How to Spend a $1.5 Billion Windfall?


It isn't every day that a charity gets a $1.5 billion donation from a fastfood restaurant heiress. No wonder Salvation Army officials are ecstatic over the unprecedented generosity of Joan B. Kroc, the billionaire widow of McDonald's (MCD) founder Ray Kroc. Recently deceased, she left the bulk of her estate to the organization. It's "as if it comes from God," says Army Commissioner W. Todd Bassett. Behind the joy lie far more earthly concerns, however.

Never before has a U.S. charity absorbed such an enormous gift. Just managing it will be a challenge. Complicating matters: Kroc stipulated in her will that the money be spent only on building and running new facilities, rather than fixing up any of the group's 1,400 aging community centers.

As a result, the well-known charity will have to keep raising funds to operate existing programs -- none of which will benefit financially from Kroc's gift -- while ratcheting up fund-raising for new programs, all without losing sight of the Salvation Army's double mission: bringing services to the needy and bringing the needy to God.

BIG BILL TO FOOT. Half of Kroc's gift must be used to build 25 to 30 centers along the lines of the posh San Diego Ray & Joan Kroc Corps Community Center, built in 2002, which houses three swimming pools, an ice-skating rink, and a theater in addition to its signature Salvation Army chapel. Joan Kroc was quite fond of the center.

The rest of the gift will cover somewhere between 40% to 50% of the costs for running these new centers, the Salvation Army estimates. That leaves it to foot the remainder of the bill, which Bassett estimates could total $70 million annually.

The amount may sound trivial compared with the $1.4 billion the Salvation Army collected in 2002, the last year for which figures are available. Trouble is, the charitable organization usually relies on the local communities where its centers are located to do the bulk of fund-raising for them. San Diego's center, for example, must come up with $4 million to annually to keep afloat -- a large chunk of cash for most of the communities that may potentially play host to the new Salvation Army facilities.

"POLITICAL" TUSSLE? Accepting the huge gift means the Army's national and local organizations will be forced to "step up fund-raising big-time," Bassett says. The plan is to partner with corporations, do more to court individual philanthropists, and look to the government for help. The group plans to launch a springtime version of the annual holiday season kettle drive, which in 2002 raised $87.9 million. Bassett notes that most of the Kroc centers won't be as upscale as one in San Diego, but he says their operating costs will be the major long-term concern.

And then there's the problem of preventing an unseemly tussle over the windfall among the Army's 9,314 U.S. posts. Kroc stipulated that the sum must be divided equally among the organization's four regions. Deciding which communities get new centers "is sure to get political," worries Major Carl Ruthberg, who directs a Salvation Army fine arts center in New York City. He -- and many of his colleagues -- has identified a great location to break ground on a Kroc building -- behind his current digs. "Like everyone," he says, "I'm dreaming."

Bassett's group would also have to find staff for all those new centers. Some 10,000 new employees will be needed over the next few years, taking the total to 60,000. And not just any warm body will do: 1 in 11 Salvation Army employees is an ordained minister. Known as officers, they typically make at most $25,000 annually -- much less for many. These officers direct centers that provide counseling and social services, as well as bring people into the church.

"MEN OF GOD." The sacrifice and Spartan lifestyle of these people are ultimately why the Army is able to provide such comprehensive services. But with only 150 graduates coming out of its two-year training program annually, it may be hard pressed to come up with enough new officers as it rushes to fill positions for the new Kroc centers. "We're always doing our best, but we're going to have to do better," says Bassett.

That's why planning over the next six months will be critical. With the Kroc estate likely to be wrapped up by the summer, the Salvation Army has until then to come up with a strategy. Bassett is convinced one will emerge. "The Board of Trustees are men of God," he says. But it may take more than faith to put this windfall to maximum benefit. By Jessi Hempel in New York


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