right on target. It has to be
done, and we are the ones who have to make it happen.
Mr. Farley. I think that there are several elements that
need to be in place in order for coordination to work. One is
you need to have a common holding of information about who is
providing what kind of services. Second, you need to have a way
of understanding what the victims' needs are. And then there
needs to be some way of connecting those two pieces of
information so that the benefit can be given to the victim in
the best way possible in light of all the range of things that
are available.
I think New York State Attorney General Eliot Spitzer has
been the catalyst in looking at the very issue you raise, and I
think there is a model that we all have been drawing from in
Oklahoma City, trying to get an understanding on how do we
better collaborate with one another, and I think we will be
inventing new mechanisms to do a better job with this as we
move into a second phase of responding to the victims. So I
think the ideas are at play now. The solutions aren't there
yet, but I think there is a commitment to create them.
Mrs. Thurman. Let me just follow up that, because I think
Lieutenant Colonel Jones mentions an important point, that they
have been on the ground floor. They have been working with
charitable organizations and/or agencies and departments
throughout local communities. You know, it is a big umbrella
out there, so if you say the Red Cross or the Salvation Army or
whomever, and Mr. Gotbaum actually talked about the fact of
this Horizon Group, what they had been doing with their money.
How much are we seeing of the coordination, then, of those
people on the ground within those departments and agencies that
would generally try to give out this kind of aid? Are they
involved in these everyday discussions as to how this is
happening, how it might happen, but still taking away--I think
something that I am also very concerned about is that this is a
different type of situation where we don't get into--as Mr.
Crowley said--this kind of begging that they are having to do
or the continuing--I mean, but they do have a sense of how to
get this money out, who to talk to and how to help, I think
work through these problems, and I am just wondering are they
involved in these conversations as well?
Mr. Farley. I believe--I know that they are, and in fact I
wish my colleague from New York City, Bob Bender, who is the
chapter executive there, who has been responsible for the first
response to the World Trade Center tragedies, were here. He has
a broad range of experience in interacting with agencies there.
The Red Cross is one of many who participate in a family
assistance center at the pier, where all the--many agencies are
together in one place for families to go to a one-stop shopping
for assistance, and while they don't share databases, they have
resources available to families so that they don't have to run
from one place to the next. So that is a start. There is a
sensitivity there, but there is a long way to go.
Mrs. Thurman. I just want to say, I know this has been a
very tough time for all of you, and while I know there is a lot
of fire going on up here and we are concerned because we are
hearing from those that are giving as well as those who are in
need, please take back to your volunteers and the people that
you work with on an everyday basis that we appreciate the job
they are doing and that we are here to help them, and that is
why these hearings are taking place. Thank you.
Mr. Jones. Thank you.
Mr. Hulshof. Mr. McNulty.
Mr. McNulty. Thank you, Mr. Chairman. Along those same
lines, I want to thank both Mr. Farley and Colonel Jones for
all of your good work. You are certainly shining examples of
the fundamental principle that life is to give, not to take. I
just have a brief question for Colonel Jones, and, Colonel
Jones, if you answered this while I was over at the vote, just
say so and I can look at the record. But you have a mechanism
in place whereby when a donor gives you a contribution, they
can direct it for a specific purpose?
Mr. Jones. That is correct.
Mr. McNulty. Now, what happens when you have got, for lack
of a better word, a surplus in one particular category and you
have a real need in another and you have a substantial deficit
in that category? How do you deal with that?
Mr. Jones. It generally doesn't happen that we have a
surplus, but you are absolutely right. Most of the donors that
we have had in this disaster have designated the money to be
spent, for instance, in New York at the World Trade Center or
in Washington to help with the Pentagon disaster, and all of
the checks we have are channeled to those two sites. We also
get checks from people who say, spend this on this disaster,
wherever, and the Army then has the leeway to say, do we need
it more in New York, or do we need it more in Washington.
If dollars come in and the Army identifies needs, I am
thinking of Hurricane Andrew which happened 9 years ago now,
but I was in Florida when that happened. The Army stayed there
for 3 years helping people rebuild homes in Homestead, for
instance, and we bought a shopping center so we could give out
building materials and had a volunteer village where Habitat
for Humanity and other volunteers came in. And we ended up
spending every bit of the $34 million that was given to us in
real meaningful help to people.
So I guess the first answer is generally we don't have a
surplus, but we do direct it to where it is needed if there is
no direct designation.
Mr. McNulty. Well, I guess also within your answer you are
basically saying there are a lot of people who don't specify
it?
Mr. Jones. That is correct.
Mr. McNulty. So you do have some leeway, if you do have a
crying need somewhere and you are not getting enough help
there. Could you give me just a general breakdown, if you
could, just if you have a general idea, of your overall
contributions. How many, what percentage of them would be aimed
at a specific purpose, and how many would just be a donation
where people give you the money and just say do some good work
with it?
Mr. Jones. Well, again, in Hurricane Andrew, most people
said use this money for Hurricane Andrew victims in south
Florida. In this disaster, we have had more than half who have
said, I want this money used in New York, or I want it used in
Washington. So I would say less than 50 percent have been
undesignated, but still that is a substantial amount of money,
a substantial dollar size. We have been able to put the money
where it is needed.
Mr. McNulty. Thank you, Colonel. Thank you, Mr. Farley.
Chairman Houghton. [Presiding.] Thanks, Mr. McNulty. Mr.
McInnis.
Mr. McInnis. Thank you, Mr. Chairman. First of all, Colonel
Jones, I think the job of the Salvation Army has been
commendable, and I appreciate the efforts you have made in
regards to this tragedy, but I also appreciate the efforts you
make on a daily affair. With that, my questions really are
directed at the Red Cross. A couple of questions--I will ask
the questions very quickly, and then you can just answer them,
if you wouldn't mind writing them down.
I don't know that I am using the exact language that you
are using, so I would ask that you interpret my questions based
on the general intent and not some kind of semantic
interpretation. First of all, in regards to interest on your
earnings, I have allocated that you must have about $400 and
some million, maybe $450 million in the bank. Certainly--and
you may not use the term ``interest.'' You may have income
earned on assets or revenue, but you know what I am talking
about, excess revenue--you may not be using the word
``excess.'' I am trying to be very careful, because I want this
question answered exactly. Do you consider the, for lack of a
better term, interest earned on the revenue or assets you
currently are holding as money that should be intended to go to
those victims as well, or do you think that that is money that
you can justify utilizing for other needs at the Red Cross?
Now, the second thing is it appears to me that the Red
Cross has self-imposed--because although I am an attorney, I am
not an attorney in this area, but I think I am good enough to
look at the current laws that the Red Cross itself imposed upon
their organization. Now, the confidentiality of not sharing
lists of beneficiaries of these funds so that there is no way
for other associations or organizations to coordinate whether
or not people are getting double, triple or quadruple payments
or whether or not fraud is taking place, certainly we know that
the attraction for fraud exists out there. I saw a picture
where they had a woman with a little thing around her neck in
an EMT, Emergency Medical Technician, emergency medical uniform
and then a fireman in a fake--both of them were standing
together. You probably saw the picture, and they had
perpetrated a fraud by stealing watches and things like that. I
am very concerned about the fraud and the misuse of funds in
that.
I want you to know that for my local communities, I come
from a very wealthy district in some regards but a very poor
district in other areas. I am very concerned that the Red Cross
has not made the message clear out there that you are fully
funded, and what I am concerned about, Colonel, is that when
you ring bells at Christmas, you know, for local charities, for
local needs, for our local cancer kids and so on, man, the
money is evaporating. I want New York to be fully funded but
when you are fully funded, I expect you to be as aggressive at
getting that message out as you were at getting the message in,
look, we have got enough.
Finally, the last question, do you coordinate what a person
receives in other benefits? For example, lots of our local
communities are raising money for the local firemen and the
police. Frankly, the government employees are the best--outside
of a few executives, the government employees are the best
cared for because of the life insurance, continuing salary and
so on. I am concerned about that window washer hanging from the
side of the building who has no life insurance, and so forth.
Do you take into consideration, look, these people are pretty
well cared for, so we ought to put more of the money or an
unproportioned amount of money to the people that are not
properly cared for?
Thank you. If you would answer those, I would appreciate
it. And I also want to tell you, for the good things you are
doing, I commend you, and I appreciate that. I just want to
make sure we are on course.
Mr. Farley. Thank you, Congressman. With regard to your
first question concerning the interest, the interest generated
from the Liberty Fund will be put into the Liberty Fund, and
only used for the purposes and intents of the Liberty Fund.
Mr. McInnis. Thank you.
Mr. Farley. It will not go toward general operating support
for the Red Cross. It will be supporting activities for victim
assistance.
Second, the confidentiality of victims is of high priority
for us. We guard the confidentiality of those who come to us
for aid. However, we do not intend to be a stumbling block in
the good efforts that are underway to create a commonly shared
database, and so we have pledged our full cooperation with New
York State Attorney General Spitzer to be an equal partner in
developing the guidelines that first of all ensure the
confidentiality of our clients but, second, allow us to
participate fully so that benefits could be extended to them.
So this is not a block in the way of progress for that
particular program.
Mr. McInnis. Thank you.
Mr. Farley. Third, clarity of message. We need to do a
better job with that, and we are going to do a better job with
our clarity of message, as well as due diligence in
understanding exactly what our donors intended by asking them
what did they intend based on what we are using the funds for.
So we--and that is underway as we speak.
And fourth, the issue of coordination, and particularly in
the issue of how benefits are disbursed to victims, if you
could think of this in a two-phase moment. The first phase of
the tragedy, we did not means test what people needed. We
didn't care if the person had extraordinary affluence and was
impacted or if they were a worker of modest means. We did not
make those distinctions. We simply asked, what do you need for
the first--for the next 3 months until you have access to other
resources? That is what has characterized the Family Gift
Program, for which we have distributed about $44 million to
2,300 families, and it also has characterized our behavior in
disbursing the rest of the $120 million to 25,000 families and
impacted people.
The second phase now comes into play, and that requires a
little more diligence so that we can coordinate with others and
make benefits available to people according to their needs at
the time. And so what that will require of us, unlike the first
phase, is looking at some kind of a casework methodology where
we work with each victim, we understand with them what
resources do they have available now in play and where are the
gaps and how can the Red Cross be a player in helping meet
those gaps based on what they need.
Mr. McInnis. And one final point in there. Do you
incorporate within that formula self-help? Do the victims
understand that at some point, to the extent they can, they
have to get on their feet and----
Mr. Farley. I am sure that that is part of the
conversation.
Mr. McInnis. Thank you. Thank you, Mr. Chairman.
Chairman Houghton. Well, gentlemen, you have had a real
going over. Thank you very much--oh, wait a minute. Mr. Pomeroy
has got a couple questions.
Mr. Pomeroy. Thank you, Mr. Chairman. You have an awesome
responsibility. The outpouring of charitable response from the
American people represents I think the highest and best
instincts of Americans in responding to tragedy. It would be a
tragedy in and of itself if that faith of the American people
in your abilities to handle their donated sums was shattered
because you mishandled the funds in some way.
So far I see no indication that has occurred. I am
concerned, however, that the coordination effort seems to be in
the early stages and directed by the laudable efforts of the
Attorney General rather than the charities themselves.
Literally there was so much coming in in terms of donated
support from the American people, it must have been the
challenge of a lifetime in terms of trying to make certain that
that was held and appropriately distributed.
What efforts were made within the charitable community to
develop a coordinated response?
Mr. Farley. Congressman, we are convening with other
responding agencies in New York, first of all, because that is
where the focus of--the scale of the operation is so
substantial, to answer that very question. What can we do to
better integrate what we do so that the victims will be healed
in the quickest way and----
Mr. Pomeroy. Mr. Farley, we are almost 2 months after the
attack. It just strikes me that this is something that would
have been first week activity, not----
Mr. Farley. Well, that did occur in the first hours of the
response, absolutely, but I understood your question to be
particularly geared toward in the long term how do we ensure
that we can integrate what we do together, and that is once we
are out of the moment and begin to think a little further down
the road, which is what we are doing now, we need to create
some new mechanisms to create a better integrated system.
Mr. Pomeroy. Just for an example, Colonel Jones, during
these weeks, 44,000 family gifts administered by Red Cross.
Would you be taking action to ascertain whether or not someone
who has come to you has gone somewhere else or----
Mr. Jones. Absolutely. As Mr. Farley has said, at Pier 94
in New York, there is a giant clearinghouse of all the
agencies, or most of the agencies there, certainly taking into
account the Red Cross at this table, the Army at this table and
other groups.
Another good example has happened at the Pentagon in the
hours right after the plane struck there. The military asked
the Salvation Army to coordinate the disaster feeding response,
and we worked with the Red Cross, with the Baptist men who came
in and set up a literal food court there so that you had--and
Tyson's Food and McDonald's brought in food, and the Army
helped coordinate that, and it was even called Camp Unity. And
I saw a T-shirt, Mr. Farley, I don't know if you have seen it,
which has the Red Cross on one sleeve and the Salvation Army
shield on the other sleeve and Camp Unity down the front. So
there was tremendous cooperation, I almost would say
unprecedented cooperation, between the Army and the Red Cross
at Camp Unity. I think that is happening, and it needs to
continue to happen, Congressman.
Mr. Pomeroy. Did someone come to you, Colonel, for a type
of relief that maybe the Red Cross wasn't providing? Or how do
you parcel out who does what?
Mr. Jones. That does happen. Some organizations are
equipped at Pier 94, for instance, to give this kind of help,
perhaps a mortgage payment, but not utilities or not
prescriptions. And eventually, the Army at the end of the table
is often the court of last resort, where if someone has fallen
between the cracks cannot get help here, here or here, then the
Salvation Army is there to say, we can do that and whatever
your need is we will try to meet it. Yes.
Mr. Pomeroy. How would you characterize the view that some
might be trying to game the wonderful efforts that you are
providing?
Mr. Farley. Those scams do occur. They have occurred on the
Internet. They have occurred in other spontaneous fundraising
activities where the individuals involved would use the brand
of the organization, the pretext that they are raising funds on
behalf of that organization and have not been.
Mr. Pomeroy. Is that where most of the fraud would be, Mr.
Farley, on the solicitation and not on the seeking benefits not
deserved?
Mr. Farley. There has been fraud in both cases. We have--I
am aware of one case reported to me in New York where an
individual had claimed that they had lost family members in one
of the towers when in fact they had not, and they are being
prosecuted.
Mr. Pomeroy. Thank you. I yield back, Mr. Chairman. Thank
you.
Chairman Houghton. Sorry to skip over you.
Mr. Pomeroy. That is all right.
Chairman Houghton. All right. Mr. Crowley, do you have a
final question?
Mr. Crowley. Just one question, Mr. Chairman, and thank you
again, and it is for either one of the gentlemen. There has
been a great deal of discussion in recent days on capping the
Federal awards for victims of September 11th in regards to how
much they actually collect from charitable organizations. Can
either one of you comment on positions of your organizations in
relation to that?
Mr. Farley. Well, I think as I understand the question, as
we continue to work with victims of this disaster, one of the
things we will be doing is to understand what are the resources
available to that victim and what is missing based on what
their needs are, and then to adjust what we do to respond to
their need. So it is with consideration of other resources that
they may have available.
Mr. Crowley. Well, discussion of this end I think is from
legislators who are saying that if charitable organizations
give X amount of dollars to a family, that should be deducted
from any Federal--whatever the master decides that family
should get, and that is what I am asking, whether or not you
think that should happen or not.
Mr. Farley. That question was raised earlier, Congressman,
and my response to that is that is an issue that we are going
to take up with our board to find out what would be the best
complement of Red Cross input for that consideration.
Mr. Crowley. Thank you. Thank you very much.
Chairman Houghton. Okay. Then I just have one final
question. It has been my experience that many times the people
who really need help don't ask for it and whether it is through
ignorance or because they are proud or whatever have you. How
do you gentlemen in your organizations try to reach out and
just say, we are here, we want to be of assistance to you?
Mr. Farley. Mr. Chairman, one of the things that the Red
Cross did the first day of the tragedy is we have learned that
there were many high-rise buildings with victims, elderly
particularly, who weren't coming out and weren't seeking
assistance, and so we assigned our staff to go door to door
through all of those buildings, engage as many of those as we
could in a 15, 20-minute conversation, which we would call a
case, to learn what they needed and to try to move them forward
into getting what they needed in that particular situation. In
the administration of our Family Gift Program, where we have
reached about 2,300 families, there were 500 families who did
just as you described. They turned us down. They did not want
the support that the Red Cross had offered. But what we find is
that over the weeks and months ahead, people will be ready to
step forward, some will anyway, and seek assistance, and what
we need to be doing is to make sure that those resources are
available for them, as well as to continue outreach casework in
the days ahead.
Mr. Farley. Because oftentimes people are just not ready,
emotionally, to step forward. But those needs are still there.
Chairman Houghton. Thank you. Colonel.
Mr. Jones. You touched a real point, Mr. Chairman. There
are many people who don't want charity and will not come. The
Army experiences this in local communities throughout the year
and especially at Christmastime. So Salvation Army officers go
out and literally compel them to come in.
What was it Yogi Berra once said? If people don't want to
come out to the ballpark, how are you going to stop them? That
is a great, great quote, and the truth is, if some people don't
want help, you have got a hard time giving it to them.
But the Army is committed to finding those people who
really do need help and making sure those people get it. And
frequently they don't come forward early. You are right.
Chairman Houghton. Well, gentlemen, once again, thank you
so much for being here and your testimony.
What I would like to do is to ask the second panel to come
up. Mr. Miller is director of the Exempt Organizations Division
of the Internal Revenue Service (IRS), and also the Honorable
Eliot Spitzer--Eliot, we are delighted to have you here--the
New York attorney general.
Mr. Spitzer, if you are ready, we would be honored to have
your testimony.
STATEMENT OF THE HON. ELIOT SPITZER, NEW YORK ATTORNEY GENERAL,
NEW YORK, NEW YORK
Mr. Spitzer. Yes, sir. Thank you very much for the
invitation.
I have submitted to the Committee a full statement and,
with the Chairman's permission, what I will do instead of
reading it is move through some comments that I would like to
make that I think will touch upon the highlights of what I
think is most pertinent to your discussion today and then
hopefully save some time for questions. With your permission, I
will do that.
The first thing I would like to say is that your
intervention in this matter is critical. It is only with the
substantial oversight and attention of every level of
government asking the hard questions that you are asking today
of the charities that we will get the answers that we need to
insure that the victims of that tragedy receive the aid and
assistance to which they are entitled and that the public that
has been so generous in its contributions gets what it
deserves, which is straight answers from the charities about
where the money is going and when it is going to get to the
victims for whom we have contributed so much.
I would like to respond first to what is, I think, the
single greatest issue that is being debated right now, which is
the use of the very substantial funds that have been raised by
the American Red Cross. I am personally very discomforted by
the fact that we are hearing inconsistent and conflicting
statements from the Red Cross about their intentions with
respect to the Liberty Fund.
I was in Washington 2 days ago, sat next to Dr. Bernadine
Healy, who is, I believe, still the chief executive officer or
was until recently the president or the chief executive officer
of the Red Cross, and heard her say that if approximately $200
million in the Liberty Fund was left over in 2 years then those
funds would be reprogrammed, would be used for continuity of
services, and then her language became similarly amorphous,
ambiguous and unclear.
I share the concern that I have heard articulated from many
of you this morning that those who gave to the Red Cross in the
aftermath of September 11th intended unambiguously that those
funds be used for the victims of September 11th. That is an
obligation I believe the Red Cross has, if it is going to
maintain the trust that it wants of the American public. If
there is any ambiguity about this, then I think it is
imperative that there will be investigation and inquiries that
will delve into how the Red Cross is handling that money and
why they have until today been so hesitant to give us a clear
statement about where these funds are going to go.
We heard this morning and I saw in statements yesterday
from the Red Cross reference to the possibility of letters
being sent to those who donated to the Red Cross. That doesn't
work. There are thousands if not millions of people who sent in
$10, $5, $100, maybe $1,000,000 for some corporations. It is
impossible now to return to those donors and inquire of them
what was your intent, and I would maintain that it is indeed
legally irrelevant.
What is relevant is what did they intend when they sent
that money in. I believe the Red Cross understood what they
intended. That intent was that this money go to the victims of
September 11th, and I call upon the Red Cross unambiguously to
state with clarity that that is where the money will go.
Anything else will be a violation of the trust that the Red
Cross owes to every one of us and, most importantly, to the
donors who contributed in excess of $500 million the Red Cross
has received.
I would also like to say that, in response to what I had
heard from the Red Cross with respect to coordination, which is
certainly one of the other critical issues, yes, we have
received from the Red Cross a statement that they will be our
partner in generating the database that is essential, but I
will tell you it has been a tortured process getting them to
that point. It has been a process of two steps forward, one
step back. It has been a process of legalisms being inserted
into a discussion when there is an imperative that we move
quickly.
Yes, the Red Cross said we need a waiver; and we said of
course we can get a waiver. We will do that. But it is now 8
weeks after this disaster, and as of yet we do not have the
acquiescence of the Red Cross to a process that should be
simple. So I will state unambiguously my patience is running. I
know your patience is running and the patience of the American
public is running, and well it should. In 8 weeks, these issues
should be resolved. They should be answered. I think that as
the days go by our trust in the capacity of the Red Cross to
handle these situations is diminishing.
I would indicate that while there is reference to--there
were some questions about a disaster in San Diego, I believe,
where there was some fair questioning about how the Red Cross
responded and the percentage of the funds that were used for
the appropriate purpose, there was also an audit that was done,
an analysis by one of my colleagues, the attorney general, Skip
Humphrey of Minnesota, I believe it was with respect to a 1998
disaster that found likewise that there had been a failure to
use the funds properly, the failure to use the funds for the
purposes for which they had been raised, and I think that this
is an issue that demands our attention. I therefore am very
appreciative that you, Mr. Chairman, have called this Committee
together to raise these difficult questions.
Let me run through, if I might, very quickly a few areas
where my office is trying to be proactive and help; and I will
be very prompt because I know there are other witnesses and you
have questions.
First, I agree with everything I have heard about the
obligation that we make it easy for those who need aid to get
that aid. We have done two things in that regard, and much more
needs to be done.
One, we created a Web site which hopes to aggregate
information about what the charities are doing--we have
aggregated information about their purposes, how they define
their own purposes. This is beneficial for victims so they can
access this information and find out to whom they should apply,
and likewise it is beneficial for donors so they can access
that Web site and find out to whom they wish to contribute,
based upon the purposes articulated by the charities. We have
over 190 charities listed there with substantial information,
the capacity to link to their Web sites and other information
as well.
Secondarily, when it comes to the ease of victim
applications, I have been encouraging the charities--and again
I have no legal capacity to require them to do this--but
encouraging them vehemently to come up with a single, uniform
application process. It seems to me that we need to aggregate
that information which the charities need, put it on one piece
of paper, put it into every language, make it accessible
online, reprint it in newspapers, circulate it so that, instead
of the multiplicity of documents that victims need to fill out,
the dizzying array of documents that they are confronted with,
let's make this easy.
Colleges have managed to, in many instances, create a
uniform application form. There is a simplicity here that is
called for, and we must move in that direction.
Next, in terms of coordinating the charitable effort, I
referred briefly to the database. That database is critical. It
is modeled after what was done in Oklahoma City several years
back. I think anybody who studied thedistribution of funds in
Oklahoma City--and the scale of New York, of course, is exponentially
larger--we know that that database was critical. We must get it up and
running quickly. The urgency of doing so cannot be overstated, and we
are at the point where statements of good intentions from the charities
are simply inadequate. If they don't step up to the plate, contribute
the data, make this happen very quickly, I will be sorely disappointed.
We have gotten some of the platinum names of corporate
America. We have IBM, KPMG, SilverStream, McKinsey and Quest
which are donating their services to create this database. They
are poised to create it. They have the intellectual capability,
the capacity to do it overnight if they are given the
parameters of this database by the charities.
We are waiting with bated breath to hear from the charities
every day what the specifics are. We are pushing them,
encouraging them. If I had a cudgel to hit them over the head I
would use it more aggressively, because my frustration level,
as I hope you can see, is rising every day as we hear good
intentions but fail to see the activity that is called for on
their side.
There is also an obligation, third, for information to go
to the public. I think that the charities that have received so
much generosity from the American public should respond in kind
to the public. They should file with my office on a monthly
basis information with respect to how much money they have
raised, how much money they have distributed, what the purposes
are to which the money has been allocated. Because that sort of
transparency, that sort of understanding is critical if the
American public is going to maintain its trust in the not-for-
profit sector.
Again, I cannot compel this, but it is critical, and I
certainly hope the charities understand that their reputations
are on the line.
Fourth, preventing fraud and abuse. You have asked a very
important question about double-dipping, scams that may be
perpetrated. We are poised here. We have specific jurisdiction.
We will prosecute those cases, and we have begun to do so in
those instances that we have discovered.
The good news is that, numerically, there have not been
that many. The story thus far is an affirmative story of those
who were trying to help, the generosity of the public and the
outpouring of goodwill, rather than the outpouring of scam
artists, although we are poised ready to address those scam
artists who are there to try to take advantage.
Finally, long-term coordination is critical. We have
assisted and the charities have cooperated--again, the
intentions are there--in creating a working group of the
leading charities. They are meeting not as often as necessary,
not with the degree of discussion, the depth of discussion that
is appropriate, but the process has begun.
And I say that--not to cover for the charities, because, as
you can see, I view my role now as being a critic and one to
regulate and, if necessary, do much more, and we have the
capacity to do more through subpoenas and investigations--but
that process has begun. They have created a working group, and
I applaud them for that. But, again, much more needs to be done
to address and define longer term needs as they will emerge.
Thank you, Your Honor.
[The prepared statement of Mr. Spitzer follows:]
Statement of the Hon. Eliot Spitzer, New York Attorney General, New
York, New York
Chairman Houghton, Congressman Coyne and distinguished Members of
this Subcommittee, thank you for inviting me to testify before you
today on the important issues that face us in the wake of the September
11th attacks and the charitable outpouring that followed that tragedy.
The physical and emotional impacts of the events of September 11th
are staggering. Several thousand people lost their lives at the World
Trade Center, the Pentagon and in Pennsylvania, and so the relief
effort plainly begins with an understanding of the thousands of
grieving families and friends they have left behind. Many children will
grow up without a parent, and thus families may need support for years.
In addition, thousands of people were injured as they fled the
World Trade Center or tried to rescue others. Many will require years
of medical treatment and other assistance. Thousands of others in New
York lost homes, jobs, businesses and sense of security. The individual
and aggregate physical, emotional and economic losses are huge. The
need for services ranging from education and training to mental health
counseling is equally enormous and will endure for years to come. In
short, this disaster has presented us with an array of victims of
unprecedented breadth.
Our response to this tragedy must be guided by a single overriding
principle--the needs of the victims and their families must be
addressed as promptly and coherently as possible.
The American people have already responded to this call, by opening
their hearts and wallets in an unprecedented way. Charitable
institutions have collected more than $1.1 billion in donations and
pledges, making appeals to their donors that directly cited the need
for relief of this disaster. Collectively, the American public has
great expectations that this outpouring of relief will make a
difference for those who are suffering, both on an immediate basis and
over the long haul.
As a result, the charities that have been entrusted with these
funds must spend them in a manner that fulfills the will of the donors.
Most importantly, the donations made specifically in response to the
September 11 attacks must be used exclusively for the benefit of those
who have suffered as a result of those attacks. In particular, the
indication by the American Red Cross that up to $260 million of the
newly-established ``Liberty Fund'' will not be used directly for the
victims of the September 11th attacks is unacceptable. Moreover, the
funds should be distributed in an equitable manner, ensuring that no
victim is left unassisted. Indeed, if the singularly important task of
distributing aid is not performed well--with dignity, fairness, equity
and justice for all of the victims--then the public could lose faith in
the entire not-for-profit sector.
As New York's Attorney General, I am charged with overseeing those
charities that solicit funds in our state, as well as the charitable
organizations, including foundations and charitable trusts, which are
created in or hold assets in our state. It is my duty to help ensure
that the interests of the public are protected when charitable funds
are raised and spent. I consider it a privilege to perform this
important function, especially in this time of great need.
Nevertheless, the essence of charity is its voluntary nature.
Americans decide individually, often in a manner closely linked to our
individual views and faiths, how to make contributions to charities
that serve our shared goals. There are many diverse ways in which
relief can be provided effectively, in keeping with our country's
strong tradition of private philanthropy.
In New York, most not-for-profit groups (other than religious
organizations and certain other exempt entities, such as the Red Cross)
are required to register with the state and comply with annual
financial reporting requirements. My office makes those reports public,
so that donors can make informed choices as they plan their
contributions. We oversee not-for-profit groups, including those that
are exempt from registration and reporting rules, to ensure that they
use their charitable assets in ways that fulfill the intent of the
donors and further the public interest. My office tries to ensure that
charitable solicitations are truthful, that charities invest their
funds carefully and that the officers, directors and trustees who
manage not-for-profit institutions uphold their fiduciary duties to the
beneficiaries of the charities they run.
But my office does not and cannot tell the charities how to spend
money--and most Americans probably agree that government should not
control this private giving process.
As regulators, our goal has been to help donors' efforts to obtain
information more easily concerning what each charity has done and
pledges to do with the funds it collects from the public. Here, with
the magnitude of the September 11th tragedy, and the huge numbers of
its victims, we must also pay special attention to helping those
individuals and families obtain the information they need to locate the
assistance they deserve.
Very soon after the disaster, it became clear to me that we needed
a coordinated charitable response, and that we could not afford to wait
for that coordination to evolve over an extended time period. I
therefore have tried to jump start the necessary collaboration. While
there was some initial resistance from some charities, that resistance
has been largely overcome, and my office is now working very
cooperatively with many of the charities involved in this effort.
In particular, my office identified five critical areas that needed
to be addressed, and we have made substantial progress toward achieving
all of these goals:
1. Lmaking it easier for victims to learn what relief is available,
and to access that aid;
2. Lcreating a victims database, to facilitate coordination, avoid
duplication and ensure fairness in the aid distribution process;
3. Lproviding the American public with information about the amount
of donations received and expended, and the purposes of those
expenditures;
4. Linvestigating and prosecuting any instances of fraud and abuse
that arise; and
5. Lensuring that a working group of charities and victim advocates
is established, to solve problems as they arise and to swiftly identify
gaps in the services required to meet victims' needs in the future.
I will devote the remainder of this testimony to a more detailed
discussion of each of these initiatives.
Victims' Need for Access to Information and Streamlined Process:
The government agencies and charitable organizations that have
stepped in first to meet victims' most immediate and acute needs have
distributed tens of millions of dollars in aid, but already reports of
delays and gaps in service are emerging. Although thousands of victims
have already received aid, many others are still in need. Moreover,
almost all are baffled by the process, which involves a dizzying array
of forms and scores of phone calls, ever-changing assistance personnel,
perceived delays in receiving relief and, as yet, very little
explanation of how to go about accessing relief for longer-term
expenses. These problems are very troubling.
The lack of coordination also affects the charities, particularly
those seeking to support longer-term needs of the victims, which are
finding it difficult to identify the victims they have pledged to
serve. It is certainly reasonable for those charities--as well as
charities whose relief focuses on broader, community-wide losses--to
take additional time to assess the needs, consult with other charities
and develop effective service plans, but that process should be as open
as possible, so that the victims and donors can monitor progress. As
yet, we know very little about the plans for this portion of the
charitable dollars raised.
One of my top priorities has been to bring all of the various
charities together in an effort to address these issues--particularly
the problems faced by the victims--as quickly as possible. The good
news is that the charitable organizations are responding positively to
our efforts. For example, almost 100 charities and other private
entities have already provided my office with detailed information
about their programs and funding criteria, and we have created a public
Web site for this information: www.wtcrelief.info.
This Web site--which has been up and running for more than a
month--contains a search function which helps victims and their
families locate those charities that are providing the precise type of
assistance the victims need. Increasingly, as more data is accumulated
each day, this Web site also includes contact information and other
guidelines, so that victims will find it easier to obtain relief.
The Web site can also easily be used by donors in deciding which
charities to give money to. Donors can find the charities that are
providing the specific kinds of assistance they wish to support, can
link to those charities' financial reports on an independent Web site
(www.GuideStar.org), and in many instances can link directly to the
charities' own Web sites to get more information or donate on-line.
The www.wtcrelief.info Web site also provides charities with a
vehicle to learn more about their colleagues' efforts, so that they can
work closely with those serving the same goals as their own, and can
identify those needs that may be receiving less attention.
I hope in the near future to work out with the charities a
mechanism enabling individual victims and families to use our
www.wtcrelief.info Web site to send information about their needs
directly to the listed charities, so that those charities can contact
them more promptly. My goal, which I know the charities share, is to
facilitate outreach by the charities to the victims, especially those
who are frustrated, fearful or otherwise experiencing barriers to
assistance.
We must remember, however, that many victims and their families do
not have computers, or are not proficient in English, or both, and thus
any Internet-based assistance can only fulfill a part of the existing
needs. As a result, we need to streamline the written application
process to the greatest extent possible. Although it is wonderful that
so many organizations are stepping forward to provide assistance, this
outpouring of support can result in confusion and reams of paperwork
for the victims. While many of the victims who lost a close family
member or were injured or displaced by the tragic events of September
11th have completed extensive applications in seeking their initial
emergency relief grants, there is no reason why they must be required
to chase down and complete multitudes of different applications for
dozens of different organizations in order to have their longer-term
needs met.
Instead, I have urged the major charities to take the lead in
developing a single, uniform application--available in as many
languages as possible--that all organizations will accept. We must
strive to make the application process as easy for the victims as we
possibly can.
Importance of a Victims Database to the Charities' Coordination:
With over two hundred charities raising funds for September 11th
relief, the challenge of coordinating this effort began eight weeks ago
and will continue for many years to come. The charitable organizations
that have tapped the reservoir of public generosity so successfully
must now work together as never before to expedite assistance, avoid
duplication of services, prevent fraud and ensure fairness in providing
relief. This will not be an easy undertaking.
