Americans just love feeling philanthropic. In any debate over cutting tax breaks in the income tax system, the deduction for charitable donations is always held sacred — even more than that other sacred cow, the mortgage deduction.
It’s a rare political leader who doesn’t bow to the role played by charitable foundations in filling gaps left by government services to the indigent, the sick and the elderly, here in the United States and around the globe. The globe-trotting, tent-dwelling relief worker, the doctor without borders, the logistics expert getting food and medicine to camps of war refugees — all elicit unique reverence from us armchair empathizers in civilized lands.
So why, asks Ken Stern in his new book, “With Charity for All,” do we spend so little time thinking about the charities we give our billions to?
Stern is a veteran of the nonprofit world, having spent nine years running National Public Radio, the nonprofit organization with which most of us are more familiar than any other. Thanks to his experience and a wealth of further research, “With Charity for All” makes many important points about how little we understand about the needs and the operations of even the most prominent global philanthropies. The book opens with a telling anecdote about the American Red Cross and its response to the disaster of 9/11.
In brief, its response was, well, disastrous. Material and personnel were deployed to the wrong places. Logistics broke down so badly that the organization was unable to get supplies, volunteers, food or cots for first responders quickly to the Pentagon — which was all of 2 miles from its national headquarters and emergency response center.
What did work to perfection was the Red Cross’ fundraising apparatus, which collected $543 million for its Liberty Fund to aid the attack’s victims. This was far more than could reasonably be spent on direct relief. Yet when Red Cross President Bernadine Healy decided to divert the excess funds to fix what 9/11 had shown was broken — improving its relief infrastructure, telecommunications and logistics management — she provoked a firestorm. Congressional hearings, threats of prosecution for fraud, the whole instrumentality of public outrage was deployed against the Red Cross. Healy soon resigned.
“The widespread fury,” Stern observes, “was both predictable and misguided.” Donors large and small don’t understand that delivering direct relief requires investing in a sound infrastructure, yet such investments are often derided as waste and featherbedding.
Stern makes a strong case that the average American donor has become a sucker for any charity’s glossy yarn. That’s because almost no system exists for measuring a charity’s effectiveness on the ground; the few efforts that have been made to hold charities to account have been overwhelmed by feel-good PR and undermined by the sector’s resistance to transparency.
Stern tells this story terrifically through the prism of Third World water projects. Beats there a Western heart that hasn’t been beguiled by a glossy brochure showing a white charity executive throwing her arms around an African child at the site of a village’s gleaming new water pump? Billions of dollars have been thrown into the fight for clean water. It’s an inviting cause, because it’s cheap to install a brand new pump. But “drilling a well is far easier than maintaining one,” Stern rightly observes. Once the drilling is done and the publicity photos snapped, the charity organizers move on.
As a result, the proper image of the standard Third World water project, as an expert tells Stern, should be one of a “woman walking slowly past a broken hand pump, bucket at her side or on her head, on her way to (or from) that scoop hole or dirty puddle that she once hoped would never again be part of her life.”
One topic Stern explores is the exploitation of tax exemptions by nonprofits that don’t resemble charities by any stretch of the imagination. Many are hospitals, which despite their nonprofit status behave with all the chilly inhumanity of a profit-seeking conglomerate — dunning indigent patients for inflated charges, leaving emergency rooms to fall to pieces while spending lavishly on surgical facilities for wealthy patrons of high-profile specialties — and, by the way, paying their CEOs in the millions.
Consider the New York Stock Exchange, which until recently was a nonprofit enjoying a tax exemption and which in 2003 awarded its chief executive, Richard Grasso, a pay package of $140 million. Three years later, bugged to distraction by the attentions of charities regulators, the Big Board reorganized itself as a profit-making corporation. As Stern observes, the Grasso affair “stands for the proposition that some organizations have no business being nonprofits in the first place.”
Unfortunately, there’s no discussion in “With Charity for All” of the latest outrage in this category, the tax-exempt “social welfare” organizations that funneled millions of dollars in donations into electoral campaigns last year. American Crossroads, founded by GOP operative Karl Rove, was the most prominent such outfit, but there were similar groups across the political spectrum. Their designation as “social welfare” organizations under section 501(c)4 of the tax code allowed them to keep their donor lists confidential, but in return for offering anonymity to well-heeled contributors they weren’t supposed to engage in electoral politics. It wasn’t until June last year that federal and state regulators began taking a look at the C4’s, and obviously the probes didn’t yield results before the election. They still haven’t.
“With Charity for All” also falters in its most important role: proposing remedies. The answer to underperforming nonprofits is to remake the tax law and empower aggressive regulators to distinguish functional charities from those that are exploiting the exemption for a free ride. Withdrawing the tax break and tossing the creators of bogus “social welfare” groups in jail might do wonders to clean up U.S. politics. Requiring water charities to meet minimum sustainability standards for their projects might cut back their drill-'em-and-forget-'em habits.
But these are minor flaws in a book that marks an important advance in educating the donor public. Whether they’re writing occasional checks for 50 bucks or making multimillion-dollar bequests, donors too often give to the wrong organizations and for the wrong reasons. “With Charity for All” is a good guide to what makes an effective charity, and how to figure out that the one getting your money meets that standard.
Hiltzik, a Times business columnist, is the author of “The New Deal: A Modern History” and “Colossus: The Turbulent, Thrilling Saga of the Building of Hoover Dam.”
With Charity for All
Why Charities Are Failing and a Better Way to Give
Doubleday: 272 pp., $26.95