The impossible calculus of loss

A windfall of public and private funds awaits the victims of Sept. 11. Is it being fairly divided? Is it fair that they get far more than other victims? And will their compensation change charity and disaster relief forever?

Published January 2, 2002 8:30PM (EST)

Is the life of an investment banker who died in the World Trade Center worth $1.65 million in taxpayer money? What about $3 million? Is the life of a firefighter worth more than that of the janitor he tried to save? How about the life of a woman who died in the Oklahoma City bombing?

These sound like rhetorical questions, the kinds of queries we hope never to have to answer. But they are the questions that the administrators of private charities and federal compensation funds must consider -- and answer to the satisfaction of an entire nation -- as they begin to divvy up and distribute enormous sums of money to the victims of the Sept. 11 disaster.

The hijacked planes of Sept. 11 left a wide swath of human damage in their wake: By most estimates, some 3,000 people -- including hundreds of firemen and policemen -- lost their lives, and another 7,000 were injured. And that doesn't include the tens of thousands (perhaps even hundreds of thousands) of peripheral victims who lost homes, businesses or jobs in the barrage of terrorism.

The unprecedented disaster has generated an equally unprecedented outpouring of financial assistance, mind-boggling billions in charity and federal funds. Victims of the tragedy have become heroes, symbols of America's spirit around which even the most far-flung citizen can rally, simply by writing a check. According to the Chronicle of Philanthropy, the top 30 charities already have earmarked some $1.4 billion in private donations for victims of the attacks -- from the orphaned animals of deceased World Trade Center workers, to the families of firemen and policemen, to those whose neighboring apartments were rendered uninhabitable by debris.

No one has added up the amount of money collected by another estimated 150 to 200 charities set up for victims of Sept. 11. Meanwhile, the federal government has the biggest fund of all: On December 20, it announced the Victim Compensation Fund, a plan to compensate injured victims and the families of the dead that could ultimately cost taxpayers $11 billion or more.

Given the whopping amounts of private and federal funds involved, the payout to victims of Sept. 11 will likely be the biggest dispensation of victim compensation money in history. And considering the extraordinary emotional impact of the disaster, it is likely to be a process very closely scrutinized by the entire nation. All the groups preparing to distribute funds find themselves debating the same issues: How can the money be fairly and ethically divided? Is there a way to be charitable and to serve everyone's interests? The sum is huge, victims are upset and needy -- and, in some cases, greedy -- and some are already disputing the methods by which the money should be divided.

The bickering began minutes after the donations began rolling in, and it was clear from the start that it may be impossible to satisfy everyone involved. The dilemma seemed to grow with the amount collected, until, with more than $12 billion in the pool, it has become necessary to make some decisions. This is the moment, as the process for distribution is set, that worries ethicists and philanthropists the most.

Unlike victims of the tragedy, those who do charitable work or study the world of philanthropy are less concerned with the potential disparities in victim awards than they are with the inevitable precedents that will come from this process. What will be the long-term impact of such a huge dispersal of funds? What effect will it have on past and future victims of disaster? Are some victims more worthy than others? Who decides? Will this enormous act of charity forever change the philanthropy industry?

"I'm concerned, truly, that good people with different missions are trying to do a complicated thing in very complex circumstances," says Harvey P. Dale, professor of philanthropy and law at NYU. "Some will get it right, some will get it wrong, most will be somewhere in the middle. My biggest concern is that the face of the donor community and the face of the charities are not tarnished by an overly simplistic approach to any of these questions."

An estimated 70 percent of all Americans donated money to private charities for victims of the Sept. 11 attacks. No one knew, immediately after the disaster, how much money would be needed for thousands and thousands of victims -- many of them families with young children. Also, the extent of federal disaster funding was not known. In a burst of amazing generosity, Americans rushed to help, and as a result, some victims will end up with a much better financial future than they might have expected before the attacks.

For example: The Red Cross, which has raised $582 million for victims of Sept. 11, has announced it will pay for one year of living expenses for the families of those who died in the attacks. According to one report, this means that the Red Cross could end up giving up to $100,000 to each designated recipient. More funding is likely to come from other private charities that have yet to announce their means of distribution. Added to any and all private awards, victims (who promise not to sue for damages) can then expect to receive a portion of the federal payout. According to administrator Kenneth Feinberg, that amount will average about $1.65 million for the family of each injured or dead victim.

The compensation for the families of government employees, such as firemen and policemen, is calculated according to a unique set of circumstances. They are eligible for portions of private funds, but in addition, they can expect a portion of $250 million currently in the coffers of charities specifically designated for the families of police and firefighters. Finally, the survivors of public workers will get the full pensions of their loved ones as well as $250,000 in one-time federal compensation. In some cases, the New York Times has reported, the families of public workers find themselves with almost $900,000 from charities and the federal government.

In every case -- for the families of victims in the public or private sector -- the amount of pensions, federal payments and life insurance will be deducted from the amount they can expect to receive from the federal Victim Compensation Fund. In the case of some families -- in particular those of veteran public workers -- these outside awards will exceed the amount they could have expected from the Victim Compensation Fund.

