Jon Small gave the following speech at Offitbank’s Forum for Non-Profit Investment and Finance on November 15, 2001.

The Aftermath of September 11: Philanthropy Put to the Test

By Jonathan A. Small, President,
Nonprofit Coordinating Committee of New York

Thank you Morris and Tricia, and thank you Offitbank for so graciously presenting these sessions. This Forum presented by Offitbank has been functioning for many years, and here we are at the University Club, which itself has been in existence for many years. So for those of us sitting here today, much feels exactly the same as it has at prior sessions that many of you have attended. But we all know that after September 11 everything is different, and it seems only appropriate to note that fact out of respect for all of the victims of the September 11 tragedy.

The events of September 11 have been unique in a depressing number of ways. The single bright spot I can discern is the generosity of the American people and of American institutions—both for-profit and nonprofit. I am going to discuss some of the complexities of trying to deal fairly and on a timely basis with the over $1.3 billion dollars that has been raised, but it is useful to note at the outset that having $1.3 billion to deal with is a splendid task to have to face. I should also note that a full discussion of all the issues relating to the funds contributed would require a talk of a length worthy of Fidel Castro in his heyday. His normal speech back then lasted as least four hours. I will only be able to touch on some of the issues. Also, I am sure that some of you will have additions and corrections of your own—which is inevitable in a fluid situation like this.

Now, the title of this talk, for which I am indebted to Tricia Garland, is “Philanthropy Put to the Test.” It is important to note that we are not talking about a final exam or even a mid-term exam. The course has only begun and is at a very early stage. The process of dealing with the funds and needs will go on for many months and many, many years. Some of the funds for educational assistance will presumably still be around twenty years from now.

Now, in thinking about the performance of our philanthropic institutions since September 11, I think it is very important to think about the context in which those efforts began.

It is worthwhile to contrast the situation faced by those who stepped forward to deal with September 11 in New York with, for example, the situation facing our special forces on the ground in Afghanistan. Those forces have received months and, in some cases, years of special training for the very mission they are being asked to perform. They are equipped with the best equipment money can buy and their job has been to be on stand-by for just such a mission. Once in Afghanistan, the incredibly complicated task they face there is their only job.

In New York, the situation was quite different. Except for the Federal government’s FEMA personnel and certain Red Cross and Salvation Army personnel, virtually no one involved in the relief effort after the earliest hours had really been trained to carry out the tasks they have been asked to perform. Medical personnel, of course, were on stand-by alert at the major hospitals, ready to implement disaster protocols that were in place, but part of the tragedy is that the number of injured, as distinguished from the number of dead, was so small.

So after the earliest hours, the main effort related to getting funds and services to those most in need. Many of the organizations providing the services are certainly trained to do that—counseling being a prime example. But they were not trained to function in a crisis situation with overwhelming needs and no structure in place to deal with coordination of the multitude of organizations involved. Similarly, those involved with collecting and disbursing funds were not in the business of disaster relief. Also, those working so hard on providing the aid are, in a very real sense, themselves victims of the tragedy.

Let’s, for example, take a look at an organization like the New York Community Trust. I have been a fan of the Trust for many years because of its knowledge of the nonprofit sector in the New York metropolitan area and because of my many favorable experiences with the efficiency and thoughtfulness of its operations. Many of you know Lori Slutsky, the head of the Trust, and know that she is exceptional in qualities of energy, talent and effectiveness, to mention a few. But the Trust is not a disaster relief organization. Nonetheless, on the afternoon of September 11, it began, with the United Way, to organize the September 11 Fund. Since that time, as far as I can tell, much of the staff of the Trust has been transformed from its traditional role as a deliberative grantmaking group to a rapid-response disaster relief organization—still a grantmaking organization but much more.

When you think of the tasks faced by the September 11 Fund and its need to meet those tasks staffed only by amateurs in disaster relief--talented amateurs but amateurs nonetheless--their achievement has been extraordinary. And while dealing with the events of September 11, the Trust has also had to continue its ongoing activities.