That is why I have recruited talented professionals from the
private sector to create a victims database, which can maintain a
private, secure listing of the grants that have been provided to
victims and their families. Just last week, I announced a team of
private firms, all of whom are providing services and products for this
database effort on a pro bono basis. The team is coordinated by
McKinsey & Company, and includes IBM, SilverStream Software, Qwest
Communications and KPMG. I greatly appreciate the willingness of these
entities to assist inthis important effort.
My role in the creation of this database has been as a catalyst,
setting forth the parameters and seeking to have the database up and
running as quickly as possible. In particular, the database must
include strict security measures to protect the privacy of the victims
and their families from unauthorized disclosure.
This effort is modeled on a similar effort developed after the 1995
bombing of the Murrah Federal Building in Oklahoma City. I am grateful
to the staff of Oklahoma City's charities, including the United Way and
the Oklahoma City Community Foundation, for sharing their wisdom,
expertise and experience to aid us in developing our database. Despite
the magnitude of the tragedy in Oklahoma City, because most of the
victims worked directly for the government and the number of families
impacted was smaller, the charities could meet around a table on a
regular basis and work through the issues family-by-family. Their
jointly-managed database served a crucial case management role, helping
ensure both the integrity of the process and the equitable distribution
of relief.
In contrast, the scale of the September 11th disaster--with
thousands killed and tens of thousands suffering severe physical,
emotional and economic losses--is much more vast. Our challenge is to
find a way for the charities to work together smoothly and with the
same sense of shared purpose as their Oklahoma City counterparts.
Over the past several weeks, many of the largest charitable
organizations--including the American Red Cross, the Salvation Army,
the September 11th Fund (the joint venture of United Way and the New
York Community Trust) and Safe Horizon, which together account for
approximately 80% of the charitable pledges--have agreed to
participate. These charities have acknowledged the need for the
database, and indeed have expressed a desire to operate it themselves,
rather than having it run by a government entity. It is important to
emphasize, however, that the cooperation of the charities is essential
to the success of the database, because only they have the information
necessary to make it work, and the level of commitment varies among the
many different charitable entities.
My office is still in the process of working with the charities to
finalize the details of the database, which will become an essential
component of their efforts to prevent duplication and fraud, and will
also help them collectively reach and equitably serve the broadest
range of victims. These are very important goals, and as a result I am
working aggressively to get this database created as soon as possible.
Congress similarly should make clear that it is demanding a coordinated
response to this tragedy, and should urge the charities to create the
database quickly and utilize it to the fullest extent possible.
Obligation to the American Public:
The charities must recognize that they are only able to provide
assistance because of the overwhelming generosity of the American
people, and that the American people, in turn, expect to see that these
funds are provided to those in need promptly and equitably. There have
been several publicized cases of victims who have not been able to
obtain needed relief, and unfortunately this has overshadowed the fact
that tens of millions of dollars have already been provided to
thousands of individuals.
One of the other lessons of Oklahoma City--where services are still
being provided to victims more than six years after that tragic event--
is that the needs of the victims for services and funds will continue
for many years. This clearly will be true in the aftermath of the
September 11 disaster as well, and thus programs must be carefully
designed and funds prudently managed so they remain available to meet
evolving needs. The charities cannot and should not spend all of the
money immediately. A coordinated process by which the charities account
for their progress will demonstrate that they are fulfilling their
mission and remaining faithful to their public trust.
I am thus also urging each charity to publicize, on a regular
basis, the amount of money it has received, detailing how much it has
spent and identifying the purposes for which its funds have been
targeted. My office has volunteered to collect and aggregate the data,
and to place it on the www.wtcrelief.info Web site, so that updated
information is readily available to the American people in a central
location. Over the long term, I will work to expedite and improve the
charities' disclosure of their programs, priorities and finances in
other ways, to better inform and empower the donating public.
Vigilance Against Fraud and Abuse:
As if the challenges ahead were not enough, we have seen evidence
of a few individuals whose commitments to charity are questionable at
best. Some of these have sought to raise funds from the public, making
references to September 11th, but with little assurance that the funds
raised will in fact go to the victims of that tragedy. Likewise, a
handful of unscrupulous individuals have falsely claimed a connection
to the tragedy--a supposedly lost loved one, for example--and have
sought to profit from the generosity of an unsuspecting public.
Thankfully, only a trickle of such fraud has emerged thus far. With
the scale of this tragedy and the corresponding scale of the charitable
outpouring, however, we must remain vigilant against fraud and waste if
we are to preserve public confidence in the charities doing the work so
desperately needed.
Our responsibility in government includes the obligation to move
swiftly and aggressively to enforce the laws against those who mislead
the donating public or defraud charities, and there are ways that
Congress and the state legislatures can help.
At the federal level, Congress should modify those provisions of
the Internal Revenue Code that impede disclosures to state law
enforcement authorities regarding IRS audits and enforcement actions,
and should encourage greater disclosure of charitable fundraising
practices. In its January 28, 2000 report entitled Study of Present Law
Taxpayer Confidentiality and Disclosure Provisions as Required by
Section 3802 of the Internal Revenue Restructuring and Reform Act of
1999, the Joint Committee on Taxation recommended that Congress modify
the provisions of Section 6103 of the Internal Revenue Code that impede
IRS disclosure to state law enforcement authorities of information
relating to tax-exempt organizations. I concur with that
recommendation, and believe that Congress should be required to make
the disclosures now permitted by Section 6104, and those that would be
permitted if Section 6103 is repealed or amended.
This change is needed because, at present, state charity regulators
are not regularly informed of the outcome of matters that we refer to
the IRS. In its report, the Joint Committee recommended that the IRS be
authorized to provide state regulators with information concerning such
enforcement matters. The IRS should not merely be ``authorized'' to
make these disclosures, but should be directed to do so. In addition,
the IRS should be required to inform states of other actions relating
to the tax exempt organizations over which we have jurisdiction,
including but not limited to audits and examinations, the imposition of
intermediate sanctions, and revocations of tax exempt status. Such
disclosures would greatly assist our efforts to enforce state laws
governing charities, charitable assets, and public solicitations. My
position on this issue is more fully set forth in a letter that my
office sent to the Ways and Means Committee last year, a copy of which
is attached.
At the state level, I have recommended changes to New York State
law to facilitate enforcement actions against those who engage in
fraudulent charitable solicitations. Our existing law enforcement
tools, together with the legislative and policy changes I have
proposed, will better serve our goal of ensuring truthful solicitation
and trustworthy distribution of funds.
Need for Ongoing Working Group:
Because of the unprecedented scope of the September 11 tragedy, the
process of delivering aid to victims will be long and complex, and many
problems will arise. As a result, I have called for the creation of a
working group of the major charitable organizations and victims groups,
as occurred in Oklahoma City, which can meet on a regular basis to
address these problems as they occur. Indeed, I have been encouraged by
the charities' efforts to develop their own working group during the
past two weeks. This kind of focused collaboration is particularly
crucial for the ``retail'' level charities, which are actually
delivering cash assistance and services to individual beneficiaries.
Such a working group--which must include victim representatives--
will be able to coordinate the relief effort, and discuss the many
thorny issues that all charities are facing. For example, the charities
must:
Lbalance the desire to provide assistance quickly against
the need to keep funds in reserve to cover other future needs;
Ldecide how to allocate funds among the many ``survivors''
of a single victim, which can include spouses, ex-spouses, children,
grandchildren, domestic partners, parents, siblings and others;
Lguard against the prospect of individuals who may try to
defraud the charities (and thus defraud the public which has provided
funding to the charities); and
Ldetermine how to help undocumented aliens and other
victims who are afraid to come forward.
There are no ``right'' answers here but, as the guardian of
charitable assets in New York, I believe that it is essential for the
charities and victims to sit down and coordinate their approach to
these types of major issues. In addition, I believe that all of us--
government officials, charities, victims and their advocates--will
benefit from a structure that can respond quickly when it becomes
evident that a particular victim or category of victims has somehow
been missed by the system and needs immediate help.
The charitable organizations have worked very hard to respond to
the events of September 11th. On behalf of all of us in New York, I
wish to express our tremendous gratitude to all of the Americans, and
indeed, people throughout the world, who have contributed to this
remarkable relief effort. However, the charities must understand the
importance of coordinating their response to the disaster without
further delay.
Although each charity involved has its own unique mission, they
must recognize that the events of September 11th demand a team
response. Only through an ongoing cooperative effort can we possibly
hope to ensure meaningful and sustained care for the victims of this
terrible tragedy. This cooperation is essential if the charities are to
maintain the confidence and faith of the American people--faith not
only in wise use of the donations raised for this crisis, but also in
the integrity of our great tradition of private philanthropy.
An attached letter was previously printed in Written Comments on
Joint Committee on Taxation Disclosure Study, WMCP: 106-11, pages 74-
77.
Chairman Houghton. Thank you very much. Now, Mr. Miller,
who is the director of the Exempt Organizations Division of the
Internal Revenue Service.
STATEMENT OF STEVEN MILLER, DIRECTOR, EXEMPT ORGANIZATIONS, TAX
EXEMPT/GOVERNMENT ENTITIES DIVISION, INTERNAL REVENUE SERVICE
Mr. Miller. Thank you, Mr. Chairman.
I, too, would like to summarize my written statement, if I
could.
Both before and after the tragic events of September 11th,
the Internal Revenue Service worked to educate the public on
how charities might qualify for tax-exempt status.
On September 18, 1 week after the attack, the IRS placed a
new, easy-to-understand publication on our Web site which
provided information to help the public make use of these
organizations to help the victims of September 11th. We also
announced that we would accelerate processing of tax-exempt
applications for these organizations.
Since September 11th, we have approved 120 new exemption
applications for disaster relief. I would stress that while we
have put these organizations at the front of our line, we have
not lowered the standards for exemption; that is, we are
applying the same standards as we always have. Moreover, we
take very seriously any information presented by the public or
by law enforcement that the entities are engaged in fraud or
otherwise failing to meet statutory requirements.
By way of background, the IRS comes into contact with
disaster relief organizations primarily at two points in time.
First is the application process and second is when they file
their Form 990, which is the annual information return.
An organization initiates the application process by filing
a detailed application with us in advance of its operations
generally. We review the application to determine whether the
organization meets certain statutory requirements. Key
considerations include the following:
First, we consider whether the organization is serving
charitable purposes. Under existing law, charitable purposes
include providing relief to persons in a charitable class who
are poor or distressed. The application must contain sufficient
detail to demonstrate that the organization can meet its
purposes in this regard. Victims of a disaster such as the
September 11th tragedy clearly meet the charitable class
requirements. However, being poor or distressed means more than
being present at the scene. As a result, the charities must
determine that the intended recipient is in need or in
distress.
The second consideration in reviewing an application is
whether the organization maintains control of its charitable
program and, further, whether the assets are dedicated to
charitable purposes. Thus, donors to the charity cannot
designate specific individuals to receive their gifts. The
charity must be in the position to make the decision as to the
amount and who the gifts are going to.
If the organization is successful and we recognize it is
tax-exempt, our continuing involvement with the organization
may entail educational contacts, a review of their Form 990,
and the possibility of an examination based upon their actual
operations.
In terms of annual reporting on operations, the Form 990 is
the information return filed by these organizations as well as
other charitable organizations. In contrast to the application
process, these returns are obviously filed on completed
operations. The Form 990 serves as the primary basis for a
decision as to whether a particular organization will be
selected for examination.
Because the Form 990 is retrospective and because we
concentrate on completed operations, the IRS does not usually
involve itself in current day-to-day ongoing operations of a
charity. That is generally left to the charity's board of
directors. Indeed, in the disaster relief area, we are truly
not in a position to assess the needs of individuals or the
community, nor can we determine the priority of competing
needs. This is the business of charity and of those who lead
the charity, in our view. Those are members of the community.
What we have done since September 11th is to educate the
public and recognize those organizations that meet statutory
requirements. If in the future we determine that one or more of
these organizations are not operating consistently with
charitable purposes, we will revoke exemption.
We recognize that valid concerns exist as to how and when
funds that have been raised will be spent here. I need to
underscore that there is no obligation under the Internal
Revenue Code that a tax-exempt organization be perfectly
efficient. The applicable tax law standard is whether the funds
collected are ultimately used forcharitable purposes. These
purposes include the payment of reasonable administrative expenses and
the establishment of reasonable reserves. The method and timing by
which the charity expends funds for proper purposes is left to the wide
discretion of the charity.
We also recognize that valid concerns are being raised
about appropriate coordination of the contributions to these
funds. Recent experience suggests at least one effective
approach exists for monitoring and coordinating these funds.
Following the Oklahoma City bombing, the charities cooperated
in a voluntary effort to insure that the victims' needs were
met efficiently and without duplication. But we believe the
Oklahoma City approach was effective, and we worked with the
charities in that case to effectuate that.
I believe that Mr. Spitzer is considering exactly that in
this case and the concept of a unifiable database to minimize
duplication and enhance efficiencies; and, as we have stated,
that did seem to work in the Oklahoma City situation.
Let me note the State of New York has one of the most
active and competent State charity offices, and we have
contacted Mr. Spitzer's office and are willing to offer any
assistance that he may need.
In conclusion, following the events of September 11th we at
the IRS stepped up our educational efforts. We provided
guidance to those organizations seeking tax-exempt status and
provided information to taxpayers contemplating making a
donation to victims. We are committed to working with the
Subcommittee, charity officials, State law enforcement
authorities and other interested parties to address any of the
problems raised at today's hearings. We believe the American
public deserves no less. Thank you.
[The prepared statement of Mr. Miller follows:]
Statement of Steven Miller, Director, Exempt Organizations, Tax Exempt/
Government Entities Division, Internal Revenue Service
Introduction
Thank you, Mr. Chairman, for this opportunity to testify on the IRS
review of charitable organizations providing relief to the families of
the victims of the September 11 attacks upon our Nation. Like all
Americans, the Administration is committed to ensuring that the
donations made to these charities reach those hurt by the attacks and
that the charities follow the letter and spirit of the law. The IRS is
certainly available for consultation and we urge charities to request
guidance as needed. However, we will also investigate and prosecute to
the fullest extent violations of the tax laws in this area. We
encourage the public to report any suspected anomalies and tax fraud to
the IRS at 1-800-829-0433.
Before and after the tragic events of September 11, the IRS' Tax
Exempt/Government Entities (TE/GE) Operating Division worked to educate
the public on the legal requirements organizations must meet to qualify
for tax-exempt charitable status.
On September 18, one week after the attack, the IRS placed a new,
easy-to-understand publication on our Web site that provided
information to help the public to make use of charitable organizations.
We also announced that we would speed processing of requests for tax-
exempt status from new charities formed to assist the victims. Let me
stress, Mr. Chairman, that although we expedited the process, we did
not lower our standards for new organizations applying for the tax-
exempt status.
The new IRS publication--``Disaster Relief: Providing Assistance
Through Charitable Organizations''--explained how to make contributions
through existing charitable organizations and how new organizations can
apply for, and receive, tax-exempt status. An advance text of that
publication is available on our Web site at www.irs.gov.
To further help the public make an educated choice, we also
maintain a readily available list of charitable organizations that are
qualified to receive tax-deductible contributions. Publication 78 is
available on our Web site as is a special supplement announcing the new
tax-exempt charitable organizations formed to help the victims of the
September 11 attacks. In addition, a potential contributor can call IRS
Customer Service at 1-877-829-5500 to determine if an organization is
qualified to accept tax deductible contributions.
Mr. Chairman, the IRS' review of the operations of a tax-exempt
charitable organization is generally only available after the
organization files its annual information return (Form 990). We do not
receive any operational information, such as disbursements, from the
charities prior to this time.
Nevertheless, we would take very seriously any information
presented by the public or the law enforcement community, such as the
state attorneys general, that a tax-exempt organization is engaged in
fraud or is failing to meet the statutory requirements. We would take
appropriate action that could include revoking of the organization's
exemption and referral to IRS Criminal Investigation.
Background
The IRS comes into contact with disaster relief organizations at
two points. The first is when the organizations apply for recognition
of exemption; the second is when they file Form 990, the annual
information return. Ongoing guidance is provided through educational
material, such as plain language publications that are available to the
general public and our annual Continuing Professional Education (CPE)
course book that we provide to our agents, but that is publicly
available and well known to tax practitioners.
We also provide information through workshops for smaller
organizations and through speeches and participation on panels at
practitioner conferences. We published a CPE article in 1999 that
specifically addresses issues of importance to disaster relief
charities. The IRS also provides speakers for Federal Emergency
Management Agency sponsored workshops for non-governmental
organizations that provide disaster relief.
And, as I mentioned, we quickly placed on our Web site after
September 11 an advance text of ``Disaster Relief: Providing Assistance
Through Charitable Organizations,'' along with other disaster-related
tax information. Now, we are also beginning the process of
corresponding with disaster relief charities to advise them of their
responsibilities; offering to meet with them; and providing a single
point of contact for assistance.
The Application Process
An organization initiates the application process by filing Form
1023, which is titled, ``Application for Recognition of Exemption Under
Section 501(c)(3) of the Internal Revenue Code.'' The application is
often filed in advance of actual operations and can be based on
representations about what the organization will do in the future.
We review the application to determine whether what the
organization proposes to do satisfies the statutory requirements. In
the case of the September 11 tragedy, and in light of national need, we
created an expedited process for newly-established disaster relief
charitable organizations to request IRS qualification. This expedited
process was publicized in an IRS News Release and was placed on our web
site.
Since September 11, we approved approximately 120 new exemption
applications for disaster relief organizations. In addition, many
existing charities established new disaster relief programs, which do
not have to be separately approved by the IRS. Let me stress, Mr.
Chairman, we achieved this result by dedicating special resources to
these disaster relief applications. We did not lower the bar for our
processing standards.
For example, we did not approve an application where a for-profit
company, which intended to solicit contributions through a Web site in
the name of the charitable applicant, had also established the
organization and retained control over donations.
Mr. Chairman, the primary considerations during the application
process are these. We first ask, ``Is the organization serving
charitable purposes?'' Charitable purposes can be accomplished by
providing relief to persons who are poor and/or distressed. Charitable
organizations may provide charitable disaster relief in a variety of
ways.
Some organizations offer immediate relief by providing emergency
food, shelter, clothing, and crisis counseling, or medical attention to
victims and dependents of victims. Other organizations offer longer-
term relief for victims and dependents of victims, such as annuities,
permanent housing, long-term counseling, or scholarships for children.
Whether providing immediate or long-term relief, a charitable
organization must serve persons who belong to a charitable class.
Victims of a Presidential-declared disaster, such as those in the
September 11 tragedy, generally represent a charitable class.
We then ask the second question. ``Does the organization control
its charitable program?'' The charitable organization must be in charge
of its charitable program. Donors to the charity may not designate
particular, pre-selected individuals as beneficiaries for their gifts.
If members of the public want to help particular individuals, they
can simply give the money directly to the victims or through an
organization that is not a qualified charity. Gifts given with
disinterested generosity do not constitute taxable income to the
recipients.
Finally, we must ask, ``Is the charity providing assistance to
persons who are poor or distressed?'' Merely being present at the scene
of a disaster does not establish a need for assistance. A person must
be distressed or needy to be an appropriate beneficiary of a charity's
assistance. An affected individual generally is not entitled to
charitable funds without a showing of need.
Therefore, the IRS reviews the organization's application to
determine whether it has adequate procedures, including specific
criteria for the selection of recipients and the types of assistance to
be awarded, to ensure that only persons who are appropriate objects of
charity will be granted assistance.
Money collected even for a specific disaster must be distributed
based on a determination by the charity that it is meeting the needs of
disaster victims. The charity's funds cannot be distributed among the
victims simply on a pro-rata basis because that method is not based on
meeting individual victims' needs.
The IRS does ask that the organization obtain appropriate
documentation when providing assistance to needy or distressed persons.
The purpose of this documentation is to demonstrate that the
organization's program cannot readily be used to serve private, as
opposed to a public or charitable, interests. Immediate assistance may
only require minimal documentation. Longer-term assistance typically
requires more complete documentation, including evidence of a person's
financial resources and the specific needs the organization's
assistance is intended to address.
IRS Oversight
The filing of the annual information return, Form 990, requires the
organization to document that in actual operations it adhered to the
standards and procedures it said that it would use when its application
was approved. In contrast to the application process, the Form 990 is
retrospective. It is due approximately four and one-half months after
the organization's accounting period ends, and the organization may
apply for a 6-month extension. So, for example, the earliest
information return reflecting any expense after September 11 would not
be received at the IRS until the middle of February 2002.
The Form 990 can be used as the basis for an examination of the
organization. The examination is based on actual, completed operations
as opposed to the proposed activities that may serve as the basis for
exemption when we initially review an application. The IRS does not
usually involve itself in the day-to-day operations of a charitable
organization, which are generally left to the charity's governing
members.
Indeed, the IRS is not in a position to assess the needs of
individuals or the community, nor to determine the priority of
competing needs. This is the business of charity and the leaders of
charity, i.e., members of the community. The IRS has never undertaken a
directive or supervisory role of this nature.
What we are best at, and what we have done since September 11, is
to educate the public and recognize organizations that meet certain
requirements. These requirements focus generally on three points.
First, are the organization's assets permanently dedicated to
charitable purposes? Second, has the organization described its
intended activities in sufficient detail to demonstrate that the
organization is likely to accomplish its stated purpose? And third,
does it appear that public and not private interests--which are
impermissible--will be served? After recognition, our involvement with
the organization generally entails additional educational contacts, the
review of filed returns, and an examination based upon completed
operations.
However, if upon review, we determine an organization is not
operating consistently with its tax-exempt purpose, the IRS will revoke
its exemption. Thereafter, the organization will be subject to federal
income tax.
I want to underscore that there is no tax law obligation that an
organization be perfectly efficient. The applicable tax law standard is
whether the funds are ultimately used for charitable purposes. The
method and timing by which this use occurs is left to the wide
discretion of the charity. Inefficiency, without a corresponding
finding of inurement, fraud or private benefit, is not a tax issue.
Role of the Public and the States in Oversight
Forms 990 are available to the public by request to the IRS, or the
charity itself, or through independent Web sites, such as
www.guidestar.org. The public, including the press, often plays a
significant role in monitoring the activities of charities by inquiring
into whether the charity is accomplishing the public purposes for which
it was formed and for which it solicited contributions.
Mr. Chairman, when we receive inquiries from the public about
whether a tax-exempt organization is operating consistently with its
exemption, we evaluate the information and determine whether we should
act to ensure continued compliance.
Continuing oversight of charities is also the responsibility of the
states, which monitor their operations through their attorneys general
as well as through other taxing and regulatory agencies. For example, a
significant role of the state attorneys general is to ensure that
charitable assets are not wasted and that abusive fundraising
solicitations are investigated. The State of New York has one of the
most active and competent state charity offices.
I want to be very clear that we are partners with the states in
ensuring that charitable assets remain dedicated to charitable
purposes. For example, if the IRS revokes the exemption of a charity,
we are required to inform the appropriate state officials of this
action so that they can protect the charitable assets.
We recognize that valid concerns are being raised concerning
appropriate coordination of the funds that have been contributed to the
September 11 disaster relief funds. Recent experience suggests that an
effective approach exists for monitoring and coordinating the use of
charitable relief funds. Following the Oklahoma City bombing, the
charities providing relief to victims joined in a voluntary effort to
ensure that the victims needs were met efficiently and without
duplication. I believe that Mr. Spitzer, the Attorney General for the
State of New York, is considering spearheading such an effort in this
case, as well as creating a unified database to minimize duplication
and enhance efficiencies. We believe the Oklahoma City approach was
effective and should be considered here. In addition, while I do not
have enough information to speak to the unified database, it too seems
worthy of study.
Mr. Spitzer's position carries considerable authority. As
mentioned, state attorneys general have statutory jurisdiction over the
charitable assets of these organizations; and responsibility for
overseeing the fiduciary relationship between the board and the assets,
and over the fundraising activities of charities and local needs. These
offices also have considerably closer relations with local charities.
We have contacted Mr. Spitzer's office and offered any assistance or
resources necessary.
Conclusion
Mr. Chairman, in conclusion, following the events of September 11,
we at the IRS stepped up our education efforts on behalf of charitable
organizations. We provided guidance to those organizations seeking
charitable tax-exempt status as well as information to taxpayers
contemplating making a donation to the victims. However, the IRS does
not usually involve itself in the current, day-to-day operations of a
charitable organization. Historically, this is a role best carried out
by the charity's management and the state attorneys general.
Nevertheless, we are committed to working with the Subcommittee,
charity officials, state law enforcement authorities, and other
interested parties to address any of the problems raised at today's
hearing. The victims of the September 11 attacks and the American
people deserve no less.
Chairman Houghton. Thank you very much. Mr. Coyne, if you
would like to inquire.
Mr. Coyne. Thank you, Mr. Chairman.
General Spitzer, you heard--or may have heard--earlier Mr.
Farley from the Red Cross indicate that they have stopped
collecting funds for the Liberty Fund. And I was wondering,
based on your experience so far in this issue, whether you
think that is advisable to do, or do you have any sense about
whether or not it is going to take more funding to cover the
expenses of this disaster?
Mr. Spitzer. Well, let me answer that this way. I don't
think it is my position to tell them to collect more or less. I
think it is appropriate for me, however, to say to them that,
once you have collected the excess of $560 million that are now
in the coffers or have in aggregate been in the coffers of the
Liberty Fund, it is appropriate for me as the representative of
the public, enforcer of charities laws in New York State, to
require that those funds be spent in pursuit of the intent of
those who gave those funds.
That sounds like legalese. It really means people gave
thinking those funds were going to benefit the victims. You
have got to use those funds to benefit the victims and not
future contingencies, not amorphous issues that may arise in
the future.
I do not believe that $560 million in aggregate will come
anywhere close to dealing with the needs of the victims of
September 11th. I think that we all know as we sit here that
Congress created, and I thought it was a spectacular move, a
benefit fund that will be administered by the U.S. Department
of Justice. I thought that was a wonderful move forward to
facilitate the flow of funds to victims. So, in aggregate, the
fund that will be needed to ease the transition back for
victims far exceeds the $560 million that is in this Liberty
Fund.
Having said that, if the Red Cross believes that that is
the amount that it can appropriately control and handle and
disburse, then their decision internally not to collect more
funds would, of course, be an appropriate one. But I think it
is, from my perspective, within my jurisdiction how they use
those funds, which is the critical question. That is the
question that I think has been framed most pointedly in recent
days.
Mr. Coyne. Based on your testimony and your comments, it
appears that you see no merit at all in any kind of future
planning with these funds for what might happen coming down the
road, as the Red Cross pointed out they may use some of those
funds for.
Mr. Spitzer. No. I think future planning is absolutely
essential. I think planning and preparedness is critical. But
the question is, do you pay for that planning and preparedness
with funds that have been given for another purpose or not?
The objectives that the Red Cross has articulated for
alternative purposes for these funds are laudable purposes.
They are things that should be done, things that maybe the Red
Cross should raise other funds for. But you cannot, as a
charity, raise money for purpose A and then decide to spend the
money on purpose B if those who gave say I want you to spend
the money on purpose A.
I think, as we sit here today, those who gave believed, I
think, without any shred of a doubt, if you look at the ads, if
you look at the public service announcements, if you look at
the statements that were being made, the outpouring of
generosity was based upon a representation that those funds
were going to the victims of September 11th. And as laudable as
it may be for the Red Cross to say we need to plan, we need to
beef up our blood supply, we need to build an infrastructure
system--wonderful purposes, and the Red Cross is a stupendous
organization that steps into the breach on a moment's notice.
Having said all that, you can't use the money that was given
for victims for those other purposes.
Mr. Coyne. You used the words ``tortured process'' in your
dealing with the charities so far in bringing them to the point
where you would like to see them be. I wonder if you could tell
us what you think the motives for this being a tortured process
on their behalf is so far.
Mr. Spitzer. Well, it is a fair and important question. I
ordinarily hesitate to ascribe motives to other people. I think
it is a path that only leads to trouble because it is very hard
to establish one way or the other what motivations may be, and
so I will politely decline to ascribe motive. I don't think
there is ill motive. Let me say that.
Mr. Coyne. You don't think there is what?
Mr. Spitzer. I don't think there is ill motive. I don't
think that there is a failure to recognize the importance of
coordination or a failure to believe that it has to be done. I
think that, just as there are turf battles between the Federal
Bureau of Investigations (FBI) and the CIA, Central
Intelligence Agency, or the FBI and local law enforcement,
there are always battles of that nature that may make it
sometimes difficult to get charities that play on the same
field to share information, to sit down and coordinate as
rapidly as may be appropriate from a public policy perspective.
But we are working at this.
Mr. Coyne. Thank you.
Mr. Spitzer. Thank you, sir.
Chairman Houghton. Mr. Hayworth.
Mr. Hayworth. Thank you, Mr. Chairman. General Spitzer, Mr.
Miller, thank you for coming down today.
General Spitzer, a lot of questions arise out of these
hearings, and we appreciate again your presence here and your
efforts there specific to New York State and the calamity and
the attack at the Twin Towers.
Mention was made earlier in the first panel--I believe Mr.
Farley made mention of the fact that the Red Cross is a
Federally chartered organization. You spoke just a moment ago
about its stupendous record of first response and being a
charity upon which we all depend. You are in a unique position,
however, because it is where the political and the function of
law merge. As the advocate on behalf of the State of New York,
I would ask you to step back into your political role to answer
this policy question.
Given the fact that this organization is Federally
chartered, given the fact that donations are coming from around
the country, an interstate function, is there a reasonable role
for the Federal Government legislatively in your opinion that
extends beyond oversight? I believe Mr. Gilman has been looking
at and may have prepared legislation. I have been taking a look
at it. Is there that role to be played? And, if so, what would
be the role that the Federal Government should play in this?
Mr. Spitzer. You are absolutely correct. The Red Cross is
created pursuant to Federal statute, chartered pursuant to
Federal statute, and hence I think it almost necessarily is the
case that there is some appropriate not only Federal oversight
but potentially a legislative role that could be played here if
there continues to be a failure on the part of the Red Cross to
be properly responsive.
It is, of course, possible jurisdictionally for the U.S.
Congress to require of the Red Cross to do many of the things
that I think most of us in this room today think would be
appropriate to facilitate the coordination to speed up the flow
of funds to those who most desperately need them. I am not sure
that legislation right now could be enacted quickly enough,
regs created quickly enough to actually improve the immediate
situation that we are facing.
But to answer your question, is there a role for
legislative oversight, for Congressional oversight possibly for
legislation to address these issues should it become clear that
there is a larger structural problem there? Absolutely.
Mr. Hayworth. My friend from New York, the ranking member,
touched on this, General Spitzer. In your testimony, you talked
about the hurdles, the challenges, euphemistically, to have the
cooperation of the Red Cross in the database you propose. When
was the final decision made? Because I know my friend Mr.
Crowley--based on media reports and other first-hand knowledge
of the situation, most of us had in our minds the Red Cross had
stepped back, stepped back from participation in the database
you proposed. When did you receive word that they would in fact
join you and the other charities in this form of collaboration?
Mr. Spitzer. Well, it has been a tortured process. And most
recently, of course, we heard this morning that the Red Cross
says it will be a partner in that database. I received that
assurance from Dr. Healy very early on, shortly after the
aftermath, shortly after September 11th, but subsequent to that
moment there was some retrenching.
The issue--let me explain what the issue has been, what the
point of contention has been. I first proposed this database to
a number of charities in a meeting in my office approximately 2
weeks after the events of September 11th. There was a general
consensus that this made sense.
I highlighted at that meeting that there were privacy
issues that had to be dealt with, given the nature of the
information that would be disgorged to the common database.
Access to the database needed to be controlled--regulated.
These mechanical and policy issues needed to be thought
through.
Subsequent to that meeting there was an outright rejection
of the notion of the concept of a database by the Red Cross,
based upon their belief that their views on confidentiality
would prohibit their participation.
I came down to D.C., had a very useful meeting I thought
with Dr. Healy at which we understood and discussed the
parameters of obtaining waivers from those who received aid to
permit participation, something that has been done by many
charities, had been done in Oklahoma City, and thought the
issue was put to rest. There were several speed bumps along the
way in the next few weeks, but I believe that, conceptually,
the Red Cross is on board. They understand that there will be a
waiver. The Red Cross has agreed proactively to go back to
those who have received benefits from the Red Cross to seek
their--to have them fill out a waiver that will permit the Red
Cross to turn over all the appropriate data. So I believe they
are on board.
But, as I said earlier, intentions do not mean much at this
point. What we need is to see the actions. We need to see their
actual--we need to see them taking these steps, and I certainly
hope we will be there within a week.
Mr. Hayworth. Thank you, General. Mr. Chairman, with your
indulgence, if I could just ask one question of Mr. Miller.
Maybe something I am not understanding.
Mr. Miller, if I am not mistaken, you made mention, I think
General Spitzer just made mention of a similar database that
has been utilized to great effect in the wake of the Oklahoma
City bombing; is that correct.
Mr. Miller. Right.
Mr. Hayworth. Was the American Red Cross a participant in
that database?
Mr. Miller. I actually am not aware of whether they were or
not. I don't know.
Mr. Hayworth. General, with your research on what
transpired, do you feel qualified to comment on that?
Mr. Spitzer. Sure. My understanding is that they
participated to the extent that they would remove data from the
database. They did not formally contribute data to the database
but that there were occasionally, given the smaller nature of
the community in Oklahoma City, communications where the Red
Cross would provide equivalent data, though not formally, to
the database.
Now if that sounds complicated, it is, because the Red
Cross appears to have been--and I don't want to speak for
them--but they appear to have been participating without
wanting to formally participate. And we are, of course, trying
to make sure we get much more than that in this instance, and
they have agreed to do so.
Mr. Hayworth. Sounds like you need a lawyer. Gentlemen,
thank you.
Mr. Spitzer. I think they have one.
Mr. Hayworth. Yes, I think so, too. Thank you, Mr.
Chairman.
Chairman Houghton. Thank you very much. Mr. McNulty.
Mr. McNulty. Thank you, Mr. Chairman.