Because of all the variables involved, it's still impossible to determine how much each family will receive, but at the moment it looks as though awards will be at least six figures. For the families of affluent white collar workers who died in the World Trade Center attack, a six-figure sum is not likely to cover the earnings they might have expected in the future. In the case of families with lower incomes and modest earning potential, this might seem like a bounty. But these cold calculations fail to come close to what some might consider fair. There are those who will ask, understandably, how it is possible to measure loss of a loved one on the basis of the victim's salary and income expectations. Is it fair to give more to those in a higher tax bracket?

In the weeks and months since the Sept. 11 attack, the definition of "need" has been stated and changed over and over again by the three participants in victim compensation: the donors, the charities, and the victims themselves. Each has proposed a different method for how the money should be divided. Then, of course, there's the federal grant, which has a different group of participants -- the government, the recipients, and the taxpayers, who will ultimately foot the bill for a $11 billion handout.

"Whenever you are talking about distributing large amounts of money, there is always someone who has a problem," says Stacey Palmer, editor of the Chronicle of Philanthropy. "This isn't the first time this has come up. After Columbine there was an awful lot of money that poured in for a small number of families. You have to ask: Should these people become millionaires because of a tragedy?"

Some families of Sept. 11 victims already have begun to complain that private donations aren't being fairly distributed. Families of civilians have formed a lobby called Give Your Voice, which has objected to the fact that firemen and policemen have been showered with added donations. Families of Pentagon victims are upset that more attention -- and funding -- has been designated for New York victims.

Correcting these perceived disparities isn't something that charities can be expected to handle. Equitability, say experts, always is subject to the whims of the donor community: Given that the American public is currently fascinated with the notion of the hero, for example, a disproportionate amount of funds have been collected for firemen and policemen. That's not the charities' fault.

According to Peter Singer, a renowned ethicist at Princeton's University Center for Human Values, "The community might decide to reward [the firemen's] families on a particularly generous basis, in the sense that this is just good social policy if we want people to try to do heroic things. If they know that their families will be particularly well provided for, then it may mean they have fewer reservations about doing it. You can justify it being about the larger good rather than about individual need."

Because of the enormous amount donated and the broad participation of the American public, everyone is paying closer attention than usual to the methods that the charities use to distribute funds. This avid focus has underscored a fundamental difference in the way that donors and charities think about donations, say philanthropy experts. The sudden and intense scrutiny, they add, is causing tremors in the greater philanthropic community.

"The collectors of the fund -- like United Way or Red Cross -- are taking the modern professional grant-making position: 'We are the anointed philanthropic experts, and we know how to dispense funds,'" says Peter Frumpkin, a senior fellow at the New America Foundation think tank in Washington, D.C. "They make the case that they have ideas of how to do it well and they can't be rushed.

"On the other hand," says Frumpkin, "are the people who contributed the money, who take the old line charity perspective -- get the money out, give it to those in need, mobilize the money and hand it out to people who desperately need it."

Perhaps this disconnect was most obvious in the case of the Red Cross. After collecting a whopping $582 million in the days after September 11, the Red Cross announced in October that it would be using only a portion of the funds to directly reimburse victims of the attacks; the rest, it announced, would be used to create an anti-terrorism program and shore up its blood distribution system -- infrastructure programs that the Red Cross felt would have greater long-term benefits. But donors, who wanted their money to land directly in the pockets of bereaved family members, rebelled. Ultimately, Bernadine Healy, the head of Red Cross at the time, was pressured to resign, and the organization swiftly reversed its position.

This kind of upheaval is particularly frightening to charities now, as they attempt to benefit from the national outpouring of donations. Many first-time donors have emerged in the wake of Sept. 11, and the philanthropy industry hopes that this new database of givers can be permanently maintained. If those donors aren't pleased with what happened to their money, it is likely that they will never give again. So even though charities recognize the importance of building infrastructure or broadening their focus to include the unemployed, as well as the bereaved, they are quick to do what their new donors ask: If they are giving specifically for widows of Sept. 11 victims, that is where their money will go.

"There's a huge, huge fallout -- potential long-term damage -- if the donor intent is violated," says Frumpkin. "If contributors who sent a few hundred dollars get the sense that this was bungled or hijacked by organized groups for other purposes, they will get tremendously turned off. Donor fatigue is going to be immediate and flatlined. It's not just about using this money effectively, but about building the confidence with this huge set of donors."

But even if both the donors and the charities can agree on where the money should go, there remains the dilemma of how it should be divided. Should a $2 million fund collected to help pay the living expenses of bereaved families be divided equally among all the families or distributed on the basis of financial need? Is it fair if the family of a deceased janitor, with a $800-a-month rent, gets less than the investment banker's family, with its $8,000 monthly mortgage? Is it fair, if the payments are equal, that the banker's family faces foreclosure?

Should a family that receives charity from the United Way also be able to collect from the Red Cross? What if the family received a pension from an employer or a generous life insurance package? The questions seem endless.

