[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]




                               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

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
RON LEWIS, Kentucky
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

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

Advisories announcing the hearing................................     2


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



                       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 



                       SUBCOMMITTEE ON OVERSIGHT

                                                CONTACT: (202) 225-3625
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.


    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 

    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.''


    The hearing will focus on the activities of charitable 
organizations in response to the recent terrorist attacks.


    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.


    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 

    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 * * *



                       SUBCOMMITTEE ON OVERSIGHT

                                                CONTACT: (202) 225-7601
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 


    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 * * *



                       SUBCOMMITTEE ON OVERSIGHT

                                                CONTACT: (202) 225-7601
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 
    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 
    I look forward to hearing from our witnesses about the role of 
charities in providing relief to victims of the recent terrorist 


    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 
    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 
    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 
    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.


    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 
    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 
    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 

    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 
     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 

     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 
    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 
    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 
    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 
    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 
    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 
    Chairman Houghton. All right. Miss Thurman would you like 
    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 
    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 
    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?


    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 
    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 
    [The prepared statement of Mr. Farley follows:]
   Statement of Michael Farley, Vice President, Chapter Fundraising, 
                           American Red Cross
    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 
     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 
     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 
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 
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 
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.
    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 

                      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 
    [The prepared statement of Mr. Jones follows:]
  Statement of Tom Jones, Lieutenant Colonel and Secretary, National 
   Community Relations and Development, Salvation Army, Alexandria, 
    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 
    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
    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
    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
            Total Expenses by Services Given (09/12/01-    $ 8,505,715
            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
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 
    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 
    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 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 
    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 
    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 
    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. 
    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 
    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 
    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 
    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 
    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 
    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 
    Mr. Pomeroy. Thank you. I yield back, Mr. Chairman. Thank 
    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.

                       NEW YORK, NEW YORK

    Mr. Spitzer. Yes, sir. Thank you very much for the 
    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 
    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 
    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 
    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 

     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-


    Chairman Houghton. Thank you very much. Now, Mr. Miller, 
who is the director of the Exempt Organizations Division of the 
Internal Revenue Service.


    Mr. Miller. Thank you, Mr. Chairman.
    I, too, would like to summarize my written statement, if I 
    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 
    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 
    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
    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.
    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 
    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 
    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 
    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 
    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 
    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.
    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 
    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 
    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 
    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 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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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?


    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 
    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 
    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 
    [The sign follows:]


    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 
    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 
    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.


    Mr. Taylor. Good afternoon. I am Art Taylor. I am the 
president and CEO of the Better Business Bureau's Wise Giving 
    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 
    [The advertisement follows:]
                           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 
    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.''


    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 
    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.


    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 
    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 
    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 
    \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 
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).
    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. 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    Mrs. Thurman. But that is when they are asking for the 
    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 
    Mr. Taylor. And those children should feel free to write 
letters to the presidents of those organizations and get 
    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 
    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 
    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 
    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
    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 
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 
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-
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 
    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 


    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 

    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 

    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 

    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
    [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 
    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 
    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 
    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 
    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 
    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 
    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\
    \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.
    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 
    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 
    \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.
    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, 
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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 


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 
    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 
    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 
    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 
    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 
    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 
    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 
    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.
    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.
    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 
    Survivor vs. Victim story.


 Statement of Philanthropic Research, Inc. (GuideStar), Williamsburg, 
    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 
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\
    \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 
    \2\ NCCS uses the data to create data sets and analysis for the 
research community and policy makers.
    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\
    \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.
    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.
    \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.
    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 
    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 
    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 
     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 
     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 
     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.
    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.
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 
    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.
    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\
    \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.
A. Robin Hood Relief Fund Grants to Organizations Providing Direct Cash 
        Relief, Food and Emergency Social Services to Victims of the 
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 
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 
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 
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.
    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 
    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\
    \1\ Figures provided by Theatre Communications Group, Association 
of Performing Arts Presenters.
    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%).

            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\
    \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.
    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 

                     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.