The US non-profit sector in the wake of September 11

Rick Cohen

Following the unprecedented outpouring of charitable giving by the American people in response to the September 11 disaster, a critical spotlight has now turned on the charities that were the main beneficiaries of this generosity. It now seems clear that even in a country with such a well-established non-profit sector as the United States, public trust in charities is more fragile than one might imagine.

Interestingly, an opinion poll conducted prior to September 11 but released afterwards had already concluded that nearly three-quarters of Americans find it difficult to tell whether or not non-profits asking for contributions are legitimate.[1] Facing an unprecedented disaster in the destruction of the World Trade Center in New York City, charities large and small grappled with mobilizing an effective response to the immense human tragedy, with the confidence of Americans in the capacity of the US non-profit sector hanging in the balance.
An outpouring of giving

The response to the September 11 terrorist attack undoubtedly demonstrated American altruism at its best – in all $2 billion was collected. Big corporations and foundations made lump-sum commitments of several million dollars, and celebrities emoted through countless telethons. But the real underpublicized story was the giving of ordinary working Americans. Three-quarters of all Americans say they either made charitable donations or volunteered their time in response to the tragedy. Two-thirds of contributors to September 11 causes participated in workplace fundraising through donations to the United Way and other funding federations. Ten per cent of September 11 funds were credit card donations through the Internet. Both the September 11th Fund, administered by United Way and the New York Community Trust, and the American Red Cross have now asked for donations to stop, on the grounds that enough money has been raised to meet the needs of victims and their families.

The beneficiary charities have begun to distribute the money. As of 10 January, the September 11th Fund had disbursed $154 million out of a total of over $400 million. The Red Cross had got $317 million out of the door to people in need but still had a balance of some $350 million.

None the less, the New York City charities have been subjected to constant criticism, some of it clearly warranted. The Red Cross, in particular, has attracted so much criticism that former US senator George Mitchell, fresh from negotiating a truce in Northern Ireland, has been charged with leading the organization through the thicket of allocating the remaining millions. What is it all about?

Dumbing down the fundraising message

The main criticisms of the Red Cross relate to the distribution of funds. Donors believed that all money would go directly to victims and their families and were angered to find that this was not the charity’s intention. But the origin of the problem lies in the way the Red Cross and some other charities actually asked for the money.

Key to the messages of many of the charities was the implicit promise and sometimes explicit commitment that ‘all’ of the funds would go to direct assistance without any management and administrative costs – thus feeding a popular myth that services can be delivered without trained professionals, without back offices and support staff. It was a dumbing down of the charitable process, an underestimation of the intelligence of the American donor.

The definition of victims was also far too limited. Too many charities defined victims simply as people who were killed or injured in the terrorist attacks. That ignored the much more complex reality of a massive disaster like the World Trade Center attacks. The New York City Comptroller has estimated a total job loss of over 115,000 jobs, 2.4 per cent of the City’s total employment. The largest proportion of workers filing for unemployment insurance were not Wall Street brokers but janitors, cleaners, maids, housekeepers, restaurant and bar staff. Many of these were black, Latino, immigrants.

Some of the charitable players, particularly foundations such as the Ford Foundation, the Rockefeller Foundation, the New York Foundation, the Robin Hood Fund and the New York Community Trust itself, promoted a broader understanding of disaster relief. They included grantmaking to protect immigrant and Arab communities from harassment and discrimination, investment in non-profits serving and strengthening neighbourhoods such as Chinatown that abut the City’s financial district, and responding to the massive direct and indirect economic dislocation of September 11. But they were in a minority.

If all the donors had been big corporations and foundations, the charities could have contacted them to suggest more diverse disaster responses. But for the tens of thousands of small individual donors, charities divert funding from the donors’ intent – in this case, an unfortunately narrow intent – at their peril.

Had the charities taken advantage of the opportunity to educate donors about what is really entailed in disaster relief, most Americans would have ‘gotten it’, as demonstrated by a recent USA Today/CNN/Gallup Poll. They would have supported different kinds of disaster relief, understood the need for the administrative expenses, resisted the demand to spend it all up front.

Lack of coordination

Other criticisms focused on charities’ lack of coordination – both with government and among themselves. When New York State’s attorney general, Elliot Spitzer, called for a database of victims to help coordinate assistance efforts, the move was clearly not welcomed by the charities. Eventually Spitzer, whose office monitors charitable giving in the state, won the battle, but the overall charity view was clear: that charitable activity should proceed in a sphere somewhat separate from oversight and regulation by the public sector. The attorney general’s attempt to develop a database hardly constituted excessive regulation by government –with so many players, some governmental entity should in fact have taken on the role of coordinating the cacophony of charitable actors.

Maybe it was due to the number of charitable providers or simply the complexity and scale of the disaster, but coordination among the charities themselves occurred only slowly and relatively late in the process. Even the logical task of generating a common application bedevilled the major charities – though the process got much better over time.

