It’s Layoffs And A Lawsuit At ARC In The Twin Cities

June 1, 2008       Michele Donohue      

The American Red Cross (ARC) can plan for natural disasters, but the newly merged Twin Cities chapter in Minneapolis, Minn., wasn’t prepared for two waves of layoffs, an age and sexual discrimination lawsuit and a crippling financial market — all during the past two years. Confronted with a $2-million deficit, the Twin Cities ARC announced 11 employee layoffs for the chapter that serves more than 130 cities and 2.5 million people in Minnesota.

The layoffs come as the chapter organized its $10 million fiscal year 2009 budget and goals, according to chapter CEO Jan McDaniel. Another four open job positions will not be filled in addition to the 11 layoffs, reducing staff size to 80 employees. The chapter cut 24 employees last year.

“Unfortunately, when it came to lower donations and lower earned revenue, and looking into 2009 and saying we have to be conservatively aggressive, it was really about personnel costs at that point,” said McDaniel. She said that the chapter saved some money by streamlining business operations and outsourcing professional services when the St. Paul and Minneapolis chapters merged in 2006.

The chapter has been using a financial reserve to cover the deficit and using interest income to pay salaries. But the investments are declining with the stock market slump, leaving the organization with a smaller financial base.

Unrestricted individual contributions declined from nearly $2.2 million in 2006 to $1.3 million in 2007. Restricted individual contributions soared, from $32,016 in 2006 to $238,899 in 2007. Corporate and foundation funding increased more than $300,000 in that year, but doesn’t match the contributions lost from individuals.

The chapter had more than $15.5 million in total net assets 2007 — down $2.8 million from the previous year.

The layoffs follow a series of misfortunes to hit the organization. Greater  Twin Cities United Way redirected nearly $1 million used to support the chapter’s health and safety services, such as CPR training and swimming lessons, to other health initiative programs outlined in 10 prioritized goals to which the United Way has committed. That funding portion will be phased out from the ARC chapter to fund other community programs aimed at healthcare access and preventative childhood health behaviors. This “strategic decision” was announced to the ARC chapter in January 2007, but funding transitions didn’t begin until January 2008, according to Frank Forsberg, United Way’s senior vice president of community impact.

The phasing will reduce the grant by 50 percent each month until its completion in June. United Way will continue to fund other Red Cross programs with more than a $700,000 annual investment, according to Forsberg.

Legal woes A former human resources employee filed a lawsuit against the chapter and the national ARC this past February in federal District Court for the District of Minnesota. Linda Hildreth claims in the suit that she faced age and sex discrimination before she was fired in 2006 from her position as chief people resources officer with a $120,000 annual salary. Hildreth, 57 at the time of her employment termination, alleged in the lawsuit that male colleagues were treated differently. Hildreth also alleged male colleagues behaved inappropriately and alleges disciplinary actions were not taken against them for employment performance issues.

McDaniel declined to comment about the lawsuit, saying, “It’s not relevant.” Beth Bertelson, Hildreth’s attorney, declined to comment about the lawsuit or the chapter.

McDaniel said that Twin Cities’ community programs and services would not be cut and that the chapter’s more than 1,200 volunteers would be maximized to fill the vacant positions, especially class administration positions — like teaching CPR and babysitting techniques — traditionally held by volunteers.

The organization’s disaster assistance costs surpassed budget by 25 percent from October 2007 to March 2008. The assistance goes to food, shelter and clothing costs for families facing disasters, such as house and apartment fires. Donations are not keeping up with need. “A discretionary dollar is more likely going into a gas tank or at the grocery store right now than it is to a nonprofit — even one with a great reputation and certainly highly visible in the community as we are,” said McDaniel, who attributed donation decreases to the rough economy.

“What we’re finding is that we’re having more fires and our clients have a higher level of need,” said McDaniel, who called the assistance need unprecedented. “Renters’ insurance becomes a luxury when you’re putting $15 a week more in your gas tank to get to work.”

The rising assistance costs do not include relief given last August during the Interstate 35W bridge collapse — just a block from the chapter’s headquarters. The Red Cross served more than 40,000 meals and snacks to families and first responders during the three weeks after the collapse that killed 13 people and injured more than 100. The organization also helped with counseling services and a family assistance center, and provided direct aid to out-of-town families without housing or transportation while family members were in the hospital.

The Twin Cities chapter isn’t the only chapter facing hard times. Chapters from Grand Canyon to Montana have reported job cuts, and in February some 1,000 jobs were affected at the ARC’s Washington, D.C., national headquarters in an attempt to reduce the $200-million operating deficit in the $3.6-billion budget for 2008. The national fiscal year 2009 budget is expected to be approved this month.  NPT

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