RESPONSE BY CHARITABLE ORGANIZATIONS TO THE RECENT TERRORIST ATTACKS


HEARING

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 107-47


Printed for the use of the Committee on Ways and Means

 

 

 



COMMITTEE ON WAYS AND MEANS
BILL THOMAS, California, Chairman

PHILIP M. CRANE, Illinois
E. CLAY SHAW, Jr., Florida
NANCY L. JOHNSON, Connecticut
AMO HOUGHTON, New York
WALLY HERGER, California
JIM MCCRERY, Louisiana
DAVE CAMP, Michigan
JIM RAMSTAD, Minnesota
JIM NUSSLE, Iowa
SAM JOHNSON, Texas
JENNIFER DUNN, Washington
MAC COLLINS, Georgia
ROB PORTMAN, Ohio
PHIL ENGLISH, Pennsylvania
WES WATKINS, Oklahoma
J. D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY C. HULSHOF, Missouri
SCOTT MCINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
KEVIN BRADY, Texas
PAUL RYAN, Wisconsin
CHARLES B. RANGEL, New York
FORTNEY PETE STARK, California
ROBERT T. MATSUI, California
WILLIAM J. COYNE, Pennsylvania
SANDER M. LEVIN, Michigan
BENJAMIN L. CARDIN, Maryland
JIM MCDERMOTT, Washington
GERALD D. KLECZKA, Wisconsin
JOHN LEWIS, Georgia
RICHARD E. NEAL, Massachusetts
MICHAEL R. MCNULTY, New York
WILLIAM J. JEFFERSON, Louisiana
JOHN S. TANNER, Tennessee
XAVIER BECERRA, California
KAREN L. THURMAN, Florida
LLOYD DOGGETT, Texas
EARL POMEROY, North Dakota


Allison Giles, Chief of Staff
Janice Mays, Minority Chief Counsel 


SUBCOMMITTEE ON OVERSIGHT
AMO HOUGHTON, New York, Chairman

ROB PORTMAN, Ohio
JERRY WELLER, Illinois
KENNY C. HULSHOF, Missouri
SCOTT MCINNIS, Colorado
MARK FOLEY, Florida
SAM JOHNSON, Texas
JENNIFER DUNN, Washington

WILLIAM J. COYNE, Pennsylvania
MICHAEL R. MCNULTY, New York
JOHN LEWIS, Georgia
KAREN L. THURMAN, 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

WITNESSES

Internal Revenue Service, Steven Miller, Director, Exempt Organizations, Tax Exempt/Government Entities Division


American Bar Association Section of Taxation, Michael Hirschfeld

American Institute of Philanthropy, Daniel Borochoff

American Red Cross, Michael Farley

BBB Wise Giving Alliance, Herman Art Taylor

New York, New York, Hon. Eliot Spitzer, Attorney General

Salvation Army, Tom Jones

September 11th Fund, Joshua Gotbaum

SUBMISSION FOR THE RECORD

American Target Advertising, Inc., Manassas, VA, Mark J. Fitzgibbons, statement

Citizens Concerned About HOPE Worldwide, Lawrenceville, GA, statement

Community Foundation for the National Capital Region, Terri Lee Freeman, statement

Crowley, Hon. Joseph, a Representative in Congress from the State of New York, statement

Federline, Pamela, Des Moines, WA, statement

Gosnay, M.C., Marble Falls, TX, letter

Herger, Hon. Wally, a Representative in Congress from the State of California, statement

Independent Sector, Sara Meléndez, statement

National Association of State Charity Officials, New York, NY, Karin Kunstler Goldman, statement

Oklahoma City Community Foundation, Nancy Anthony, statement and attachments

Philanthropic Research, Inc. (GuideStar), Williamsburg, VA, statement

Robin Hood Foundation, New York, NY, David Saltzman, statement

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


RESPONSE BY CHARITABLE ORGANIZATIONS TO THE RECENT TERRORISTS ATTACKS


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 follow:]

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 two 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 ranging Democrat, my friend, Mr. Coyne.

[The opening statement of Chairman Houghton follows:]

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 fund-raising 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:]

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 11th.

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 charities have 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:]

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 $375,000.

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 record.

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. Okay. 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 CEO 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.

STATEMENT OF JOSHUA GOTBAUM, CHIEF EXECUTIVE OFFICER AND EXECUTIVE DIRECTOR, SEPTEMBER 11TH FUND, NEW YORK, NEW YORK

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 which themselves 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, et cetera.

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 on-line.

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 front line 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 check writing. 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 homes.

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:]

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 ask?

Mr. COYNE. Thank you, Mr. Chairman. Mr. Gotbaum, you indicated that you have already disbursed $47 million.

Mr. GOTBAUM. In grants to front line 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 front line 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 et cetera, they report to us literally everyday 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 doing.

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 play.

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 okay, 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 courtesy.

Chairman HOUGHTON. All right. Miss Thurman would you like to --

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. Okay. 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 back.

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 monies 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 check-writing 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 disaster.

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. Okay. 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. Okay. 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?

STATEMENT OF MICHAEL FARLEY, VICE PRESIDENT, CHAPTER FUNDRAISING, AMERICAN RED CROSS

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 towards 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 future.

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 a $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 monies 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 our donors 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 recovery.

[The prepared statement of Mr. Farley follows:]

Chairman HOUGHTON. Thank you very much, Mr. Farley. Colonel Jones.

STATEMENT OF TOM JONES, LIEUTENANT COLONEL AND SECRETARY, NATIONAL COMMUNITY RELATIONS AND DEVELOPMENT, SALVATION ARMY, 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 it 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 CEO of Caterpillar. The immediate past chairman is Steven Reinemund, the CEO 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 front line 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 takes.

