As we noted last Friday, a post we wrote a little over a year ago regarding starting a charity has received a significant number of hits in the aftermath of Hurricane Katrina. For those unfamiliar with that post, it does not contain a checklist of legal and accounting tasks that need to be completed when starting a charity. No need for that because plenty of books cover that topic. Our post focuses on why people should not start charities. That admonition against starting a charity is more true than ever in what now is the start of the Katrina recovery period. Yet, the hits...
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to our earlier post keep coming in, resulting in the need for a second, more specific post.
Starting a charity is expensive. You will need to spend somewhere around $5,000 to $10,000 just to get through the regulatory process—incorporation and obtaining Federal tax-exemption. That is $5,000 to $10,000 that could have been used to purchase food and water, rebuild communities, and provide psychological counseling to victims. Now that you have a shell corporation, you will need funding for operations. Can you really raise funds from the public more efficiency than existing charities that already having mailing lists, brochures, paid fundraising staff, and a reputation. In short, raising money costs money, lots of it.
Oh yes, now that you have a shell corporation, who is going to serve on your board of directors? And how are you going to avoid private foundation status? What about sales tax exemptions and reduced postal rates? Are you an experienced grant writer? You had better be. So far $400 to $500 million has been raised through the private sector. Undoubtedly, much more will be raised. But with President Bush already calling for $50 billion in Federal aid (with additional appropriations sure to come) and state and local governments also committing billions of dollars, charitable contributions are going to make up a small percentage of the total aid package--an important percentage, but a relatively small one. So if you want to play this game, you had better understand the grantmaking process because that is where the bulk of the funding is going to come from. If you will be looking for Federal aid, you had better start reading OMB Circulars A-110, A-122, and A-133. And you though War and Peace was a long book?
Speaking of organizers. Unfortunately, "you" is likely to be two or three people who all agree “Something must be done!” No doubt, something must be done, but two or three people can't run an organization by themselves. You will need administrative help, legal counsel, an accountant—or at least a bookkeeper, and staff members who provide the charitable services. Those people will need to be paid. So far not a nickel has gone to help the victims.
Oh, you say that “everyone will volunteer their services.” Sure, for a week or two they might. But everyone also has a full-time job and a family. Starting a charity is no different than having a baby or buying a puppy. Sounds great at first and it can be great on an ongoing basis. But for it to be great, new parents, new pet owners and new executive directors must be prepared to put in more time than any of them ever expected--and for an indefinite period of time.
Which brings us to the crux of our earlier post. While those thinking about starting a new charity are well-intentioned, they are also arrogant. Implicitly, the organizers are saying that they can do it better than many other existing charities that are already serving the needs of the Katrina victims. Yes, they—you—are arrogant. As of 2002, the IRS reported 909,574 Section 501(c)(3) organizations on its Master File, with another 137,526 social welfare organizations. Oh, you don’t know what a social welfare organization is? Well that should serve as a clue that you aren’t ready to start a charity.
Now, we have heard various accounts of the number of Katrina victims. But we suspect that on a raw numbers basis, there is already one charity per 5 victims. But many of the 909,574 charities on the Master File are either shell entities and/or failed charities that didn’t have the funds to go through the formal termination process. If you start a charity, in all probability, your new organization will join the ranks of the failed and forgotten.
Still not buying our argument against starting a charity, then ask yourself these questions.
Immediate aid and transitional assistance. Do you really think you can provide immediate aid (food, shelter, and medical care) better than the American Red Cross or the Salvation Army?
Aid to Children. Do you really think you can provide aid tailored to the needs of the youngest Katrina victims better than UNICEF?
Pharmaceutical Aid. Do you really think you can get needed drugs and medical supplies to the victims faster than Direct Relief International? Did you know that they already have extensive relationships with the large pharmaceutical companies, as well as transportation companies like Federal Express? Did you know that they operate a licensed pharmacy, permitting them to dispense drugs? So you wanted to contact a pharmaceutical company in your city about donating inventory that your new organization would deliver to the victims? Sorry, its been done.
Aiding Those Pets. Oh yes, we have all heard how Snowball was left behind. And we have all seen the pictures of the barking dogs and cats clinging to tree branches. Even though they are just dogs and cats, when you think of your pet in that same situation—well you just have to do something. Don’t you think the various humane societies have that base covered?
Rebuilding. Hey, wouldn’t it be great to organize a bunch of trades people and other volunteers to help with the rebuilding? Sounds to us like something that Habitat for Humanity has been doing for years. And we bet Habitat for Humanity has thought through all the insurance and workers’ compensation issues that come with such a venture. They also probably have blueprints developed for houses, contacts for cheap lumber, and construction schedules in place. Why do you think you can do it better?
Relocation and Long-term Shelter. Where are all those people who have been forced out of the region struck by Katrina going to go? Plenty of people already have that base covered. State and local governments are already working with churches, social service agencies, and schools throughout the country to provide longer-term food and shelter to victims that are being relocated. By the time your new organization is up and running, well it will be too late.
Finding New Jobs. There will be hundreds of thousands of people looking for work once their immediate needs are addressed. The Department of Labor, local government agencies, unions, and social services agencies are already working on matching workers with jobs.
We could go on and on. You may have a great idea, but the chances are that several organizations are already providing those services. So who are you gonna send, ghostbusters?
If you want to do something in addition to giving money, call the Red Cross, your local medical society, Habitat for Humanity, or a local foodbank or shelter. They will be able to direct your volunteer services to the right place. Oh, you don’t like packing boxes, loading trucks, or hammering nails? Oh, you are a big picture kinda person? Well, go ahead and start your own charity. You can think about the big picture as you answer the phone, lick envelopes, and ask your friends for money. In short, you can’t avoid the grunt work by starting a charity.
Unless your idea is truly unique, there is no point in starting a charity now to aid the victims of Katrina. Doing so is arrogant, vain and egotistical. Even if the idea is a great one, chances are it will have a better chance of succeeding if you develop the idea a year from now, with the next natural disaster in mind. At that time, you may have an easier time raising funds. You might also have an easier time partnering with an organization that provides related services and which already has the administrative infrastructure in place. Right now that organization is simply too busy to deal with you.
If you liked this post, please visit http://www.charitygovernance.com for a description of our Guide/Tutorial for non-profit directors and officers entitled “Avoiding Trouble While Doing Good: A Guide for the Non-Profit Director and Officer.” Copyright 2005, Auto Didactix LLC. All Rights Reserved. You may not copy any portion of this post to a computer "clipboard" for re-posting anywhere or e-mailing, or otherwise reproduce this post. If you want others to review this post, you may provide them with a link to this web blog. Any use of the material or ideas in this post by reporters or other publishers shall make reference to Jack Siegel, author of "Avoiding Trouble While Doing Good, A Guide for the Non-Profit Director and Officer" and this web blog. For additional information call 773-325-2124THE FOREGOING IS NOT AND SHOULD NOT BE TAKEN AS LEGAL ADVICE. IF LEGAL ADVICE IS REQUIRED, THE NON-PROFIT OR OTHER PARTY IN QUESTION SHOULD SEEK THE ADVICE OF QUALIFIED LEGAL COUNSEL.
