Dealing with Money in disaster response

Co-written with Devin Balkind. Much love to Drew Hornbein, Seamus Brugh, and Mark Ferlatte for their input on this piece. 

At some point, if you are visible enough, people will want to give your group money to do what you’re doing in responding to the crisis. 

Ideally, you will have been tracking who is putting money into the response so you can later pay them back if outside donations start coming in. Have a spreadsheet somewhere that folks can see (but not necessarily edit – see “data security”).

Some quick models that might work for you

If you want to be able to take tax deductible donations quickly, you can partner with a 501c3 in something called fiscal sponsorship where they take the donation and then pass it through to you after taking a small amount as administrative overhead (I’ve seen 10% most often). Some bureaucracy and you have to partner with an org that is values-aligned. You’ll want to take a look at a Memorandum of Understanding (MOU) to see how these partnerships are set up.

If you want to move fast and are expecting small amounts of donations, and don’t care about tax deductible donations, you can just open up a business bank account as a sole proprietor. There will be confusing tax implications later, someone in your group who has been an independent contractor will have insights. If you want more folks on the account it can get more complicated by needing to form a business or nonprofit (see below for when you have more time), but a local bank or credit union will want to help you figure it out. 

Framing conversations about dealing with money

Money often starts coming in AFTER you’ve already figured out what you’re doing and why. But people will start to see what you’re doing after you’ve been doing it, and want to support you in doing so. This means some of the tenor of your work will already be shifting as funds start coming in. You’ll be shifting from the response phase (getting people off of roofs and from under rubble) and into the recovery phase (getting people food and medicine, gutting houses, setting up warming shelters; longer term rebuilding housing, reestablishing businesses).

Will you fund what you are already doing, to just do more of it?

This is the common use case. We’re already showing success with x strategy, receiving funds will allow us to just x-strategy-harder. This is a great approach if you will remain project focused and no one plans to turn your response arc into a long term plan for their way of making ends meet. 

This approach can include traveling more for digital response, to be more grounded in the frontline experience; buying more supplies to muck out houses; or to contribute to or buy software to up your game. Decide which projects should get funded and why, and have an internal checkpoint on if the money is going to what still feels right a month or two in.

Will you fund others to do work that’s beyond your reach? If so, do you want their work to be counted alongside your org’s work?

Some groups end up with an embarrassment of riches and try to redistribute to continue the broader response’s good work, but then also see a question of ownership. The most effective method I’ve seen for this thus far was that used by Occupy Sandy and also the Awesome Foundation – giving a rough sum of money essentially in a paper bag to a cause that was picked by an internal committee, and with little to no oversight. Occupy Sandy gave money to locations/hubs during the earliest phase and then gave money to projects formed or deeply connected to organizers of that first phase. There was a spokes council that did reviewed/haggled over project budgets in great detail. Projects had to take funds into their own entities/fiscal sponsors but as long as they continued to accept OS money they had to continue to provide documentation for how they spend money and what outcomes they created. 

Who, if anyone, gets paid? Why them and not others?

The first people who should get paid are folks who spent money in the relief efforts before money was coming in. Pay people back first.

The second, harder problem, is if people get salaries. This is a harder problem, especially in a group that has been primarily volunteer. Focusing on hard-to-find roles that need to be filled from outside the volunteer community is one approach; uplifting an administrative leader from within your community to set aside other responsibilities and take on more regarding your shared purpose is another. Paying a person to be a figurehead rarely ends well, and usually expedites the dissolution of the group. There should be rough consensus around who is getting paid and why, lest resentment brew.

Acknowledge that starting to pay people means you are now an official organization within a network of organizations, and that your structure will need to change to account for being sustainable.

Some longer term models to consider

If you decide to keep doing what you’re doing over time, whether for your community or for crisis response in general, you’ll need to pick a model to go with:

Co-op or collective

If you’re invested in equitable leadership of the group you’re a part of, a co-op or collective is a good route to take. Most are structured as simple partnerships (2-5 members) or LLCs (4+ members). https://opencollective.com/ is a really great tool for organizing your money if you go the collective route. Open Collective can be used to collect tax-deductible donations if you use a tax-deductible 501c3 nonprofit fiscal sponsor/host or can be used to collect contributions that aren’t tax deductible. Failure mode: commitment it takes to reach consensus and/or lack of consensus on overall direction can lead to lack of strategic impact and overall dissolution of the organization. Advice: be very selective with who gets a vote, and be clear on who decides who decides.

Nonprofit

If you want to forge your own way more, rather than having a fiscal sponsor/host, you can become a 501c3. This way you can take your own donations and have more self-direction. You will have to organize a minimum 3-person board to guide the organization. It’s legal for board members to get paid but it’s frowned upon by the IRS who are more likely to audit you if you pay board members. This can create complications for small nonprofits who likely want board members and executive staff to overlap. The IRS regulates nonprofits nationally, but each US State’s attorney general also regulates nonprofits, often requiring annual information submissions and fees. Handling all these submissions can be confusing and time consuming so finding an accountant who specializes in nonprofits in your state of incorporation is key to an easy life. Failure mode: chasing funds is exhausting and requires expertise which needs to be paid for. You’ll also be at donors’ whims for what they’re interested in and how they like to fund things. Advice: stay fiscally sponsored until you’re pulling in about a million a year to be sure you have capacity to pay for fundraising efforts in addition to your core work.

Pivot to Employment

Many people who work at large disaster response institutions such as FEMA, the Red Cross, a religious disaster response organization, or a local health department got their start as a grassroots disaster volunteer. These agencies will often hire people to do work during a disaster and often people do both grassroots work and their paid job at the same time. In fact, it can be very useful for grassroots response volunteers to have “someone on the inside” of the large institutions. As an institutional employee you can help your institution channel resources to the grassroots while building long term relationships in the field. Once the most acute phases of the disaster are over and roles start changing, there is likely somewhere for you to go: working locally with one of the many organizations doing long-term recovery work, embedding yourself in a public agency or social services nonprofits, or hit the road and build a career as a traveling disaster specialists.

Business

If you’d like to do pay-for-service more than chasing grants, forming an LLC or other business structure may be right for you. This is the one I have the least experience with, but I’ve seen the failure mode many times over of people trying to start businesses out of a tool they built for one crisis without understanding how much of what they built is hyper-specific to their context and won’t apply elsewhere. Also, folks are usually willing to donate their time to solve problems in crisis, and to pay taxes to cover official response. The few successful businesses I’ve seen in this space, and my advice to you, is to try to get contracts with official response groups to augment their efforts in a meaningful way.

Independent Contractor

There are two ways to be legally paid in the USA. One way is as a salaried worker, in which case you’ll receive a W2 tax form and your employer would likely automatically pay taxes from your earned wages. Another way to get paid is as an Independent Contractor, in which case you’ll need to give your address and social security number to anyone paying you over a set amount (as of 2024 it’s $600). They will then issue you a W9 tax form showing you the amount they’ve told the government that they paid you. You will use this information when you fill out your own taxes. While this is all a pain, it’s the only way to get paid “on the books” as an individual without having a business or nonprofit pay you a salary.