Showing posts with label budget. Show all posts
Showing posts with label budget. Show all posts

Wednesday, January 9, 2019

Grace Church by the Numbers

With Grace Church’s annual parish meeting now only a few weeks away, it’s worth looking at the effects Bob’s multi-year campaign of bullying and harassment, directed towards me and my family, have had on the parish. The data are not good.

In 2014, the year our conflict began, the church had 525 households and 317 pledging units. Total pledge income was about $850,000; there always is some wiggle room due to the late payment of pledges and pledges not fulfilled. Thus, the average pledge was approximately $2,681.

Since then, the number of pledging units has continued to fall, while the average pledge has trended upward, consistent with other churches in the diocese. In recent years, the average pledge has bumped up to roughly $3,600, while the total number of pledging units continues to fall. 

As things stand, the church hopes to pull in 220 pledging units, although 200 pledging units is a more likely number, and quite possibly not even that many. Thus, pledge income will probably end up between $700,000 and $720,000. But even with the church’s optimistic forecasts, best case is pledge income of $792,000–a far cry from past years. And many of the families that have been stepping up their pledges are clearly tapped out, with limited ability to increase their pledges further.

That doesn’t leave much room. Fixed building costs are going to remain about $150,000 annually, and likely higher as the physical plant continues to age. Additionally, should the church go ahead and hire a full-time assistant rector, it will be difficult to get total compensation costs much below $600,000. Throw in an 8 percent pledge to the diocese and guess what—we’re at roughly $814,000, which with income from the trust, investments, and cost sharing with the school, is pretty much everything. Nothing left to cover the costs of a loan for the HVAC, to save for the future, or to cover unexpected contingencies. 

Of course, part of the problem is the church’s current cost structure. In this day and age, when a church can hire a full-time rector with an Mdiv and a PhD for $100,000 all-in, paying Bob Malm almost $200,000 a year is questionable, at best, particularly given his feckless job performance — not to mention that damage he’s caused to the church and its reputation in the larger faith community through his efforts to suppress criticism.

At the same time, it’s hard to justify three additional full-time positions with full indirects, when in this day and age, so many churches use part-time employees. That’s not to say that current staff don’t do a good job—it’s just that few churches these days have any full-time employees other than the rector, and for many, even the rector is part-time or bi-vocational.

Where things get really ugly, though, is when one looks at the financial implications of the school. Producing little benefit to the church, the 50/50 split on utilities and other currently non-fungible expenses works strongly in the school’s favor. Coupled with years of Chris Byrnes’ empire building and rather lopsided approach to cost-sharing, and even with Patti’s much more collaborative approach, it’s a tough sell for many parishioners.

Freed from the school and Dysfunctional Bob’s current bloated cost structures, here’s what expenses would likely look like:

 1 FT rector, including indirects  $140,000
 1 PT music director, including indirects $45,000
 1 PT parish admin, including indirects $45,000
 1 PT accountant, including indirects $40,000
 1 PT assistant for pastoral care, including indirects $22,000
 1 PT assistant for family ministry, including indirects $22,000
 Facilities, including repairs, insurance, utilities (this is a generous number, too)  $100,000
 Diocesan pledge $55,000
 Outreach (not including diocesan pledge) $60,000
 Administrative costs $30,000
 Long-term savings $40,000
 Miscellany $40,000
 Total $454,000
 Optional: PT sexton with indirects $20,000

As you can see, the current combination of a 1970’s-vintage staffing model and the overhead associated with the school basically doubles the church’s cost structure, at a time when every indication suggests that church revenue will continue to fall in the coming years. 

Several additional factors also suggest that, if Grace is going to survive, a more modern cost structure needs to be envisioned. These factors include:
  • The fact that church membership no longer is normative in American society.
  • The lack of saving from current revenue for the future.
  • The church’s token efforts at growth and increased membership.
  • The discomfort Americans have with clericalism, and the profoundly negative effects clericalism has had on the parish.
  • The cavalier attitude towards church administration under Bob Malm, in which the entire approach for much of his tenure has been laissez-faire. Not good when dealing with other people’s donations.
In addition, the church’s lack of transparency regarding decision making, budgetary issues, and other important matters offers a powerful disincentive to younger members to give at levels consistent with those of previous generations.

