Giving: Too Big a Helping Hand?

Money is gushing in, overwhelming September 11 charities

In the history of charitable giving there has never been anything like this. Since September 11 when hijacked passenger jets slammed into the World Trade towers, the Pentagon, and a field in rural Pennsylvania, outraged citizens from around the world have deluged relief organizations with donations that now approach $1 billion. By way of comparison, contributions totaled $45 million in the wake of the Oklahoma City bombing. Hurricane Andrew attracted $110 million for the American Red Cross, the major charity. "It's multiples of anything that has been dealt with before," says New York Attorney General Eliot Spitzer.

Of course so is the need. The numbers of people affected are staggering: 5,000 dead, 7,000 children who lost a parent, 50,000 newly unemployed. But disbursing $1 billion in a responsible manner is a complex proposition. Is all of the money going where donors intended? Is it being well-spent? BusinessWeek, in collaboration with ABC's PrimeTime Thursday, found:

-- Top charities are recognizing that they've received more money than they can spend on direct aid to victims. For the Red Cross, the excess may be 50% of what they've collected.

-- Five weeks after the attack there is still no mechanism to keep the more than 200 charities involved from making duplicate payments to one recipient or letting others fall through the cracks. Only about 10% of the money raised has been distributed so far.

-- Although the pressure to write checks is intense, defining need is surprisingly difficult. The scope is expanding beyond what anyone initially imagined. Some charities are stretching the definition of need to include the psychological damage from bioterrorism threats.

-- Charities not directly linked to September 11 are reporting declining donations even as demand for their help increases because of recession.

Even for charities that have been around for decades, this tragedy has changed all the rules. "Things have happened in reverse," says Daniel Borochoff, president of the American Institute of Philanthropy and of "Usually charities see a need, put together a plan, then raise money. Here, the money came in so fast, the charities are struggling to see what to do with it."

One thing is clear: not all the money will end up in the hands of the victims we've seen fleeing burning buildings on TV. The American Red Cross has raised some $452 million and counting. Many TV stations continue to air public service announcements offering an 800-number for donors. But the organization expects to distribute only $200 million to help at the site and in grants to families. Currently, Red Cross is spending $2.5 million a day on everything from counseling to serving hot meals and running respite centers for workers at Ground Zero. It plans to spend the balance to help the organization prepare for other disasters in the war with terrorists. That includes $50 million for a national blood bank. Red Cross says that it has made that clear in the requests for assistance on its Web site and in interviews.

Might donors feel betrayed to learn that their money may be sent far from the crash sites? No, says Red Cross President Bernadine Healy. "We have been so straightforward in saying what we are using the money for," she says. "The disaster relief involves this entire country, and its readiness for future terrorist events, for healing, for grieving."

The managers of the New York Times Neediest fund have a similar dilemma. For all of last year, the fund raised $8 million; it has received $36 million for its Sept. 11 fund. Fund director Jack Rosenthal says not all of the donations will be needed immediately by the charities the fund has chosen to distribute its cash. "I doubt our 10 agencies will be able to put out $36 millionvictim by victim," he says. So he's putting aside money to distribute in the future for three broad causes: saving jobs, education, and trauma counseling.

But Red Cross and the Times are just two of more than 200 charities involved. That raises its own set of problems. Attempts to coordinate giving among the charities have met resistance. Attorney General Spitzer, who regulates charities in the state, hopes over the next few weeks to create a database that tracks grants. The goal, Spitzer says, is to identify people who may be falling through the cracks or trying to double-dip. Modeled on a similar database compiled after the Oklahoma City bombing, his staff is now pressing charities to provide their data.

GREAT DISPARITY. It seems an obvious move, but Red Cross refuses to provide personal information, arguing that it would violate privacy rights. Other critics wonder if such a system is feasible in a disaster this large. In Oklahoma City, where 168 people died and 853 were injured, roughly 45 charities were involved. Some estimate that as many as 200,000 people have been affected in this disaster, either directly by losing a relative, or indirectly by losing a job or housing.

Coordinating those 200 diverging agendas might be a first step toward solving the conundrum charities now face: defining need. For starters there's great disparity in what survivors will receive from insurance, employers, and the government (table). On top of that, organizations like the Federal Emergency Management Agency are grappling for their proper role. Typically FEMA addresses natural disasters and funds the replacement of homes and property destroyed by hurricanes and earthquakes. Meanwhile, Congress is still considering whether to make new allocations, which could change victims' needs.

The most basic difference between September 11 and natural disasters is that this was a crime. And so the first question is whether victims deserve compensation regardless of need. Do shopkeepers whose businesses have dried up deserve relief funds? Should widows with sizable death benefits also be entitled to short-term relief? Should fire fighters' families receive extra money because of their heroism? Most charities are precluded by their charters and tax status from giving for any reason other than need.

Still, that leaves a big, big gray area. It helps explain why so far only a fraction of the money raised has made it out into the community. Besides, most charities are just beginning to figure out how much money will be needed to make up for whatever insurance and government payments don't cover, and what kinds of gaps they will be asked to fill. "Half of the needs we see today, I didn't see four weeks ago," says Lorie A. Slutsky, president of the 77-year-old New York Community Trust.

VAGUE GOALS. Of course, charities with the broadest mandates have the flexibility to meet unexpected needs as they arise. The Twin Towers Fund set up by the City of New York and to be chaired by Mayor Rudy Giuliani has deliberately kept its goals vague. Although primarily meant for the families of uniformed and government workers who died or were injured, administrator Tamra Lhota says it could end up funding education, counseling, housing, and legal services. "The goal is to meet needs as they become apparent," says Lhota.

Sometimes just reaching victims with clear needs is a problem. Red Cross has given out $21.5 million in cash to victims' families for basics like rent and food. But it has much more to give and, despite the organization's calls to the families listed by employers and the city, many eligible for aid have not yet received it. Last weekend Red Cross took out full-page ads in newspapers asking people to call for assistance.

For charities trying to help people in downtown New York and across the country, the shockwaves of September 11 have only begun to be felt.

By Nanette Byrnes and David Henry with Brian Hindo and Susan Zegel in New York, Alexandra Starr in Washington, and bureau reports

Before it's here, it's on the Bloomberg Terminal.