In some cases, a charity might reject issues of equity and fairness simply because the logistics of including those considerations is unmanageable. The process of collecting and cross-checking information about all victims is simply too daunting to be truly "fair." Thirteen of the biggest charities in New York have agreed to consider the more complex factors of victims' families, creating a group database to collect family information and keep track of the grants they receive. They agree, however, that it will still be a nightmare to calculate the exact needs of tens of thousands of charity applicants.

"You can't look at these problems in the abstract, with moral questions about rectitude, because it's all surrounded by logistical problems," says Frumpkin. "There are barriers to a totally rational fair system in place. There are too many actors, too many people, too many flows of funds."

Those in charge of dividing up all these private funds face three basic choices -- they can either divide the money equally among recipients; divide it entirely on the basis of need; or offer everyone an equal base sum, giving additional individual grants based on specific needs. This last approach -- perhaps the most complicated of all -- is the one that the federal government will use to recompense the families of dead and injured victims of the attack.

The federal payouts are called a "compensation program" because they serve an entirely different function than charitable donations. Essentially, the money constitutes something of a bribe. In the days after Sept. 11, the federal government foresaw a rash of lawsuits that could potentially bankrupt the foundering airline industry, already the recipient of $16 billion of federal bailout funds. To head off a potentially crippling flood of legal actions, the government set up the $11 billion Victim Compensation Fund. Every victim who receives a payment from the fund must waive the right to sue the airlines.

In order to compete with potential legal settlements, the payouts from the federal government are huge. Each victim's family will receive a minimum of $500,000 for economic losses (the lost earning potential of the victim), and possibly $250,000 for non-economic losses (i.e., emotional damage), with additional money provided for special needs. In some cases total compensation is expected to reach $3 million per family.

The money that victims collect from charities will not affect the amount of their federal payments, even though pensions and life insurance benefits will be considered. While the plan will offset certain living expenses, it will not give substantially larger sums of money to wealthier victims who lived more extravagant lifestyles. As the rules explain, "A claimant should not assume that he or she will receive an award greater than the presumed award simply because the victim had an income that exceeded the income for the 98th percentile."

Fund administrator Kenneth Feinberg, who was under intense pressure to divide the $11 billion fairly, was praised for his dispersal formula. Most experts seem to think his approach was rational, but they emphasize the fact that the sheer volume of money Feinberg was working with smoothed the way for an agreeable response from victims' families. As Frumpkin puts it, "With the amount of government funds available for all this, the complaints are likely to fade over time as everyone gets some help."

Perhaps the most pressing concern of philanthropists and ethicists is fairness on a much broader scale. They point to the painful discrepancy between the money collected for this high-profile disaster and its victims, and the money available to others in need. There is concern that the disproportionately high amount of money currently available to these sudden heroes will infuriate victims of other disasters. Why should the Sept. 11 victims receive more help than the Oklahoma City bombing victims or the families of victims of other hijacked planes? The nation has suddenly put a value on the human life lost in a tragedy, and that value is in the millions of dollars. Is a precedent being set that's simply too phenomenally high?

"What's problematic is victims of other tragedies, like Oklahoma, coming forward and saying 'What about us?' Then it goes to crashes like Egypt Air," worries Frumpkin. "It can mushroom up: We could get a culture in which there are expectations that both private charity and the public sector is going to provide compensation to all the victims of terrible unfortunate acts. I see retroactivity issues being more problematic in the next year then September 11 victims being pitted against each other."

It took less than 24 hours, in fact, for this to happen. The day after the federal payouts were announced, survivors of the Oklahoma City bombing, which took 168 lives and wounded 50 others, began complaining. "I don't want to do a hierarchy on terrorism here, but that's kind of minimizing what happened to the people of Oklahoma City," Marsha Kight, whose daughter was killed in the Oklahoma blast, told the Associated Press in late December. "The individual loss was just as great for us."

The generosity gap is even greater when the Sept. 11 victims' compensation is measured against aid to victims of overseas disasters.

"What concerns me the most is the discrepancy in the way people respond to appeals to give to Americans and the way they respond to give to people in need elsewhere in the world," says Singer. "This is a particularly glaring case of it, because of all the publicity. It may seem hard to say this, but the number of people worldwide who died from avoidable causes on Sept. 11 were vastly greater than the number of people who died from the attacks ... Americans can be generous, but their response is very narrow."

While the attacks of Sept. 11 were symbolically momentous, they were unfortunately not the only disaster that will hit our shores. If the donor community and the federal government decide that certain victims should receive million-dollar checks -- a sum that may or may not offset their financial needs and losses -- who else will expect a check of that size next time? And will we bother to give it to them?

The $12 billion in private and government funds will be distributed, and the distribution is likely to change the way we think about charity and entitlement. It is hard to believe that such an enormous fund will eventually run out -- but it will, and soon. The repercussions of its dispersal, however, will be with us for years.

By Janelle Brown

Janelle Brown is a contributing writer for Salon.

MORE FROM Janelle Brown

Related Topics ------------------------------------------