I am delighted to welcome Eliot Spitzer to the Ways and
Means Committee. I am proud to say that he is my attorney
general. He has served for about 3 years in office now and has
firmly established himself as a very aggressive advocate on
behalf of all of the people of the State of New York,
particularly with regard to consumer protection. I see him
often because he spends part of his time in my district, which
is, of course, Albany the capital. And he also had the very
good sense to hire as one of his deputies Dan Feldman who spent
a good deal of time with me and Joe Crowley in the State
Assembly.
Eliot, in the interest of time, I will just ask one
question. It is obvious that you are frustrated by some of what
has happened post September 11th, and I will just ask a kind of
a mechanical question. If your level of frustration rises to
the point where you believe that action needs to be taken
legally, what legal remedies areavailable to you according to
State law or otherwise to pursue this issue and to make sure that funds
which were donated for the purpose of helping victims of September 11th
actually get those funds?
Mr. Spitzer. There is, of course, theoretically the
possibility that one could allege that the ads that were run
maintaining that the funds would be used for the victims of
September 11th, one could argue that if funds are not in fact
spent for that purpose that you had false advertising, you had
a violation of consumer protection laws and a violation of
certain other charitable obligations that are codified in New
York State law and also in the national charter of the Red
Cross. So there is the opportunity--I certainly don't expect
that we will get there. I hope we don't--that a legal inquiry
could be undertaken to try to force the Red Cross to abide by
its legal obligation to spend the funds for the purposes for
which they were raised and to abide by the obligations that
were made in its solicitations to the American public.
I am hopeful that the Red Cross, understanding the
magnitude of this problem, understanding the magnitude of
Congressional concern, editorial concern, most importantly
public concern, will address this issue forthrightly, simply
and clearly in the very near future.
Mr. McNulty. Thank you, Eliot, for all the good work you
are doing for New Yorkers and beyond.
Mr. Spitzer. Thank you, sir. It is an honor to be here with
my colleagues from New York State.
Chairman Houghton. OK. Mr. Hulshof.
Mr. Hulshof. Thanks, Mr. Chairman.
Mr. Spitzer, you are not my attorney general as you are Mr.
McNulty's, but as a former assistant attorney general for the
State of Missouri I just want to say that I applaud you
stepping up and filling a void that have I witnessed as an
American, not as a member of this Committee necessarily, but--
and I think it is noteworthy to point out that an addendum to
your written testimony was a letter that you sent to our
Committee back in March of 2000 commenting on some proposed
changes regarding reporting of charities and providing some
input. So I know that this isn't just something that--you are
not a Johnny-come-lately as far as these charitable
contributions are concerned. I applaud you for that.
Mr. Spitzer. Thank you, sir.
Mr. Hulshof. I want to make a distinction, and I think we
have tried to do that and my friend from Arizona has tried to
do that as well, that we are not here to pile on any charity
per se.
I know, for instance, back in my hometown of Columbia,
Missouri, that a local television station working with the
local American Red Cross chapter donated some air time, and we
had an impromptu telethon, and we solicited donations and
everyone's good intent. So I hope that those who may witness
this hearing don't come away with the negative thoughts that,
gee, I have given money and it has gone into some sort of black
hole.
Yet I think it is important that we are here. You have
raised some legitimate criticism of statements that have been
made. You very patiently were listening, I think, during the
first panel, and you have commented on some things that you
heard today where you took issue with. What else is there maybe
that you heard today from other panelists that you find fault
with or that you would point out that may be inconsistent with
what you have seen?
Mr. Spitzer. Well, I would say that there is a tension that
is emerging between the intentions that we hear articulated by
the leaders of the charitable community and the actions that we
see. And it is that tension between the desire to cooperate, to
coordinate, to share information and the failure to move as
rapidly as possible to do so that gives me the level of anxiety
that I think you see and hear in my testimony.
It is the reality that as the days roll by and the weeks
roll by and we have meetings where intentions are stated but
there is not followthrough, that at some point we say this
process is not working. I am not yet there, but I will tell you
that there is much that we are doing, many lawyers in my office
are dedicating vast hours to this effort to cajole, to prod, to
set up the meeting, to work through the details, and if we
don't soon see tangible progress from the charities involved
then the nature of my response will be different and it will be
through the exercising of legal authority, which is something I
certainly hope we don't need to do.
Mr. Hulshof. Mr. Miller, let me ask you a question. Mr.
Hayworth inquired of Attorney General Spitzer of this. And not
to cause you to have to delve into the political realm either,
do you see a role for this Subcommittee? That is, obviously we
are having this hearing under the purview of the tax laws and
the tax-exempt status that many of these organizations have.
What role, if any, does this oversight Committee have under
this present situation?
Mr. Miller. Well, it seems to me--and actually one of the
prior panelists mentioned this--that the fact of the hearing
and the sunshine that has occurred I think is a real positive.
I also think, obviously, your Subcommittee and Ways and
Means generally does have a very keen interest and jurisdiction
over those rules relating to tax-exempt organizations, and to
the extent they need to be modified it is clearly within your
purview.
Mr. Hulshof. Let me try to, with a final question to you
Mr. Miller, what have been or what are the triggers and
procedures for an audit of a charity? And do you anticipate
that might change post September the 11th because of the number
of charities trying to respond to this? Or not?
Mr. Miller. Let me try to divide the question up a little
bit. I think--and I can speak more specifically to what we
intend to do with respect to the charities that we see
operating in the September 11th realm and the relief realm.
What we will be doing in the coming weeks is to contact those
organizations both that we have granted exemption to and that
we have come to know are involved in this undertaking, offer
educational assistance and help and give them a single contact
point at the Internal Revenue Service. At some point after
that, it seems that we will probably take a harder look at some
of these organizations to insure that they are meeting their
obligations under the Tax Code, and that probably would include
a selection of some for examination.
Mr. Hulshof. Thank you, Mr. Chairman.
Chairman Houghton. Thank you very much. Mrs. Thurman.
Mrs. Thurman. Thank you, Mr. Chairman. Both of you, we want
to thank you for being here.
Mr. Miller, let me ask you a question first; and thank you
as well for allowing these charitable organizations to be set
up quickly. I know just two within the district that I
represent, Firefighters One and another one, are very thankful
that you have been able to do this.
But, in saying that, one of the things that I know that we
are all concerned about and I think has been mentioned through
the Internet solicitations, other kinds of ways people are
trying to raise these dollars, what advice would you give to
people who are looking at giving to these funds as to making
sure and how could they check to make sure that these are
legitimate and not something that would be set up for other
purposes?
Mr. Miller. Well, I would recommend that the individual--
and this is a difficult thing because you recognize that
contributors here and donors here are very heartfelt in their
intentions to move very quickly, and this slows the process
down. But my recommendation and my strong recommendation would
be, if you are computer literate, to go onto our Web site and
take a look at our list of organizations that are recognized by
the service as charitable. We update those almost daily in
terms of the new organizations that are being added to the
list, especially in the disaster relief area. We also have a 1-
800 number--1-877-829-5500--that an individual could call and
ask the assister whether a particular organization is tax
exempt.
Mrs. Thurman. That may be something us as Members of
Congress can get to our press to let them know, because we do
get questions on this periodically. Is this legitimate? How do
I figure this out? So that may be something we can be doing to
kind of help in the fraud situation as well.
General, I want you to explain this database to me, because
I am not sure that I know what all kinds of information you are
trying to gather. Second, I would ask, since you are having to
go through this right now, now I recognize New York laws are
going to be different than Virginia's laws or Pennsylvania's
laws, but are you coordinating this information and this
conversation with other generals around the country who also
may need to be taking on this expanded duty with the charitable
issues?
Mr. Spitzer. First, let me describe the database in a
little more detail. What we are hoping to do--and it is modeled
after the very successful effort to create this database in
Oklahoma City--is create one database that would be accessible
to the charities that are dispensing funds that would have
within the database the names of those who have received
particular assistance, the generalized purpose for which that
assistance was given, the amounts and the identifying
information for those individuals to insure that a charity that
received an application from an individual could then go to the
database to see whether that individual had received assistance
from others prior to that date.
This is a mechanism to insure that the funds are used
wisely, that there is not overlap, that people don't fall
through the cracks, that the same application is not being
reviewed and acted upon by multiple charities simultaneously.
It is a way to coordinate among those who are grant givers. It
is also going to be part of this database. We anticipate that
it would become a coherent list of all victims. If we could get
the charities to agree upon a common application form, victims
could fill out that application form, submit this application
form to the database, and it would be a repository of those who
need assistance, whether or not they have yet directly applied
to the charity, and it would permit charities that have funds
which have not yet been expended to search through this
database of victims to say, aha, here is the list of
individuals whose needs meet our purposes.
So the information can serve both purposes, that being a
charity that wants to give to make sure somebody hasn't yet
given and also a charity looking to give to make sure to see
who fits the various criteria there.
Mrs. Thurman. That would also help them--and I notice one
of the frustrations that you have been dealing with is some
folks being very concerned about the application after
application after application, so you would be kind of doing a
one shot.
Mr. Spitzer. Absolutely. The hope is that we can reduce the
amount of paperwork. We can generate a single application form,
a single document that would request of victims that
information needed by the charities so that there would be a
simple process that would eliminate the feeling that we have
heard so much about from victims that they have to go hat in
hand, they are being victimized again, they are being made into
beggars. We can simplify it, make it accessible in every
language. Because we have, of course, many victims who speak
many different languages, many victims who are not computer
literate. But simplifying this process in this way would permit
us to reach out to those who need the assistance.
Mrs. Thurman. And then coordination with other----
Mr. Spitzer. With respect to the other AGs, there has not
yet been a need for that because of all the--I may be
committing a sin that is uniquely New York. But I think that
the charities that are largest are indeed active in New York
City, and so we are sweeping in, we believe, all the major
charities in that effort and we, of course, are not
distinguishing between or among victims in New York,
Pennsylvania or Virginia or anywhere else. But I have not yet
needed to reach out to my colleagues in those other States.
Mrs. Thurman. Well, my guess is whenever the generals meet
someplace in this country that they will ask you to be the
speaker to talk about this, and I hope you will do it with the
same emotion and articulativeness you did today.
Mr. Spitzer. Thank you.
Chairman Houghton. Please.
Mr. Crowley. Thank you again, Mr. Chairman, for your
indulgence; and I want to thank the Chairman and the ranking
member for calling this meeting, this Committee hearing.
Let me first say thank you to both the panelists and,
firstly, with General Spitzer, how proud I am as a New Yorker
to have you as my attorney general for the work that you have
done on this issue and many other issues. But especially in
these hours of crisis you have stepped up to the plate I think,
and you are being admired by a great many people for the work
you are doing on this issue.
A number of entities were created specifically, I am sure--
I can't say that with facts or figures. I am going to ask you
this question, General--specifically to deal with the events of
September 11th and the victims of the Pentagon, Pennsylvania
and especially in terms of the magnitude of the victims of New
York City. Do you have any idea in discussions with--if you
have had discussion with the Secretary of State, how many in
your State--in our State of New York, how many charitable
organizations were created solely since September 11th?
Mr. Spitzer. I cannot answer that specifically. In our
database, WTCrelief.info, which is an effort to aggregate and
list the charities that are active with respect to September
11th aid, we have approximately 200 organizations listed. Now
those are the major organizations that are active in this area.
But many of them pre-existed September 11th; and so, hence, I
cannot answer specifically how many new organizations we have.
But I know that there are many, many that are not listed in
our Web site, many that are in the process of registering both
with the New York State Attorney General's Office, with IRS,
with other AGs offices where they are active. So I think that
number will grow substantially over the coming months.
Mr. Crowley. For instance, the fire and police and
emergency first responders have had a number of organizations
that have been created, including the Twin Towers Fund, solely
for the victims and their families. Restaurant owners have held
fundraisers for the victims who worked in the restaurant
business, many of those victims being the less covered workers.
Developers have held fundraisers for the construction and
building trades victims that we don't hear as much about, and I
think was mentioned before about the myriad of people that died
on that day. Are you experiencing any difficulties in terms of
getting cooperation with any of those other entities, aside
from what you talked about the Red Cross that seems to have
been the one that has given you the most difficulty? Is any
other entity giving you difficulty?
Mr. Spitzer. I think they are all at this point saying that
they will cooperate, and whatever initial hesitancies there may
have been have been overcome. I would certainly not
distinguish, in terms of the question you have been asking,
between those that pre-existed and those that are newly
created. I think the questions and the issues have been common
on either side of that divide.
But I think the cooperation we are getting so far has been
articulated that there be cooperation, but we are waiting to
see a more tangible demonstration of that cooperation.
Mr. Crowley. Not being an attorney, I asked a question I
didn't know the answer to. But it is because I just wanted to
make a point. Was the Red Cross the only entity that was giving
you difficulty?
Mr. Spitzer. Well, I think that the Red Cross is unique
both because of its size and because of its leading role in the
charitable world and, hence, their hesitancies, which were more
publicly stated and more publicly articulated early on, were
more significant in terms of our effort to build the degree of
cooperation and coordination that we felt appropriate. As a
consequence, I personally paid much more attention to
overcoming those difficulties and, again, think and hope that
we have done so.
There were other organizations that were hesitant for a
multitude of reasons, but, again, I think we have overcome
that, at least in terms of the words that are being said, and
we will continue to push aggressively to make sure that they
live up to that first----
Mr. Crowley. I made reference to the very broad mission of
the Red Cross as well in terms of they are looking at this as
not 5,000 victims or thereabouts but 25,000 families that they
have been involved with.
Just one other question for Mr. Miller, and that is the
attorney general made several recommendations in his brief
today with respect to the Federal Tax Code, such as modifying
provisions of the IRS Code that impedes closures in State law
enforcement, for example, audits and enforcement actions. Are
you supportive of those recommendations?
Mr. Miller. I think what has happened--and I don't know
that I can give an answer to that because I think that the
Treasury Department Tax Policy Office really is the better one
to speak to that. I would say that the Joint Committee report
came out a while back and Treasury still has yet to issue its
report on disclosure issues with respect to tax-exempt
organizations, and that is probably the best place for us to
state our case.
Mr. Crowley. Thank you very much. Thank you.
Chairman Houghton. Thank you, sir. Thank you, Mr. Crowley.
Just a quick question. If I give $100 to the XYZ Foundation
and I do it in the light of a disaster but I comply, Mr.
Miller, with your three requirements, which I understand is
that you have got to have an organization which is dedicated to
charitable purposes and is likely to accomplish this, serving
the public good, and that organization holds back $25 of those
$100, is that legal?
Mr. Miller. Let me see if I understand the question, sir.
You give $100.
Chairman Houghton. I give $100, and they give $75 to the
disaster and hold back $25.
Mr. Miller. Depending on whether it rises to the level of
fraud I believe that would be, as long as you are using those
$25 for appropriate 501(c)(3) charitable purposes, under the
Internal Revenue Code that is not a problem.
Chairman Houghton. OK. Now, I would like to ask this: If I
give $100 to the American Red Cross, Salvation Army, and they
keep a dollar out of that hundred, distribute $99, is that
appropriate in your mind?
Mr. Spitzer. You are asking a question that is very
important and appropriate, which is that there is a spectrum
that we have to recognize.
Let me answer the question this way. If the Red Cross were
saying today we have raised $564 million and we have dispensed
or plan to dispense in the next short timeframe $563 million,
but we have a million dollars that, of necessity, we want to
keep for an eventuality that we can't predict that may arise
tomorrow, the level of concern would be less. But where there
is an articulated policy to take nearly $200 million, in excess
of $200 million and withhold it, then the issue is different in
kind.
I think technically the answer is, withholding anything--if
the purpose of the $100 grant had been to spend it on purpose A
and they said we are only going to spend $99, technically that
would be a violation. But it would be an understandable
situation in certain contexts if they said we are spending $99
but we need $1 because, tomorrow morning, we may need one to
pay for some horrendous event. But that is not analogous to
saying we have raised $563 and we are only spending $300 and we
are holding back $250.
Chairman Houghton. But it would not be illegal to do that.
Mr. Spitzer. Well, let me use the word legal in the
following sense. It would be fraudulent if there were an intent
to deceive and mislead those who gave. It would be----
Chairman Houghton. We are assuming that that is not
happening.
Mr. Spitzer. Right. Let's put aside fraudulent intent. But
there could still be a civil violation.
Chairman Houghton. So, anyway, you say it is less likely to
cause concern if you held a dollar out than it would be a much
larger amount. So the fact is that a certain amount of that
$100 can be carved out. So the question is, how much? What is
appropriate? What is in good taste? What is in keeping with the
people who have given the money at all? Is it $1.50? Is it $25?
Is it $15? What is it?
Mr. Spitzer. I think that it is more than a matter of good
taste. And I want to be clear that if they pledged to spend a
$100 on purpose A and they spent only $99 and said we are not--
we are spending the one on something completely irrelevant, it
is still a violation. I don't mean to diminish that. But I
think the degree of our anxiety will vary based upon those
ratios and those proportions and what that one is being spent
on.
But in answer to your question, what is appropriate, where
is that line to be drawn, I think the Red Cross has failed us
by either articulating what the other purposes are or in making
very clear that of the 564 or whatever that precise number
might be, all but a de minimus amount will be spent on the
victims of September 11th. The amounts that they are spending
clearly violate that rule of either good taste or propriety or
civil liability, in my view.
Chairman Houghton. So it really is a matter of judgment and
how you define de minimus.
Mr. Spitzer. Well, no, I would not say that. I would say
that there is, again, a technical violation if they pledge to
spend $100 on purpose A and they do not do so. But having said
that, if they spend $99 on purpose A and say we need $1 because
there may be a tragedy tomorrow so we need our immediate relief
capacity to be there, then I think in the judgment of both law
enforcement and those who have given there would be a more
likely response that this an understandable allocation, an
understandable way to proceed. If, instead, the ratios are
those which we are being presented with and there is a complete
failure to articulate what those future needs might be, the
level of anxiety and resistance is proportionately greater.
Chairman Houghton. Well, thank you very much. Are there any
other questions? Yes, go ahead.
Mr. Coyne. I would yield to the gentleman from New York.
Mr. Crowley. Thank you very much.
Just let me ask you, Mr. Miller, would you have any idea of
how many new charitable organizations have been established,
501(c)(3)s, to deal specifically with the September 11th
attack?
Mr. Miller. Well, we have granted exemption to, as of
Monday, to about 120. There were another 40 or 50 in the
pipeline. As Attorney General Spitzer mentioned, you don't have
to come in new--as a new organization to do this, and there are
many organizations that existed that created funds, so the
number is much higher than that. But new organizations that
is--those that have come to us in the 120 range.
Mr. Crowley. Thank you. Mr. Spitzer, the Red Cross in their
testimony said, therefore, we established Liberty Relief Fund,
a separate segregated account that was created to hold and
disburse funds to help people affected by the September 11th
attack, its aftermath--and here is the point--and other
terrorist events that could occur in the near future. I think
the point of anthrax was brought out. Do you believe that was
what the fund was advertised in terms of television ad
campaigns, or what the American public believed they were
contributing to in the aftermath of September 11th.
Mr. Spitzer. No, I do not. In fact, I think that that
statement in their testimony today is one of many variations
that I have seen to define the purpose of the September 11th
Fund depending upon the date on which the Red Cross was
speaking.
Again, I don't say this to challenge their intent, their
good faith, their goodwill. They are a stupendous organization.
But I think that there have been several iterations and
articulations of what the Liberty Fund is to be used for. I
have heard various articulations both today here in the witness
testimony--reading their documentation, yesterday in testimony
in New York State, Tuesday in testimony down here. So I think
there are several different variations; and, in fact, the
clarity that we seek is desperately needed.
Mr. Crowley. I thank the gentleman from Pennsylvania. Yield
back.
Mr. Coyne. Thank you.
Chairman Houghton. Thank you very much. Certainly
appreciate your being with us.
Mr. Spitzer. Thank you, sir.
Chairman Houghton. Now, let's go to the third panel.
Mr. Daniel Borochoff, who is the president of the American
Institute of Philanthropy in Maryland; Mr. Taylor, who is
president and chief executive officer of the Better Business
Bureau Wise Giving Alliance; and Mr. Michael Hirschfeld,
partner, Dechert/ABA Tax Section of New York.
All right, gentlemen. Now, Mr. Borochoff, would you begin?
STATEMENT OF DANIEL BOROCHOFF, PRESIDENT, AMERICAN INSTITUTE OF
PHILANTHROPY, BETHESDA, MARYLAND
Mr. Borochoff. Yes. I am Daniel Borochoff, president of the
American Institute of Philanthropy and Charitywatch.org. We are
a nonprofit organization that watchdogs the charities. Since
1993 we have been America's most outspoken watchdog of the
charities. We are most famous for our letter grade rating A+ to
F of the financial performance of charities. Many of the
problems that were brought out in the aftermath of September
11th are unfortunately all too common in the nonprofit sector
and were of serious concern before September 11th.
Americans have been far too hazy when it comes to making
charitable giving decisions and following up on how charities
are using their contributions. Charities are making it very
difficult for donors in their fundraising appeals when they are
not specific about their intended use of the contributions.
What happened--in this crisis happens too often. A charity will
heavily advertise a particular need, a need that is often most
popular, and they will not adequately inform donors of other
uses for that fund.
For instance, take a disease group. They might tell you
that they want money to find the cure and for patient care.
Then you actually look in to it and you find, that this is
actually only 20 percent of how they are spending the money.
This has happened in this crisis, and we are aware of this
because of the massive amount of attention focused on it. In
the nonprofit field, a lot of this goes on, and the public
really needs to get specifics from these charities.
In this crises, things happened backwards. Money poured in
so quickly before the groups had time to prepare a budget or a
plan.
Perhaps the Congress will want to come up with some sort of
legislation calling for what to do in a crisis and to force
some better participation among the charities. Perhaps we want
to legally mandate participation. I have been very disappointed
about the Red Cross not wanting to share information.
When you listen to these charities talk about it, they all
say, oh, yeah, we get together, we talk. But what you want to
know is specifically are you sharing information on specific
victims. And of course there are ways to protect the privacy
concerns of the individual victims. Hire an accounting firm or
other intermediary like the attorney general's office could
protect those concerns.
A wise, equitable allocation of charitable dollars is the
most important thing here. This needs to be done.
Also, the Red Cross is talking about having a waiver where
people would sign that are unwilling to pass up their privacy
concerns. But if you are a scammer, you are probably not going
to waive your privacy concerns, so that doesn't really get at
the problem. I think there are mechanisms that could be built
into the system to protect privacy.
I suspect there might be some turf battles among the
charities that aren't working together. I have heard concerns
about it getting out to the public about individuals getting a
certain amount of compensation and then marketers going after
those victims' families. But I believe there are ways to
protect it, and the information could be shared among the
charities.
I think it is really important that we have the attorney
general monitor that database, and have some controls over it.
If not him, somebody else, a statesman or somebody that can
make sure the charities work together. This is all too
important right now.
I want to bring up some points that I have heard from some
of the testimony of the September 11th Fund. The Fund is
improving--I notice as they go along, they are improving the
way they describe things. They used to say, every penny would
go to the victims, the family and the communities. Now they are
saying every dollar goes to grants, which is an improvement.
But, keep in mind, they are an intermediary. They give money to
other organizations that may have a lot of overhead costs.
So what we have to do is watch the organizations that they
are funding. Earlier on during the crisis, they were just
reporting a few grants they made. Now they are finally putting
up on the Internet the grants that they have given out. So that
is certainly an improvement.
Another thing we have got to watch out with these charities
is they are saying--I have heard this a lot from them. They are
saying, we may have needs 6 to 10 years out. Well, every
charity can make that claim, and--every charity when they get
closer to those 6 to 10 years out, they come to the public and
ask for more money.
This is a great time of need right now in this country. We
don't want charities to be locking away large reserves for a
terrorist strike that may or may not happen. What we are
talking about here is a reasonable reserve. The Red Cross in
natural disasters likes to keep about a $50 million reserve.
Instead of socking away $250 million, why don't they take about
$50 million, and make that a reserve?
You see, what is happening right now is the charities in
this country are being squeezed. We have got higher incidences
of alcohol and drug abuse that is causing all kinds of abuse,
of women and children and animals. Also, the economy is
faltering. People give as a percentage of their income. So
giving is getting lower. The nonprofits are being asked to do a
lot more.
All of this money getting directed to this crisis is money
that is not available to the other organizations. The groups
that were raising money in this crisis were very aggressive and
they weren't sensitive to the needs of other organizations.
I would like to present this sign about the Red Cross. This
is the type of advertising that they--I believe they most
commonly did. This was at a Shopper's Food Warehouse, and it
says, Red Cross donations can be made at the registers. A
hundred percent of your contribution will go to help the
victims, their families and rescue workers in America's time of
need.
[The sign follows:]
[GRAPHIC] [TIFF OMITTED] T6594A.001
Mr. Borochoff. This was posted October 27th. At this point
in time, the Red Cross had raised way more money than they had
planned to spend for these purposes. I understand that the Red
Cross may not have put this sign out, but there are a lot of
companies out there and sponsors putting up signs, running PSAs
or Public Service Announcements. The Red Cross admitted to me
they had lost control over what other people were doing in
terms of advertising, but these messages make the public
perceive that the money is going for this crisis.
The Red Cross shouldn't be able to sock away this money.
There is going to be quite an uproar right now. There are a lot
of victims here. There are the direct victims, but we also want
to think about the many indirect victims here that are involved
in this crisis.
The Red Cross is giving out cash gifts when they could be
giving loans to people. For people that are in line for
multimillion-dollar life insurance policies, instead of giving
them a gift. Give them a loan. Get that gift to somebody who
really needs the money. This is something that really needs to
be done. I would also say----
Chairman Houghton. Are you almost through? Because we have
got a time limit here.
Mr. Borochoff. Yeah. OK, just one last statement.
The important lessons for donors of this crisis is that
they must target their contributions to meet specific needs
that are clearly articulated by the charities. Giving as a way
of grieving, honoring brave firefighters or as a way to do
something may make one feel good, but it does not help us to
accomplish the highest and best use of our precious charitable
dollars.
Chairman Houghton. Is that it now?
Mr. Borochoff. I can go on, but if the time is----
Chairman Houghton. You will be able to answer questions.
Mr. Borochoff. Sure, sure.
[The prepared statement of Mr. Borochoff follows:]
Statement of Daniel Borochoff, President, American Institute of
Philanthropy, Bethesda, Maryland
The American Institute of Philanthropy and Charitywatch.org is a
nonprofit charity watchdog and information resource dedicated to
helping its members and the general public make wise giving decisions.
Since 1993 we have been America's most outspoken watchdog of the
accountability, financial, governance and promotional practices of
charities. We are most famous for our letter grade (A+ to F) ratings of
the financial performance of charities as published in the Charity
Rating Guide & Watchdog Report. During this recent crisis nearly every
major U.S. media outlet has covered AIP's advice, analyses and
concerns. Some of the problems brought to light in the aftermath of the
recent crisis are unfortunately all too common in the nonprofit sector
and were of serious concern before September 11.
Americans have been far too hazy when it comes to making charitable
giving decisions and following up on how charities are using their
contributions. Charities are making it difficult for donors in their
fundraising appeals when they are not specific about their intended use
of contributions. What often happens is that the charity heavily raises
money for the one or two aspects of its work that people are most
inclined to support and neglects to fully inform donors about the other
planned uses of funds. This happened in this disaster but it also
regularly happens with other groups. For example, a disease group may
primarily ask for money to find a cure and to help your poor neighbor
with its medical bills yet the most advertised need may only represent
20% or less of the charities total spending.
Ordinarily nonprofit organizations find a need, develop a plan or
budget and then raise funds for it. In this crisis everything happened
in reverse. The money poured in so quickly the charities are scrambling
to figure out what to do with it. Shortly after the attack it is
understandable that the charities must rapidly help take care of
suffering people and seek emergency funding before knowing how much
money is required for immediate or short-term needs. When judging the
charity's response to this crisis, we should separate out its
performance meeting short-term, intermediate-term and long-term needs.
For longer-term needs it is better to be patient with the charities and
give them time to assess unmet needs and allow them to prudently
distribute the funds.
This disaster recovery effort is more complicated than others in
recent history because it involved so many players including layers of
federal, state and municipal government, insurance companies and about
200 charities. Not only was this a horrible disaster it was also an act
of crime and therefore victims have access to federal and state crime
victim compensation funds. It is important to be aware that though the
$1 billion plus raised by the charities seems like a lot it is small
compared to the $100 billion that the government and insurance
companies may be putting into this crisis. The role of the charities is
to fill in the cracks and meet those needs that are not being met by
the government and insurance coverage. The federal victims'
compensation fund that is still being designed may lead to victim's
families receiving anywhere from $600,000 to $25 million (the specific
amount depends upon the income of the victim, the size of the overall
fund and other factors, many not yet determined) by this spring. The
rules have not yet been written for this fund but there is a risk that
charitable money given to victims will be subtracted from their federal
pay out. The charities' role is to help victims' families until this
big federal pay out becomes available. I am concerned that the public
is not aware of this fund and is thinking that the charities are
supposed to use their money for the same purpose.
In this crisis many people wanted to give money to the families of
the 400 brave firefighters and police who were struck down in the line
of duty. Many charity fundraisers were conducted across the country for
these victims. Yet these victims already receive substantial benefits
because of their job. They receive a tax-free pension of the officer's
full salary for the life of the widow, $151,000 from the Department of
Justice, $25,000 from the New York City Mayor's Office and money from
their union. Any charity raising money for these uniformed people have
an obligation to inform donors of what they are receiving from other
sources so donors can decide if they want to provide additional
support. The Twin Towers Fund, which has raised over $85 million and
distributed nothing yet for the families of uniformed city personnel,
should tell the public how much it wishes to distribute to each family
and when it plans to do so.
If the donors and charities have been confused by this crisis, you
can imagine the difficulty of the victims. Unless the charities and
governmental agencies can set up a one-stop shop for victim aid, I
would suggest that a counselor or social worker be assigned to each
direct victim's family to help them navigate the maze. I'm concerned
that bolder people that know how to work the system will receive a lot
more than timid less bureaucratically experienced types. Also, I am
concerned about individual victims that show up on multiple television
programs and are included in news articles receiving baskets of money
from the public while less publicized victims are neglected. This is
also something that happened after the Oklahoma City bombing.
I want to clear up some confusion about the American Red Cross. It
is a financially efficient organization and receives an ``A'' grade
from AIP for spending 90 percent of its total expenses on program
services and having a cost of only $15 to raise $100. The concern in
this disaster is that it is spending money on areas other than what was
most heavily advertised and perceived to be the need by the public that
being the direct victims, their family and the relief workers. Even if
the Red Cross keeps to it $320 million budget, it is likely that less
than half of the $550 million raised will be used for this purpose.
I believe that the Red Cross in its zeal to fundraise while the
iron was hot raised more money than it needed for what it would
ordinarily do in a disaster and behaved opportunistically by using this
crisis to raise money for programs that were not a major part of its
advertising such as upgrading its phones and computers, promoting
humanitarian principles and encouraging tolerance. Many of these
programs such as building a strategic blood reserve are useful and
important but the Red Cross needed to be more specific about raising
money for them. I'm concerned about the Red Cross raising money for
programs that might be better run by other nonprofits. For example, why
is the Red Cross raising money in its Liberty Fund for physiological
trauma counseling nationwide when we already have local mental health
associations across the country that can offer this service? A great
strength of the nonprofit sector is its diversity of organizations that
allows for many creative solutions to complex problems.
On October 26, Dr. Bernadine Healy was forced to resign by year-end
as president of the American Red Cross. Up to this point, which is 45
days after September 11th, the Red Cross had spent $140 million of the
$500 million it had raised. The $140 million that was spent by October
26 is still $100 million less than the $240 million it had raised by
October 2nd. On this date, three weeks after the terrorist strike, Dr.
Healy said on National Public Radio that the $240 million that the Red
Cross had raised at that time was not enough to cover ``our needs in
the short-term.'' As a guest on the same program, I twice pressed Dr.
Healy to tell the public specifically how much the Red Cross needed for
the short-term and both times she did not answer my question. After the
show I said to her: ``Is it the case you do not know how much the Red
Cross needs in the short-term'' and she said emphatically ``No.'' As a
watchdog that does not give up easily I asked her in the elevator, ``if
we had Bill Gates right here and he was willing to write a check to
cover the Red Cross' short-term needs, what would you ask him to
give?'' Her answer was, ``I'd ask him what he wants to fund.''
The Red Cross could have avoided a lot of donor confusion had it
used the Liberty Fund exclusively to raise money for immediate disaster
relief and direct victim aid and then cut off fundraising after this
need had been met at about $250 million. I believe that it would be
dishonoring the intentions of donors for the Red Cross to continue with
its plan to keep $200 million or more in a reserve fund for a large-
scale terrorist strike that may never occur. I would encourage the Red
Cross to keep a more reasonable terrorist disaster reserve of about $50
million, which is what it seeks to maintain in its general disaster
fund. The Red Cross should not keep such a large amount of disaster
contributions in limbo during a time of great need.
AIP is concerned that the Red Cross is giving out cash gifts to
victims who could be in line for multimillion-dollar insurance
policies. The purpose of the Red Cross' Family Gift Program is to meet
the cash flow needs, i.e. pay the bills for a victim's family. More
could be accomplished with our limited charitable dollars if they were
given out as loans that would later be repaid upon receipt of large
personal or company insurance payments. The money could then be given
as a gift to someone who really needed a cash gift. I brought this to
Dr. Healy's attention in early October and she said that it is the Red
Cross' policy to do it this way and she was not interested in changing.
$100 million has been earmarked for this fund and only about half of it
has been distributed, which may explain why the Red Cross is giving
gifts to people who only need loans.
Had the American Red Cross behaved more appropriately in this
crisis it could have looked forward to receiving the Nobel Peace Prize.
Instead its actions have tarnished its high public standing and brought
distrust and skepticism to the entire nonprofit field. Though, some
healthy skepticism is needed and long overdue in the nonprofit sector,
where people's good intentions are too often taken advantage of.