In the meantime, the rapidly dwindling number of pledging units have done an admirable job of stepping up to the plate as people leave the church and stop pledging. But this trend should, in itself, cause alarm, for it is part of a very predictable pattern that occurs in dying churches. 

In short, Grace’s current cost structures and its approach to governance simply cannot continue over time.

Tuesday, October 2, 2018

Denial: It Ain’t Just a River in Egypt

In reading over recent reports about the sorry state of Grace Church’s budget, there is one theme that runs throughout. It’s a theme that is both amusing and appalling. What is that theme? It is the notion that the multiple failures in the building infrastructure, particularly in the HVAC systems, were both unexpected and cost more than anticipated. 

For the record, neither is true.

When I served as junior warden in 2014, I repeatedly warned about underinvestment in the building. Indeed, that was the theme of my article in the annual report. Similarly, in his final days at the church, David Adams warned both of the lack of replacement reserves, and the lack of a replacement reserve study.

The same issues came up in 2015, with Lisa Medley offering bitchy innuendo when the property committee yet again sent its recommendations to the vestry, only to again be ignored. 

Nor was this unprecedented. During the last capital campaign, HVAC experts recommended replacing HVAC piping in the building, only to be ignored.

Moreover, I personally sent several memos to Bob Malm while serving on the vestry, pointing out that cost structures were unsustainable, that income was inadequate, and reserves perilously thin. True to form, Bob made the right noises, but otherwise brushed things off.

Throughout all this, the stupid expenditures and inept financial planning continued, including:
  • Thousands of dollars from management reserves to pay for Chris Byrnes’ farewell party.
  • Proposals to pay for employee health benefits from reserves.
  • An annual (entirely unneeded) donation to Grace Episcopal School.
  • Proposals to kick the budgetary can down the road by drawing on reserves to “balance” the budget.
  • The granddaddy of all stupid expenditures, a $100,000 bonus to Bob Malm.
Nor are projections of infrastructure failure unpredictable. The replacement reserve study I paid for but declined to give to the parish due to bad behavior by Bob Malm, Lisa Medley and others made clear that multiple HVAC failures would occur in the next few years, as did multiple warnings from our HVAC vendor and MACC, the building controls company.

Of course, on an individual level, current vestry members indeed may regard the recent HVAC issues as unexpected. But on an organizational level, and in discussions with Bob Malm, these matters have been brought up ad nauseum. 

In short, this is a case of denial, not surprise. And people further show their stupidity, as in the case of members of Bob Malm’s family, by claiming that somehow these issues were exaggerated, or that I somehow caused these infrastructure failures. Funny how the latter have accelerated since my departure from the parish. But that is the sloppy thinking you get from Bob and members of his family.

To make matters worse, instead of saving for the future, the church now proposes to borrow to pay for the past. As in failing to plan, failing to save, and failing to maintain its current infrastructure.

Even the effects of my current dispute with Bob Malm were entirely predictable. Churchgoers are notoriously conflict adverse, but Bob Malm decided nonetheless to issue his infamous Edict of Shunning. Since then, he hasn’t learned a thing, instead doubling down on dumb with his bogus protective order, his lies to the Circuit Court, and his efforts to drag a dying woman into court—the very antithesis of Jesus’ message. As a result, Grace will increasingly be seen for what it is: a church in name only, where lying, shunning, bullying, and even misuse of the legal system are all okay.

Needless to say, until folks get a clue, things will only get worse for St. Dysfunction, aka Grace Episcopal Church.

Saturday, June 23, 2018

Grace Church: Living Above its Means and the Cost of Not Saving for the Future

Another example of just how dysfunctional Grace Church and Bob Malm are is the church’s budget. Specifically, the fact that the church now hopes to borrow $600,000 to pay for needed updates to its HVAC systems makes clear that its current cost structures are both ill-advised and unsustainable over time, while financial management is mediocre, at best.

History of these Issues

By way of background, the HVAC systems in the church have undergone two modifications in recent years. Once, in 1994, when they were expanded as part of the overhaul of the building; and about ten years ago, when two new condensing boilers were installed as part of a capital campaign. Note that, at that time, experts advised a major overhaul of the single-line hot water heating system due to the age of the piping, which was nearing end of life. That recommendation was ignored. (The life expectancy of the condensing boilers is greatly reduced by the failure of the church to maintain them in the manner required when mixing aluminum and cast iron HVAC components. But that is a story for another post.)