These shortcomings in communication and coordination are particularly surprising given that two-thirds of the September 11 donations went to some of the largest and most sophisticated charities in the United States – the United Way of New York, the American Red Cross, the Salvation Army and the New York Community Trust.

The backlash

Right-wing critics of the charitable response are using all this as an excuse for advocating a return to a nineteenth century, sometimes medieval, form of charity. They claim that by debating over which non-profits should be funded to deliver one service or another, the charities are ‘micromanaging’ the process. One leading critic of the relief effort has called for simply dividing the total amount of charitable money between the 3,000 or so people who died at the World Trade Center, handing out equal cheques to the families, and letting them purchase services on the open market.

The Republicans, the traditional party of governmental deregulation, have held hearings and introduced legislation to create a charities review board to oversee disaster relief administration by charities. Members of Congress are raising questions about the spending or ‘payout’ rates of endowed, private foundations and the composition of foundation payout, focusing on how much of foundations’ largesse is actually devoted to their administrative overhead.

More pernicious has been the right-wing attack on non-profits that provide legal assistance to poor people, minorities, immigrants and undocumented aliens. Relatively low-profile advocacy organizations such as the National Legal and Policy Center and other think-tanks have attacked grants to groups such as the Legal Aid Society and various legal defence funds of specific minority racial and ethnic groups which carry out anti-bias work and defend Arabs and Muslims against hate violence and physical assault after the terrorist incidents. Even though these grants were not for legal representation for people detained in the anti-terrorist sweeps, the idea of September 11 charity going to groups even vaguely associated with defending the legal rights of unpopular constituencies clearly grated in the minds of some.

Where will it all lead?

Corporate giving always plummets during recessions, while observers fear that the New York City story will put off individual donors, already cutting back their charitable giving owing to a serious economic recession. While September 11 may have introduced new donors to philanthropy, the economy is all but assured to drive many away.

What about foundation giving? With foundations treating the legal annual payout minimum of 5 per cent of assets as a de facto ceiling on payout, foundation grantmaking is widely expected to decline in 2002. It is difficult to imagine that foundation trustees are going to increase their giving significantly in light of plummeting endowments invested in the stock market – notwithstanding the example of the David and Lucile Packard Foundation, which boosted its spending to over 7 per cent of its assets despite an unimaginable plunge in the value of its corpus.

While the White House and its Republican allies in Congress have proposed an ‘economic stimulus’ package of incentives, largely tax breaks for corporations and the wealthy, for reviving the recession-plagued US economy, no one has yet addressed the need for an economic stimulus package for US non-profits. Yet non-profits face a triple whammy of shrinking charitable contributions, competition with disaster relief providers, and diminished state and federal resources, at a time when the service demands on non-profits are increasing with the onslaught of the recession. If philanthropic business carries on as usual – with foundations spending lots in good times and cutting back during recessions when increased countercyclical grantmaking is needed – we risk making US non-profits another casualty of terrorism.

And which slices of the non-profit sector will be most adversely affected by recession and disaster-related cutbacks? Advocacy, community development, community organizing, public policy research, and so forth. While the Rockefeller and Ford Foundations plus various small progressive funds such as New York City’s Funding Exchange and San Francisco’s Tides Foundation have taken the lead in addressing issues of race, religion and bias in the wake of the terrorist attacks, it is not clear that their philanthropic peers will necessarily follow their lead.

The combination of the charitable emphasis on assistance for victims with the economic impact of the recession may also take its toll in cutbacks in foundation support for international causes and issues. Criticism of globalization and free trade has dampened in the wake of September 11. While some larger foundations such as Hewlett, MacArthur and Ford have initiated programmes to address the conditions in which terrorists seem to germinate, cutbacks in international giving prompted by protecting foundation endowments, such as the elimination of international grantmaking by the Freedom Forum, are feared. Whether President Bush’s call for increased charitable emphasis on the vaguely defined concept of ‘homeland security’ will exacerbate cuts in international giving is unknown.

Education from below

One positive outcome of September 11 for the US non-profit sector may be the start of a process of education from below. Donors appear to have learned from the New York September 11 experience. They seem to be asking for less emotion and more hard information about why they should give, what their donations will be used for, and how the aid will be delivered. So far national non-profit bodies in the US have responded by taking the public relations approach, getting the feel-good stories out to the public about the charities’ disaster relief and victims assistance efforts. But the withering attacks of right-wing critics of the September 11 charitable mobilization still persist, making a thorough factual accounting of the use and impact of September 11 donations, not just more PR, a necessity.

Perhaps, having learned valuable lessons from the September 11 experience, the charities involved in disaster relief and victim assistance will start to structure their fundraising pitches to appeal to donors’ minds as well as their hearts. The result might be greater confidence on the part of the American public in its non-profit sector and less concern about the legitimacy of charitable solicitations or the charities themselves.

1 Survey conducted by Princeton Survey Research Associates.

Rick Cohen is President of the National Committee for Responsive Philanthropy, Washington DC. He can be contacted at rick@ncrp.org


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