The September 11th Fund, which is being administered by the United
Way and the New York Community Trust, has been slow to respond and has
not been as accountable as it should be. It took over a month after the
terrorist strike to put together a board even though most of the board
members wound up being from the United Way and the New York Community
Trust boards. The Fund has only distributed one-tenth of the $340
million that it has raised. The United Way and NY Community Trust is to
be commended for paying for the Funds administrative overhead. Though
the Fund's earlier claim that ``100% of all contributions to the
September 11th Fund are being used to help the victims, families and
communities affected by the terrorist strike'' is not totally correct
since the Fund gives grants to other nonprofits who may spend some of
this money on overhead costs. The Fund has been slow to make and report
its grants. Up until October 15, it had only identified three
organizations on its Web site that it made grants to of $4.5 million
and another $1.3 million of unidentified grants.
The Red Cross and September 11th Fund, which both account for 75%
of the funds raised, and other charities that are directly involved in
this crisis need to be more cognizant of how their aggressive
fundraising efforts impact non-disaster charities. Money directed for
this crisis will not be available for other important programs at a
time of great need. Americans on average have been stuck at giving
about 2% of their income over the past three decades. Income is in
decline due to the faltering economy. Therefore, many social and human
service charities are receiving less donations while being asked to
provide more services to people that have lost their jobs or are
abusing drugs or alcohol as a way to cope with the fear of terrorist
threats.
It is unfortunate that the charities did not do a better job of
coordinating their relief efforts. Early on the charities should have
divided up the names of the individual victims from the WTC employer
lists and reached out to the victims that had been assigned to them.
Charities not knowing which victims had already been contacted had to
duplicate the efforts of others. AIP has frequently spoken out in
support of the New York State Attorney General's efforts to create an
informational database to help charities coordinate their relief
efforts. AIP was disappointed by the Red Cross' refusal up until late
October to share its information on pay out amounts to specific
individuals with other charities. This made it very difficult for other
charities to know what to give to a victim's family if it did not know
what the biggest charity player had already done. Red Cross cited
privacy concerns and expressed a concern to me that the other charities
may let information out on victims that could subject them to being
harassed by marketers with knowledge of the money that they had
received. The Red Cross also said that there were other charities that
shared their position but would not publicly admit it. I believe that
the charities can introduce controls in the database to protect privacy
and allow for an equitable distribution of funds that will keep
dishonest people from double or even triple dipping.
On November 2nd the New York Attorney General gave over control of
the informational database to the charities. I believe that we need a
governmental regulator or independent organization or individual to
closely monitor this database. Otherwise, we may not know whether the
charities are fully cooperating and equitably helping all of the
victims. By taking this database out of the control of the NY A.G., I
am seriously concerned that the charities may be trying to skirt some
needed accountability.
Donors and the media need to be able to receive reports from this
database, not on what is being done for a specific named individual,
but on what type and amount of aid is being provided by all the
charities to classes of individuals. This cross-charity accountability
will help donors to determine if they should target additional
contributions and encourage charities to spend existing reserves on
needs that are not being met.
In the event that charitable contributions are still unspent after
all of the short- and intermediate-term needs of the direct victims of
the disaster are met, AIP would consider it reasonable to use the
remaining funds to provide aid to the indirect victims who have lost
their jobs in devastated sectors of our economy.
The important lesson for donors in this crisis is that they must
target their contributions to meet specific needs that are clearly
articulated by the charities. Giving as a way of grieving, honoring
brave firefighters or as a way ``to do something'' may make one feel
good but it does not help us to accomplish the highest and best use of
America's precious charitable dollars.
[The attachment is being retained in the Committee files.]
Chairman Houghton. Mr. Taylor.
STATEMENT OF HERMAN ART TAYLOR, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, BBB WISE GIVING ALLIANCE, ARLINGTON, VIRGINIA
Mr. Taylor. Good afternoon. I am Art Taylor. I am the
president and CEO of the Better Business Bureau's Wise Giving
Alliance.
We are a charity watchdog, and, as such, we stand in for
donors. We try to represent the interests of donors. Our work
typically involves the setting of standards under which
charities can voluntarily choose to operate, and we evaluate
charities against those standards. We then report on which
organizations meet our standards and ones that don't. Our
reporting involves consultation with the media, government
entities, businesses and nonprofit leaders.
Our work also involves research. Recently, we conducted a
survey of donor expectations, and we found out quite a few
things, some very relevant to what is going on today.
First of all, we see that 86 percent of Americans gave at
least one gift of cash or property to some cause this past
year. Seventy percent, however, found that it is hard to tell
if the particular charity that solicited them was legitimate or
not. Seventy-two percent found that it is difficult to choose
between organizations that are soliciting for the same thing.
And here is what is really important for some of our
discussion today. Sixty-three percent of donors surveyed want
money to go to current needs, rather than long-term needs.
There are a couple of things that we have learned from
these statistics. Charities need to do a better job in
soliciting donors. That is the first thing.
I have here an advertisement that was in the New York Times
on September 14th. This was a corporate-sponsored ad. The first
part of the ad talks about the victims and their families in
this time of sorrow. The bottom portion of the ad talks about
money going to the Red Cross disaster relief fund. The disaster
relief fund, in my understanding, is the general fund of the
Red Cross which gives them broad latitude to support various
disasters.
[The advertisement follows:]
THE NEW YORK TIMES, FRIDAY, SEPTEMBER 14, 2001, PG. C9
AMERICAN RED CROSS
Together, we can save a life
Like all Americans and many throughout the world, Coinstar is
deeply saddened by the events of September 11, 2001. Our thoughts and
prayers are with the victims and their families during this time of
sorrow.
In an effort to do what we can, Coinstar has mobilized its network
of supermarket-based machines and is now accepting change donations on
behalf of the American Red Cross Disaster Relief Fund. Go to our Web
site at www.coinstar.com or call 1-800-928-CASH to find the location
nearest you.\1\
---------------------------------------------------------------------------
\1\ Note that a small percentage of the machines in our network do
not have the donation capability enabled currently.
---------------------------------------------------------------------------
Your spare change can make a difference. To find out how else you
can help, please visit the American Red Cross Web site at
www.redcross.org or call 1-800-HELP NOW.''
COINSTAR
Mr. Taylor. However, the top reference to victims and their
families related to the September 11th episode would give the
average person the belief that this money is going to be used
for that purpose. So while the Red Cross can say that, well, we
advertised truthfully, we told donors that it was going to our
general fund, the reality is that, because there is a reference
to September 11th, the average person is going to feel that
money is going for September 11th victims. A better job could
have been done in advertising.
The second thing that we are concerned about is that, while
there may be long-term needs that come out of this, the public
expects the money to go to current needs and immediate needs of
these families, and that is where we believe the money should
be going.
A final issue that we have is the need for coordination.
There has to be better coordination of what is going onin New
York right now. There are too many organizations out there trying to
help, and we cannot be assured that each of the victims and their
families will be treated equally and the money will be distributed
equitably unless there is coordination. So we support Attorney General
Spitzer's attempt to bring all these organizations together into a
database, and it is important that the information be as detailed as
possible. There should be a sharing of information about what went to a
particular victim so that organizations can access that information.
Of course, we have to be concerned about the privacy of
victims, but I believe there is a way to assure that the
victims are treated with dignity while at the same time--
organizations are also able to know what money has gone out for
which victims so that the money can be distributed equitably.
Finally, I just want to comment that I think that the
charitable sector is doing a fairly good job here.
Organizations have stepped up to the plate quickly. I believe
that in time we will resolve all these things, but I am glad
that the Congress has chosen to call a hearing, and I think
your job is to continue hearings like this in the future to
make sure that all the organizations are doing what they should
be doing. Thank you.
[The prepared statement of Mr. Taylor follows:]
Statement of Herman Art Taylor, President and Chief Executive Officer,
BBB Wise Giving Alliance, Arlington, Virginia
Good afternoon. I am Art Taylor, president and CEO of the BBB Wise
Giving Alliance. I appreciate the opportunity to appear before this
Subcommittee to report on our donor education programs and also to
share with you some of our concerns arising from September 11
solicitations and the use of 9-11 charity donations.
The BBB Wise Giving Alliance is a nationally recognized monitoring
organization that sets accountability standards for charities and other
soliciting nonprofits. The Alliance is the organization resulting from
the recent merger of the Council of Better Business Bureaus' Foundation
and its Philanthropic Advisory Service and the National Charities
Information Bureau. Between the two organizations, we have over 100
years of experience in reviewing and reporting on charities.
Often referred to as a ``charity watchdog,'' our core mission is to
provide information to donors to assist them in making knowledgeable
choices about giving. We work with many audiences, including charities,
governmental agencies, charity governing boards, the media, corporate
contribution departments, Better Business Bureaus, and nonprofit
umbrella organizations. However, the donor is our primary constituent
and that is the perspective I bring today.
The Alliance recently commissioned Princeton Survey Research
Associates to conduct a major study on donor expectations as part of
the process to revise our charity accountability standards. Princeton
Research interviewed 2,000 members of the general public on a range of
charity accountability issues and found that 86% of Americans gave to
charity last year. Charitable giving is almost a universal experience
in this country. And, of particular relevance to your subject today,
the survey also found that the public has very high expectations for
ethics and accountability by charities. However, they are often
frustrated at not being able to find the necessary information to make
their decisions about giving.
Most people (70%) said it is difficult to tell whether a charity
soliciting their contributions is legitimate, and many (72%) also say
it is difficult to choose between organizations that raise money for
similar causes. Donors want to know most of all about charity finances,
but also important to them are the clarity of a charity's advertising
and promotion and the effectiveness of a charity's programs.
In addition, our survey shows that the public expects their
contributed money to be used for current programs. Sixty-three percent
(63%) of Americans expect that when they donate money to a charitable
organization, the bulk of their contribution will go toward current
programs, rather than put in reserve.
These findings reflect our own experience. The donors and potential
donors who contact the Alliance and local Better Business Bureaus are
looking for information to make informed giving decisions. They want to
give, but they want to make certain their gifts are well used and for
the purposes given. They take charitable giving seriously.
As part of our basic service, the Alliance issues reports on
individual national charities that include an evaluation of the charity
in relation to the voluntary CBBB Standards for Charitable
Solicitations. These standards address public accountability issues,
financial activities such as how much the charity spends on its
programs, accuracy of fundraising appeals, fundraising practices and
also governance issues. We focus our reporting efforts on those
charities that donors and potential donors are asking about, some of
which are long established, others newly created. On average, about 75%
of these national charities meet all of our standards, and about 25%
don't meet one or more of our guidelines.
The Alliance reports on individual national charities outline not
only whether or not the organization meets our standards, but also
information on program service activities, fundraising practices,
charity governance, executive compensation, sources of funds, and how
the organization spends its money. Our reports are available directly
from our office in Arlington, Virginia, through all 129 local Better
Business Bureaus in the United States and on our Web site www.give.org.
We also issue a quarterly guide summarizing our evaluation findings and
reporting on other topics of interest to donors.
In addition, we issue special alerts and advisories on topics of
concern to donors. These range from tips on police and firefighter
appeals, to what you should know about car donations to precautionary
advice in the face of disaster appeals.
This advice is needed because of the vulnerability of donors,
particularly in the wake of disasters. Over the years, we have observed
that shortly after every major disaster--flood, hurricane, or the
Oklahoma City bombing--a flurry of fundraising appeals to help the
victims begins. While most of these appeals are well intentioned and
worthy of support, others are not. Americans are very generous and,
unfortunately, there are those who are eager to take advantage of this
generosity for their own gain.
Very soon after the September 11th events, we received reports of
unsolicited emails and phone calls to consumers that requested
donations for the victims of the terrorist attack, including asking for
the recipient's credit card numbers. We immediately issued a press
release cautioning donors against fraudulent appeals that seek to use a
national tragedy to take advantage of American generosity. This alert
provided a series of tips for donors to help evaluate appeals. A copy
is included with my testimony. We were pleased to see that the media
made wide use of these tips about 9-11 relief efforts.
The very first tip was to be wary of appeals that are long on
emotion, but short on describing what the charity will do to address
the needs of victims and their families. We also noted that charities
should be willing to provide basic information that describes the
charity's programs and finances. Even newly created organizations
should have some basic information available.
In cooperation with the Better Business Bureau of Metropolitan New
York, we will soon make available a special section on our Web sites
that will provide information on organizations that have been
soliciting for September 11 relief programs. We have requested
information from approximately 170 such organizations for this listing.
Our objective here is to provide a central information resource to
donors who are responding to appeals or who are looking to direct their
support to specific types of assistance.
We are still receiving inquires from potential donors asking about
specific charities. But, we are also beginning to hear concerns from
those who have already given and who feel their contributions may not
be used as expected. For example a consumer recently wrote: ``We have
donated $130 to the wtc disaster fund and my employer has graciously
matched that amount. We have now found out that our money may be used
for other things. We insist that our monies be used for what they were
intended. We would like our funds to be placed in an account
specifically used for the wtc disaster or be promptly returned so that
we may give it to a charity that will adhere to our wishes.''
Or another who said ``if people knew that this money was not really
going to help victims' families with the things they really need, like
with bills because of the loss of an income, they would in many cases
never have given the money they did. People would be outraged to hear
this.'' Another stated ``I am appalled.'' The messages are consistent--
``I gave to help the victims and now I am hearing that my donation will
not be used as I intended.''
There are a number of our current charity standards that relate to
some of the concerns being raised by the public. In addition to
ensuring that a majority of public contributions are spent on the
programs mentioned in appeals, our 23 charity standards also call for
charities: to include, in solicitations, a clear description of the
programs and activities for which funds are requested; to substantiate
on request their application of funds, in accordance with donor
expectations, to the programs and activities described in
solicitations; and to ensure that solicitations and informational
materials are accurate, truthful and not misleading, both in whole and
in part.
We are at a critical juncture here. The American public has stepped
up to the plate and given in an unprecedented way. Now the challenge
rests with the charitable sector to be equally forthcoming to the
public regarding the use of these donations. Broad accountability is
called for. How the recipient organizations handle the enormous
resources they have been given and how well they communicate with the
public about what they have done and plan to do in the future will have
an impact on future charitable giving at all levels.
I believe that charities will rise to the occasion and serve us all
well. However, I think that it is in the best interest of donors,
victims and the charities themselves to take a more collaborative
approach in all of their efforts. Coordination is certainly essential
to ensure that there is a fair distribution of the 9-11 relief
assistance and we encourage charities to cooperate in the sharing of
information about available services and victims served. We believe
this can be accomplished without unduly violating the privacy of the
victims. At the same time, there also needs to be a commitment to
openness and transparency far beyond what we are currently seeing. Most
importantly, there needs to be a seamless and non burdensome way for
victims and potential beneficiaries to seek help.
I firmly believe in the vast power of the nonprofit sector and its
capacity to serve and serve well and do not believe that the answer to
the current situation lies in more government regulation. However,
given the enormous need and the great amount of funds at stake, a
clearly defined coordination mechanism is warranted. Whether through
the good offices of the New York State Attorney General's office,
through an independent control board, or via a consortium of
institutional grant makers, it is essential to identify, document and
monitor the activities carried out in this unparalleled relief effort.
There needs to be an overall accounting beyond that of each individual
organization.
On our Web site, we have posted a number of recommendations to
charities that we believe will help them achieve a level of
accountability and can also help assure donors that their confidence in
giving is well placed. Our recommendations, among other things, include
the need for all organizations to: plan for a full accounting of all
funds raised and all expenditures by year's end, regardless of the size
of the organization; provide for clear descriptions of the programs or
services in all future fundraising appeals so that donors and potential
donors will know the specific ways that their donations will provide
assistance; and maintain strong internal controls on income and
expenses. Finally, we recommend that charities establish a board-
approved plan for how contributions will be spent and a projected time
line for these expenditures and revisit this plan as needs evolve.
Again, I appreciate the opportunity to be with you today and look
forward to answering any questions.
[The attachments are being retained in the Committee files.]
Chairman Houghton. Thanks, Mr. Taylor. Mr. Hirschfeld.
STATEMENT OF MICHAEL HIRSCHFELD, CHAIR, 9/11 TAX TASK FORCE,
AMERICAN BAR ASSOCIATION SECTION OF TAXATION, NEW YORK, NEW
YORK
Mr. Hirschfeld. Good afternoon. My name is Michael
Hirschfeld. I come to you on behalf of the American Bar
Association (ABA) Tax Section and as chair of the 9/11 Tax Task
Force which was created in the days after September 11th to
help Federal, State and local governments to make sure that
taxes become an aid in America's recovery and not a detriment.
I also come to you as a lifetime New Yorker, and I come to
you with a tax issue that we have that we think is affecting
many of the victims of the events of September 11th who haven't
really had their voice discussed so far today. We are focusing
not on those individuals who perished or who were injured on
September 11th, nor those people who were displaced from their
homes, but the thousands of small- and medium-sized businesses
in New York who are fighting for their own economic life and
who, in turn, employ tens of thousands of low and moderate
income people who are also fighting for their life. Because,
with their paycheck, they cover that to pay for their food for
their family, pay the rent and clothe their children and
themselves.
The issue is simply this: When a charity chooses to give to
a business that has been affected by the World Trade Center
tragedy, should that become taxable income or not? The position
of the ABA Tax Section is it should not be. We think that is an
important issue to clarify, and we think that, with
clarification, that will allow further funds to flow to help
these type of people.
As we view it, if a charity is willing to throw a life
preserver out there to save a business, we want to make sure
the only hole in that life preserver is the one in the middle
that the business can cling to for survival. We don't want to
see that life preserver riddled with other holes because part
of that gift has to be diverted to pay taxes.
Just to put the tax issue in context for you, it has been a
longstanding principal that when a charity gives to an
individual, that individual does not have to treat that amount
as taxable income, and every dollar they get they can spend it
where they need to spend it. The IRS has done a great job in
clarifying that issue.
As a quick aside, the IRS has done a great job beyond what
Mr. Miller talked about in this whole effort. Two days after
the World Trade Center tragedy, they told America, don't worry
about your taxes; recover first. We just want to commend them
dramatically.
But getting back to the issue at hand, the uncertain issue
is what about a business that gets a gift from a charity? Our
view is it should be a clear issue, and clear guidance is
needed to say that type of gift that is trying to be a one-time
grant to help them stay on their feet should not be treated as
taxable income.
Just to try to put this thing into context so you can
understand what we are talking about, on September 11th, New
York lost 29 million square feet of office space. That is all
the office space in Indianapolis, Indiana, the 12th largest
city in America. Well, that had a ripple effect that permeated
throughout New York. It affected a wide variety of businesses.
There are a wide variety of shops and restaurants, for example,
in Manhattan's Chinatown, who lost valuable tourist dollars,
who lost all their customers who worked down there who are
there no more and even to this day find they have problems
attracting customers because the World Trade Center fires still
burn and the air quality drifts over and it harms them.
Apart from that, there is a whole business services sector
in New York. There is the high-tech, the computer
professionals, but there is also the low-tech, people as
messenger services in New York, even plant watering services, a
host of businesses that hire low-income people who literally
right now are fighting for their lives to stay in business.
There is a host of other types of businesses, too, from the
pushcart that stood in the shadows of the World Trade Center
that was destroyed, from the preschool in the shadow of the
World Trade Center that is fighting for its life.
Our bottom line position is that if a charity makes the
determination that there is financial need going on here and
the charity says we are going to--wish to help you out to try
to keep you alive, not to bring you back where you were before
but just keep you alive, then our view is that should be
treated as a nontaxable gift. And we think if the government or
yourselves can come out with immediate guidance that will
unleash more money to help them and also help these people,
too, to make sure they are not becoming victims of this attack.
Bottom line view that we have is that on September 11th,
while the terrorists may have aimed at the heart of America's
wealthiest, many of those people at the bottom rung of our
economic ladder are in jeopardy now for their lives, and
clarification of this tax issue should help to make sure that
dollars will be given to these businesses and it will flow to
the benefit of these types of people.
With that, I would like to rest my case, because it is late
in the day.
[The prepared statement of Mr. Hirschfeld follows:]
Statement of Michael Hirschfeld, Chair, 9/11 Tax Task Force, American
Bar Association Section of Taxation, New York, New York
Mr. Chairman and Members of the Subcommittee, my name is Michael
Hirschfeld. I appear before you today in my capacity as Chair of the 9/
11 Tax Task Force of the American Bar Association Section of Taxation.
This testimony is presented on behalf of the Section of Taxation. It
has not been approved by the House of Delegates or the Board of
Governors of the American Bar Association and, accordingly, should not
be construed as representing the policy of the Association.
The Section of Taxation organized its 9/11 Tax Task Force in order
to respond to legal questions and community needs within our Section's
area of expertise. I am pleased to be serving as Chair of this Task
Force. In the first weeks after the attacks, charities in New York,
where I live and work, were seeing the need for relief to small and
medium sized businesses affected by the attacks. As a result, the tax
bar was being presented with questions about the tax consequences if
businesses received grants and low interest loans from charities
responding to community needs created by the attacks.
Our Task Force asked leading practitioners from our Exempt
Organizations Committee to review the law in this area. We found that
there is a sound basis in the law to exclude these relief payments from
income. However, we also found some guidance previously issued by the
Internal Revenue Service (the ``IRS'') that could have raised concerns
on this point. We therefore concluded that new IRS guidance confirming
the nontaxability of business relief payments would be materially
helpful to September 11-related charitable relief efforts.
We made a submission to the IRS on October 15, as individual
comments on behalf of members of our Task Force and the Exempt
Organizations Committee, seeking immediate guidance. Consistent with
Section policies on conflict of interest, the commenters were
individuals whose firms were not assisting clients in seeking guidance
on the same subject. When we were invited by this Subcommittee to
discuss those comments, we took the additional procedural steps to
authorize this testimony as testimony of the Section of Taxation. I
hope the Subcommittee will understand that my ability to speak for the
Section is limited to the areas covered in my prepared testimony.
Let me briefly review the state of the law that we found, and the
IRS guidance we are seeking.
Needs-Based Relief Payments to Individuals Are Tax Free Gifts
The IRS has taken a clear and definitive position that relief
payments awarded to individuals on the basis of need are excludable
from income. Where the relief payment is made as part of a
governmentally-authorized program, the IRS has ruled that the payment
is excluded from the recipient's income under a principle known as the
general welfare doctrine.\1\ Where the payment is made by a
nongovernmental Code section 501(c)(3) charity, the IRS has ruled that
``a payment made by a charity to an individual that responds to the
individual's needs, and does not proceed from any moral or legal duty,
is motivated by detached and disinterested generosity,'' and therefore
is excludable from the individual's income as a gift.\2\
---------------------------------------------------------------------------
\1\ See, e.g., Rev. Rul. 76-144, 1976-1 C.B. 17 (grant received
under the Disaster Relief Act of 1974 is in the interest of the general
welfare and not includible in an individual's gross income).
\2\ See Rev. Rul. 99-44, 1999-43 I.R.B.
---------------------------------------------------------------------------
Disaster Relief Grants to Businesses Appear To Be Tax Free Gifts;
Clarification Needed
We believe that, as a matter of law and policy, the same principles
described above for individuals should apply to grants to businesses.
Thus, grants responding to need, not proceeding from duty, and
motivated by detached and disinterested generosity, are properly
treated as nontaxable gifts. This description clearly covers the
typical charitable grant to a small or medium sized business affected
by the September 11 attacks.
Several authorities provide support for this conclusion. For
example, the Tax Court has found that contributions to an
unincorporated association which were used to furnish bail for persons
held in custody in certain types of cases were gifts and not includible
in income.\3\ In a lengthy General Counsel Memorandum addressing the
proper taxation of income received by an organization that had its
exemption under Code section 501(c)(3) revoked, the IRS stated
definitively that Code's income exclusion for gifts is not limited in
its application to gifts to individuals.\4\
---------------------------------------------------------------------------
\3\ Bail Fund of the Civil Rights Congress of N.Y., 26 T.C. 482
(1956).
\4\ See Gen. Couns. Mem. 39813 (Apr. 2, 1990). Section 2(b)(6)(a)
of Gen. Couns. Mem. 39813 states as follows: ``One possible position is
that section 102 is restricted to gifts received by individuals, out of
personal affection or charitable impulses, and simply does not apply to
amounts received by an organization. We conclude, however, that at this
point such a restriction would not be upheld by the courts. In
Duberstein, the Court expressly refused to read an implicit restriction
to individuals as donors into a statute that does not draw such a
distinction by its terms.''
---------------------------------------------------------------------------
However, we also found an IRS Chief Counsel Advice \5\ that failed
to address the possible gift treatment of flood relief payments,
although it could have. This document instead stated that such payments
were includible in income under Code section 61 to the extent they did
not reduce the taxpayers' loss deductions under Code section 165 or the
taxpayers did not elect nonrecognition under Code section 1033. This
Chief Counsel Advice unfortunately could lead IRS agents to assert the
taxability of disaster relief grants in the September 11 context.
---------------------------------------------------------------------------
\5\ IRS Chief Counsel Advice 2000-32-041.
---------------------------------------------------------------------------
Relationship of Loss Deductions to Relief Grants
Code section 165 allows a taxpayer to deduct his or her losses to
the extent the losses have not been compensated for by insurance or
otherwise. Thus, for-profit business entities receiving grants from
charities to compensate their losses will be required to reduce their
deductible losses under Code section 165 by the same amount. We want to
emphasize that this rule prevents any duplication of the tax benefit
from the income exclusion. However, we believe that there are many
business entities that have a low tax basis in their assets and thus
may not have significant potential tax loss deductions. These
businesses could incur significant tax liability unless there is
clarification of the income exclusion for charitable disaster-relief
payments.
Below-Market Loans--IRS Should Clarify No Imputation Applies
The proceeds from a loan are not includable in a borrower's
income.\6\ The IRS, however, has the authority under Code section 7872
to impute income to parties who borrow funds at a below-market rate of
interest. The IRS has issued a private ruling stating that below-market
loans undertaken as part of a government relief effort do not create
this type of imputed income to the recipient business entities, because
the loan programs were not established with the principal purpose of
tax avoidance.\7\ We believe that the same policy and rationale should
apply to below-market or interest-free loans made by nongovernmental
Code section 501(c)(3) charities responding to the September 11th
terrorist attacks. We therefore urge the IRS to confirm that the
bargain element of below-market charitable relief loans made to for-
profit business entities in connection with the September 11th
terrorist attacks does not create income for the borrower.
---------------------------------------------------------------------------
\6\ See, e.g., E.C. Gatlin v. Commissioner, 34 B.T.A. 50 (1936);
Rev. Rul. 70-266, 1970-1 C.B. 116.
\7\ Priv. Ltr. Rul. 1999-43-037 (Oct. 29, 1999) (analyzing
government-financed loan programs created to provide financial
assistance to companies affected by severe flood and fire damage.
---------------------------------------------------------------------------
Forgiveness of Disaster Relief Loans
The IRS has issued some private rulings indicating that amounts
forgiven on certain government disaster-relief loans can create
cancellation of indebtedness income for the borrower under Code section
108.\8\ These rulings could lead IRS agents to assert that forgiveness
of loans made to relieve September 11 losses generates tax liability
for the borrowing business. For the reasons discussed above, we believe
that the cancellation of loans made by governmental entities and Code
section 501(c)(3) charities for September 11 disaster relief should be
properly viewed as gifts to the borrower. We therefore urge the IRS to
confirm that cancellation of indebtedness income from loans to for-
profit business entities forgiven by charities in connection with the
September 11th terrorist attacks is not taxable.
---------------------------------------------------------------------------
\8\ See, e.g., Priv. Ltr. Rul. 1999-43-037 (Oct. 29, 1999).
---------------------------------------------------------------------------
Conclusion
We believe that disaster-relief payments made by Code section
501(c)(3) charities, whether in the form of outright grants, below-
market loans, or loan forgiveness, are all in the nature of gifts.
These payments are motivated by the involved charities' core missions
and commitments to their respective communities, i.e., the classic
detached and disinterested generosity that is articulated in the
seminal Duberstein case on gifts. The charities involved have no
expectation of receiving any goods or services in return, nor do they
expect to earn any income, let alone profit, from these activities.
Therefore, the analysis of these disaster-relief payments by charities
to for-profit business entities as gifts is consistent with the manner
in which the IRS has evaluated payments of this kind when made to
individuals (or in other contexts), which are treated as gifts.
Thus, we respectfully request that the IRS promptly confirm that
charitable loans and grants provided by charities to for-profit
business entities affected by the September 11th terrorist attacks do
not produce taxable income for the recipients.
We believe that our requested clarifications are fully consistent
with existing law, so that Congress does not need to change the law in
these areas. However, Congress may wish to consider opportunities to
clarify the law on these points, whether in actual legislation or in
appropriate Committee report language.
We very much appreciate the interest of the Subcommittee in these
important matters. Thank you for your attention.
Chairman Houghton. Thank you very much. Very, very
succinct. Mr. Coyne.
Mr. Coyne. Thank you, Mr. Chairman. I have no questions,
but Congressman Rangel had some questions that he wanted to
submit for the record for Mr. Borochoff, and if you could
answer the questions in writing, I will submit them to the
Chairman and pass them on to you.
Mr. Borochoff. OK.
Chairman Houghton. That is fine. Thanks very much. Mr.
Hayworth.
Mr. Hayworth. Thank you, Mr. Chairman; and, again, thanks
to the witnesses.
In this telegenic age, we had a couple of visual aids. Mr.
Borochoff, you held up a placard from a store, and I believe
you pointed out that the genesis of that posting was unclear.
Just again for the record, you don't know if that came from the
American Red Cross or the store----
Mr. Borochoff. Or the supermarket, right.
Mr. Hayworth. Or the market that had it up there? But it
does belie, really, what we have been talking about today, and
that is the perception of intentions of the designated gifts.
Mr. Taylor, just for further amplification and
clarification in my mind, the newspaper ad that you brought in
today, was that sponsored specifically by the American Red
Cross?
Mr. Taylor. It appears to be a corporate-sponsored ad.
There is a company reference in the ad that they are using
their good offices to solicit money for the Red Cross, and
there is--of course, a Red Cross logo on here. My concern is
that the general public, reading that ad, will see that this is
connected with the Red Cross, and that it is involving the
victims and their families, and that is where the money is
going.
Mr. Hayworth. And of course----
Mr. Taylor. They don't understand that there is a general
fund that the Red Cross has where all the money goes, which
gives them broader flexibility to use that money for a variety
of relief efforts.
Mr. Hayworth. In the realm of consumer interaction and
advertising, I guess there is a term called bait and switch.
Mr. Taylor, do you believe this to be a form of the bait and
switch?
Mr. Taylor. I don't believe that there is any intention to
confuse the public about this. I do believe, however, that
these ads could have been clearer in what they were set out
here to do.
The general public does not understand that the general
relief fund of the Red Cross is a fund that they use for a
variety of disasters. When the reference was made to the
September 11th events, victims and families, that is what
people are thinking about, and so I think it could have been
stated more clearly what the intention of the Red Cross was to
use with that money.
Mr. Borochoff. I believe that the Red Cross acted
opportunistically in the Liberty Fund. They kept raising money.
They should have cut it off after about $300 million--the
amount where they had itemized plans for how they wanted to
spend it. Through the Liberty Fund, they raised money for
things like community services, psychological trauma
counseling, tolerance, blood reserves, things that could be
very good programs. But what they should have done is had a
fund specifically for the victims, the families and relief
workers, and call that the Liberty Fund. Then after raising
that money, close the fund, then go to the public and say we
want money for a strategic blood reserve, for tolerance,
whatever else they wanted to do. That would really have helped
the public here.
Mr. Hayworth. Almost an aftermath type of fund?
Mr. Borochoff. Yes, so the public would know how the money
was being spent.
Mr. Hayworth. Mr. Taylor, in terms of what the Better
Business Bureau does, standards for charitable solicitations, I
don't recall seeing the document. I don't know if it is germane
to call this a--or appropriate to call it an evaluation of
different charities.
One thinks of the travel guides, five star, five diamond,
since we have such tourism in Arizona--and we hope those of you
from New York will come join us in Arizona more and more, even
as tourists return to New York City.
But in terms of the evaluation of the American Red Cross,
what has been the overall evaluation of that organization by
yours?
Mr. Taylor. The Red Cross has met our standards,
historically, and that is not to say in the wake of what is
going on that we don't have some concerns. We do have some
concerns, and we will be investigating those concerns. We have
asked for meetings with the Red Cross to clarify many things
that we are concerned about, and we hope to have those meetings
very soon.
Mr. Hayworth. And Mr. Borochoff?
Mr. Borochoff. They receive an A grade from the American
Institute of Philanthropy. They are a financially efficient
organization. The issue here is that they are spending money on
programs other than what was most highly advertised and what
the donor thought they would spend them on, but they do a good
job of getting the money for the services in general. The issue
here is the Red Cross plans to use donations for different
programs than the public is expecting.
Mr. Hayworth. Thank you very much.
In closing, let me thank Mr. Hirschfeld as well for his
perspective as tax counsel and pointing out one piece of
legislation and a change in the Tax Code that the Ways and
Means Committee absolutely should act on forthwith, and while
we have been speculating about other types of legislation, I
think that we all see the value in that. So I would thank all
of you, especially for that observation, and, Mr. Chairman,
thank you for the time.
Chairman Houghton. Thanks very much. Mrs. Thurman.
Mrs. Thurman. Thank you, Mr. Chairman.
Mr. Hirschfeld, you talked about the issue of all the other
businesses and complications that have happened to people's
lives because of this in New York City. There also are other
people and places within this country that have had those very
same problems because of--so are you using all of them and your
testimony as a part of that or just those within and around a
certain area?
Mr. Hirschfeld. I think we recognize that there is a
history for doing this type of aid. For example, to help in
economically distressed areas, there is precedent that goes
back several decades where the Internal Revenue Service has
said this is appropriate use of funds. I think it is a question
of line drawing and being able to administer it.
Clearly, I think what we see is that if you look to the
five boroughs of New York City and perhaps northern New Jersey,
there is a clear connection--a clear nexus going on there,
where it is--anybody can see the problem there. These
restaurants, for example, have lost customers. They are not
coming to New York. This business lost its clientele because
they are not there anymore.