In addition to collecting the money, the Trust and the United Way had to begin to figure out how to disburse it to organizations for the greatest immediate effectiveness, how to coordinate with the many other organizations dealing with relief funds, including many new and unknown, and how to deal with the barrage of questions coming from the media. In a vague way, the media and the public seemed to be under the impression that somehow there was a group of thousands of people standing by, fully organized and trained to provide the range of services and operational activities needed to deal with this disaster—sort of as though we had our disaster relief special forces on standby someplace on Long Island who were ready to come into New York with pre-planned courses of action to be applied immediately. As I say, that was, of course, not the case. Moreover, those disbursing funds have had to deal with the contradictory expectations of (a) fast distribution, (b) with no administrative costs and, of course, (c) full accountability, coordination and excellent record-keeping.

Taking all of this into account, my own impression of the relief effort has been that it has been handled very well, under the circumstances. In an operation of this size, it is inevitable that there will be omissions and mistakes and you get to read about them in the newspapers. But the Family Assistance Center at Pier 94, to take one glowing example, has received extraordinarily high marks for its efficiency, organization and compassion in dealing with thousands of people. It has functioned through a structure created from the ground up in an extraordinarily short period of time. I am sure that, over time, management experts will review how the crisis was handled and come up with ways in which it could have been handled better. We will all learn from those reports, but let’s keep in mind when we read them that they will have been prepared by those having had much more time to think about the issues than those actually dealing with crisis.

As an aside, in terms of the issue of managing disaster relief, I urge you all to seize any opportunity to listen to Nancy Anthony talk about the relief efforts in Oklahoma City. My understanding is that she led the effort to coordinate the charitable relief activities there, which serves as a real model for how New York could proceed in the months ahead. Of course, the tragedy she was dealing with was a fraction of the size of that being dealt with here in New York, the money involved was much less, the number of organizations dealing with the tragedy were many fewer, and, as far as I know, the very complex issues relating to illegal aliens were not significantly on the table in Oklahoma City as a problem to be dealt with. Nonetheless, Oklahoma City’s handling of their tragedy seems to me, from what I have learned, to provide the best model and analogy for us here in New York. So her experience is a real resource for all of us to draw upon.

In terms of the legal issues that are emerging and that have to be dealt with by the charities involved in the relief effort, their complexity and emotional intensity is striking. My overarching thought and concern is that the legal standards in place for collecting and disbursing charitable funds do not fully mesh with the expectations of those who have given money for the relief effort. A key area of discontinuity lies in the concept of “need” and the concept of “victim.” The organizations involved in this effort are almost exclusively Section 50l(c)(3) charities, to which charitable contributions are deductible by the donors. Historically, charities have given out aid to the “needy” on the basis of a definition of need that is somewhat rooted in the Dickensian era—providing food and shelter to those lacking it.

That need has certainly existed following September 11, but the needs are much broader and the expectation of the time periods for which funds will be needed is much greater. I think that many giving money, particularly for the uniformed services, would basically have the hope that the families of the victims would simply be able to maintain, always, their pre-September 11 standard of living. That objective runs into the classic ideas of need for all but the poorest of the victims’ families. It remains to be seen how this question will be resolved, but it is squarely on the table and will be increasingly.

In the earliest days of a tragedy, it is common practice to dispense aid without checking on the needs of those to whom it is being dispensed. For example, the Red Cross will give food and clothing to flood victims--whether they can afford it or not—immediately following a flood. But over time, the dispensing of aid is increasingly tied to taking into account the means of the recipients, and that process of dispensing aid is now beginning. I have been told, for example, that one of the funds for the uniformed services wanted to give a check for $100,000 to each of the families of the victims, and I am also told that they got a legal opinion from a law firm that giving out funds in that manner without taking into account need was simply impermissible.

The Twin Towers Fund, as you have been reading recently, is facing the same kind of issue. How will this be resolved going forward? My expectation is that the standard for need will somehow be significantly loosened--perhaps only with respect to dispensing aid to victims of September 11. [The IRS has now announced such a loosening.]

There is legislation pending in Congress called the “Victims of Terrorism Relief Act of 2001” that would provide a range of benefits to the victims. Part of the legislative history of that Act would set forth an understanding of a considerably broader definition of need than has been applied in the past. Whether that legislation will be passed remains to be seen, and whether it will be applied permanently going forward to all charities or whether it will be applied only to victims of September 11 or only to victims of terrorism on September 11 and thereafter remains to be seen. It just seems to me that, as a political matter, the standards of need will have to be changed to meet the expectations of the American public, and particularly those who have donated to the relief funds. [As noted, the IRS has now done this.]

