Carving Out a Role in Disaster’s Wake

Some experts question necessity of charities formed after Hurricane Katrina; others say they fill a need

When Terry Webb saw the destruction Hurricane Katrina caused throughout the Gulf Coast, he immediately

wanted to take action to help the storm’s victims. Mr. Webb, who owns a glass-installation company in Philadelphia, thought he and other contractors ought to be able to do more than give money to relief charities. The question was: What more could they do?

Working through the Finishing Contractors Association, a trade association in Vienna, Va., that represents unionized painters, glaziers, drywall installers, and floor-covering contractors, Mr. Webb and other contractors decided to create the Finishing Industries Disaster Relief Fund. Their plan was to help contractors devastated by the hurricane — and their employees — get back on their feet. In addition to collecting cash donations, the fund contacted companies around the country to find jobs for workers from the New Orleans area.

The fund got about 500 job offers. But when Mr. Webb and Vincent Sandusky, chief executive of the association, visited New Orleans, they discovered that what the contractors there wanted was a way to help their employees get to work rebuilding the metropolitan area.

“The immediate need was moving in reverse to what we were thinking,” Mr. Webb said. “They needed a way to get their workers back into the region.”

The association developed a new plan: building or leasing space in the New Orleans area where it could temporarily shelter the craftsmen, so they could get to work repairing the damage from the storm. The fund has raised about $250,000 thus far, about half of what Mr. Sandusky estimates the contractors group will need.

New charities like the one started by the contractors association commonly pop up in response to disasters. By last week, the Internal Revenue Service had received 135 requests from organizations seeking tax-exempt status so they can provide services to the victims of Hurricanes Katrina and Rita.

But many lawyers, scholars, and nonprofit officials have questioned whether that is really beneficial to the victims of such disasters, or whether creating new organizations wastes time and resources while people who have no experience providing services learn to operate such groups. What’s more, they say, catastrophes often bring out as many con artists as people with a sincere desire to do good. Others argue that one of the strengths of America’s nonprofit system is a flexibility that allows people to come up with ideas that fill voids left by existing organizations, and that without the new charities, some victims might not get the help they need.

342 Groups Formed After 9/11

The spurt of Katrina charities is reminiscent of the growth of charities in response to the September 11, 2001, terrorist attacks. The Internal Revenue Service awarded charity status to a total of 342 groups that said their missions would focus on helping people recover from attacks, preventing terrorist action, or honoring those who died.

William Josephson, who was head of the Charities Bureau in the New York attorney general’s office from 1999 to 2004, said that the amount distributed by newly formed groups paled in comparison with the sums given out through traditional charities and the federal government. “I doubt they had much impact,” Mr. Josephson said. “There were plenty of existing, accountable vehicles for donors to give to.”

But Lester M. Salamon, director of the Center for Civil Society Studies at the Johns Hopkins Institute for Policy Studies, thinks the new groups were beneficial in many cases.

“After 9/11 there were all sorts of unexpected outpourings,” said Mr. Salamon. “People took initiative in very creative ways. That’s the strength of the sector.”

Speedy Certification

After the 2001 attacks, the IRS took the unusual step of announcing that it would speed up the process of reviewing applications for tax-exempt status from organizations responding to the attacks. It has decided to make the same offer to charities helping victims of the Gulf Coast hurricanes. Typically, the process of getting charity status can take six months or more, so the IRS said it wanted to make it easier for new groups to respond quickly. Donors cannot claim a tax break for gifts to an organization unless it has charity status.

Several lawyers who specialize in advising nonprofit groups, however, say that policy was a mistake in 2001, and it is a mistake now.

“It doesn’t make sense to expedite an application for exemption in the wake of situations like hurricanes or the World Trade Center,” said Marc Owens, a Washington lawyer who headed the IRS division that oversees nonprofit organizations from 1990 to 2000. “These organizations that pop up run a high risk of waste, inefficiency, and outright fraud. Even when you have individuals with the best intent, they are not experienced at raising and distributing money. It’s truly foolish to expedite these applications, but it enables the IRS to say it’s doing something. It makes everybody feel good.”

New charities often duplicate the work of existing nonprofit organizations, said Jack Siegel, a Chicago lawyer who advises charities. “There’s also the cost of setting up a new organization, both in terms of money and time,” he said. “You have to prepare and file a tax return. You’re supposed to be reporting to the state monitoring agency, and paying fees. You have to pay for space. You’re also taking up IRS resources.”