I think you are raising a good question about where the
lines should be drawn. I think, though, there is a certain
sense that charities themselves are subject to their own
requirements. They cannot just give unless there is true
financial need. They have to give only if there is
disinterested generosity, as the Supreme Court said back in
1960, and they can only give if there is no legal or moral
obligation to do so.
So I think the spirit of our proposal presumably can really
percolate beyond the Hudson River. So we are not just being
myopic New Yorkers, as some people may have called us in the
past.
But I think the question of the line drawing is one we are
not necessarily addressing here. We sort of feel the concept
should be laid out clearly that there is the ability to give to
these type of businesses without generating tax liability and
let it be administered as it normally would be in any sort of
course of conduct as any charity would do in determining who is
injured.
Mrs. Thurman. I just would say to you that, being from
Florida, there is a lot of people that feel like they have been
affected by this business-wise, tourism-wise, small businesses,
same people who are not working, those kinds of things, and not
to take away from what has happened in New York. So I just
would suggest that you need to be careful with that, because
other people are going to feel like they have also been drawn
into this by the terrorist attacks and nothing more than that.
Mr. Hirschfeld. No. I think you are right. I mean, even the
Wall Street Journal has had an article on this thing in
response to the ABA Tax Section's submission to the IRS on this
point, and they focus perhaps on New Yorkers, because there the
case is easier to see. But I think you are right. I think it
does ripple across the Nation, and I think this is not just New
York's problem. It is America's problem.
Mrs. Thurman. Mr. Borochoff, I need to ask a question. In
your testimony, you actually talk about there being an
important lesson for donors in this crisis, is that they must
target their contributions to meet specific needs that are
clearly articulated by the charities. In your work and to Mr.
Taylor as well in the audit process--I mean, we had the IRS up
here, but we have different folks in different parts of the
country raising these moneys specifically for these purposes.
Is there an audit, or when you do your oversight in some of
these areas how do you know what and when these dollars have
been given for what the purpose--I mean, we are talking
millions of dollars here that came in at a very quick time that
somebody said, well, I want it to go here or I want it to go
there. Is there a paper trail for this? Is there a way to
settle the American public's feelings about whether or not
their money actually did go where they had thought it was going
to go?
Mr. Borochoff. Well, the current reporting is on an annual
basis and then groups can get extensions pretty easily for
another 6 months. So during a crisis-type situation, I would
encourage the groups to have a monthly-type reporting so we can
watch them and see how they are using or not using the money.
Mr. Taylor. Our evaluations of charities look into 23
different areas of a charity's operation. We do a fairly
thorough review. We look at every solicitation that they put
out, and we compare those solicitations to what they actually
do, and how they report their activities in their annual
reports, so that we can match up what they say in their
solicitations to what they do in their annual reports. We ask
them to be specific in their annual reports, and, if they
aren't, then we flunk them for failing that particular
standard.
Mrs. Thurman. But that is when they are asking for the
solicitation.
Mr. Taylor. When they are----
Mrs. Thurman. When the charitable organization is asking
for it. What about when money just all of a sudden is coming
in. Is there any way to look at that?
Mr. Taylor. Yes. There are financial audits of these
organizations. We call for audits of the organizations, and
they get them on an annual basis. And, in this case, I agree
with Mr. Borochoff that it may not be enough. The organizations
are going to need to go further in this particular instance to
assure the public that the money is being used for the purposes
that they specified.
Mrs. Thurman. I think it is really important, because we
have a lot of kids out here with big hearts that went out and
did some amazing things, and I want to be able to go home to
them and tell them, you know, look, those Pokemon cards that
you sold, by the way, the money went where you wanted it to go.
I mean, I just--those are such--I can't even begin to tell
you the amount of stories that we hear. I can't even imagine
the stories that you have heard. But we are a very giving
Nation.
Mr. Taylor. And those children should feel free to write
letters to the presidents of those organizations and get
answers.
Mrs. Thurman. Okay. And there is Web sites for you all,
too, for them to check where these charitable----
Mr. Taylor. Yes. Or he can inquire of us and let us find
out some answers for them.
Mrs. Thurman. I appreciate that. Thank you.
Mr. Taylor. Yes.
Chairman Houghton. Thanks, Mrs. Thurman. Mr. Hulshof.
Mr. Hulshof. Thank you, Mr. Chairman. I guess I am getting
the last word here today after a lengthy hearing.
I want to commend you, Mr. Chairman. I know Mr. Hayworth
has also been one of those to try to bring us together to
discuss just what we have talked about.
I think if there is an incident theme we have heard today
throughout the three panels it has been the importance of
openness or transparency. I have heard it described in that
term.
Mr. Borochoff, I note you have been using a visual aid.
This is the November edition that your group has put out, sort
of a report card. That is my term, not yours.
Mr. Borochoff. Yes.
Mr. Hulshof. Might we expect a similar watchdog report
simply focused on the charities that have been created since
September the 11th? Might we expect something like that in the
future so that you would be able to give a letter grade and we
would be able to see, along with the American people, which of
those charities have met their charitable purposes?
Mr. Borochoff. Well, if we do that, we will have to develop
an entirely new rating system, because this is for
organizations that have been around for 3 years and based on
annual reporting. So we would require a whole different way of
evaluating the groups.
Mr. Hulshof. Okay. Mr. Taylor, you were nodding in assent.
Mr. Taylor. We have sent out a questionnaire to about 180
organizations in corporation with our New York City Better
Business Bureau, and we will be publishing on our Web site the
results of that information once it is gathered so that the
public can get some general type of information about what is
going on. This will not rise to the level of our annual reviews
that we do on these charities, but it will give the public some
basic information, a place to go if they want to know more
about the organizations and more than we presently have.
Mr. Hulshof. Let me--this is a unique question, but this
is--of course, September 11th was a unique time in our history.
Mr. Borochoff, again, as you point out, the global
headquarters, the worldwide headquarters of Helen Keller
Worldwide that were located across the street from the World
Trade Center collapsed I think on the 13th of September, and
fortunately no injuries I think have been reported. And yet all
of the archives and all of the records and all of that was
destroyed when this building came down. Is it appropriate for
charities like this to benefit from other charities? In other
words, is it appropriate that some of the monies collected in
this effort would go to help this global charity that has also
been the victim?
Mr. Borochoff. Well, if the direct victims are taken care
of first--and it appears that that is going to happen--then
certainly that would be a good use of money in this crisis to
help a nonprofit. It could also be a theater company that got
hit and lost its theater. There are many community and
nonprofit organizations that do need help right now.
Mr. Hulshof. Let me ask, since we are the tax writing
Committee in general, and this of course being oversight, I
would be remiss, Mr. Hirschfeld, if I did not ask somewhat of a
technical question, and that is as it relates to section 165.
You make reference to the Internal Revenue Code section 165.
Again, not to get too technical for those who may be tuning in
beyond those here on the Committee, Code section 165 does allow
taxpayers to deduct the uncompensated losses that they have
suffered, and yet there is also many monies available to them
through charities that would not be allowed to be--or to
deduct--be deducted. You believe, I think I heard your
testimony, that that charitable grant should be excluded.
Mr. Hirschfeld. Yes. Would you like me to elaborate on
that?
Mr. Hulshof. Would you, just a little bit?
Mr. Hirschfeld. Let me just repeat the question, too.
Our position is that when a for-profit business gets a one-
time gift from a charity to try to bide it over so it can stay
in existence through this crisis, our view is that that should
be treated as if it is a nontaxable gift.
Separate and apart from that issue raised is there is a
Code section that does allow for the ability for a business to
take a loss. For example, if computer equipment is destroyed,
it can take that loss.
That same statutory section says, however, if in fact you
are carrying insurance and the insurance pays you back for that
loss, you really can't take the insurance and take the loss at
the same time.
We think, though, that while there is an issue involved as
to what you are raising, which is that, gee, at one point you
are getting the grant tax free and then you are taking a tax
loss for this, I think it is not a disconnect at all.
I think there is an entirely different case where a
business carries insurance, whether it be insurance on damage
of property they own or business interruption insurance that
tries to make them whole, versus what is going on here, which
is a one-time grant being made to a business that really is
just trying to throw them, like I said before, a life preserver
to keep them afloat, which is trying to cover a myriad of
expenses they may have, including payroll and administrative
expenses as well, we view that as being a real gift. And when
you get a gift, you don't worry about what the ramifications
are.
Let us say if you are married and you and your wife give an
older child $20,000--Let us say you have two children. One of
them goes out and buys a car. God bless him. He bought a car.
The other one goes out and--she goes out and opens up a
business, and she winds up spending that $20,000 to pay people
to work for her, to get people jobs so they can really have a
livelihood. You don't take away the $20,000 of deductions that
your daughter had because she had the good sense to use that
money in a fruitful way.
I think in the same vein here our feeling is--and again, it
is not free from doubt or else I wouldn't be here--is that when
you get this one-time gift from a charity, this life preserver,
that it should be excluded from taxable income, and that
shouldn't really impact what else is happening to you.
Mr. Hulshof. Thank you, Mr. Chairman.
Chairman Houghton. Okay. Well, I have got a question, but I
want to thank you very much for being here.
Also, I want to submit something for the record that came
from the district in which I live.
[The information follows:]
HARD CHOICES
A White Paper on the Challenges Facing Displaced Workers, Non-profits
and Donors in Our Community
By Marjorie Rossi
United Way of the Southern Tier
Introduction
There's no doubt about it . . . times are tough all over, and our
Southern Tier community is no exception. The economy was slow before
September 11th, and the outlook for a quick comeback is not good.
September 11th affected and continues to affect all of us, both
emotionally and practically. Local layoffs have been in the news
intermittently over the last few months, and the reality is that
thousands in our community are facing a difficult struggle to make ends
meet. Displaced workers are facing hard choices now; choices they've
never faced, like whether to pay for heat or buy food; whether to cut
the health insurance or sell the car. We've been very lucky over the
years to have a solid network of human service agencies that is there
to help people over obstacles like this, a safety net, if you will.
Unfortunately, this year even our safety net is faced with a set of
challenges that combine to place agencies in troubled circumstances of
their own, and difficult choices must be made. Will they cut programs
or cut corners? How many seeking help will have to be turned away? Will
``non-essential'' staff positions have to be cut in order to retain
crucial staff? Finally, those with the means and desire to help the
situation with financial donations are struggling with giving decisions
this year. Will they give locally ornationally? Will they give, but
give less than usual because of concerns about their own finances? Will
they shy away from giving because they are not sure which charities to
trust? Or, will they view charitable giving as a way to be a part of
the solution to these difficult challenges? Indeed, difficult times
call for difficult choices. Perhaps in understanding the difficult
choices facing these diverse groups of people we can uncover paths,
perhaps intersecting, to arrive at wise choices that will benefit the
whole community. Challenges facing all three groups are driven by three
factors: the economy, the effects of September 11th and New York State
Funding issues, and the information presented here is organized
accordingly.
What the Displaced Worker is Experiencing
For many people locally recent world events have combined to place
them in troubled circumstances that they neither could have predicted
nor prevented. Many who are among those that have lost jobs have ``done
everything right'': gone to college or trade school, developed career
skills through ongoing training, been loyal to the company or companies
they've worked for, and taken initiative to advance their careers. Now,
even though they have followed the rules, so to speak, they find
themselves without a job, and they're asking themselves, ``Why me?.''
Unemployment is never easy, but when it happens on a broad scale, it
seems to carry even greater consequences for the affected individuals,
and the community at large.
The Economy
L Local layoffs have left those unemployed or underemployed facing
hard choices now; choices they've never faced, like whether to pay for
heat or buy food. When unemployment affects a family, its members might
also experience other hardships like domestic abuse, depression and
substance dependency. In the case of those accustomed to being able to
meet their usual expenses relatively well, being in this situation can
cause depression, frustration and anxiety. Plus, they are new to the
social support system, and navigating it can be difficult.
State Funding Issues
L Because of assets like cars and 401K's, those recently laid off
may not qualify for some of the heavily regulated state assistance
programs that are available to others. Many individuals are excluded
from programs slated for those with dependents; single adults with no
children often don't qualify for programs that would really help to get
them back on their feet. The process for applying for state-subsidized
health plans, such as Child Health Plus, is cumbersome and slow. Some
of those that have been laid off may not have been in their jobs long
enough to qualify for unemployment benefits.
Effects of September 11th
L The economy took another downturn with September 11th and local
businesses needed to make even more cuts.
The following story is a typical example compiled from many real
life stories, to help illustrate for the reader what the displaced
worker is experiencing:
L Jill is 32 years old and was hired as a secretary by a local
manufacturer about 2 years ago. Her husband, Ed, is a general
contractor, so she carries the family health insurance through her
employer. They have two children, ages 8 and 5. Jill was let go from
her job in a round of layoffs about 5 months ago. They've been able to
keep up with expenses relatively well so far between his paycheck and
her unemployment, but taxes were due this month, and they got behind on
the electric bill so it now stands at $1,000, and there's just no way
they can pay it all. Jill is trying hard to find another job, so the
couple is reluctant to sell their second car in order to help with the
bills. Jill and Ed decided to start taking advantage of one of the
local food pantries, to help free up cash for their bills and, while at
the agency, they applied for a utility bill assistance voucher to take
care of that electric bill. The agency only has a limited amount of
funds to use for utility assistance, and can only give them the $300
they need to keep the electric company from turning off their power.
Jill and Ed are clearly embarrassed to consider themselves ``regulars''
at the food pantry but, under the circumstances, they have no choice.
With winter coming, the couple is concerned that Ed's hours will drop
off, and they worry that, even with the food assistance, they won't be
able to pay their mortgage. Jill can only keep her health plan going if
they pay for it themselves, and that's just not possible anymore. They
will have to apply for the state health insurance to cover the kids,
and just hope neither one of the parents becomes ill. Jill and Ed are
faced with tough choices and, for the first time, their family needs
help.
What the Human Service Agency is Experiencing
Human service agencies are in the business providing programs that
both prevent and address social problems. In times like these, many are
forced to shift priorities and direct more of their focus to
intervention and less to prevention. This tactic can help with
immediate needs, but will ultimately result in a prolonged stream of
intervention needs in the long-term. Meanwhile, turning away people in
need is emotionally taxing for human service program staff. These folks
are in the business of caring and helping, and can feel a sense of
defeat and hopelessness when they do not have the resources they need
to carry out their work.
The Economy
L Local layoffs have meant an increase in calls for help to
agencies assisting with utility bills, rent and food. It is anticipated
that there will be a further increases in calls for help specific to
obstacles such as domestic abuse, substance dependency and depression.
Those reaching expiration of public assistance benefits will be less
likely to find work, and will turn to the human service sector for
help. With winter upon us, high energy costs will add to the overall
burden of expenses in households with limited resources.
State Funding Issues
L The State passed a ``bare bones'' budget in August, with the
promise of further funds to come. Now State Government is advising
counties and non-profits relying on these proposed dollars that they
likely will not materialize. Without the expected state funding,
agencies might have to cut programs, cut staff, turn away some of those
seeking help, or all three. State funding for the next fiscal year is
uncertain as well, and agencies don't know how long they will be forced
to operate under these compromised circumstances.
Effects of September 11th
L The charitable giving focus for many has turned to New York City
and Washington D.C., leaving local charities concerned that they will
be forgotten. Certain agencies have seen an increase in calls for help
from people having trouble coping with feelings they are experiencing
as a result of direct loss, sadness over devastation seen on
television, anxiety about war, and other factors. New York State budget
that was expected for municipalities and non-profits throughout the
state is being re-directed to New York City for recovery and re-
building.
What the Charitable Donor is Experiencing
With so much uncertainty and sadness facing our Nation and our
local community, those with the means want to do what they can to make
a difference. Many feel they are best able to help with a financial
contribution. Under the circumstances, it's hard for these donors to
know where their charitable dollars will do the most good, and they are
not sure how to get answers.
The Economy
L In an uncertain economy, those still in the workforce may be
less likely to give at the same level to charities that are helping
displaced workers and others who need help, because they have concerns
about their own finances.
Effects of September 11th
L Some donors are struggling with the question of where their
dollars will do the most good: nationally to help disaster relief or
locally to help with increased needs because of the economy. The
economy took another downturn with September 11th events, and those
still in the workforce might choose not to give or to give less because
of concerns about their own finances. With so many charities out there
collecting for disaster relief, it's hard for donors to know which to
trust.
Conclusion
Our Nation has faced difficult times in the past, when war and a
poor economy have combined to define a period of time in such drastic
terms as ``the Great Depression.'' What our Nation has experienced over
the past six months, with the pivotal point being the attack of
September 11th, has cut a wound so deep we're not sure yet how it will
compare with darkest days we can remember in our history. What we do
know, is that the effects of both September 11th and the downturn in
the economy are affecting a broad cross-section of individuals in a
variety of ways. For some the result is an increased need to reach out
to get help, and for others the result is an increased desire to reach
out to bring help. The agents for connecting those who can help with
those who need help are (and have long been) the charities and non-
profit organizations that use charitable donations to fund and provide
services for people facing life obstacles. Without financial resources
to work with, the safety net of human service programs in Chemung and
Steuben counties is virtually powerless to provide relief sufficient to
fulfill the increased needs that are surfacing as a result of local
layoffs. Human service agencies will ultimately have to shift
priorities to provide for immediate needs, perhaps having to cut
programs (and the staff that goes along with them) that are categorized
as preventative. Moreover, even after shifting priorities, it is very
likely that they will have to turn away people needing help, or worse
yet, close their doors for service.
It is not pleasant to think of these hardships; no one deserves to
be put in a desperate and seemingly hopeless situation, but it is a
harsh social reality that all of us must acknowledge. United Way of the
Southern Tier and its human service partners are working tirelessly to
help ensure that assistance is there for those in need. Despite the
uncertain economy, United Way of the Southern Tier is committed to
fulfilling its promise of financial support to the family of human
service agencies it funds. In order to do so, it is crucial that the
organization exceed its $4,000,000 fundraising goal this campaign
season.
Chairman Houghton. Let me just ask this overall broad
question. You, Mr. Taylor, said that--I don't know, is it 86
percent of the people in this country make a contribution? We
are an enormously generous country, and it is not only for
everyday activities but obviously disasters like this. Hundreds
of millions of dollars have come in. A lot of people have been
helped. The question is, are we unfairly criticizing these
charities who are trying to do the best thing they can? And let
me ask all of you.
Mr. Taylor. I think that is a very fair question, and the
one thing I want to make sure is that we hold up the work of
these groups. None of us here can imagine what these
organizations are dealing with on the ground in New York City
right now. We talk to our local bureau in New York on a regular
basis and sometimes feel like they are dealing in a chaotic
environment. It must be an enormous challenge for them.
However, we still must assure that, while they are dealing
with all these challenges, they take a little time to think
about the concerns of the American public who so generously
reached out and donated to these people, and we are just
encouraging them to match in their actions as closely as
possible what they said they would do in their solicitations.
If they do that, I think the American public will be fine, and
if there are other needs, come back and ask for help
specifically, and the American public will respond.
What we want to do is make charities' response to this
event something that we can be proud of in the future,
something that will encourage people to give in the future,
rather than a black eye on philanthropy.
Chairman Houghton. Thank you. Mr. Borochoff.
Mr. Borochoff. I strongly believe that one of the many
things that makes us a great country is our vibrant nonprofit
sector and the great work they perform, and that is why we care
so much about watching them. I think one of the best ways of
motivating the nonprofits to do the best job that they possibly
can is by watching them and paying attention to them and
getting reasonable accountability from them and following them.
What we are doing at this hearing today is focusing attention
on them and that will be a strong motivating factor.
Because if we weren't doing this, they may not be acting as
strongly in the public interest as we would like, and it really
is up to us as citizens of this country to prod and to
encourage the nonprofits. And we have been somewhat lazy in
this country in not really asking for some of the specifics,
for instance, what happened with the Red Cross this time, if
people would have simply asked them how much money have they
already raised for what they were primarily advertising for,
then people would have known that they had already raised
enough for that need. But we didn't bother to ask. So more
money was raised than what was needed for the direct victims
and the rescue workers.
Chairman Houghton. Mr. Hirschfeld.
Mr. Hirschfeld. Well, one comment I will make, because from
the ABA Tax Section's viewpoint, we are not here to discuss
this question, but the question you raised about the children
selling Pokemon cards, I will say one thing for the message to
get back to them. A lot of New Yorkers felt until September
11th that we were sort of isolated from the rest of this
country, and people feel it no more. And people were suffering
in pain.
My wife has been on the phone with friends of hers, who
fortunately came late to work that fateful day or else they
wouldn't be with us, and discussing friends who were on time,
who got there on time and aren't with us no more. We have
discussed it especially when my son worked at One World Trade
Center and fortunately survived. The signals at least that are
happening to New York is that we are emotionally hurting really
bad, and the fact that kids are out there selling Pokemon cards
really means a lot to us here. So it doesn't mean the charities
are doing right or wrong, but it sure as heck means that they
are doing a lot for us. Thank you.
Chairman Houghton. Well, thank you. I want to thank you,
and think on behalf of all of us here we ought to thank the
American people for their generosity. They have been absolutely
extraordinary, and we are just honored to be a part of this
great country. So thank you, gentlemen.
[Whereupon, at 1:09 p.m., the hearing was adjourned.]
[Questions submitted from Mr. Rangel to Mr. Borochoff, and
his responses follow:]
American Institute of Philanthropy
Bethesda, Maryland 20814
November 16, 2001
While we certainly appreciate the good intentions of Feed the
Children, we would be neglecting our responsibility as a charity
watchdog if we did not also point out its problems. Please see the
attached articles published by AIP that also address many of your
questions.
Points 1 and 2: On the basis of my frequent work with Feed the
Children of Oklahoma City, I am surprised to see that your organization
gives Feed the Children an ``F.'' Is it true that you do not count
gifts-in-kind when you determine a charity's efficiency? If so, don't
you think you are misleading your readers when ranking charities such
as Feed the Children, charities that collect and distribute to the
needy gifts-in-kind rather than cash?
Yes, we generally do not include gifts-in-kind in our ratios. No,
we are not misleading our readers. AIP provides a cash analysis of a
charity's spending. Donors, who are asked to give dollars want to know
how their dollars are being spent. In AIP's analysis FTC gets program
credit for any expenses it incurs to sort, distribute or store gifts-
in-kind. We clearly disclose in the section, ``Getting the Most from
Your Guide'' in each Charity Rating Guide and Watchdog Report: ``Some
groups receive large amounts of donated goods or services. These items
can be difficult to value and distort the calculation of how
efficiently a charity is spending your dollars. Donated items are
generally excluded from AIP's calculation of . . . [its] ratios.''
Individuals and businesses have strong incentives to donate
unwanted goods to charities to receive tax deductions. Charities often
feel pressure to accept all of these goods, even though only a portion
can actually be used. Feed the Children (FTC) does not disclose to AIP
or to the public exactly what goods it is distributing and what
specific organizations are receiving each good. Therefore, it is not
possible to determine what portion of FTC's gifts-in-kind are really
benefiting people. To learn more about problems with gifts-in-kind,
please read AIP's attached article, ``Appetite Stimulants for the
Starving.''
Point 3: Would you be willing to share with my staff the
calculations you use in order to arrive at your grade for Feed the
Children?
The following is the American Institute of Philanthropy's
calculation of Feed the Children's fiscal year 2000 financial ratios
(all numbers in thousands of dollars):
% Spent on Program Services or Cash Program/Total Cash Expense
Total program expense (includes gifts in kind) of 310,674 less
Gifts in kind of 298,168 equals 12,506.
Total expenses (includes gifts in kind) of 364,850 less for-profit
Transportation Company of 4,805 and less Gifts in kind of 298,168
equals 61,877.
Cash Program/Cash Expenses = 12,506/61,877 = 20%
Cost to Raise $100 or Fundraising/Related Contributions times 100
Fundraising expense of 45,589 divided by 67,168 in Contributions
equal 68%. 68% times 100 equals 68 dollars.
Any charity that has a program/total expense ratio below 35%
receives an ``F'' grade. Feed the Children's 20% spent on program
services in fiscal 2000 earns them an ``F'' grade.
Point 4: Consumer's Digest ran an article in its November 1998
issue based on information provided by you. In its May/June 1999 issue,
the Editor-In-Chief of that publication wrote a three page apology and
correction for having relied uncritically on information you had
supplied. Regarding Feed the Children and the Diabetes Action Research
and Education Foundation, the editor said: ``Eliminating in-kind
contributions can unfairly skew the results.'' The editor, Mr. John K.
Manos, said in regard to your methodology: ``Five charitable
organizations, when reviewed using different accounting methods . . .
do not appear to deserve the negative citations they received, and we
wish to apologize to each.'' In light of criticism such as this, do you
not feel changes in your methodology are called for, in order for your
readers to obtain a fair and accurate view of charities that collect
and distribute gifts-in-kind rather than cash?
No, we do not feel that changes in AIP's methodology are called for
in our rating of gifts-in-kind charities. The May/June 1999 issue of
Consumer's Digest also points out the following: ``We relied on the
respected nonprofit American Institute of Philanthropy (AIP) for the
ratings, and we used AIP's criteria when we reviewed the charities in
our article. Upon further investigation, we have found that, as Cassidy
[head of nonprofit direct mail association] indicates, charitable
financial reports can be interpreted several ways, and there seems to
be no `standard' approach.'' To my knowledge, Consumer's Digest is the
only major publication that may disagree with AIP's approach to rating
gifts-in-kind charities.
Point 5: You were sued by Father Flanagan's Boys Town in 1995.
Please inform the Subcommittee of any changes you made to your
newsletter, ``AIP Charity Rating Guide & Watchdog Report,'' in your
settlement of this case.
As part of the May 22, 1996 settlement between AIP and Father
Flanagan's Boys Town, AIP agreed to make the following changes to its
Charity Rating Guide & Watchdog Report:
1. When publishing the compensation of the most highly paid persons
at a charity, AIP agreed to make clear whether such compensation is for
a medical or scientific official, as opposed to a chief executive.
2. When ranking charities on a letter-grade system that includes
reductions in the grades of charities with large reserves of available
assets, AIP agreed to display the letter grades in a way that makes
clear that such reductions are based solely on asset reserves and are
not intended as a judgment of the quality of a charity's programs or
its ethics.
You will note that in the November 2001 Guide, as in all of its
guides published since the settlement became effective, AIP has adhered
to these agreed reporting changes. With respect to the second point,
AIP has made clear in its Guide that the final grade assigned to Boys
Town is a reflection of the charity's asset reserves. As a charity with
a large asset reserve, Boys Town receives two published grades: the
first grade is based on the percentage of funds used for charitable
purposes and the cost to raise $100. The second grade reflects a
reduction due to the charity's high asset reserve. Further, the Guide
states on the bottom of each page that grades are ``based solely on the
disclosed financial criteria and are not intended as a judgment of the
quality of a charity's programs or its ethics.''
Point 6: How many full-time employees are there at the American
Institute of Philanthropy?
AIP has 3 full-time employees, 2 part-time employees and about 10
volunteers who provide legal counsel, Web site design services and
other assistance.
Daniel Borochoff
President
[Attachments are being retained in the Committee files.]
[Submissions for the record follow:]
Statement of Mark J. Fitzgibbons, Esq., President of Operations and
General Counsel, American Target Advertising, Inc., Manassas, Virginia
I wish to thank the Subcommittee on Oversight for the opportunity
to submit comments relating to the November 8, 2001 hearing on the
response by charitable organizations to the recent terrorist attacks.
American Target Advertising, Inc, (``ATA'') is a for-profit corporation
in Manassas, Virginia. ATA provides creative, consulting and strategy
services to nonprofit organizations and political committees in the
conduct of their national fundraising and communications programs.
ATA's nonprofit clients include organizations exempt from tax under
Internal Revenue Code sections 501(c)(3) (more commonly known as
charities), 501(c)(4) (which are education and public policy advocacy
organizations), and 527 (which are political committees, such as
candidates for public office and political action committees).
In addition to being President of Operations and General Counsel
for ATA, I am a member of the Free Speech Coalition, McLean, Virginia,
which is an organization dedicated to protecting the constitutional
rights of nonprofit organizations across the ideological spectrum. My
responsibilities at ATA include overseeing compliance with the myriad
federal, state and local laws and regulations affecting fundraising. I
also litigate and advocate against constitutional and other abuses by
government officials who regulate fundraising.
My comments are not designed to either criticize or defend the
mistakes--real or perceived--of charities that raised money in response
to September 11. One of the purposes of the November 8 hearing was to
gather information for an appropriate regulatory response to those
matters. I hope to provide the Subcommittee with information about the
existing regulatory environment charities face. The existing problems
should not be exacerbated by poorly targeted regulation of all
fundraising in reaction to the well-publicized disbursement of money
issues facing charities that were inundated with money in response to
September 11.
Because ATA helps charities, educational and advocacy
organizations, and political candidates and committees raise money, I
can attest to the similarities and differences in both the operations
of fundraising and its regulation under the law. While some of the
goals and techniques of fundraising for the 501(c) nonprofits vary even
among the various types of organizations within those categories, they
are similar in certain respects to the overall goals and techniques of
fundraising for section 527 political committees and candidates. By
far, however, 501(c) nonprofits face more burdensome and varying
regulations and oversight than political candidates or committees.
Regulation of Tax-Exempt Organizations
Section 527 political organizations and candidates need to qualify
for tax-exempt status from the Internal Revenue Service (``IRS'').
Fundraising for candidates and committees for federal office is
regulated by the Federal Election Commission (``FEC''), which requires
registration then periodic submission of reports showing receipts and
expenditures of money.
Section 501(c) organizations must qualify for tax-exempt status
with the IRS and file annual returns, IRS Form 990. These organizations
are required by law to make available copies of their Forms 990 to
anyone who asks.
To conduct national campaigns, section 501(c) organizations must
register or obtain licenses in 42 states and a growing number of
counties and cities. Charities must file multiple applications in some
states where counties located in those states also require
registration. No such licensing requirements apply to candidates for
federal office who mail fundraising letters. Additionally, the
professional agencies that assist 501(c) organizations must be licensed
in many states, and some states require that such agencies post bonds.
If either the agency or the nonprofit is not registered in a state or
jurisdiction with such requirements, it is deemed unlawful (punished
criminally in some states) for the nonprofit to mail even a single
letter into that jurisdiction if the letter requests a voluntary
donation.
In addition to registering, charities must file audited financial
statements and annual reports showing the details of receipts and
expenditures, including how much was spent for administrative costs,
fundraising and programs. These reports vary from jurisdiction to
jurisdiction, so charities may not simply complete one set of forms and
file them in multiple jurisdictions, thus adding to costs of
professional and administrative overhead. The Financial Accounting
Standards Board, which determines standards for accounting, dictates
how charities must account for funds.\1\
---------------------------------------------------------------------------
\1\ FASB's standards are highly controversial as they fail to
acknowledge the real distinctions between costs of fundraising versus
program costs. FASB inaccurately slants expenditures towards
fundraising.
---------------------------------------------------------------------------
Additionally, contracts between charities and fundraising agencies
must be filed in most states. State registration laws often impose
mandatory language on the contracts between charities and professional
fundraising agencies, even though neither the charities nor the
agencies may be located in those states and their contracts are
controlled by the laws of other states. Many states also mandate
certain disclosures in the letters mailed by charities, which
constitutes compelled speech.
By some estimates, nonprofits must spend annually a minimum of
$30,000+ in fees and costs associated with registering before they may
request donations. Those minimum costs do not even include the costs to
the fundraising agencies. Those costs also do not include
administrative and professional overhead of dealing with the mistakes
and abuses of certain regulators, which is explained in more detail
herein below. While such expenses may seem small to organizations that
raise millions of dollars, such costs are burdensome--even
prohibitive--for small, start-up, or unpopular nonprofits. As explained
below, these regulatory costs are wasted on complying with laws that
ill-serve the public.
Nonprofits also must apply and qualify for nonprofit mailing
permits with the United States Postal Service if they wish to use
nonprofit postage rates. And the recently enacted anti-terrorism bill,
known as the Patriot Act, gives the Federal Trade Commission virtually
unlimited discretion to regulate charitable fundraising by telephone.
Constitutional Aspects of Fundraising
In the Subcommittee's consideration of the September 11 situation,
it is important to keep in mind the similarities and dissimilarities
between fundraising for section 501(c) nonprofits and section 527
political committees and candidates. The purported reason given for the
regulation of fundraising for charities is to prevent fraud. The reason
for regulating fundraising for candidates is to prevent improper
influence, or the quidpro quo of political favors in exchange for
contributions. The United States Supreme Court has addressed some of
the constitutional challenges to laws affecting both types of
fundraising.
Two of the principal decisions about the regulation of nonprofit
fundraising were Schaumburg v. Citizens for a Better Environment, 444
U.S. 620 (1980) and Riley v. National Federation of the Blind, 487 U.S.
781 (1988). The Supreme Court said:
[C]haritable appeals for funds . . . involve a variety of speech
interests--communication of information, the dissemination of
information and propagation of views and ideas, and the advocacy of
causes--that are within the protection of the First Amendment.
Schaumburg, 444 U.S. at 632. Because of the obvious First Amendment
implications, laws regulating fundraising are therefore subject to
``exacting First Amendment scrutiny.'' Riley, 487 U.S. at 789.
``Exacting scrutiny'' is otherwise known as ``strict scrutiny,'' and is
the toughest judicial standard a law must overcome when faced with a
constitutional challenge.
In upholding portions of the Federal Election Campaign Act, which
created the FEC, the Supreme Court upheld limits on the amount of money
individuals and corporations may contribute to candidates. The Court
nevertheless recognized the important First Amendment considerations
involved in expenditure of funds. The Court ruled that the FEC could
not limit the amount of expenditures by a candidate because that would
limit First Amendment activity. See, Buckley v. Valeo, 420 U.S. 1
(1976).
The end-goals of fundraising for nonprofits versus candidates
differ in certain respects. Fundraising for candidates has a simple
primary objective: electing the candidate. Fundraising for nonprofits,
however, varies in purposes in many ways. Section 501(c)(3)
organizations might raise money to provide medical or relief services,
find cures for diseases, inform the public about causes of diseases or
social maladies, create litigation defense funds, or provide shelter
for the homeless. Section 501(c)(4) organizations might raise money to
fund petitions to Congress about public policy issues, inform citizens
about voting records of elected officials, or educate citizens about
matters of faith and values.