[The prepared statement of Mr. Jones follows:]

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 held 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 towards the recovery of these victims and for the emerging needs of terrorist attacks, that result from these terrorist attacks. We did not have an inventory of services, that level of clarity. We did on October 12th 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 monies 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 know?

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 tragedy.

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. Secondly, 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.

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 fund-raising. 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 fund-raising. 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 fund-raising 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 monies -- 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 fund-raising 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 fund-raising 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 cost?

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 period?

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 fund-raising 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 one month, but somebody else's was paid for six 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 ithappen.

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. Secondly, 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 it?

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. McInnis.

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 that.

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, et cetera. 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 towards general operating support for the Red Cross. It will be supporting activities for victim assistance.

Secondly, 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, secondly, 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. Thirdly, 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 conversation.

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 towards in the long term how do we ensure that we can integrate what we do together, and that isonce 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 providing?

Mr. FARLEY. Those scams do occur. They have occurred on the Internet. They have occurred in other spontaneous fund-raising 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 deserved?

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 prosecuted.

Mr. POMEROY. Thank you. I yield back, Mr. Chairman. Thank you.

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 Christmas time. 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.

STATEMENT OF THE HON. ELIOT SPITZER, NEW YORK ATTORNEY GENERAL, NEW YORK, NEW YORK

Mr. SPITZER. Yes, sir. Thank you very much for the invitation.

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 CEO or was until recently the president or the CEO 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 the 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 quickly.

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 on-line, 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 the distribution 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:]

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

STATEMENT OF STEVEN MILLER, DIRECTOR, EXEMPT ORGANIZATIONS, TAX EXEMPT/GOVERNMENT ENTITIES DIVISION, INTERNAL REVENUE SERVICE

Mr. MILLER. Thank you, Mr. Chairman.

I, too, would like to summarize my written statement, if I could.

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, one 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 secondly 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 distress.

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 operations.

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 for charitable 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:]

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 Fund.

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 days.

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 United States 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 through.

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.

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 Assembly.

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 the 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 are available 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. Okay. 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 home town 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 hole.

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 follow-through, 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 purview.

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 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 would you give advice 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 purposes?

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 exempt.

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. Secondly, 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 issues?

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 fund raisers for the victims who worked in the restaurant business, many of those victims being the less covered workers. Developers have held fund-raisers 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. Okay. 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 time frame $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 kind.

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 happening.

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 a $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 on.

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 a $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 attack?

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 speaking.

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 back.

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?

STATEMENT OF DANIEL BOROCHOFF, PRESIDENT, AMERICAN INSTITUTE OF PHILANTHROPY, BETHESDA, MARYLAND

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 fund-raising 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 plan.

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 charities.

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 need.

[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 thatare 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. Okay, 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 dollars.

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:]

Chairman HOUGHTON. Mr. Taylor.

STATEMENT OF HERMAN ART TAYLOR, PRESIDENT AND CHIEF EXECUTIVE OFFICER, BBB WISE GIVING ALLIANCE, ARLINGTON, VIRGINIA

Mr. TAYLOR. Good afternoon. I am Art Taylor. I am the president and CEO of the Better Business Bureau's Wise Giving Alliance.

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 disasters.

[The advertisement follows:]

THE NEW YORK TIMES, FRIDAY, SEPTEMBER 14, 2001, PG. C9

  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 sorrow.

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

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.”

|COINSTAR


1 Note that a small percentage of the machines in our network do not have the donation capability enabled currently


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 on in 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:]

Chairman HOUGHTON. Thanks, Mr. Taylor. Mr. Hirschfeld.

STATEMENT OF MICHAEL HIRSCHFELD, CHAIR, 9/11 TAX TASK FORCE, AMERICAN BAR ASSOCIATION SECTION OF TAXATION, NEW YORK, NEW YORK

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 their food for their family, pay the rent and clothe their children and themselves.

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 dramatically.

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 findthey 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:]

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. Okay.

Chairman HOUGHTON. That is fine. Thanks very much. Mr. Hayworth.

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 Cross?

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 going.

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 switch?

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 yours?

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 aboutthe 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 past.

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 injured.

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 monies 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 standard.

Mrs. THURMAN. But that is when they are asking for the solicitation.

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 Nation.

Mr. TAYLOR. And those children should feel free to write letters to the presidents of those organizations and get answers.

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 term.

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 that?

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 the 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 are.

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

Introduction

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 or nationally? 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 accordingly.

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

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

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

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:

Jill is 32 years old and was hired as a secretary by a local manufacturer about two 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 $1000, 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 help.

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

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

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

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-building.

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

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

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 trust.

Conclusion

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 season. 

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 questions.

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 Starving.”

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 Children?

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

Fund raising 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
President

[Attachments are being retained in the Committee files.]


[Submissions for the record follow:]

American Target Advertising, Inc., Manassas, VA, Mark J. Fitzgibbons, statement

Citizens Concerned About HOPE Worldwide, Lawrenceville, GA, statement

Community Foundation for the National Capital Region, Terri Lee Freeman, statement

Crowley, Hon. Joseph, a Representative in Congress from the State of New York, statement

Federline, Pamela, Des Moines, WA, statement

Gosnay, M.C., Marble Falls, TX, letter

Herger, Hon. Wally, a Representative in Congress from the State of California, statement

Independent Sector, Sara Meléndez, statement

National Association of State Charity Officials, New York, NY, Karin Kunstler Goldman, statement

Oklahoma City Community Foundation, Nancy Anthony, statement and attachments

Philanthropic Research, Inc. (GuideStar), Williamsburg, VA, statement

Robin Hood Foundation, New York, NY, David Saltzman, statement

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