Mr. Siegel added that the expedited process is unfair to other worthy new groups. “Let’s say you were in Seattle, and the whole community had gotten together and decided to do something for the homeless. You had community leaders behind it, and the local government, and you filed your IRS Form 1023 seeking tax-exempt status. Why should you suddenly have to take a back seat to Katrina? Not to sound heartless, but why are the homeless people from Hurricane Katrina more important than the homeless in Seattle?”

‘Take a Breath’

Even IRS officials apparently have reservations about encouraging new charities. In the announcement in which it offered to move quickly to review applications from new groups, it added this sentence: “However, the agency encourages people to use existing organizations currently working on immediate aid efforts.”

“That’s a lesson learned from 9/11,” said Marvin Friedlander, a senior manager in the tax service’s exempt-organizations division. “When there’s a disaster, people’s first instinct is to say, ‘Let’s form an organization and collect money or goods. Let’s accomplish something.’ What we want people to do is take a breath and see if there’s an existing organization that could use their support before they go through all the expense related to forming a new organization. But if one does not exist, then we’re saying we will offer this expedited process.”

Mr. Friedlander said the IRS has learned other lessons from the charities formed after the 2001 attacks.

At least 51 of the groups that used the speedy review process after 2001 never filed informational tax returns with the IRS, according to GuideStar, the organization that has a contract with the tax agency to post the returns of nonprofit groups on its Internet site. Nonprofit organizations are required to file returns if they raise $25,000 or more. Several nonprofit experts asked why the IRS needed to rush through the approval of so many groups that never even raised enough money to meet the threshold for filing a tax return.

The IRS was widely criticized after the terrorist attacks when it became clear that many of the groups that were granted expedited tax-exempt status had nothing to do with helping victims or dealing with similar disasters (The Chronicle, March 7, 2002).

IRS officials have made it clear this time to managers and reviewers handling the applications “that there has to be a substantial relationship between the organization’s purpose and hurricane relief,” Mr. Friedlander said. “One of the applications that we denied expedited status to came from a group that was running educational cruises, and while on the cruise they would sell water and donate any profits to the relief effort. That was one where the relationship was so remote it was laughable.”

He added that of the 135 groups that have requested speedy handling of their applications, 94 were put on the faster track. Of those, 35 have received tax-exempt status thus far. Mr. Friedlander says that the IRS has been granting tax-exempt status primarily to groups that he said were filling “a unique niche.”

Mr. Webb thinks the contractors relief fund falls into that category. None of the Louisiana contractors in the Finishing Contractors Association were aware of any government or nonprofit entity in the New Orleans area with a program designed to get tradesmen back to work so they can begin repairing businesses and homes, he said. “Some of this work needs to be done just to make things safe. There’s glass hanging out of buildings. The need for our craftsmen is great,” Mr. Webb added.

Mr. Owens, the former IRS official, takes another view. He said the effort to help local businesses and their workers “is laudable,” but he said it was unclear whether such efforts deserve charity status and the ability to offer donors a charitable tax deduction.

“The primary beneficiaries of the effort will be the businesses. And business will be booming for contractors down there. If a contractor wants to, he probably will be able to be working 20 hours a day once the rebuilding starts. And even if it’s charitable today, at what point in the future does it become a recruiting center for industry in New Orleans?”

Representatives of new charities say they are not discouraged by their critics, and they believe they are taking care of unmet needs. At least two groups — the BlackAmericaWeb.com Relief Fund, in Dallas, and the Friends of New Orleans Relief Fund, in Washington — are providing financial aid to displaced residents who have moved in with families outside the New Orleans area or to the families that have taken them in.

Katrina Witherspoon, president of the BlackAmericaWeb.com fund, said her group was formed in response to concerns by blacks that established relief charities were not doing enough to get aid to African-Americans. The group, founded by the radio personality Tom Joyner, who promotes it on his syndicated show, has raised more than $2-million, Ms. Witherspoon said. “It seemed like there was a disparity in the way people were handled by the major nonprofit groups,” she said.

Siobhan Rausch, a lawyer who is president of the Friends of New Orleans fund, which has raised $25,000, said she understands the debate about the role of new groups. “There certainly is some validity to the arguments against forming new nonprofits, but we view our role as complementing what the larger nonprofit disaster organizations are doing.”