Red Cross Borrowing to Fund Disaster Relief

The American Red Cross has depleted its Disaster Relief Fund, forcing it to borrow $340 million to cover costs — the first time in its 124-year history that the charity has sought a loan for disaster relief. It says it needs the money to cover costs from Hurricanes Katrina and Rita.

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For the first time in its history, the American Red Cross is borrowing money to pay for disaster relief. The response to Hurricanes Katrina and Rita and more recently Wilma cost the organization so much that it has taken out a loan for $340 million. NPR's Robert Smith reports.

ROBERT SMITH reporting:

It's not that the American public hasn't been giving.

Ms. LAURIE REINHARDT(ph) (Director of Disaster Fund Raising, American Red Cross): No, the generosity has been outstanding, more than anything we've ever seen before. I think this disaster is so big that it's taxing all of our resources.

SMITH: Laurie Reinhardt, director of disaster fund raising for the Red Cross, says they've raised $1.3 billion, but the needs are expected to top 2 billion. The loan solves a cash flow crunch. Pat McCrummon(ph), the organization's director of response communications, says it's a fact of life for the Red Cross that it has to respond before it has all the money.

Mr. PAT McCRUMMON (Director of Response Communications, American Red Cross): It would be not very good practice to have a billion dollars laying around ready to go to spend on the hurricanes of this size, but we have to respond immediately and we can't wait for that money to just start coming in before we would start providing services.

SMITH: The biggest cost is the cash assistance given to victims of Katrina and Rita. The grants of about a thousand dollars per family will cost an estimated $1.5 billion. Those who watch the philanthropy world say the cash-flow problems aren't surprising. The disaster on the Gulf Coast is the largest the Red Cross has ever had to deal with. Still, Daniel Borokoff, president of the American Institute of Philanthropy, a charity watchdog group, questions how much of a financial hole the Red Cross is in.

Mr. DANIEL BOROKOFF (President, American Institute of Philanthropy): My concern is that they may have the money internally that they could redirect for the disaster.

SMITH: The issue is that the Red Cross keeps its disaster funds separate from the budget for, say, blood collection. Borokoff says it's clear that the hurricanes were devastating, and he encourages people to give, but he says the Red Cross could benefit from being more transparent.

Mr. BOROKOFF: The Red Cross should be clear about what its true financial position is, not just speak in terms of its disaster response fund, but let the public know how much it has within the organization that it could, if it wanted to, direct towards the disaster situation.

SMITH: Officials from the Red Cross say that in many ways their hands are tied. When donors give money earmarked for a particular cause, they must honor those wishes and keep the money separate. Stacy Palmer, editor of The Chronicle of Philanthropy, says the needs of the Red Cross raise bigger questions.

Ms. STACY PALMER (Editor, The Chronicle of Philanthropy): Should the Red Cross be responsible for this or any private organization, or should government be taking more responsibility for things? And is there just a better way to do this whole disaster relief thing?

SMITH: Palmer says that when the Red Cross has to borrow money, it reflects on the rest of the philanthropy world.

Ms. PALMER: What people are most concerned about is how charities spend their money. They think that charities do great work and do wonderful things, but they're not so sure that they spend their money so well. So when they see a non-profit group like this not able to pay some of these expenses, it does raise some questions in their minds.

SMITH: The Red Cross says it expects that donations will eventually come in to pay back the loan. The organization will continue to raise money, stressing to the public that the hurricane season may be wrapping up, but the needs still remain. Robert Smith, NPR News, New York.

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