Congress Grills Red Cross on September 11 Fund Decisions

By Jeff Johnson | July 7, 2008 | 8:20 PM EDT

Capitol Hill ( - The American Red Cross has been increasingly criticized for what some say is its slow response to victims of the September 11 terrorist attacks, and Congress took its turn Thursday at a meeting of the House Ways and Means Committee.

The two main accusations are that the Red Cross has taken too much time to get money into the hands of victims and survivors; and that the organization is using money intended to go to victims and survivors for other purposes.

Michael Farley, vice president for chapter fundraising of the American Red Cross, said, the Red Cross has received pledges and contributions totaling $564 million. "To date, $154 million has been spent or committed, $120 million for direct assistance to 25,000 families in the form of cash and voucher assistance to cover their emergency needs including food, clothing and temporary shelter," Farley said.

But some members questioned the wisdom of the Red Cross retaining so much money. Rep. Joseph Crowley's (D-N.Y.) cousin, a New York Fire Department battalion chief, was killed as he led firefighters in rescue efforts at the World Trade Center.

Crowley questioned the Red Cross decision to reserve part of the $564 million for "emerging needs," saying that he thought the relief fund "was created solely, or at least in my interpretation, for the events of September 11th , and that's where the people expected those dollars to be spent."

Farley countered that immediate financial needs are not the only challenges victims and survivors will face. "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 continuing to seek support."

Farley says that doesn't mean the money won't be spent addressing the victims' and survivors' needs.

"All of the uses of the funds that we received as a result of this tragedy will be used for activities that support victim recovery. When I say that, I don't mean to suggest that they will be restricted to cash disbursements," he added. "None of those funds will be used for the general operations of the Red Cross."

Farley explained that expenditures will include building up a strategic blood reserve to deal with future mass-casualty events, along with responding to current and future anthrax attacks by assisting victims and conducting public information and education activities.

But Farley's explanation didn't pass muster with some committee members. "I don't think your donors expected, when they gave that money, for you to start ramping up other aspects of your operation," Rep. Mark Foley (R-Fla.) charged. "If we simply use these resources to do whatever we've always wanted to do, that's stretching."

Farley says the dilemma is under examination. "This entire issue is being reviewed currently by our Board of Governors, in consultation with our donors, to determine whether or not we are out of step with what the donor intent is," he said.

Some committee members were more sympathetic of the situation faced by the Red Cross, including Rep. Jennifer Dunn (R-Wash.).

"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," Dunn said.

The relatively cordial tone of the hearing changed dramatically when New York Attorney General Eliot Spitzer spoke, and he challenged the claim that the Red Cross is working as a partner to develop a victims and survivors database.

"Yes, we have received from the Red Cross a statement that they will be our partner in generating the database," Spitzer said. "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."

He also says Red Cross President and CEO, Dr. Bernadine Healy, testified Tuesday that if approximately $200 million was left in the Liberty Fund in November 2003, it would be used for other services.

"If there is any ambiguity about this, then I think it is imperative that there will be investigations and inquiries that will delve into how the Red Cross is handling that money," Spitzer said.

But it's possible that neither Spitzer nor anyone else has legal authority to act against the Red Cross, even though some disagree with its methodology in responding to the September 11 attacks.

The charity is a federally-chartered entity, answerable directly to Congress. Furthermore, according to Steven Miller, director of the Exempt Organizations Division of the Internal Revenue Service, the Red Cross has probably done nothing illegal.

"There is no obligation under the Internal Revenue Code that a tax exempt organization be perfectly efficient," Miller said. " A typical 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."

Spitzer, nonetheless, was still threatening legal action. "I view my role now as being a critic and one to regulate and, if necessary, do much more," Spitzer said. "And we have the capacity to do more through subpoenas and investigations."

Farley pledged the Red Cross to fulfill its responsibilities in an appropriate manner.

"Our foremost priority is to provide assistance for the victims and survivors of the disasters in New York, Pennsylvania, and at the Pentagon, for however long it takes," Farley promised.

According to the Red Cross, its accomplishments toward that goal to date include:

* Helping more than 25,000 families who were displaced, injured, or unemployed in disaster-affected areas by providing food, lodging, clothing, and counseling services.

* Designed a Family Gift Program to cover three months of financial needs - including rent or mortgage, childcare, and food - for families who lost breadwinners.

* Served more than 10 million meals - an average of 100,000 a day - to survivors and emergency crews working at the disaster sites.

* Made more than 144,000 counseling contacts by mental health and spiritual counselors.

* Assigned 46,000 disaster workers - including 43,000 volunteers - to the disaster-affected areas.

* Responded to the biological attacks by working with families of those exposed to or infected with anthrax.