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As a disaster manager with many years of experience in the field and in the office, September 11, 2001, marked the end of an era for the American Red Cross in my humble opinion. For most of the life of the organization, they had operated on donations which could be "spread out" to provide for the small, generally unknown, disasters which take place every day...
Donations for large, eye-catching events could be used to defray the costs of single-family house-fires, for example. Many people are entirely unaware that the American Red Cross operates entirely on donations - there is no government bail-out program for the organization, which is chartered to exist by a Congressional act for which they receive no financial support. I watched the pundits, like O'Reilly, feign outrage that the American Red Cross could use the donations following the events of 9/11 to upgrade their response system - small things like upgrading the telephone network at national headquarters, or blood storage facilities. On the other hand, they complain that the American Red Cross didn't respond fast enough -- or that the organization was throwing out blood because they couldn't store it. Frustrated at the time, I watched the generally undeserved oversight by incompetent people lacking knowledge of the organization and fundamental understanding of disaster management. As these fine examples of leadership undermined the organization, it was clear that the American Red Cross would be changed -- and there would be no turning back. Sadly, I observed first-hand the decrease in resources we were able to offer those affected by the disasters which took place in our own back yard. Prior to 9/11, we could generally offer $2,500-$5,000 to a family affected by a disaster. Today, that number has been cut in half while the cost of goods has increased. I directly attribute this change to the events following 9/11, most notably the meddling by people with a personal agenda to make a name for themselves instead of understanding how the process worked. Now, seven years later, a friend of mine forwarded this article to me. I felt the content was significant enough to write this short note and include the commentary, attached... January 20, 2008
The Nation
Here’s My Check; Spend It All at Once
By STEPHANIE STROM
THE gift horse could use a good dentist after all. When the American Red Cross said last week that a $200 million deficit would force it to make deep cuts in the headquarters staff, the charitable world detected evidence of one of its most vexing trends: the growing tyranny of donors.
For about the last decade, charity experts say, donors have increasingly earmarked their charitable gifts, requiring recipients to spend the money exactly as prescribed.
The trend intensified after the terrorist attacks of Sept. 11 these experts say, in large part because of the Red Cross. Donors and regulators protested loudly when the organization announced that it would spend part of the roughly $1 billion it had raised after the attacks on much-needed equipment and other upgrades that would allow it to cope with future disasters. The donors wanted the money to be spent only on 9/11 victims, and the regulators pressed the Red Cross to comply.
Suddenly, every $10 donor was familiar with the concept of “donor intent” and a charity’s obligation to honor it. “The emotion that swirled around during that period really caused people in some ways to overreact to the whole concept of designation,” or directing how a donation should be spent, said J. Logan Seitz, a former Red Cross fund-raising executive and the founder of Chord, a Washington consulting firm.
The Red Cross quickly canceled its upgrade plans, and when the dust settled, announced a new policy, Donor Direct, that bound it to spend every last penny of an earmarked donation for the donor-specified purpose and no other.
It also pledged to declare when it had raised enough to cover projected costs for a disaster.
Combined, those two policies, adopted with the best intentions, have hamstrung the Red Cross. Charities with similar donor controls are also struggling. Relief organizations receive plenty of donations for a specific crisis, but can’t find the money to build wells to supply clean drinking water; hospitals have more than enough support for breast cancer research but have to beg on behalf of kidney research. At the Red Cross, 92 percent of the roughly 77,000 catastrophes it and its chapters addressed last year were single-family house fires, not exactly the stuff of national headlines.
“Nonprofits need to do a better job of educating the donor about the costs of running their operations and of saying no, which is, of course, very, very hard,” said Diana Aviv, president of the Independent Sector, a nonprofit trade group. “But it’s also hard to run an organization when you have a million donors insisting on running it, too.”
Donors perceive earmarked gifts as a way of avoiding paying for overhead costs and making sure all the money goes to the cause they support and not toward the lifestyle of an executive.
But restricted gifts are an imperfect tool for imposing accountability on an organization and can hurt charities, said Jack Siegel, a tax lawyer and charity-governance expert. “There’s a cost to running a charity just like there’s a cost to running any other organization,” Mr. Siegel said. “Donors want accountability, but accountability costs money, money charities don’t have if every donation they receive is restricted.”
Kara Bunte, a Red Cross spokeswoman, said that earmarked gifts “can pose unique challenges” to the organization but that they also help it build relationships with donors and give them a better understanding of how it operates.
Fund-raising for the wildfires that hit Southern California last fall illustrates the problem. At the end of November, the Red Cross estimated its total cost of responding to the fires at $16 million, but donors had given it $22 million, earmarked for that disaster alone. In the period money was being raised for the fires, only $5 million was donated with no strings, or earmarked for general relief.
Now the Red Cross must figure out how to use the extra $6 million that donors designated for the wildfires for longer-term recovery efforts, a wholly different mission from its traditional work as a first responder.
Before 9/11, the Red Cross always told donors that gifts would be “used for this and other disasters,” an escape clause that allowed it to put the money into a general disaster operations fund. Thus, donations inspired by major catastrophes also helped underwrite the Red Cross’s response to the more garden-variety disasters.
A handful of nonprofit groups with high credibility among their donors have been able to push back. Nicolas de Torrente, executive director of Doctors Without Borders U.S.A., has described fund-raising for catastrophes as “completely irrational.” Shortly after the tsunami that devastated countries around the Indian Ocean, Doctors Without Borders announced that it had collected $50 million to underwrite its relief activities and asked donors instead to give unrestricted gifts to address famine in Africa, the crisis in the Congo and all the other disasters it was working on.
But few charities can afford to be so bold. “Wealthy universities can say, ‘no, thank you,’ when a donor comes calling with a gift tied up with restrictions, but most charities can’t,” said Doug White, author of “Charity on Trial: What You Need to Know Before You Give,” citing a famous example in which Yale University returned a $20 million gift from Robert Bass because he was insisting that it adopt a Western civilization curriculum.
Mr. White, who is an expert in raising large gifts, said he would like to see charities adopt a system of allowing designation only for gifts over a certain amount, say, $1,000 or $5,000. “That’s an idea,” he said, but he wondered whether there was really any way to break donors of the habit. |