Nonetheless, it is important to bear in mind that there is a purpose behind the limitations on the use of charitable funds that have developed over time. Government subsidizes charitable giving to a significant extent, and to the extent that the charitable class of potential beneficiaries is broadened significantly, there is a diversion of tax money to groups that may be viewed as needing it less than others.

Other legal issues are surfacing that add complexity to the relief effort. One issue, fairly minor in the panoply of issues facing those dealing with charitable funds, is whether organizations that have nothing to do with September 11 can give their money for relief of the September 11 victims. Can a Symphony Orchestra in Cleveland make a contribution to the September 11 Fund? Of course, that depends on what the lawyers like to call “the facts and circumstances.” Perhaps the Symphony Orchestra in Cleveland raises the money with the clear understanding that it would go to the September 11 Fund. Perhaps the Symphony Orchestra in Cleveland is making the judgment that by giving to the September 11 Fund it will generate significant good will that will help it in its own fundraising efforts to support its symphony orchestra. In that case, it might view the contribution as simply another fundraising expense like an ad in the newspaper. Perhaps it has a very broad charter that its Board feels permits it to give funds to the September 11 Fund without violating the trust and expectations of its donors. These are complicated questions and ones that need to be considered in the face of such aid.

Another issue of great importance is the interrelation of the federal fund created as part of the airline bailout legislation to the distribution of funds raised by charities. The rules for the federal fund have yet to be determined. It is, in concept, different from the charitable funds because it is intended as a surrogate for liability claims against the airlines themselves. Liability claims, of course, are not based on need but are based on damages. And so it would seem that the federal fund, which would be used in place of suits against the airlines and whose use specifically requires a family to give up its right to sue the airlines, may be the source of more financial support and may be payable to the better-off families of the victims, as well as to those experiencing “need” in the traditional charitable meaning of that term. A further complexity, however, is that the federal fund is required to reduce its payments by the amounts received by individuals from certain “collateral sources.”

It is unclear at this point whether charitable funds paid to the victims will be treated as “collateral source” payments reducing the payments from the federal fund. When you think about this issue, you can see both sides of it. On the one hand, why should taxpayer dollars be used to compensate those who have already received funding from the charities? On the other hand, why should those who gave the charitable funds be subsidizing the federal government by having their funds, in effect, diverted from the victims and their families to the federal government. It seems probable that the charitable funding of the families and the victims will not offset federal funds, which I believe to be the right result—because this has been the law in other contexts in the past, and because any other result will put a real chill on charitable giving. But that is not clear at this point, and until it becomes clear, the dispensing of the funds by the charities is made more complex. One solution for the charities, if they are well advised, might be to make loans rather than grants, with the loans being forgivable by the charities in the event that, in their judgment, federal funding is inadequate.

In the time we have I have only scratched the surface of the issues that are facing charities and the victims. Please keep in mind that the issues are emerging and the needs are emerging and will be emerging over time. One of the complaints that the money should have been given out faster is very much off-base in my view, because while immediate needs must be met, it is vital that intermediate and long-term needs be dealt with on a coordinated and fair basis by the hundreds of charities involved. Doing that is a process that takes some time, and it is important to get it right because those complaining about the slowness of the disbursements are also likely to complain about the lack of accountability, lack of record-keeping and lack of fairness if the process proceeds too quickly and on an uncoordinated basis.

The last test facing philanthropy has just begun and has nothing to do directly with September 11. I think it is at the forefront of the minds of many of you and it is—How will charities cope with all of their regular needs and activities in light of (a) reductions in funding by hard-pressed governments and (b) reductions in funding caused by reduced giving by individuals and foundations because they themselves have less money to give as a result of the recession? In addition, how will charities cope with the increasing needs arising from the recession which, in itself, is partly caused by September 11?

Those last questions are truly daunting. They are vital to the fabric of our City and they remain to be answered in the coming months and years. The piece, in your materials, describing the results of a survey by Independent Sector, offers some reason for optimism as to how the public will respond.

Thank you very much.

Nonprofit Coordinating Committee of New York, Inc. www.npccny.org