The common thread running through all fundraising efforts
regardless of the intended recipient of donor funds, besides actually
raising money, is providing information. In reality, fundraising is
actually advertising for tax-exempt organizations and political
candidates. And like commercial advertising, the costs exceed initial
returns in the hope of generating future income and repeat business
through bonding the public to the recipient of the funds. Businesses
spend billions of dollars on advertising without those activities
directly generating any income, whereas advertising by nonprofits and
political committees is an actual source of income.
Like the diverse purposes for fundraising, the reasons people
contribute money vary from person to person, but there are some reasons
that are more common than others. People contribute to a candidate
because they prefer that candidate over the opposition. Some lobbyists
or political action committees contribute money for name recognition or
even the possibility of potential access to present views on
legislative matters.
People generally do not contribute to nonprofit organizations for
the same reasons that they might contribute to candidates. The reasons
people contribute to nonprofits are even greater in number than why
people contribute to political candidates. Charitable giving and the
desire of Americans to form associations are as old as this country, as
explained by de Toqueville in the early 19th century.
Part of the problem with the September 11 situation are the
apparent motives of an exceptionally large percentage of donors
contributing to charities with the expectation that the charities would
use that money for the immediate benefit of the victims. However, the
September 11 disaster and its response should not be viewed as
reflective of donor intent in general. Thus, the Subcommittee's
actions, should it decide to take any, should be tempered by the fact
that people give to many different nonprofit organizations for many
reasons, and the issues of September 11 must not be considered as the
sole basis for a universal response to nonprofit fundraising.
If the Subcommittee were to respond more generally to the specific
issues associated with donations in response to September 11, then it
needs to consider the following factors.
One of the witnesses at the November 8 hearing who advocated new or
more regulatory action, Attorney General Spitzer of New York, claimed
that government intervention was ``critical'' and oversight was needed.
General Spitzer, whose statutory authority does not extend to directing
distribution of funds from charities, stated that the Red Cross made
inconsistent and conflicting statements in addressing the situation of
millions of dollars raised and relatively little, in eight weeks, being
disbursed to victims. He stated that the charities were in ``violation
of the trust'' of donors because what's relevant is the ``intent of the
donors.''
While General Spitzer may have discerned the intent of millions of
donors in this one case when the public outcry has been loud although
not unanimous, the Subcommittee and those who would add more regulation
to charitable fundraising should maintain a sense that the September 11
dilemma is not like all dilemmas in fundraising. The Subcommittee and
other regulators should not use a limited set of circumstances to make
general conclusions that would result in an inappropriate universal
regulatory response.
Issues raised at the hearing do not merit a general or
comprehensive solution, for they relate to a set of circumstances
unlike those ever faced in our history. The nature of the calamity and
the immediate outpouring of generosity by Americans were overwhelming
in many ways. It would be unfortunate if regulators were to capitalize
on the well-publicized problems of the charities to advance agendas
that do not fit the circumstances that nonprofits face in general.
General Spitzer, in urging government intervention, also addressed
the issue of what might constitute potential fraud, such as a
nonprofit's saying one thing in a fundraising appeal, but then using
the money raised for another purpose within the organization. First of
all, let me suggest that the issue of fraud is not one that the
Subcommittee needs to address. There are ample laws already extant that
satisfactorily deal with fraud.
Second, based on my observations and experience, the matter of
September 11 seems to be, at least in part, a problem of charities not
being equipped to handle quickly the unprecedented volume of donations
combined with the exigencies of determining which recipients are
actually eligible for funds, and to what extent one person should
receive more money than another.
The matter was further complicated by the judgment--good or bad--of
certain charities that they would use money for other potential
catastrophes. Given that the September 11 attacks were clearly the
potential beginning of other acts of war, the judgment to preserve
certain funds is rational even if considered wrong by many people
outside those organizations. Certain judgments left the charities and
their top officials open to doubts by critics who have neither
expertise in disaster relief nor any insider knowledge of the facts
about how those charities could in fact respond to further potential
attacks and other uncertainties of dealing with an enemy obviously
willing to use weapons of mass destruction against civilians on
American soil.
When dealing with matters of how charities legitimately use donor
funds, certain officials have a propensity to use terms such as
``fraud'' and ``consumer protection'' to justify more regulation of
charities and their fundraising. The principles advanced by certain
regulators, if applied consistently to fundraising by elected
officials, for example, could have consequences that would demonstrate
that discussions of fraud in the current circumstances are entirely out
of place.
As examples of this principle, if a candidate were to appeal for
donations during a campaign and expressed a position on an issue, and
later, either through finding out different facts or simply having a
change of heart, votes another way, should donors to the candidate have
a cause of action for fraud against the candidate? Or should candidates
be required to disclose up front to donors all of the various campaign
expenses, ranging from advertisements, to travel, to meals for staff
members, or any of the many other expenditures for which campaign
contributions are used? Or, as currently sanctioned by federal election
law, should candidates who decide not to run for office anymore be
allowed to disburse campaign funds to recipients other than the
campaign itself, rather than returning those funds to donors? \2\
---------------------------------------------------------------------------
\2\ Since the matter was raised, it is fair to criticize the amount
of mismanagement and government waste of taxpayer dollars. Such waste
in government programs costs, by some estimates, billions of dollars
each year. At least charities operate on voluntary contributions, and
donors may choose not to make repeat contributions to charities that
operate inefficiently, whereas they have no choice when it comes to the
levels of fraud and mismanagement of taxpayer money spent on government
programs.
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Therefore, in considering the proper regulatory response to
September 11 fundraising, it would be appropriate for the Subcommittee
to keep in mind that over-reaction might do more harm than good.
Indeed, given the intense media scrutiny of the charities, it might
only further complicate matters to insert into the process more
government regulators with no true expertise in the workings of
disaster response and other matters handled more expertly by charities.
Current Regulation is Flawed and Abused
It is important for the Subcommittee to know that the state, county
and local systems that already regulate nonprofit fundraising have
their own problems. The outcry of regulators in light of the problems
of the September 11 charities may be a case of the pot calling the
kettle black.
The process of obtaining licenses with the various states, counties
and cities is more expensive and complex than merely filing an
application. The licensing processes vary from jurisdiction to
jurisdiction, and regulatory abuses in the licensing process further
complicate the matter. In fact, many abuses by officials who regulate
charitable fundraising would be considered as subject to legal causes
of action were such activities done by private citizens or businesses.
ATA made a constitutional challenge to one state's licensing
requirements as applied to a category of agencies known as fundraising
counsel, which are for-profit companies that provide services to
nonprofits but do not actually solicit donations themselves. In
applying the less-stringent judicial standard of ``intermediate
scrutiny,'' rather than ``strict scrutiny'' as previously applied by
the United States Supreme Court to other state charitable solicitation
licensing laws, the United States Court of Appeals for the 10th Circuit
upheld Utah's charitable licensing requirement. But that Court held
that parts of Utah's law, namely (1) the requirement that fundraisers
post bonds as a condition of receiving a license, and (2) the law's
giving the government licensing officials unlimited discretion to add
conditions to the licensing requirement, were unconstitutional on their
face. That means under no factual circumstances may such laws be deemed
constitutional. See, American Target Advertising v. Giani, 199 F.3d
1241 (10th Cir. 00).
ATA had argued that it is a violation of the First Amendment, the
Commerce Clause and the due process clause of the U.S. Constitution for
a state to require a license from an out-of-state agency that provides
out-of-state consulting services to out-of-state nonprofits merely
because the nonprofits mail nationally. ATA relied on a long line of
cases stating that it is unconstitutional to require a license to
distribute literature even for the person or entity that is actually
distributing the literature. Utah argued that because ATA knows that
fundraising letters of its clients will ultimately mail into Utah, then
Utah has licensing jurisdiction over this Virginia agency. Such a
theory of jurisdiction would give all 6,000+ jurisdictions in the
United States the ability to require licenses of virtually any
consultant who advises clients that conduct interstate commerce.
Almost prophetically, ATA argued in the Utah case that such a
theory of licensing could be applied to require the licensing of The
New York Times. I am informed that two states besides New York have
required that publication to obtain a license because of its September
11 fund for which it solicits in its pages. It has been nearly
universally accepted that one of the basic premises of the First
Amendment was to prohibit laws restricting (especially the licensing
of) the press, political speech and the dissemination of information
and literature. See, for example, Meyer v. Grant, 486 U.S. 414 (1988),
Murdock v. Pennsylvania, 319 U.S. 104 (1943), Lovell v. Griffin, 303
U.S. 444 (1938), and Near v. Minnesota, 283 U.S. 697 (1930).
It should be understood that nonprofit fundraising letters serve
many valuable functions, one of which is the criticism of public
officials who, or government agencies that, may be derelict in their
responsibilities. The long-held belief in this country, and indeed one
premise of the First Amendment, is that licensing chills protected
speech because it subjects the speaker to fear of criticizing those
government officials who have the very authority to issue or deny a
license to speak.\3\
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\3\ There is no better example of that chilling effect than these
comments, which are intended to be informative but may be perceived by
regulators who control ATA's licenses (and thus its ability to stay in
business) as too critical. Indeed, after I filed the Utah case, an
attorney reported to me that one of the licensors said that the states
were going to ``get Fitzgibbons,'' in an obvious reference to
bureaucratic revenge for challenging the constitutionality of these
licensing schemes and being an outspoken critic of abuse by regulators
in this area.
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In addition to the strong constitutional arguments against the
current regulatory system, it should be pointed out to the Subcommittee
that, while nonprofits are obviously imperfect, there are no grounds to
assume that the current regulators have any better grasp of the
complexities of fundraising. Indeed, while examples of bureaucratic
incompetence in this area could fill volumes, some examples of
mismanagement of, or perhaps poor judgment within, the regulatory
process may serve to inform the Subcommittee.
The State of Pennsylvania is generally acknowledged to have perhaps
the most aggressive regulatory supervision of nonprofit licensing.
While I personally know that the office in charge of charitable
licensing is working to improve, it nonetheless leads all states in the
issuance of fines to organizations that, merely through administrative
error rather than any intent to commit fraud, have failed in de minimus
ways to comply with the licensing process itself. Despite all of this
regulation, the largest fundraising scandal in history, the New Era
case, occurred in that state (and where the attorney general,
responsible for prosecuting fraud, went to jail himself on other
violations).
North Carolina is known as the state that won't accept a properly
filed license application unless it is on ``pink'' paper. North
Carolina, solely through the discretion of the licensing officials,
also rejects the properly filed applications of fundraising agencies
that represent multiple charities if just a single charity the agency
lists on its application is not registered. That process prevents all
of the other charities that employ that fundraising agency from mailing
into North Carolina, and state officials, without warning to the
fundraising agency, send notices to all of the other charities that
employ that fundraiser that the fundraiser is not registered. This has
the impact of making the charities perceive that the fundraising agency
is not complying with the law, and is somehow derelict in its duties.
West Virginia, which still requires posting of bonds despite a
federal court of appeals calling such a requirement unconstitutional on
its face, recently started to reject the applications of fundraisers
based on a new and bizarre interpretation of how a bond must be signed.
For years, the State of West Virginia accepted bonds signed by the
surety in the presence of a notary showing the date of signature, if
the surety signed the bond before the effective date of the bond. This
is standard practice in the bonding industry. One new state official
from West Virginia suggested that the only way to submit a bond to that
office is for the surety to state that it has signed the bond on the
subsequent effective date of the bond, a process that could not occur
without the surety submitting a falsely notarized signature.
State regulators use the licensing process to allegedly gather
information about charitable fundraising to provide to consumers within
the respective states, despite such information being available
directly from charities to donors upon the asking. One of the many
problems with states regurgitating this information is that most state
employees lack the basic semblances of expertise in understanding
fundraising, and the result is that states often misinform or mislead
the public about expenditures by charities.
Regulators often show their ignorance of fundraising by linking the
concept of fraud to costs of fundraising. Without writing a book on the
costs of fundraising, suffice it to say that high costs of fundraising
are no measure of fraud. Some charities rely on very large donations
from relatively few donors and taxpayer money from the Combined Federal
Campaign. Other nonprofit organizations rely on grassroots fundraising
where the goals are to seek smaller donations from larger numbers of
people, which results in higher fundraising costs. Also, some
organizations deem it immoral to take taxpayer money because of the
widely held belief that citizens should not support involuntarily
causes with which they might not agree. Nevertheless, regulators often
use higher costs of fundraising in an attempt to discourage donors from
contributing to certain organizations by irresponsibly tossing around
terms such as ``fraud.''
As one example of this, the Illinois Attorney General's office
issued a report in July 1997 emphasizing the concept of fraudulent
fundraising. The report stated that for every dollar contributed to
charities that used theservices of fundraisers, 74 cents went to pay
fundraisers' ``fees.'' As I pointed out to that office in a letter,
that statement by the Illinois Attorney General is false and misleading
on its face. Most of the 74 cents of each dollar raised actually went
to ``costs,'' such as printing and postage, which are the same costs of
fundraising paid by charities that do not employ outside fundraisers.
To call the 74 cents ``fees,'' therefore, is misleading, and I asked
the Attorney General to issue a public retraction of his report. The
Attorney General's office refused to retract its false and misleading
statement issued to the public, or take any other corrective
actions.\4\
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\4\ State officials who enter into the competition to provide
fundraising services for charities operate no better than other
charities. As reported in the November 7, 2001 Chicago Sun-Times,
Illinois taxpayers donated more than $227,000 on their state tax
returns for prostrate cancer research, but according to that article,
``the state has yet to spend a dime on research.''
---------------------------------------------------------------------------
General Spitzer's office is generally acknowledged as the most
thoroughly staffed and one of the more professionally run in this area.
However, that office still continues to require that certain
fundraisers post bonds, and the Attorney General is given complete
discretion in deciding what conditions to impose in the licensing
process. That office informed me that it would not comply with the
portions of the ATA v. Giani decision holding that such bonding
requirements and discretion within the hands of licensors are
unconstitutional on their face. The reason given by that office why it
will not comply with the 10th Circuit's holding of application of the
U.S. Constitution is the jurisdictional defense that New York is not in
the 10th federal circuit. The Attorney General's office would therefore
rather err against the Constitution by using jurisdictional reasons
that a defense attorney might raise in court.
Among the discretionary conditions that the Attorney General
imposes on certain fundraising licensing applications is that
individual employees of fundraisers must submit their home address,
home telephone number, form of compensation and social security number.
The state registration law that General Spitzer is charged with
enforcing, Article 7-A of the Executive Law, Section 173, mandates that
applications for registration must ``become public records in the
office of the attorney general.''
Besides a potential violation of the Federal Privacy Act in
requiring submission of an individual's social security number as a
condition to obtain a license from a state, the problems of identity
theft through use of social security numbers are well known. What may
be less well known is that charities and fundraisers for unpopular or
controversial causes may be subject to attack. Individuals raising
money to litigate against the Ku Klux Klan, and their families,
experienced this. Charities that raise money in support of abortion
clinics, in opposition to drug dealers, or for other such causes are
likewise subject to retaliation and violence. Even less dangerous
causes such as pure political speech merit anonymity from forced
government disclosure. See, McIntyre v. Ohio Elections Comm'n, 514 U.S.
334 (1995) and Talley v. California, 362 U.S. 60 (1960).
When I informed General Spitzer's office of these concerns, I was
informed that the data collected on the licensing applications is not
made public at the discretion of that office despite the law's clear
mandate that such applications be made available for public inspection.
Therefore, the Attorney General's office is violating the above-
referenced Section 173 of the very law that it is charged with
enforcing. It would take a simple cause of action to enforce public
disclosure mandated by law for the public to have access to the private
information acquired by the Office of the New York Attorney General.
Thus, the judgment to collect such information through the licensing
process in the first place appears to be poor.
The New York charitable licensing law requires that contracts
between charities and fundraisers must be filed as part of the
licensing process. Section 174 of that law also requires that those
contracts contain a clause that the charity may unilaterally terminate
the contract within 15 days of its being filed with the Attorney
General's office.
On August 5, 2000, I wrote to General Spitzer informing him that
such requirement seemed to obviously violate the U.S. Constitution
(Article I, Section 18 of the Constitution states that ``No State shall
. . . pass any . . . Law impairing the Obligation of Contracts.''). To
allow one party to a contract to unilaterally terminate the contract
upon the mere filing of that contract under a licensing requirement in
a state substantially impairs the obligations of that contract.
Notwithstanding the glaring constitutional problem, I asked General
Spitzer in my August 5, 2000 letter how he would apply that law in the
event that a charity were to exercise that clause in question and
unilaterally terminate the contract. Because of the ambiguity of the
language, I asked whether General Spitzer would deem that the contract
was terminated in its entirety or just with respect to mailings into
New York. I repeated my request for a response in letters dated August
8, 2000, August 30, 2000, August 9, 2001, August 22, 2001 and October
4, 2001, and have not received a reply.\5\
---------------------------------------------------------------------------
\5\ In contrast to General Spitzer's statements at the November 8,
2001 hearing stating that the charities are ``testing his patience'' by
not being able to provide him information in the eight weeks since
September 11 about the billion dollars raised from millions of
individual donations.
---------------------------------------------------------------------------
Which is all to say that the licensing process and the current
regulatory system has not prevented fraud,\6\ has done nothing to
improve the efficiency of charities, is rife with constitutional
deficiencies, and is subject to administrative gaffes and abuses. That
system only adds to the costs of charities, which ultimately diverts
money contributed by citizens. Additionally, regulators have exercised
poor judgment in enforcement of these laws in manners that have been
detrimental to both charities and the public.
---------------------------------------------------------------------------
\6\ In the ATA v. Giani case, Utah was asked by the judge to
provide any factual basis that these laws do in fact prevent fraud, and
Utah admitted in its briefs that it could find no evidence to support
its claims, and the 24 states that signed on to an amicus curiae brief
likewise failed to present any factual support for such claims.
---------------------------------------------------------------------------
Conclusion
As one of the millions of Americans who responded to September 11
with a contribution to aid the victims and their families, I am
disappointed to know that more money has not yet been disbursed to
those in need. But I also say that people without knowledge of the
facts and without expertise in fundraising and charitable programs do
not necessarily speak for me in their criticisms of charities,
especially if their criticisms are merely grandstanding or driven by
other misguided agendas.
As an expert who deals with the existing regulation of charitable
fundraising on a daily basis, I see that under the current regulatory
system, regulators trample on constitutional rights and fail to
accomplish their purported goals all at great costs and no benefits to
charities or the giving and receiving public. While there is always a
percentage of people who will abuse any system where money is involved,
there is enough evidence to show that, on the whole, charities
themselves handle charitable matters better than the existing
regulators regulate this area.
If the Subcommittee should choose to exert more regulatory
authority over the charities in response to September 11, the response
should not change the federal laws affecting all charities when only
.0001 percent of all charities were involved in the September 11
response. Any new regulations should be designed only to deal with a
relative handful of honest, law abiding, and for the most part, larger
and well-known charities. There are already more than enough federal,
state and local laws dealing with anyone who would use the events of
September 11 for fraudulent purposes.
Therefore, should the Subcommittee choose to take actions to assist
the victims of September 11, the best thing it could do is to appoint
on a temporary basis a private person or persons with expertise in
financial matters who understand the complexities of charitable
fundraising and the nuances of responding to disasters. That would
exclude anyone holding public office or anyone currently in a position
of regulating charities. The position should be used as a means of
assuring the public that the charities themselves are disbursing money
on a sound basis, and not for the overseer to make decisions about how
the money should be used.
The Subcommittee should also consider that the charities have
already been exposed to intense public scrutiny and criticism by the
media. By far, the strongest and fairest regulator of all is the
marketplace of public opinion because the future of these charities
depends on their responding to the current problems in a manner that
demonstrates to the public their efficiency.
General Spitzer correctly said on November 8 that the reputations
of these charities are on the line. By their very nature, charities
rely on their good reputations otherwise donations will slow or cease.
While criticism may be justified, the charities do not need people
without facts or expertise creating misperceptions among the public. It
is in the best self-interests of these charities to explain to the
public how funds have been used, and should they fail to do so, the
punishment of lost donor confidence will be a more perfect response
than any more regulation could be.
Statement of Citizens Concerned About HOPE Worldwide, Lawrenceville,
Georgia
NEWS ITEM--for Immediate Release
Citizens Concerned About HOPE Worldwide--[CCAHW]--is a grassroots
effort started by a number of Concerned Citizens across America who
have been monitoring the donations made to HOPE Worldwide following the
World Trade Center Disaster of September 11th. We have discovered some
disturbing Facts.
A Bit of History
HOPE Worldwide [HWW] is the 501(c)3--IRS recognized ``Not for
Profit'' wing of the International Church of Christ, Los Angeles, CA.
Since HWW was established early in 1991 contributions to this
organization within the U.S. have increased to more than $27 Million in
year 2000. Collections in other countries is reported to be around $3
Million additional. Some financial information about this organization
is available from their web site at http://www.hopeww.org or from
various watch-dog agencies such as http://www.guidestar.org--but the
data is incomplete at best and does not give adequate or accurate
details of their spending. In fact--HWW clearly states in their on-line
Financial Report for 2000--`` . . . Financial information for non-U.S.
affiliates is unaudited. Audits for these entities were not available
in time for this publication.''
One would be hard pressed to answer the logical question--how can
HOPE present a Financial Report for Public Information--when their Non-
U.S. Programs have NOT been Audited for over 10 years? Several people
have complained and we have confirmed that when one requests a Complete
Audit from HWW--all they receive is a Balance Sheet and slick
promotional material encouraging more donations. The firm of Price
Waterhouse Coopers [PWC] is employed by HOPE to conduct Annual
Independent Audits of many of the HWW Affiliated Entities--more than 30
at last count. We know that a complete Audit is produced--but HOPE does
not provide it to the Public--[even on request].
The purpose of this mailing by CCAHW is to alert the Public, the
News Media and various Authorities that HOPE has aroused our suspicion
in their handling of a recent campaign to collect for the victims of
the September 11 Terrorist Attack(s).
Here Are the Details
On or about September 18th, HOPE Worldwide published a Press
Release titled: ``HOPE Worldwide Sets Up Disaster Relief Fund.'' The
Press Release was published on one of the Official ICC web sites:
http://www.kingdomnewsnet.org/. The Press release [see News Archives
Section] announced the establishment of ``the Fund'' and promised that
`` . . . ALL money contributed to this fund will be forwarded to
qualified relief agencies working in the disaster areas.'' An address
in Hamilton, New Jersey was given for donations. Please note that HOPE
promised to: ``forward ALL contributions*!!
On or about September 19th, the same website ran an article titled:
``Special Collection in New York Yields Over $100,000.00.'' NOTE: this
News Article has since been mysteriously removed from the site!! [It's
available elsewhere and we have copies]. The article went on to detail
how the New York [ICC] Church had collected $48,971 and the LA [ICC]
Church had collected $65,000. This represents the amount collected
within the very first few days of the Disaster Fund Drive.
The Main website for HWW repeats the announcement of ``the Fund''--
but gives a different address for donations--and drops the promise to:
``forward ALL donations.'' In fact--they very carefully measure their
words as to what will be done with the donations.
Earlier this month we obtained a copy of the ICC distributed
publication entitled: ``HOPE Worldwide--ACES Newsletter'' [Autumn
2001]. Two articles within this newsletter mention what has happened
thus far and what will happen to the money contributed to the HOPE
Worldwide Disaster Fund--America's Disaster. Needless to say--the
following two sentences from the article titled: ``HOPE At Ground
Zero,'' leaves much to be desired in Accountability to the Public.
``The generosity of the New York City Church, as well as other member
churches of the International Churches of Christ, has once again
overflowed as its members have donated hundreds of thousands of dollars
to the HOPE Worldwide Disaster Relief Fund. On October 27, HOPE
Worldwide was pleased to present a check to a fund for the families of
firefighters.''
By the end of the week following the publication of the above
Newsletter, the HWW Official Website on November 2nd published the
following accounting details. They stated that a total of $275,000 had
been collected and distributed giving details as to which agencies
received ``a check'' in ``a ceremony'' on October 28th. They stated
that members of the ICC had donated $240,000 of the total. This seems
rather skewed in view of the fact that just two of their over 400
congregations had collected donations totaling almost $113,000 in just
one day. There have been SIX Sundays to collect since the establishment
of ``the Fund''--add to that the fact that there have been donations
from the public.
Something does not seem right. The ICC boasts membership of
approximately 128,000 members worldwide, with a large percentage of
their membership residing in the U.S. It does not seem worthwhile to
boast and point out to the Public that each of their members donated
approximately TWO Dollars each on the average, over a full SIX week
period. We are extremely suspicious that far more money may have been
collected--and has not been properly accounted for.
Add to all of this the following discovery. Another article in the
same Newsletter titled: ``A note from Bud & Kitty Chiles'' goes on to
outline what we believe to be the setup for a diversion of the
contributed Disaster Fund money to a project of questionable value to
the overall group of victims. ``To help meet the needs of the
15,000kids who have lost one or more parents as a result of the WTC
attacks, we plan to establish a HOPE Worldwide Memorial School of the
Arts & Technology in Lower Manhattan.''
Our Sincere Hope
The Concerned Citizens of CCAHW on behalf of all contributors to
the Disaster Relief efforts [as well as other HOPE Projects]--call upon
the leadership of HOPE Worldwide and the International Church of
Christ--to become FULLY Accountable--at least on this Project. Your
history of providing inadequate financial details speaks volumes for
the way you have conducted your charity business in the past. Your
response to our discoveries presented here and our reasonable requests
for ``complete financial disclosure''--may well become a model for the
level of accountability expected from you into the future.
God Bless America and especially the Victims of the September 11th
Terrorists Attacks. Any Charity collecting on your behalf must be held
FULLY Accountable!!
Statement of Terri Lee Freeman, President, Community Foundation for the
National Capital Region
Let me begin by thanking Chairman Houghton and members of the House
Subcommittee on Oversight of the Committee on Ways and Means for the
opportunity to submit testimony on behalf of The Community Foundation
for the National Capital Region (The Community Foundation) at today's
hearing regarding the ``Response by Charitable Organizations to the
Recent Terrorist Attacks.''
The mission of The Community Foundation is to facilitate
individual, family, organizational and institutional philanthropy, at
all levels, to improve the quality of life in the metropolitan
Washington area. We were established in 1973 as a public foundation
(charity) that would provide grant money to nonprofit organizations
meeting the needs of the community. Since that time, we've grown to
more than $200 million in assets held in more than 240 charitable funds
established by individuals, families, organizations and institutions.
While all of these assets are not endowed, we are a permanent
philanthropic institution in the region.
In fiscal year 2001, The Community Foundation made grants totaling
$28.8 million, with 85% of those dollars going to the metropolitan
Washington region. These figures make us the leading grant maker in the
metropolitan Washington region. These grants ranged in size from $500
to $4,000,000 and were distributed to more than 1,085 nonprofit
organizations. And with contributions of more than $85 million in the
same year, we are one of the fastest growing community foundations in
the country.
In the wake of the September 11 terrorist attacks, many corporate
and individual donors came to us asking how they could help. On the
afternoon of September 11, The Community Foundation agreed to support
the September 11th Fund, a philanthropic fund of the New York Community
Trust and the United Way of New York. By the morning of September 12,
it was clear that The Community Foundation should establish a fund to
receive contributions specifically for the survivors and families of
Flight 77 and the Pentagon. Additionally, The Community Foundation
supported the local United Way of the National Capital Area's effort in
promoting the September 11th Fund with designation numbers for
Washington, DC and New York (9011 and 9012 respectively).
In the days right after the attacks, The Community Foundation
consulted with people at the Oklahoma City Community Foundation who had
much to teach us about coping with the aftermath of terrorism. One of
the things we learned was that it is very important to ensure that
support for survivors and families is available long after the
emergency work is completed. For those directly affected by acts of
this magnitude, healing takes years not months.
On Friday, September 14, The Washington Post announced the
establishment of the September 11th Fund of United Way and The
Survivors' Fund of The Community Foundation. The Survivors' Fund was
established to provide long-term support for victims and families
affected by the terrorist attack at the Pentagon. As of October 31,
2001 more than $11 million has been contributed to the Fund from
individuals, corporations, foundations and groups/organizations
throughout the United States, including the Freddie Mac and Fannie Mae
Foundations, as well as ExxonMobil, Lockheed Martin and thousands of
concerned American citizens. 100% of those contributions will be used
to support the survivors and their families. The local philanthropic
community has contributed administrative support to manage the fund.
The Survivors' Fund is intended to provide for long-term needs,
after the emergency relief efforts of organizations such as the Red
Cross, the Salvation Army, the military and others are complete. By
long-term we anticipate a minimum of a five-year horizon for the fund.
It is modeled after a fund that was established by the Oklahoma City
Community Foundation after the 1995 bombing of the Alfred E. Murrah
Building.
The Community Foundation has named Northern Virginia Family Service
as the lead nonprofit social service agency that will provide case
management services to those who are eligible for assistance through
the Survivors' Fund. The primary target group to receive services and
support from this fund are: families of those killed at the Pentagon,
including military, civilian, contractors and airline passengers/
personnel; and, people who were injured at the Pentagon and their
families. Secondary recipients are those on site at the Pentagon who
were not physically injured, but suffered mental anguish; fellow
employees of the airline personnel who died; and, rescue workers.
Caseworkers will be assigned to each family to assess their needs
and work to make sure that survivor's and families receive the support
they need. The Survivors' Fund will pay for services, such as long-term
medical expenses, mental health counseling, education support for
children of parents affected by the attack, and general family support
for those families identified by the case workers as requiring this
type of support.
The Community Foundation has developed a sound management system
for the Survivors' Fund. We are currently recruiting a governing board
and distribution committee and expect to announce our first
distributions in early December.
The Community Foundation intends to work as collaboratively as
possible with other entities that are providing direct support and
assistance to the victims of this tragedy. Along with the United Way of
the National Capital Area, we are working to develop a database that
will allow us to track services and financial support provided to
families.
Although it is not the mandate of our fund to support frontline
nonprofit organizations that continue to provide services to the
immediate and secondary victims of that tragic day, it is our belief
that those organizations are critically important to healing our
community. As more and more Americans are called up to military service
and others lose jobs due to a faltering economy, nonprofit
organizations will be called into action as never before. They will be
expected to respond, as they always have. The demand will be great and
the resources limited.
While the families of those most directly affected by September 11
must be taken care of and have the support systems and resources they
need in place, now and in the months and years ahead, we believe that
it is imperative to assure the stability of the nonprofit organizations
that are always poised and ready to serve in a time of national,
regional or local distress. We must continue to support the web of
nonprofits that provide all of us with a safety net of support and do
so much to enrich the lives of people throughout our region and our
country.
I thank the Committee for allowing me to make this statement on
behalf of The Community Foundation for the National Capital Region and
in support of the nonprofit sector, a stable source of human services
in the community.
Statement of the Hon. Joseph Crowley, a Representative in Congress from
the State of New York
In the wake of the September 11, 2001 attacks on America, our
Nation saw both the worst of humanity and in America's response to this
brutality, the best of humanity. People opened their hearts and wallets
to aid their fellow man, whether it be their neighbor or an unknown
soul thousands of miles away.
We have seen lines to give blood, a run on the American flag, a
renewed sense of patriotism, and a new spirit of generosity, both
financial and non-financial. Today, we examine if the financial
generosity of the American people is being delivered to those that most
need this assistance.
Since September 11, American's have given more than 1.2 billion
dollars to charitable organizations working on relief and recovery
efforts related to the attacks. This dwarfs the contributions following
any previous disaster.
And these figures do not account for the many, many ways Americans
are otherwise giving unselfishly of their time and effort to lend
support to the victims' families.
But, this immense and sudden outpouring of donations to relief
efforts also creates an immense logistical problem. Today I hope we can
examine, and perhaps ease, many of the concerns related to making
certain the money goes where people intended it to go.
What mechanisms, for example, are being created to assure that
funds directed to relief and recovery are distributed as efficiently as
possible? How are charities keeping track of victims to assure nobody
in need of assistance is missed? How are these funds being distributed?
There is no doubt that the charitable organizations at the heart of
this influx of donations are providing valuable and very necessary
services.
Unfortunately, there is the ever-present temptation for fraud in
these circumstances. One responsibility of our government is to help
head off fraudulent operators in the marketplace who prey on American's
best intentions with their own evil designs.
I want to thank Chairman Houghton, a fellow New Yorker, and Ranking
Member Coyne for granting me the opportunity to join them and this
Subcommittee on the dais today to question the invited witnesses. This
will give me the opportunity to report back to my constituents in
Queens and the Bronx, New York, many of whom lost a loved one, an
accurate picture of where their donations are going, and who is, in
fact, benefiting.
Statement of Pamela Federline, Des Moines, Washington
Thank you for the opportunity to provide written input into this
hearing. I am a private citizen who joins in the collective outrage of
our citizens in the terrorists attack against the United States and the
innocence that died that day, not just in human lives, but in our
belief we lived in a place free of such vile acts of cowardice.
I am also a private citizen who uses my volunteer time and donates
funding to nonprofit agencies for the betterment of our communities.
Thus, I feel it is important to weigh in on this hearing on the
Response by Charitable Organizations to the Recent Terrorist Attacks.
There is no question that the outpouring of human generosity in the
aftermath of September 11th has been a beacon of hope and love for all
those impacted by the events that unfolded on that day. Just as true,
however, is the staggering responsibility suddenly thrust into the
hands of the organizations entrusted with the stewardship of these
funds, and in the subsequent handling of distribution to families and
affected organizations.
It is important to understand that from every perspective,
including the responses of government, corporate America, the
philanthropic community, and individuals, we have all been reshaped by
the events of September 11th. Within the context of such a massive
outpouring of help, it is imperative that the whole system take a
collective deep breath to make sure that the response in aid to
citizens caught in the aftermath is carefully coordinated to avoid
duplication of services and to improve efficiency across agencies.
