DATELINE: May 19, 2008, Chicago
Stephanie Strom of the New York Times wrote about the law of unintended consequences this past Friday, but that probably wasn't her intent. Red Cross Seeks $7 Million in Federal Money for Staffing, May 16, 2002. At a Congressional hearing last week, Joseph Becker, a Red Cross senior vice-president, asked Congress to provide $7 million to fund staff that will coordinate state and federal disaster resources. This request comes at a time when the Red Cross is cutting staff by about one-third and is reportedly running a $200 million operating deficit. In short, Becker was asking for disaster relief for an agency that is in the middle...
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of its own disaster.
Why does the Red Cross find itself in this situation? According to Strom's reporting, the Red Cross relies heavily on disasters for fundraising, but there have not been any highly visible U.S. disasters since Hurricane Katrina (2005). Strom points out that donors rarely give money to organizations to build capacity. Yes, we hear about capacity all the time. That's internal infrastructure that is necessary to run an operation. A far more descriptive term is administrative overhead. The public takes an unrealistic view of overhead, equating it with waste and inefficiency. Of course, it takes long-term planning, organization, and pre-positioning of supplies to timely respond to disasters. The money spent on these activities is just as important as money spent on supplies, rescue operations, and medical services that directly benefit disaster victims. In fact, one of the major allegations that were made about the Red Cross' response to Hurricane Katrina was that it was disorganized and slow. That would suggest that overhead that takes the form of long-term planning is much more important than many believe.
Which brings us to a recent proposal by Congressmen Henry Waxman (D-Calif.) and Danny Davis (D-Ill.) that would require charities to disclose on a United States Postal Service Web site fundraising and program service expense data. Elizabeth Schwinn, Proposal to Improve Disclosure of Fund-Raising Costs Debated, Chronicle of Philanthropy, May 15, 2008. The two legislators are focused on recent disclosures regarding several veterans organizations with high levels of fundraising expense. Rather than dealing directly with the perceived abuse, Waxman and Davis are proposing an entirely new reporting mechanism for all charities.
There are at least two problems with the Waxman-Davis proposal. First, it perpetuates the view that there is something inherently wrong with any expenses that don't go directly to benefit a charity's charitable class. The Red Cross' need to seek funding for what is administrative infrastructure demonstrates the consequences of this ridiculous viewpoint. What Waxman and Davis are doing is perpetuating the myth that overhead is waste. The direct consequence of their proposal is to starve charities of necessary resources from the public, with the result that charities like the Red Cross will be unable to efficienctly deliver benefits to the charitable class efficiency.
Second, the proposal demonstrates a complete lack of knowledge on the part of Waxman and Davis. Why do we need a new Post Office Web site for this information? All of it is already available on the IRS Form 990. Waxman and Davis obviously don't know about the recent Form 990 redesign project, which will require charities to provide significantly more information about their expenses when they file their 2008 tax returns than currently required of charities. Anyone who is interested in the information can obtain three years of data for any charity by simply going to GuideStar's Web site--http//www.guidestar.org. Why do Waxman and Davis think that people are anymore likely to go to a Post Office Web site than GuideStar to obtain this information? If anything, Waxman and Davis should be proposing to provide government funding to GuideStar to get the word out.
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