Red Cross cuts jobs, regional support in $200-million deficit.

Efforts to bridge a $200-million operating deficit at the American Red Cross (ARC) will substantially reduce regional program service areas created five years ago, ultimately affecting 1,000 jobs at the national headquarters in Washington, D.C. Rumor of wholesale reductions in force have been circling the halls since January.

All departments and levels at the national headquarters will be affected, said spokesman Carrie Martin, except the Biomedical Division, which will continue to "streamline its operations to reduce costs while maintaining adequate staffing levels to achieve compliance." The division has been under a consent decree with the U.S. Food and Drug Administration for more than a decade which stipulates to certain staffing.

"It's a strategic department-by-department approach, and everyone is being asked to reduce costs," to eliminate a $200-million operating deficit in the $3.45-billion budget.

The number of employees at each of the eight service areas varies, but there are approximately 300 in all, and are considered part of the national headquarters. Service areas originally were envisioned to help with chapter collaboration and support, Martin said, rather than have chapters report directly back to Washington, D.C.

As part of the reductions, the service areas will not be eliminated altogether but "reduced substantially," Martin said. "What percentage I don't know right now," she said last month.

A new chapter structure implemented during 2006 (the Community Presence Initiative) made the service area structure that was created three years earlier redundant, Martin said. The initiative grouped chapters into clusters to establish a greater community presence, especially in more rural areas, and consolidate some tasks, such as human resources, communications or accounting.

"It's an example of where we expanded, and invested that's just not financially sustainable in the long term and it doesn't make good business sense to keep up that size a footprint," Martin said. "During that period (2003-2006), up until now, we've realized it's just too costly to maintain that."

There are approximately 3,000 employees at headquarters, which has had an operating deficit for several years. The 28-member board of directors instructed management this past October to review finances and balance the budget by 2010.

In January, a series of recommendations to address the budget deficit was presented to the board, which approved the process and direction at that time. The board was scheduled to officially vote on the recommendations at its meeting Feb. 28, after this issue of The NonProfit Times went to press.

"It's not just layoffs; it's cutting costs all over the organization," Martin said. "We're being asked to look at contracts, do we still need them in FY08. Layoffs are part of an overall strategic approach to the budget deficit. They're re-tooling and re-engineering individual departments to do business differently."

A reduction in fundraising is only part of the reason for the deficit but not the whole reason, Martin said. The Red Cross had an interim head of fundraising for 2 1/2 years, who left the organization last month. Martin said they are aggressively recruiting for a new person in that position, as the organization also seeks a new chief executive officer. The development department had about 195 employees prior to the layoffs.

The Red Cross board forced the resignation of the last CEO, Mark Everson, this past November after it came to light that he had an affair with the director of a Mississippi Red Cross chapter.

The former head of the Internal Revenue Service, Everson had talked about a deficit, and possible reductions, after taking the CEO position last spring.

"We're looking at what economies and efficiencies we can bring to the normal operation on the cost side. We're also looking at the revenue side," he told The NonProfit Times after accepting the job. "I don't have any conclusions right now, but ... there's a real recognition that we need to do more there."