The issue of funds flowing quickly out to the families, while
important, is not as important in the long run as the immense
stewardship responsibilities. This is not as easy a process as we might
assume. For example, there are many questions that charitable
organizations have not had to previously ask in an effort to assure
that family members who come forward are who they say they are. While
these questions to determine familial status may seem impersonal, if
funds were distributed to someone fraudulently, the organizations would
be just as culpable to the public trust, and the end result just as
damaging.
Thus, it is prudent, particularly for the larger charitable
organizations, to have a joint definition of ``family relationship''
whereby there is no confusion. We might call on the experience of both
public and private organizations to assist in crafting a liberal enough
definition for what constitutes a ``family'' such that there is no
discrimination in the allocation of funds based on traditional-only
definitions and life situations. For example, an elderly aunt might
have lived with a supportive nephew who was killed in the attack. He
provided the primary housing support, now gone, for a frail, older
adult. There are many, many such ways that family can be defined.
We are fortunate to live in a great society that breeds generosity
of sprit and open hearts in times of crisis. It is also an unfortunate
truth, that in times of crisis, the worst of the worst come out to
defraud the system, the victims and our collective conscience.
I am in favor of taking the appropriate amount of time necessary to
assure that funds are distributed fairly, equitably and consistently to
affected families, while working collaboratively across the public and
private sectors to reduce the likelihood of fraudulent claims.
The shared response to tragedy by both the government and
philanthropic sectors requires an understanding of the huge faith being
placed in the stewardship of funding. We all want to see that affected
families are helped in as timely a manner as possible. How charitable
organizations respond will have longstanding implications in the
philanthropic community in the wake of these events. I urge both
caution in government intervention in private philanthropy and a
completely open accounting of funds donated to assure that the public
has not misplaced its trust in the private system to help the
citizenry. Perhaps government's most important role in this issue is to
use it's vast experience in fraud prevention to provide support to
these large organizations, while providing enough oversight to
encourage a completely open distribution process accountable to the
public through the existing IRS system for charitable organizations.
We will, all of us, be watching.
Marble Falls, Texas 78654
November 8, 2001
To whom it may concern,
The American Red Cross should announce, nationally, to refund
donations. Donors were told the Liberty Fund was to be specifically and
immediately for family survivors of those killed on 9/11. The American
Red Cross is clearly stealing the donations from their intended
recipients and the donors. RedCross desires to keep the large sum in
interest bearing accounts, on the excuse (caveat) that the added word
``aftermath'' can include anthrax or future terrorism. These adjective
additions are self serving to the Red Cross to allow them to
indiscriminately distribute and withhold the donations into infinity.
The $560,000,000.00+ in the Liberty Fund was purported to go
strictly to the surviving immediate family members of those who died on
9/11. Mr. Blaul has stated there would be no ``means'' testing for
those families. If there truly is no ``means'' testing then there is no
reason for withholding direct distribution on a bi-monthly basis.
$560,000,000.00+ divided by the 5,000+ figure of deceased, then
distributed equally to each surviving family (the spouse, or children,
or parents, or siblings, in that order of priority. NO ROOMMATES!) If
500 people declined the donations that money should go back into the
pool for equal distribution to approximately 4,500 families.
The Red Cross illegally distributed much of this fund to 22,000
people who didn't lose a family member; but, lost a job. They can apply
for unemployment. Dead people cannot.
If the Red Cross wants to hand out bundles of cash on the street
indiscriminately to street people, assist unemployed, serve coffee and
donuts, etc. They should do that out of their general fund. Liberty
Fund donations were for the surviving families.
These Liberty Fund donations should not be commingled or used as a
deduction to penalize these 5,000 families from receiving any other
charity funds or government assistance. The donors did not attach
``means'' testing conditions. They did not exclude those of higher
income. They did not exclude firemen, or policemen. They may have made
a reasonable assumption that illegal aliens would not qualify, since
they were lawbreakers. Those here on current work visas would certainly
not be disqualified.
I have a letter from Mr. Blaul stating that there was no ``means''
testing, yet, he will not explain why some families received a larger
check than others. Nor, why they have not mailed a check to at least
2,000 families that lost a family member on 9/11. It was Red Cross'
responsibility to get the money to the families. If they could not or
would not do that, what was the point of a donor using the Red Cross as
a clearing house? Why are the families required to come begging, and
have to fill out a myriad of forms that no doubt ask them about their
assets and other income sources? The donors did not intend for their
donations to be distributed in some subjective manner. A family who's
spouse had a $100,000.00 income has mortgages, utilities and financial
responsibilities tied to that income. Do these pathetic Red Cross
elitists and case workers feel that they deserve less? Deserve to lose
their homes and cars? Deserve to have to move and disrupt their
children's school? Lose their equity in their homes in discounted sale
or bankruptcy? Deserve to lose the standard of living their spouse had
worked hard for them and their children? What about those who worked or
were visiting there from other countries? This was the WORLD Trade
Center. Is the Red Cross trying to calculate in yen or bolsas what
these people deserve based upon the strength of their dollar in their
country? THIS IS ABSURD, and UNETHICAL, and probably illegal. So the
Red Cross might argue they call victims and ask what they ``need.''
Well the short answer is they need it all! One five thousandth of
$560,000,000. They need it now, and THEY should be earning the interest
on any that they are able to put in reserve in their own personal
accounts.
It was reasonable for donors to assume the Red Cross was
trustworthy, prepared, and equipped to have a complete data base of the
surviving families names and addresses for the Liberty Fund, and
bookkeepers to do the math of dividing the sums for distribution on a
bi-monthly basis, as a paycheck would normally come into a household.
If they were not willing or able, we could have inquired for names of
families and mailed a check directly to them.
It was our understanding that a non-profit organization is legally
obligated to the parameters of the purpose stated in soliciting the
donations; and, that those funds could not carry over into another year
if not stated clearly at the onset. At the point of carry-over they
would violate their non-profit status for that Liberty Fund.
This should not be thrown in the lap of the IRS to ``track.'' The
Red Cross should be directed to either refund the donations or
distribute them and the interest earned in the past two months to the
surviving families in accordance with the total $$ donated divided
equally among the surviving families of those deceased.
I would be happy to provide the letters I have sent and received
from the Red Cross: Mr. Blaul and Ms. Doggett to substantiate what I
have stated here.
M.C. Gosnay
Statement of the Hon. Wally Herger, a Representative in Congress from
the State of California
Thank you Chairman Houghton and members of the Subcommittee for
holding this hearing, and for permitting me the opportunity to submit
this statement.
On September 11, our Nation suffered unimaginable losses. Since
then, Americans have responded with extraordinary generosity, opening
their hearts to the families of the victims of the terrorist attacks.
These recent donations--estimated at over $1 billion--along with
ongoing and increased government support will provide vital assistance
to victims and their families.
Still, we are all concerned to hear the recent reports that funds
American families have donated to support the victims of the September
11 attacks may not be reaching their intended beneficiaries. Mr.
Chairman, I commend you for holding this timely oversight hearing today
to explore whether these concerns are founded, and if so what can and
should be done about that.
As the Chairman of the Ways and Means Subcommittee on Human
Resources, I can see already how the government's safety net is being
stretched in response to growing needs following September 11th. The
unemployment rate is now the highest we've seen since 1996. In October
over 400,000 Americans lost their jobs, and more layoffs are expected.
This will test our Nation's unemployment, welfare and related social
service programs in the months ahead.
Congress already has responded. Within days after the attacks,
Congress passed and the President signed into law an emergency spending
bill providing $40 billion for our Nation's initial response to this
tragedy, including billions of dollars to support families and
businesses affected in the New York and Washington, DC areas. More
recently, as part of the House economic stimulus package, we made an
additional $9 billion available to help States pay unemployment
benefits and $3 billion for health care expenses for dislocated
workers.
Clearly, the Federal Government has a role to play and we will be
there when people need help. However, government cannot and should not
go it alone. For years charitable organizations have played a critical
role in supporting those in need. Now more than ever, we need to ensure
that private donations are put to work to assist families directly
affected by the terrorist attacks. That will have two important
effects. First, it will limit pressure on public resources to handle
these needs alone. That means less pressure to raise taxes or cut other
spending to keep the government's budget balanced. But even more
importantly, it will confirm for the millions of American families who
made charitable contributions in recent weeks that their sacrifices
were not in vain and that they are helping their fellow citizens. That
connection binds us together, especially in times of crisis like these.
The American people demand accountability with their tax and
charitable dollars. Right now, more than anything, they demand
compassion and they demand fast action. Charities and government
agencies must ensure that families receive the help they need and that
they get it as efficiently as possible. The families affected by the
September 11 attacks have suffered tremendous loss. They must not be
made to suffer again by enduring red tape and confusion while trying to
access the help their friends and neighbors have so generously offered.
In the weeks since September 11, Americans have stood resolved and
we have stood together. I watch this as a citizen, a Member of Congress
and the Chairman of the Human Resources Subcommittee, and I am filled
both with great pride. I am heartened to see the generosity of
Americans. I also commend the numerous charities and the local and
Federal Government agencies that have been on the front lines assisting
victims and families in these difficult times.
But I remain concerned that these efforts are coordinated and
effective. The stories of widows traveling from agency to agency,
completing form after form, and not receiving one dime are
unacceptable. We must ensure that charities get assistance to the
families that so desperately need it. Today's hearing is an important
part of the process of better coordinating those efforts, and I look
forward to the testimony of all of our witnesses on how best to get
this job done.
Statement of Sara Melendez, Ph.D., President and Chief Executive
Officer, Independent Sector
Mr. Chairman and Members of the Committee:
Thank you for the opportunity to submit this written statement for
the Congressional Record on your hearing examining the response of
charitable organizations to the recent terrorist attacks.
Independent Sector is a nonprofit, nonpartisan coalition of more
than 700 national nonprofit organizations, foundations, and corporate
philanthropy programs, collectively representing tens of thousands of
charitable groups in every state across then nation. Virtually all of
our member organizations have been actively involved in addressing the
needs of people throughout the nation and, indeed, the world, in the
aftermath of the tragic events of September 11. We commend Chairman
Houghton, Ranking Member Coyne, and the Committee for their leadership
in examining the work of charitable organizations working in the relief
and recovery effort to assure those who have contributed to this effort
that their funds are being and will be well spent.
The outpouring of generosity from the American people in response
to the terrorist attacks has been as unprecedented as the attacks
themselves. Never before have so many Americans given so much in such a
short time to a single cause. According to a poll conducted by Wirthlin
Worldwide for Independent Sector in early October, seven of ten
Americans gave money, donated blood, or volunteered in some way to
help. Over 150 organizations have received or been pledged more than
$1.2 billion for their various September 11 funds. The size and
complexity of this philanthropic response is a direct reflection of the
size and complexity of the relief effort.
Charitable organizations were able to step in quickly in the New
York area and in our Nation's capital to support and supplement the
work of government rescue and relief workers. Survivors of the attacks
have received medical attention, mental health and grief counseling,
and assistance with a variety of other immediate needs. Families of
victims who were lost have received financial assistance, temporary
housing, and counseling. Agency staff have provided assistance in
navigating a confusing maze of interlocking government programs and
regulations necessary to verify the status of loved ones and obtain
applicable government aid and insurance payments, particularly for
those encumbered by disabilities or language barriers. Private
philanthropic assistance has taken the form of both direct financial
assistance and a wide range of services to help survivors, families of
victims, and thousands of others directly impacted by the terrorist
attacks.
The process of providing relief assistance has posed many
challenges. Agencies in the New York area faced severe communications
barriers in the days immediately following the attacks. While many
agencies had experience in collaborative efforts, none had worked on a
tragedy of this scope and scale where the public-private collaborative
effort involves so many agencies and so many victims. The initial
coordination among the agencies receiving funds and providing services
has been slower than many would desire, but real progress has been made
in a relatively short period. New York City relief agencies have been
meeting weekly to discuss gaps, how to fill them, and how to avoid
duplication. An 800-number has been established to direct victims to
the appropriate sources of assistance. The September 11 Funds in New
York and Washington have appointed stellar advisory committees composed
of community leaders and experienced service and administrative
professionals to establish guidelines and oversee procedures for
distribution of the funds that have been raised.
The relief funds must be fully accountable to both the victims of
the terrorist attacks and all those who made financial contributions to
support the effort. Developing and implementing procedures to make sure
that financial assistance is distributed to the intended recipients and
not to fraudulent claimants is time-consuming and complex but critical
to sustaining the integrity of the relationship between the funds, the
victims, and the donors. Funds must also provide full accounting to
donors who have stated that their contributions must be restricted for
specific purposes, as well as to those who provided general support to
the relief effort.
The scale and scope of the September 11 tragedy requires a strong
degree of cooperation and collaboration among government agencies and
private philanthropic and voluntary agencies. Independent Sector
applauds the efforts of the Attorney General of New York and all of the
relief agencies that are working together to create a coordinated
database that will help to reduce duplication in providing financial
assistance and ensure that all victims receive appropriate financial
assistance. It is vital that this collaborative effort protect the
privacy of those seeking assistance while meeting the desired goal of
distributing funds as quickly and as equitably as possible.
Clear procedures for distribution of government funds allocated to
the relief effort should be established as quickly as possible to
inform and assist private relief efforts as they struggle to allocate
resources between immediate crisis needs and the long-term needs of
those affected by this disaster. Private, voluntary contributions are
intended to supplement, not replace, publicly-funded relief efforts.
Leaders of relief agencies need information about government programs
to assist victims in determining their eligibility and applying for
government funds, as well as to inform their own decisions about how to
distribute their own resources to address remaining gaps.
The Federal Government has a key role to play in the audit and
oversight of charitable and philanthropic nonprofits, but it is not
appropriate for government to direct the operational matters of private
relief organizations. Charitable nonprofit organizations have earned a
high degree of public trust by being effective in their work,
accountable to their multiple constituencies, and good stewards of
their resources. Appropriate government regulation is also essential to
preserve this high degree of public trust, and Congress should work to
ensure that those agencies charged with oversight of tax-exempt
organizations and charitable solicitations have sufficient resources to
ensure adequate enforcement, regulatory guidance, and public reporting
procedures are developed and sustained. Independent Sector and its
members are committed to working with the Internal Revenue Service, the
primary federal agency charged with oversight of the charitable and
philanthropic sector, to ensure even stronger compliance with existing
regulations and stronger accountability to the public through
refinement of reporting procedures and improved regulatory guidance to
charitable and philanthropic organizations.
INDEPENDENT SECTOR welcomes the opportunity to work with this
committee and Congress to ensure that the relief effort continues to
provide the high quality of service and the high level of public
accountability that has inspired the strong confidence the American
people have entrusted to our charitable and philanthropic
organizations.
Statement of Karin Kunstler Goldman, President, National Association of
State Charity Officials, New York, New York
As Congress focuses on the activities of charitable organizations
in response to recent terrorist attacks, the National Association of
State Charity Officials (NASCO) encourages all efforts to instill
accountability of charitable dollars that citizens of the United States
and people across the world have given to help the victims of the
horrendous disasters in New York City, Washington, D.C., and
Pennsylvania.
NASCO applauds the efforts of New York Attorney General Eliot
Spitzer to coordinate WTC Relief efforts and Virginia's Governor
Gilmore leadership in establishing the Virginia Post-Attack Economic
Response Task Force. Chaired by Barry E. DuVal, Secretary of Commerce
and Trade, the task force consists of six committees and coordinates
all efforts with FEMA. Dr. Louis F. Rossiter, Secretary of Health and
Human Resources, chairs the committee on Coordination of Charitable
Assistance, which unites charitable health and human services
organizations and local government in the Northern Virginia area to
avoid duplication of services and financial aid for those affected by
the Pentagon attack.
NASCO is an organization comprised of offices of attorneys general,
secretaries of state, bureaus of consumer protection and other state
agencies, all with common goals of protecting and enforcing the
charitable intent of donors in each of the respective states. Although
NASCO does not speak on behalf of any particular state or agency, it
has a collective concern regarding accountability in the area of
charitable fundraising and distribution of funds raised.
Sympathies have run very deep in the aftermath of the disasters and
many reputable charities stand ready to help. However, Americans can be
certain that some unscrupulous individuals will come forward to exploit
this outpouring of goodwill across the Nation. Tips for charitable
giving have been distributed by numerous agencies and philanthropic
institutions, but accountability is of paramount concern.
When money is raised for a particular charitable cause, the public
believes the funds they contribute will be used for that specific cause
and the laws of most, if not all, states require that the funds be used
for that purpose. The fiduciary duties imposed upon the charities
mandate such use. Unless charities responsibly comply with those
duties, donors will never have the assurance that their contributions
are used for the intended purposes.
NASCO is heartened by the decision of the Red Cross to reverse its
initial decision to use funds raised for September 11 disaster relief
for ``general disaster relief'' funds. Given the creation of the
Liberty Fund to address specifically September 11 disaster relief and
the unprecedented charitable giving immediately following the attacks,
the public deserves the assurance that their contributions will be used
as they intended. We all must be accountable to our citizens, no matter
what size the agency or what size the charity. Monies raised must, in
all circumstances, be maintained and distributed as part of a public
charitable trust. We must all look for solutions to ensuring confidence
in that public trust.
Statement of Nancy Anthony, Oklahoma City Community Foundation
Lessons Learned for Charities from the Oklahoma City Bombing
In April 1995, the bombing of the Murrah Federal Building in
Oklahoma City represented the most devastating terrorist attack, at
that time, on American soil with 168 deaths and more than 600 others
injured. More than $40 million was contributed by individuals and
organizations across the country to at least 70 different funds in
Oklahoma City to assist those who were affected by the bombing.
A group of the major charities, American Red Cross, Salvation Army,
United Way, Oklahoma City Community Foundation, several church social
service organizations and community mental health organizations, were
the recipients of a majority of these funds and worked directly with
the individuals and families affected. A number of independent funds,
sponsored by civic groups, financial institutions, professional
organizations and others also received significant contributions
through their contacts and networks around the country but did not have
either the staff or process in place to work directly with individuals
to determine needs.
The current situation in New York City is much larger in terms of
total size but not much different in relationship to the size of the
population base and for the number of deaths involved in the tragedy.
Events in the tragedy are unfolding in a very similar way: a chaotic
response driven by the flood of charitable contributions, charities
struggling to services in place which will help people affected,
concerns about coordination, duplication, fraud and frustrating
bureaucracy, a high level of media attention to the flow of funds and
questions how they are or are not utilized, the misunderstanding and
anger which flows from individuals about the process of receiving
assistance, and the perception that someone should be ``in charge'' of
a disjointed system of independent, basically unregulated charities
that generally receive very little scrutiny. The extreme emotional
trauma related to the loss of life is the force that drives the
process, both for the individual case and for the larger community. How
individuals and families respond to these events and work through that
trauma will be reflected in the charitable activities and process which
come from the events. Since anger is part of the grieving process, the
charities and the community should expect that anger and frustration
will occur and probably be directed at them.
The group of charities that faced similar challenges after the
Oklahoma City bombing learned some lessons that could be helpful to New
York. We are not wiser, just battle-scared: we have already made many
of the mistakes which await you. We are not smarter, we just have the
benefit of seeing the effect of what we did. We have been asked the
technical questions: how to set up a data base information system; what
criteria to use for mental health services. But the bigger question is
what did you really learn that would help New York or any other city?
Before that question is answered, the situation must be put in some
context. First, no organization, even the American Red Cross, has
significant experience dealing with the large numbers of tragic deaths,
the emotional issues, the media attention and the administrative
challenges of millions of dollars created by situations like those in
New York and Oklahoma City. No organization has practiced, trained for,
planned for, or even expects this type of situation to happen. Second,
there is no formula or policy that balances the tension between equity
and needs in the use of funds. The tensions that develop around the
distribution of money are significant, and there are a variety
expectations, most of which are not developed in the context of the
rules of the I.R.S., or an understanding of limitations of money in the
healing process. Third, the funds that charities have are not
compensation funds, or court settlement funds or insurance payments.
They are charitable contributions given by thousands of individuals who
want to help those affected and want the charities to be good stewards
of those funds. For most donors, these gifts are their individual
efforts ``to help,'' the only way that most have to provide any
assistance.
What then are the lessons which were learned in Oklahoma City?
First, money is limited in its effect and must be coupled with services
and be used with the goal of helping people survive and go forward with
their lives. The focus on the total amount collected and the
expectations about its distribution often detract from the central
purpose of the funds, which is to help the recovery process. The
effectiveness of the charitable effort will not be measured in whether
the money was divided and distributed, but whether the people who need
assistance receive the services they need and are able to move forward
with their lives. We have too many instances in Oklahoma City where
funds were given to families with no additional services and later, the
helping agencies were called back in and to provide counseling,
coordination and financial assistance. Money itself does not provide
healing or encouragement in the recovery process.
Second, the individuals and families that are being helped are very
distressed people and even with the best assistance and support, they
will not be happy, nor should we expect them to immediately forget
their loss. People who work at charities receive a lot of satisfaction
from helping individuals and seeing results. Because the grieving
process is a long and very emotional road, the effort to help does not
produce individuals and families who feel satisfied or appreciative, at
least for a long time. It is very easy for the media to find unhappy or
frustrated people and to assume that charities have not done their
jobs. Expect anger, complaints, and criticism and help your employees
understand that it is part of the process of grieving. Continue doing
your work.
Third, cooperate, cooperate, cooperate. Work with other agencies
and service providers and funds as much as possible. The individuals
whom you are trying to help should not have to navigate through
different bureaucracies and understand issues of charitable turf. Don't
worry about who will get the credit or the criticism. In Oklahoma City,
the charities cooperated from the beginning because we knew that the
task was too big for any one group, and that we had to work together to
deal with the size of challenge. Maybe that realization came from
dealing with too many tornadoes over the years. In any case,
cooperation was the expectation of the larger agencies and most of the
funds and smaller organizations accepted the standard. Because we had
worked together so much, when criticism of one agency appeared in the
media, the whole group of cooperating charities and funds were quick to
provide support. Our individual efforts really were viewed as part of
the community's effort. We got more done as a team than individual
groups.
For many people, the effort at recovery will take a long time and
thus, the assistance of the charities will necessarily be long-term. We
are still working with a number of cases in Oklahoma City that require
special efforts for the families to recover. Accountability to the
public and to donors is extremely important and reporting on
expenditures should be part of the stewardship to build trust for
future situations. The I.R.S. has rules related to the distribution of
funds to individuals that need to be considered by any qualified
charity. These rules are not well known but have an enormous impact in
these situations.
Lastly, we avoid using the term``victim'' to describe those who are
affected by the tragedy. A Salvation Army Major and veteran of many
natural disasters said, ``The only victims are those who died; everyone
else is a survivor.'' And truly, ``survivor'' does put emphasis on the
need to look forward and not to dwell on what happened. Avoid creating
a ``victim'' mentality among those who are receiving assistance.
Charities cannot do anything about the tragedy, but they can begin to
help individuals look to the future and restore their lives. We cannot
begin to compensate anyone for their loss. All we can do is help those
who really do wish to be survivors.
______
Remarks to the NY State Assembly Hearing, November 7, 2001
Nancy B. Anthony
The bombing of the Federal Building in Oklahoma City in April 1995
killed 168 individuals including 19 children. There were approximately
600 injured including 83 which were admitted to the hospital. It is
estimated that about 3,000 individuals were directly affected as family
members of those who were killed, those who were injured, those who
worked in the Murrah Building or one of the five other buildings which
were seriously damaged by the explosion or lived in apartments in the
area which were damaged or destroyed. An additional 3,000 individuals
were received some type of assistance because of economic impact or
mental health needs.
Approximately 40 charitable organizations and independently
established funds solicited or received contributions to help those who
were affected by the bombing. Additionally at least 30 other funds were
established for individual families or small groups. Approximately $40
million in charitable contributions was received by these organizations
and independent funds. The local chapter of the American Red Cross
received the largest amount, about $18 million, and the 15 different
funds at the Oklahoma City Community Foundation, including the Mayors
Fund and the Governors Fund, received about $14 million. Other
significant charities involved were the United Way, the Salvation Army,
Feed the Children, and several church social service organizations.
These ten or so larger and staffed charities worked in a very
cooperative manner to deal with the needs of individuals related to the
bombing.
The cooperative efforts in Oklahoma City had three main goals:
First, to provide effective services to the primary target group:
the families of those who were killed and those who had critical
injuries.
Second to make the system as efficient as possible: to keep
individuals who needed help from having to deal with multiple agencies,
to prevent duplication, to discourage fraud, and to insure that
everyone who needed assistance was provided an opportunity to receive
it.
Third, to be accountable to the donors and to the public for the
expenditures of funds and to insure the public that funds were used for
the purposes intended.
The system which eventually developed in Oklahoma City worked well
in meeting those goals but what we actually wound up doing developed
over a three to six month period of time. We did not sit down one
afternoon and design the cooperative arrangements but tried a variety
of things, continued what worked and discarded what didn't. The system
had three main elements, all of which were extremely important to the
goal of providing services which were effective, efficient and
accountable:
First
The database which was primarily a registry of the family members
of those who were killed, injured, or in the affected buildings.
Eventual it contained the names of most who had received any
significant assistance. It was operated by the United Way and each of
the 40 primary agencies providing direct service had a terminal with a
direct link.
Second
Each family where there was death or critical injured had a case
manager, a social work professional or trained and experienced
volunteer who worked with the family to review all the needs and
resources which might be available to them, to help them get financial,
legal and mental health services needed, and to serve as an advocate
for that family with any other agency or fund which might assist them.
Because of the data base and the case manager system, most families had
to complete basic information request forms at only one organization.
Third
The unmet needs committee was established about seven weeks after
the bombing. The case managers and helping agencies would bring needs
of individuals and families which had not been met to the committee
which also included independent funds operated by civic groups and
others with no staff. Large financial needs such as uninsured hospital
bills, assistance with automobiles and housing modifications needed
were addressed by this group. The committee met weekly for more than
two years and continued for almost six.
This system was fully functional within four months after the
bombing and most elements of the system continued for more than five
years. Currently there are two primary service providers, the Oklahoma
City Community Foundation and the American Red Cross, and approximately
30-50 active cases. Most of the still-active cases related to families
with serious injuries, families with living arrangements for surviving
children which need to be supported and individuals with serious mental
health needs. Services are as important as financial assistance for
most of these long-term cases.
I would like to make three comments to you related to what we
learned in Oklahoma City. These comments are not based on any prior
wisdom but simply the experience of seeing what works and what doesn't
and having seen a process go through the long-term. These observations
could not have been made three months or six months out because we
really had no idea what would eventually happen in the chaos and
emotional intensity of those first few months.
First, the problem which the charities are addressing is really not
one of distributing money but helping people restore their lives.
Charities don't divide money up, they help people. The process of both
grieving and moving forward is slow, requires patience and support and
is different for every family. The helping agencies involved in this
process are the best organizations in the community to provide the
services which are needed by individuals. Many of the issues which we
addressed in Oklahoma City with families did not appear until six
months or a year out. This is a long-term process and it should be
focused on the ultimate goal of helping people move forward, not the
short term division of funds. It is much easier to divide and
distribute money than it is to help people recover from tragedy.
Second, the coordination of services was and the cooperation of
organization, all of which was completely voluntary in Oklahoma City,
was absolutely essential to our efforts and to maximizing the
assistance which was given while minimizing the bureaucratic hassle for
the families. Cooperate, Cooperate Cooperate. Don't worry about who has
the money or who gets the credit. Don't make families have to navigate
turf issues between organizations. Make it as easy as possible for them
to receive services, not just money. A helpful case worker can ease the
anxiety and relieve frustration of many in the near-term and help
people focus on going forward.
Third, all of these families are in the grieving process and anger
is a significant stage of that process. Don't expect that people will
be happy or satisfied with what is happening because they are very
emotionally distraught and angry and upset about what has happened to
them, and they have every right to be so. Politicians and media
representatives should be very careful in their criticism of charities
based on the anger and frustration of the families of victims. Our
experience in Oklahoma City was that it took almost a year for most
families to work through that process. It is very easy to find families
who have not received what they think that they should, especially when
their expectations of money are raised by continual media stories and
attention to some grant total of what has been contributed. In Oklahoma
City, charities had to continual focus on the services they were trying
to provide and continually state the message they were trying to help
people move forward. The examination and review process should look at
what the charities have really done, and ultimately whether individuals
they helped have been able to move forward to live their lives in some
independent way.
Conclude with an important perspective that was very helpful to our
organization:
Survivor vs. Victim story.
Statement of Philanthropic Research, Inc. (GuideStar), Williamsburg,
Virginia
The events of September 11 have created an enormous outpouring of
generosity from the American public. By all accounts, more than $1
billion has been donated to the relief efforts. Scores of new
charitable organizations have joined established groups such as the Red
Cross and the Salvation Army in raising and distributing funds. This
outpouring of generosity has been accompanied, however, by a healthy
skepticism. The general public and the governmental bodies that oversee
public charities want to be certain that the funds are being
distributed wisely, efficiently, and honestly. Specifically, the House
Committee on Ways and Means, Subcommittee on Oversight, has asked
``whether there should be coordination of the charitable response,
whether applications for assistance are too cumbersome or duplicative,
whether funds are flowing quickly enough to those in need, and what are
appropriate uses of these funds by charities.'' In announcing the
hearing on this subject, Chairman Houghton noted, ``I want to believe
that if a person gives money to help another--through a charitable
organization--that money should end up as quickly as possible in the
hands of the one who needs it.''
GuideStar is a program of Philanthropic Research, Inc., a 501(c)(3)
public charity that provides information on all charitable nonprofit
organizations in the United States that the IRS has designated as being
able to accept tax-deductible contributions. From our vantage point, we
can see a problem with the underlying information infrastructure that
makes it difficult for charities to respond quickly to a disaster. In
fact, we have observed that the questions being raised about the
charities' response to the events of September 11 reflect an
unfortunate truth: Those who are directly involved in the relief
effort_the public, the beneficiaries of their generosity, the
governmental bodies that oversee charities, and the charities
themselves_do not have enough information to support a coordinated
nonprofit response to disasters or to satisfy public confidence that
the response is honest, fair, and efficient.
Since September 11, GuideStar has worked closely with the IRS and
the New York State Attorney General's office to provide information
where needed. Considering the enormity of the events, this informal
coordination has indeed been valuable. GuideStar recommends, however,
that such coordination should become formalized. The states and the
Federal Government, along with interested parties such as GuideStar,
should collaborate to create an efficient way to share reliable data
with each other and with the general public. This information needs to
be collected and in one place long before an emergency occurs, so that
charities can distribute funds immediately instead of first scrambling
to find each other and to determine which organizations best serve
which needs.
The following comments will clarify the position set forth above by
describing GuideStar and its activities in response to the events of
September 11, explaining why the current system is insufficient and
inefficient, and recommending a solution to the problem. Should the
Subcommittee on Oversight of the House Committee on Ways and Means
require further explanation or documentation to substantiate any of the
statements made in these comments, GuideStar would be happy to provide
it.
GuideStar and the Events of September 11
GuideStar's mission is to revolutionize philanthropy and nonprofit
practice with information. Together with the National Center for
Charitable Statistics (NCCS), we have built a database of extensive
information on all charitable nonprofit organizations in the United
States. The IRS's Business Master File provides the basic information
that underlies the database. Additionally, each month the IRS sends
GuideStar and NCCS scanned images of the annual financial reports that
the larger charitable organizations file with the IRS--the Forms 990,
990-EZ, and 990-PF. Upon receipt, GuideStar posts the images of these
IRS forms to our Web sites and then keypunches more than 300 fields
from the Forms 990 and 990-EZ, in order to present the information in a
user-friendly format. In addition to the IRS data, GuideStar collects
qualitative information from the charities themselves. We now count
more than 40,000 nonprofit organizations as voluntary GuideStar
Participants. This base of information has become the functioning
national data infrastructure for the nonprofit sector, to the extent
that one exists.
GuideStar presents this information through its Web site, which
offers a free, searchable database of reports on more than 850,000
nonprofit organizations. This Web site hosts approximately 20,000 users
per day, among which are the staff from 2,500 major institutions that
use GuideStar 10 or more times a week. These institutions include
foundations, state and federal agencies, large operating and financial
companies, professional service providers, universities, and nonprofit
organizations.\1\ GuideStar also offers value-added information
services to subscribing institutions.\2\
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\1\ GuideStar tracked more than 1,700 organizations that used its
services 10 or more times a week during a two-week period in August
2001. This list is incomplete because GuideStar's Web tracking software
can only track organizations that use their own servers; those that
route their traffic through an ISP, including GuideStar, were not
identified.
\2\ NCCS uses the data to create data sets and analysis for the
research community and policy makers.
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In the aftermath of September 11, GuideStar has been active in
working with the IRS to publicize the existence of charitable
organizations that have received expedited recognition as new Section
501(c)(3) tax-exempt organizations. GuideStar has also helped several
New York City-based groups identify nonprofits that can aid in the
relief efforts as well as those that need help in rebuilding their
services. Finally, GuideStar supports the New York State Attorney
General's WTC Relief Info Site with information and promotion.
Inefficiencies of the Current Information Infrastructure
Despite GuideStar's progress in launching a functional national
database and in cooperating with those who need information in the
aftermath of September 11, the current information infrastructure is
insufficient to quell the uncertainties surrounding the distribution of
funds that the American public has so generously donated. This
uncertainty is not a function of greedy or poorly managed charities run
amok. Rather, it results from a system that embraces antiquated
technology, burdens charities with disparate and often arcane reporting
requirements, and still manages to fail to inform the public and on-
the-ground decision makers about charities' activities.
In addition to the efforts that GuideStar and NCCS expend toward
creating a national nonprofit database, more than 40 states, the IRS,
other governmental agencies, and hundreds, if not thousands, of grant
makers all ask charitable organizations to provide information about
themselves. These multiple reporting requirements are inefficient and
expensive, for the charities, the states, and the IRS. Charities often
repeat the same information multiple times and in slightly different
formats. Often they file the same paper-reporting document (generally
the Form 990) with the IRS, with every state in which they conduct
fundraising activities, and with every foundation to which they apply
for funding.
This system is as inefficient for the IRS, the state charity
officials, and the grant makers as it is for the charities themselves.
Many digitize some or all of the information they receive, thus
creating thousands of incomplete charitable databases and losing the
opportunity to create a single, authoritative database that charities
and the public could tap into in times of emergency. The National
Association of State Charity Officials (NASCO) estimates that efforts
of collecting and recording information consume fully 50 percent of
state charity offices' budgets. Such inefficiencies prevent government
officials from concentrating on their primary purpose--oversight of the
charities in their jurisdiction.\3\
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\3\ Budgetary constraints also prevent charity oversight from
occurring to the extent that state charity officials and the IRS would
like. Despite an explosion of charitable organizations in the last few
years, the IRS tax-exempt budget has not increased enough to allow it
to audit as many charities, on a percentage basis, as it did in the
past. Although the IRS plans to increase the percentages of audits in
the next few years, one cannot underestimate the difficulty of
performing these functions without sufficient resources. Nor can one
underestimate the importance of state oversight in maintaining the
integrity of this vital sector of our economy, particularly when the
public appears to be questioning the integrity of the nonprofit sector.
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Despite all the collection of data, no one is confident that an
accurate list of American charities exists. Small nonprofits that need
not report their functions to the IRS often fail to notify the IRS when
they cease operation. As a result, the IRS list of charitable
organizations includes thousands that are no longer active.
Additionally, the duplication of efforts can lead to inaccuracies in
charitable reporting. An organization that provides similar information
to 100 sources is less likely to be careful in its reporting than it
would be if it provided the information once but knew the information
would be used by 100 organizations.
Finally, no system exists for sharing information among the
governmental units or any other data-demanding agencies and
institutions. As a result, each entity collects and digitizes the same
information, and they often collect the same paper forms. Needless to
say, when such institutions have no system for sharing information,
they are equally unlikely to obtain all the information they need to
make effective decisions.
How the Inefficiencies of the Information Infrastructure Affect the
Response to a Disaster
The system described above is inefficient in the best of
circumstances. When an event such as September 11 occurs,
disorganization and fraud, or at least the perception of fraud, are
almost inevitable. The information is not in one place; it is not
coordinated; and it is not as accurate as it should be. As a result,
all of the major players in the response to these events are
handicapped: (1) those who are coordinating the relief efforts, (2) the
IRS and the state officials who oversee charitable activity, and (3)
the general public.
Those who are coordinating the relief efforts need instant access
to accurate and useful information in order to perform several
functions that will need their immediate attention. First, they will
need to coordinate with each other to determine which organizations are
providing relief to which parts of the community and for which
services. Second, in many instances they will need to find and fund the
best organizations to provide the direct relief to victims, for many of
the organizations that collect the funds do not actually carry out the
relief efforts themselves. Finally, these organizations need to
identify nonprofit organizations that may require assistance
themselves. If the information is insufficient, the organizers of the
relief efforts will spend time and money finding this information
instead of helping the victims.
After September 11, the weaknesses in the current system became
apparent. GuideStar received calls from several organizations, asking
if we could help them determine which nonprofits were providing
services and which needed help in restoring services. GuideStar also
made proactive calls to organizations that were not aware that any
information was available at all. To date, we have provided data sets
of information about New York City charities to seven organizations--
NPower NY, Compumentor, Nonprofit Finance Fund, Lawyers Alliance for
New York, Fund for the City of New York, the Attorney General's Office
of New York, and Bain and Company (on behalf of several consulting
firms doing an economic impact study on the effect of the events of
September 11 on the city's charities).
The New York Attorney General's office was among the organizations
that called us. It quickly created its own Web site, which used
information from GuideStar but also requested that charities report
their activities to its office. Such an information-gathering site is,
unfortunately, necessary under the current circumstances, but every
form a charity must fill out takes it away from providing primary
services to victims and survivors.
Meanwhile, the September 11th Fund, which distributes the donations
it receives to other organizations that carry out direct relief, must
rely on information from the New York City United Way to determine
which charities can do such work quickly and effectively. Fortunately,
the United Way has already collected information on many, if not most,
of such organizations in New York, but that information is not
coordinated with the data that GuideStar and/or the other relief
organizations have collected.
Those organizations that do provide direct relief must know which
charities need their help. This is especially important in order to
prevent the entire charitable network from collapsing. Shortly after
September 11, GuideStar heard that many of the needy who were not
directly affected by the events of that date were going hungry because
the charities that normally helped them had been affected.
So long as information is insufficient for charities to meet these
needs, organizers of the relief efforts will spend time and money
finding this data instead of helping victims. With improved
information, however, they should be able to speed up the coordination
and ensure that funds land more quickly into the hands of those who
need them.
The IRS and state charity officials also need the same type of
timely and accurate information to prevent and detect fraud. If
questions arise about an organization, they need to know whether that
organization is recognized by the IRS, how it spends its money, and
whether any other governmental entity has had difficulties with this
particular organization. The system GuideStar proposes will facilitate
charities officials' information-gathering requirements and allow them
to concentrate on their oversight and enforcement missions.\4\ This
oversight has always been important, but with huge events like
September 11 and with the advent of Internet philanthropy, it will
increasingly become even more critical to maintaining the integrity of
the philanthropic response to a disaster.
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\4\ The IRS and state charity officials do a remarkable job of
policing the nonprofit sector, given the inadequacies in the
information infrastructure and the lack of resources for their
oversight function. If the resources now devoted to collecting and
managing information could be allocated to detecting and preventing
fraud, however, their effectiveness should increase.
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The general public is also ill served under the current system.
With partial databases in hundreds of locations, individual donors
cannot be sure that they are making informed decisions about their
contributions. They do not know which organizations provide relief
efforts, how quickly the nonprofits have mobilized in the past, or
whether the organizations are fiscally responsible. Nor can donors be
sure that the charities have coordinated their efforts efficiently or
that the strongest possible anti-fraud enforcement mechanisms are in
place.
Complicating the issue is the rapid growth in Internet
philanthropy. Donors and state charities officials are quickly
realizing that both legitimate charities and fraudulent opportunists
will find ways to use this new medium to raise money quickly. The
online response to September 11 has been remarkable. If we do not act
equally quickly to resolve these issues, philanthropy could plunge into
chaos. Fortunately, Internet technologies hold an answer to this
problem.
Recommendations
The obvious solution to the inefficiencies described above is
national coordination of data. The states need to work together, as
well as with the Federal Government and interested groups such as
GuideStar, to create asingle reporting system for charities. This
system should be a mandatory electronic filing system that makes
information about charities and all actions taken by government
agencies against the charities accessible to all states and the IRS.
The states and the IRS will then be able to share this information with
each other and with the general public, when appropriate.
Virtually all of the inefficiencies and confusions that have been
described above can be solved through the simple solution of electronic
filing of charity information.
LFirst, the extraordinary expense of the current system of
data management will be reduced substantially. Although a single
electronic reporting system will have substantial costs, they will be
less than the combined costs of the current disjointed system.
LSecond, state charities officials and the IRS have more
important missions than collecting and storing data in 40+ separate
systems. Once a common repository for charity information is
established, the states and the IRS will be able to spend a much larger
percentage of their scarce resources on charity oversight and
enforcement.
LThird, mandatory electronic filing can apply to all
organizations, even the smallest, if only to make them affirm to the
IRS on an annual basis that they are still in existence. Such a system
will ensure that the list of charitable organizations is up to date and
accurate.
LFourth, up-to-date, comprehensive information about
charities can speed the response to disasters. It will allow groups
coordinating relief efforts to find partners to join those efforts and
to find organizations that might need help themselves. It will also
allow the coordinators, the state charities officials, and the general
public to determine whether a specific organization deserves their
support.
LFifth, the considerable reporting burdens that public
charities now face will be lessened, enabling the organizations to
devote more resources directly to individuals who need their services.
LFinally, a single, electronic filing system will create
greater transparency in the nonprofit sector and ultimately allow the
public to have more faith that its generosity is being rewarded through
an efficient system of charity allocation.
There already is a movement to institute mandatory electronic
filing of charity information. The principal nonprofit leadership
groups are on board, and NASCO is eager to work with the IRS on this
project. Obviously, the support of Congress is essential. In the
aftermath of September 11, you have the opportunity to lead the nation
in implementing a coherent charity information and oversight system. We
recommend that you ask the IRS to work with the states to build a
common data infrastructure. We also recommend that you provide
sufficient resources for them to work with these other organizations in
the organizational phase and for them to maintain the system once it is
in place.
Conclusion
The experience of September 11 underscores a problem with our
current charity information infrastructure. Despite the best efforts of
honest, committed organizations, questions have arisen about the
efficiency, fairness, and integrity of the process. The explosion in
Internet philanthropy has added fuel to these concerns. The sheer size
and complexity of the nonprofit sector, the proliferation of appeals,
and the confusion of multiple state demands for information all cry out
for a highly coordinated, technology-driven strategy among the states
and the IRS. If we embrace Internet technology and use it to its full
potential to collect and disseminate information about charities in a
single repository, we will go a long way toward shoring up confidence
in philanthropy's ability to respond to crises in a coordinated,
efficient, and honest way.
Statement of David Saltzman, Executive Director, Robin Hood Foundation,
New York, New York
At the request of the Honorable Amo Houghton, Chairman,
Subcommittee on Oversight of the Committee on Ways and Means, United
States House of Representatives, I submit this testimony on behalf of
the Robin Hood Foundation.
As of November 6, 2001, the Robin Hood Foundation has raised $47.5
million for the Robin Hood Relief Fund, $30 million of which was raised
recently through The Concert for New York City on October 20th. The
remaining $17.5 million was raised through other contributions from a
diverse range of donors including Robin Hood's long-time supporters,
corporations, Boy Scout troops, school groups and hundreds of
individuals from around the country and abroad. The Robin Hood Relief
Fund's Distribution Committee has approved grants to date of $12.978
million to organizations assisting the victims of the attacks on the
World Trade Center.
I. THE ROBIN HOOD FOUNDATION
A. Our Vision
Established in 1988, the Robin Hood Foundation was started with the
singular purpose of fighting poverty in New York City. Recognizing the
systemic and enormous divide between rich and poor in the city, Robin
Hood's founders wanted to do more than just throw money at the problem.
Instead, they decided to apply the time-honored investment principles
integral to their personal successes to seek out and partner with those
charitable organizations most efficiently and effectively addressing
the problems plaguing New York City's poor.
Over the past 13 years, Robin Hood has invested nearly $97.6
million in more than 100 grass-roots organizations. Robin Hood searches
out the most effective programs--many of which were started by people
trying to make a difference in their neighborhoods on shoestring
budgets. Robin Hood observes first-hand the difference they are
making--and the difference they could make with the proper funding and
resources. After making an initial cash award to an organization, Robin
Hood leverages and protects its investment by providing the
organization with the support necessary to accomplish its mission--
management advice, legal assistance, real estate help, accounting
services, technical support and training. At year-end, Robin Hood
measures the organization against previously agreed upon standards and
determines whether the partnership should be furthered or discontinued.
Robin Hood's Board of Directors thus bases its funding decisions on
the same kind of information used by the boards of America's leading
corporations. Unlike a corporate board, however, Robin Hood's Board of
Directors underwrites all of the foundation's operating costs, enabling
every penny to reach the organizations that help the people who need it
most.
II. CREATION OF THE ROBIN HOOD RELIEF FUND
In the week following September 11th, the Board of Directors of the
Robin Hood Foundation established the Robin Hood Relief Fund at the
urging of donors and community leaders. Our donors and community
leaders knew they could rely on Robin Hood to identify the most
effective organizations reaching out to the most needy victims of this
tragedy and to distribute money to them efficiently.
Immediately after creating the Relief Fund, Robin Hood appointed a
special committee of its Board of Directors to oversee and supervise
its distribution. This Distribution Committee meets weekly to consider
grant recommendations from senior Robin Hood program staff with
extensive experience working with New York's diverse poverty-fighting
organizations. In addition, the staff is working overtime to identify
and bring before the Distribution Committee grant requests from
organizations previously unknown to Robin Hood, yet effectively serving
the most marginalized victims of this tragedy.
The Robin Hood Relief Fund immediately began distributing money to
numerous organizations helping victims' families, heroic rescue
workers, and other needy people impacted by the economic consequences
of this tragedy. Consistent with Robin Hood's general mission, those
administering the Robin Hood Relief Fund are determined to focus on the
immediate and long-term needs of the lower-income victims of this
tragedy. The Robin Hood Relief Fund has targeted three classes of
victims: those killed or injured in the attacks, those who have lost
their jobs as a result of the attacks, and those whose fragility makes
them especially vulnerable after the attacks. Thus Robin Hood has
identified three classes of aid. First, the Relief Fund has awarded
grants to organizations providing direct cash relief, food, and
emergency social services to victims of the attacks. Second, the Relief
Fund has awarded grants to organizations providing employment
assistance to victims left jobless after the attacks. Third, the Relief
Fund has awarded grants to organizations reaching out to victims less
able to access charitable relief. The Relief Fund has already awarded
grants comprising over 25% of its funds and plans to continue to give
money away as expeditiously as possible, without compromising Robin
Hood's high standards.
The Distribution Committee intends to administer the Robin Hood
Relief Fund so as to help ensure that no needy victim falls through the
cracks of the relief effort.
A. The Concert for New York
On October 20th, VH1, Cablevision, Miramax Films and AOL produced
``The Concert for New York City'' for the benefit of the Robin Hood
Relief Fund. The concert's organizers, three of which are run by Robin
Hood board members, selected the Robin Hood Relief Fund to be the
charitable distributor of concert proceeds.
III. GRANTS TO CHARITABLE ORGANIZATIONS ASSISTING IN THE RELIEF EFFORT
As of November 6th, the Robin Hood Relief Fund Distribution
Committee has voted to award $12.978 million in grants from the Robin
Hood Relief Fund to the organizations described below.\1\
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\1\ This list does not include emergency grants of less than
$10,000. The Robin Hood Relief Fund has awarded four such grants:
$3,000 to the Andrew Glover Youth Program to help it continue its
programs after being displaced by the disaster; $5,000 to the
Bloomingdale Family Program to provide direct cash relief to victims
and their families; $10,000 to Comprehensive Development, Inc., for
mental health counseling and tolerance training to high school students
affected by the disaster; and $10,000 to the HIV Law Center to enable
it to continue its programs despite being temporarily displaced and
experiencing significant disruptions in its communications system due
to its proximity to Ground Zero.
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A. Robin Hood Relief Fund Grants to Organizations Providing Direct Cash
Relief, Food and Emergency Social Services to Victims of the
Attacks
1. Safe Horizons ($7,600,000)
Robin Hood Relief Fund has awarded a $7.6 million dollar grant to
Safe Horizons to create a $6 million pool of cash relief for victims
and their families, as well as to replicate the Family Assistance
Center in each of New York's boroughs.
Safe Horizons, one of New York City's leading social service
agencies, has provided direct cash relief, counseling and social
services to those affected by the World Trade Center disaster.
Immediately after the attacks, Safe Horizons was the leader among
social service organizations, integral to the operation of the Family
Assistance Center at Pier 94. While Safe Horizons will use the bulk of
its grant to provide cash assistance to victims and their families, it
will use the remainder of the grant to create six Borough Assistance
Centers based on the Pier 94 model. It will also use the grant to offer
on-site trauma counseling, support groups and job training to victims.
Safe Horizons proposes that each center will provide individuals with
case managers to assess needs and ensure that those needs are met.
In partnership with Robin Hood, Safe Horizons will develop
guidelines for administering funds to ensure access for those who need
them most and to prevent duplicate funding. The Robin Hood Relief Fund
has extended such a large grant to Safe Horizons because the Robin Hood
Foundation has partnered with it for years. Furthermore, the Relief
Fund is confident that the organization, with a $35 million annual
budget, twenty-three years of experience, and more than 650 full-time
employees, has the capacity to expand operations to meet this crisis
head-on. The Relief Fund will administer the grant in four installments
so that it can closely monitor how Safe Horizons distributes the monies
and reflect upon the best operating models for disbursement of the cash
fund.
2. Twin Towers Fund ($3,000,000)
The Robin Hood Relief Fund has awarded a $3 million grant to the
Twin Towers Fund to provide support for families of uniformed personnel
who were killed or injured in the attacks. This fund was established by
New York City Mayor Rudolph Giuliani.
3. Food for Survival ($200,000)
Robin Hood Relief Fund has awarded a $200,000 grant to Food for
Survival so that it can continue its vital Disaster Relief Distribution
Program for three more months.
As an integral part of the New York State emergency management
network, Food for Survival has been the primary supplier of food,
bottled water, and energy supplements to organizations serving those
impacted by the World Trade Center disaster for the past two months. As
the largest hunger relief organization in New York City, it was
recruiting volunteers and purchasing product by dusk on the day of the
attack. Since the attack, Food For Survival has increased its
distribution ten-fold, providing over 300,000 pounds of food as part of
the disaster relief effort.
Food for Survival has established a 24-hour, 7-day-a-week,
telephone hotline so that individuals and groups can locate food and
supplies in their communities. It has also been operating an additional
warehouse for food storage on behalf of the federal relief effort.
4. Association to Benefit Children ($25,000)
The Association to Benefit Children has been instrumental in the
relief effort at Ground Zero. The Association will use its $25,000
grant from the Robin Hood Relief Fund to continue offering emergency
mental health services to victims and rescue workers, conducting DNA
testing to help identify the missing, and providing cellular phones and
other communication support to manage relief work.
5. Abraham House ($25,000)
With its $25,000 grant from the Robin Hood Relief Fund, Abraham
House will continue to provide emergency cash relief to families who
have lost their income and are at risk of homelessness and hunger as a
result of thedisaster. It will also continue to provide emergency
mental health services.
6. Little Sisters of the Assumption Family Health Service ($25,000)
The Little Sisters of the Assumption Family Health Service was
awarded a $25,000 grant from the Robin Hood Relief Fund so that it can
continue to provide cash relief to families who have lost their incomes
and are at risk of homelessness as a result of the disaster. The
organization will also continue to provide emergency mental health
services to those traumatized by the attacks.
7. Community Food Resource Center ($25,000)
The Robin Hood Relief Fund has awarded a $25,000 grant to Community
Food Resource Center so that it can relocate its headquarters located
just a few blocks from Ground Zero. The Community Food Resource Center
provides food as well as nutritional information and entitlement
assistance to hundreds of hungry New Yorkers every day and has been
extremely active in the relief effort.
B. Robin Hood Relief Fund Grants to Organizations Providing Employment
Assistance to Victims Left Jobless After the Attacks
1. HELP USA ($500,000)
In an effort to mitigate the economic impact of the disaster, the
Robin Hood Relief fund has awarded a $500,000 grant to HELP USA. HELP
USA is providing job training and placement for low-income workers
formerly employed at the World Trade Center complex. HELP USA is
retraining these workers as security guards and will place them as
positions become available.
2. Women's Housing and Economic Development Corp. ($175,000)
The Robin Hood Relief Fund awarded to the Women's Housing and
Economic Development Corporation (WHEDCO) a grant of $175,000 so that
its food-service job-training program, Urban Horizons, could continue
preparing food and providing other necessities for the rescue workers
at Ground Zero.
3. The Hope Program ($50,000)
The Robin Hood Relief Program has awarded a grant of $50,000 to the
HOPE Program that has hired an additional job-development professional
to assist the thousands of workers who have lost their jobs as a result
of the disaster. In the past 16 years, the HOPE Program, a Brooklyn-
based job training and counseling program, has helped transform the
lives of nearly 1,000 men and women. The HOPE staff is preparing to
help newly displaced workers by enhancing the job-search elements of
its program. The new job-development professional will assist displaced
workers, help find corporate partners and teach job-hunting skills.
4. Newtel ($50,000)
The Robin Hood Relief Program has awarded $50,000 to Newtel to hire
an additional training instructor. Launched three years ago with Robin
Hood seed money, Newtel has trained about 150 adults for
telecommunications jobs and has a $1.5 million budget. Since September
11th, the organization has been inundated with calls from government
agencies, dislocated worker counselors, and newly unemployed
individuals seeking vocational opportunities and new careers to replace
lost jobs. Newtel will only be able to meet this increased demand if it
operates during evening hours and hires an additional instructor.
5. Opportunities for a Better Tomorrow ($30,000)
The Robin Hood Relief Program has awarded $30,000 to Opportunities
for a Better Tomorrow (OBT) so that it can hire a job-placement
professional. For the past 17 years, OBT has been operating in Sunset
Park, Brooklyn, and has worked wonders with individuals facing drug,
alcohol, and housing problems. Soon after the collapse of the World
Trade Center, OBT opened a second site in Bedford-Stuyvesant ahead of
schedule and set up a hotline for displaced World Trade Center workers,
providing free employment assistance. Unlike some of the other job-
training programs that are trying to retrain displaced workers, OBT is
focusing on those who need to find another job quickly without
retraining.
6. MARC ($20,000)
With its Robin Hood Relief Fund grant, MARC will provide emergency
cash relief and job placement assistance to families of displaced
workers.
C. Robin Hood Relief Fund Grants to Organizations Reaching Out to
Victims Less Able to Access Charitable Relief
1. Asociacion Tepeyac ($600,000)
The Robin Hood Relief Fund has awarded a grant of $600,000 to the
Asociacion Tepeyac to provide $420,000 of emergency cash relief to low-
income immigrant families of World Trade Center victims, many of whom
are inhibited by language obstacles from seeking assistance on their
own. The remaining $180,000 will be used by this fledgling organization
to strengthen its relief services.
2. Children's Health Fund ($450,000)
The Robin Hood Relief Fund has awarded a grant of $450,000 to the
Children's Health Fund, so that its mobile medical center and staff can
continue to provide primary and mental-health care to children and
families throughout the New York City area.
3. New York City Mission Society ($95,000)
The Robin Hood Relief Fund has awarded a $95,000 grant to the New
York City Mission Society to assist in providing emergency cash
assistance to needy immigrant families unable to access funds or too
frightened to request assistance at official distribution centers. Its
bilingual counselors will, among other things, help affected families
access disaster relief and other benefits, manage the emergency cash-
assistance fund and coach parents on how to communicate with their
children about the tragedy.
4. The Family Center ($30,000)
The Robin Hood Relief Fund has awarded a $30,000 grant to the
Family Center to provide emergency cash relief to families of World
Trade Center victims through the end of the year and to begin providing
mental-health services to those families.
The Family Center, located a few blocks from Ground Zero, is one of
the Nation's first organizations devoted solely to helping children,
families, and new caregivers adjust to the illness and the loss of a
parent or sibling due to AIDS or cancer. Although forced to evacuate
its offices on September 11th, the Family Center immediately sped into
action to meet the needs of its community. The Family Center is
providing unbudgeted emergency cash relief to those who lost income and
were at risk of being evicted from their homes or going without needed
food or medication after the disaster.
5. New Alternatives for Children ($25,000)
The Robin Hood Relief Fund has awarded a grant of $25,000 to New
Alternatives for Children to provide cash relief to families who have
lost their income and are at risk of homelessness and hunger as a
result of the disaster. New Alternatives is an organization that serves
medically fragile children involved in the foster care system.
6. Queens Child Guidance Center ($25,000)
The Robin Hood Relief Fund has awarded a $25,000 emergency grant to
the Queens Child Guidance Center to provide emergency mental health
services in the aftermath of the attack.
IV. CONCLUSION
The offices of the Robin Hood Foundation are located a block and a
half away from the World Trade Center. Like our neighbors and the
victims whom we seek to assist, our world has been turned upside-down
by the events of September 11th. Despite being driven from our offices,
within two weeks of the tragedy Robin Hood had contacted
representatives from each of the 100 charitable organizations we fund
to assure them of our continued commitment to their life-saving work.
In addition, we marshaled all of our energies to create the Robin Hood
Relief Fund and to help put on The Concert for New York. Just recently
Robin Hood has been on the move again, relocating to new temporary
space from our prior temporary space in a building contaminated by
anthrax.
Throughout all this, we have worked hard to administer the Robin
Hood Relief Fund, while retaining our commitment to Robin Hood's core
programs at this time of growing need. It is our mission, our
commitment and our honor to ensure that the Robin Hood Relief Fund is
efficiently and effectively dispersed to organizations serving the
poorest and most vulnerable victims of these horrific attacks.
Statement of the Theatre Communications Group, New York, New York;
American Symphony Orchestra League; Association of Performing Arts
Presenters; Dance/USA; International Society for Performing Arts, Rye,
New York; League of Historic American Theatres, Baltimore, Maryland;
and OPERA America
National Study of Performing Arts Groups Finds Declining Revenues,
Uncertain Funding Climate
Arts Managers Report That Impact Of Terrorist Attacks, Recession
Threaten Financial Health
Summary Report by AMS Planning & Research Corp., November 7, 2001
U.S. non-profit performing arts groups face an uncertain future,
according to a study of more than 850 arts organizations conducted by
AMS Planning & Research Corp during early October. Arts managers
reportimmediate deterioration in ticket sales compared to last year,
sharply lower revenues from corporate sponsorships, and the expectation
of mid-term declines in philanthropic and government support. ``We have
not heard from our funders yet, but we are preparing for the worst,''
said one dance company executive.
Results clearly indicate the expectation of an industry-wide
contraction in unearned revenues over the next several years, led by
decreased corporate support. On average, contributions and sponsorships
from corporations account for a total of 5% to 12% of all revenues for
different types of non-profit arts organizations, according to arts
industry statistics.\1\
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\1\ Figures provided by Theatre Communications Group, Association
of Performing Arts Presenters.
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The re-allocation of philanthropic support and government funding
to disaster relief may also be expected to negatively impact many non-
profit arts groups, at least temporarily.
With contributed income shrinking, arts groups are likely to feel
increased pressure on ticket sales and other forms of earned revenues.
Almost half of the executives surveyed, however, expect that ticket
sales will also decline over the next 12 months. Shifts in the types
and numbers of programs offered may be expected, as well as further
financial stress.
While it is too soon to definitively measure the financial impact
of recent events, most arts managers expressed concern over the
likelihood of decreased revenues. Nearly 60% of respondents indicated
that they are adjusting annual budgets downwards from 5% to 25% and are
revisiting programming plans. For example, one large symphony orchestra
reported they are considering budget reductions of $1.5 million.
Retrenchment strategies include staff cuts, reductions in programming
levels, less risky programming and a renewed emphasis on increasing
earned revenues. ``The potential for reduced contributions has caused
us to look at less expensive repertoire,'' said the manager of a
regional opera company.
In spite of these hardships, arts organizations are contributing to
the recovery effort and contributing to the healing of the national
psyche. Over a third (38%) indicated that they have collected donations
at a performance or dedicated a performance or a portion of revenues
from a performance to relief efforts.
Losses from Cancelled Performances, Lower Attendance
Over one-third (35%) of the performances scheduled between
September 10th and 23rd were cancelled (422 out of 1,201 performances
offered by 278 organizations), resulting in refunded ticket sales, lost
revenues and unrecovered expenses. As expected, cancelled performances
were greatest in New York City, where 71% of performances scheduled for
the week of September 10-16 were cancelled, and 54% of performances
scheduled for September 17-23 were cancelled. The immediate financial
loss to the City's arts groups has yet to be measured, although New
York City-based respondents to the survey (64 groups) reported losses
of nearly $500,000.
Nationally, about 15% of arts organizations reported that annual
galas or special events had been cancelled or postponed, representing
actual and potential losses of over $5 million.
Overall, 21% of arts groups reported a ``substantial decline''
(i.e., a 20%-50% drop-off) in attendance at performances held after
Sept. 11 while another one-third (34%) reported ``some decline'' in
attendance (i.e., down 1%-20%) during the month after the terrorist
attacks (see figure below). In New York City, a greater percentage of
respondents indicated a ``substantial decline'' in attendance (35%).
[GRAPHIC] [TIFF OMITTED] T6594A.002
Figure 1: Impact on attendance post September 11
Ticket Sales Are Off, Reversing a Prior Trend
Subsequent ticket sales were negatively affected as well, with a
majority of arts managers reporting either ``some decline'' (35%) or a
``substantial'' decline (23%) in ticket sales as of the date that they
completed the survey (between October 2-16). New York respondents
reported slightly worse figures for ticket sales.\2\
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\2\ Although commercial Broadway producers were not surveyed as
part of this study, acute short-term financial losses were widely
reported in the weeks following September 11th. Several Broadway
productions closed, and other producers quickly re-negotiated union
contracts in an effort to reduce expenses. A concerted effort by the
New York theater industry to get people back into the theaters
(including a widely publicized appeal by New York Mayor Giuliani) had a
positive impact on ticket sales over the weeks following the terrorist
attacks. According to research commissioned by the League of American
Theatres and Producers, approximately 38% of Broadway audiences are
tourists, however, and tourism remains at comparatively low levels (as
of November 2001). Industry sources suggest that the cumulative effect
of refunds, depressed attendance levels and lower advance sales has
introduced a new volatility to traditional Broadway economics.
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The majority of survey respondents reported that prior to September
11th, both subscription sales and single ticket sales were unchanged or
better than the prior season. Since that time, expectations have
deteriorated significantly. Over half of all respondents (55%) reported
a decline in advance ticket sales compared to last year. In New York
City, 27% indicated that they experienced a ``substantial decline'' in
advance ticket sales, while 35% experienced ``some decline.''
Contrary to the trend, some organizations reported increased
attendance and ticket sales since September 11th. These organizations
were significantly more likely to be orchestras (20% reported a
``substantial increase'' in attendance compared to 9% for all others).
Arts Managers Split Over Future Ticket Sales Trend
Looking forward, 30% of respondents expect ticket sales to increase
to some degree over the next twelve months, while over 40% expect
``some decline'' (i.e., a 1%-20% drop-off) and 5% expect a
``substantial decline'' (i.e., a 20%-50% drop-off). In New York City,
58% of respondents expect lower ticket sales over the next 12 months,
including 23% who anticipate a ``substantial decline.''
High Level of Uncertainty Delays Campaigns, Gifts
While arts groups may recover from the short-term decline in ticket
sales and the abrupt reductions in corporate support, the high level of
uncertainty about future funding levels appears to be a major concern
among managers of all types of arts organizations. In fact, some
respondents report that foundation representatives and individual
donors have already notified some arts managers that grant awards and
gift amounts will be reduced this year and/or next year. Reasons for
decreased funding include both the reallocation of funding to disaster
relief and the declining value of foundation assets--a trend that
started well before September 11th. Managers also reported that
individual donors have put off decisions about major gifts, that
endowment and capital campaigns have been postponed, and that many
board members are reluctant to make solicitations that may be perceived
to be inappropriate.
Several arts agency managers, whose organizations depend heavily on
government funding, say that cities, counties and states are re-
directing funds from ``quality of life'' programs to ``public safety
and preparedness'' programs. In New York City, arts funding may be
reduced by up to 15% and State Arts Council was already reduced by 10%.
According to respondents, several factors contribute to the
uncertain funding climate, including the unknowns of the new war on
terrorism, the potential for additional terrorist attacks, and the
continuing deterioration of the economy. Even corporations that are
faring well are ``cleaning house'' (i.e., paring expenses, laying off
staff), according to several arts executives.
Recasting the Future
As arts executives look ahead, it is clear that the economic
situation and the tragic events of September 11th are weighing heavily
on their decision-making. While 42% of respondents reported that they
were engaged in contingency planning prior to September 11 (in light of
the economic slowdown), 60% are now revisiting their programming
forecasts and budgets. Dance/USA members and Theatre Communications
Group members were significantly more likely than other respondents to
report that they are revisiting programming and budget forecasts. In
New York City, fully 75% of organizations are reconsidering their
plans.
[GRAPHIC] [TIFF OMITTED] T6594A.003
Figure 2: Contingency planning
Both Dance/USA and OPERA America members were significantly more
likely than other respondents to report that they expect a continuing
negative financial impact next year.
Based on responses to open-ended questions, many performing arts
organizations may be expected to cut expenses, reduce the number of
programs offered, and plan more events that are intended to produce
more earned income.
It may be another six to twelve months before more accurate
financial and attendance data can be gathered. But it is clear now that
the financial (and artistic) impacts of the deteriorating economy,
exacerbated by the September 11th terrorist attacks and the ongoing war
on terrorism, will be substantial. Many arts managers, especially those
representing organizations that are already in a precarious financial
situation, anticipate a range of further cost-cutting measures and
programming adjustments.
A follow-up study is planned for early 2002, to gather more
explicit data regarding the direct effect of the economic contraction
and September 11 attacks.
About The Study
Responding to questions from policy makers, funders and arts
managers, AMS Planning & Research Corp., in partnership with seven arts
service organizations, designed this study in order to better
understand the degree of concern and uncertainty that faces the
performing arts field in light of recent events. The study was a
collaborative effort between AMS and the American Symphony Orchestra
League, the Association of Performing Arts Presenters, Dance/USA, the
League of Historic American Theatres, the International Society for
Performing Arts, OPERA America, and Theatre Communications Group. The
Web-based survey was conducted between October 2nd and 16th 2001.
Additionally, AMS surveyed the CEOs of North America's 28 largest
performing arts centers. The surveys were designed to gather
quantitative data as well as anecdotal insights into the effect of the
weakening business environment, the terrorist attacks, and the
resulting impacts on arts organizations.
A total of 855 arts managers from across the U.S. responded to the
survey. The large majority of respondents are managers of non-profit
producing and presenting organizations, representing a broad cross
section of the nation's cultural programs. A small number of
respondents were artist managers and industry service providers. 49
states are represented including institutions such as the New York and
Los Angeles Philharmonics, Ballet Hispanico, Garth Fagan Dance, Inc.,
UCLA Performing Arts and the Oregon Shakespeare Festival. Also
responding were organizations including the Alley Theatre, Hartford
Stage Company and the Ravinia Festival as well as groups such as the
Bilingual Foundation of the Arts, Boston Gay Men's Chorus, Minnesota
Opera and the Tennessee Performing Arts Center, Lincoln Center and the
Maine Center for the Arts.
Respondents to the survey were recruited via e-mail by the various
arts service organizations. Some amount of bias from respondent self-
selection may be present in the data, as well as sampling error and
other forms of bias associated with Web surveys. Thus, results should
not be generalized to the sum of all arts groups represented by the
service organizations or to all non-profit performing arts
organizations nationally.
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