Of course, when the big 1994 building project was undertaken, it was reasonable to know that much of the HVAC infrastructure would need to be replaced by 2014, as most systems except for the pipes have about a 20-year lifespan. That means that, at the time of the 1994 project, there should have been a plan to start setting aside capital reserves to pay for the eventual replacement of these items. Moreover, HVAC piping, much of it original to the building, has a 65-70 year life, meaning much of it is now at end of life. (The same is true for potable water lines in the building. Anything original is now at end of life.) 

People recognized this, and for many years the church made a token effort to set aside $5,000 annually towards replacement reserves. That’s right—one-half of one percent of the annual budget. That compares against the normal rule of thumb in such cases, which as a rough estimate usually comtemplates about 10 percent of annual revenue going into cash reserves. So, in true Grace church fashion, the church tried to split the difference, and spend today without worrying about tomorrow, while still saying it was taking steps to address the issue.

Nor was the 1994 project well done. Below are photos of the infamous 2014 ruptured pipe, which burst just 20 years after installation, due to the use of improper and non code-compliant pipe in the 1994 project. The upshot? Challenges experienced during the project, including a builder that went belly-up shortly after the project was completed, should have alerted decision makers to the need to increase contributions to replacement reserves.

So what happens when replacement reserves are underfunded? One of two things: Either deferred maintenance or cash flow problems, both of which are now happening at Grace church. Below, for example, is a photo of a leak in the church’s basement, which was ignored for years., resulting in a section of the basement wall collapsing. The actual repairs to address the leak were nominal in cost. Meanwhile, the mold and mildew in this area, which houses air handling equipment for the nave, exposed parishioners to dangerously high levels of airborne pathogens. Note, too, that deferred maintenance typically is the most expensive maintenance, with preventive maintenance typically costing a fraction of deferred maintenance.

Consider, too, that some studies, including one by the Lutherans, note that most churches woefully underfund their replacement reserves, by putting aside an average of just 2 percent per year. That’s right—most churches save four times as much as Grace does when measured as a percentage of budget, yet they have far too little in reserves. Telling, and illustrative of just how cavalier the parish is when it comes to ensuring its future financial stability.

Nor should one be lulled into a false sense of security by looking at existing bank account balances. By law, restricted solicitations cannot be repurposed absent the express consent of donors. That means that funds raised, for example, for the columbarium cannot be reassigned to cover HVAC expenses. To do otherwise is fraud. Given that much of the money in question is restricted, or “funds held for others,” there’s no plan B sitting in the STAMP or checking accounts.

Benefits of Saving

Now, let’s look at the advantages of setting aside funds over time for replacement reserves. Assuming anticipated expenses of $600,000 between 1994 and today and a 5 percent rate of return on investments, the church would have had to set aside $1,244.14 a month to cover the cost. That’s very reasonable.

Even better, the project would only cost the church $531,760.32, with the rest coming from interest. That’s more than $68,000 in “found money.”

Being Prepared to Borrow

Nor is the church really prepared to borrow. Being ready to borrow means having your trustees current (this recently was done), having clean financial reporting, and a recent audit according to generally accepted accounting principles (GAAP). Given the deliberate misuse of memorial donations given by my family in 2015 and the fact that the books are only now getting cleaned up by Beth Callahan, things are, at best, off to a bumpy start. Plus the sharp decline in the number of pledging units and Average Sunday Attendance (ASA) in recent years would make any bank leery. There also is the issue of getting a full-blown audit, which typically would cost somewhere around $20,000. In other words, it is not cheap to borrow money, and Grace’s thin finances already are shaky at best.

The Cost of Borrowing

Now, let’s look at the actual cost of borrowing the $600,000.

Assuming a seven-year loan at 12 percent annual interest (not unusual terms for an unsecured loan), the church would have to make monthly payments of $16,666.67. Interest paid over the life of the loan would total $289,728.01.

Even assuming an annual interest rate of 7 percent over a seven-year period results in some really ugly numbers. The monthly payment would be $9,055.61, and the total cost with interest would be $760,671.07. Yikes—the $1244.41 monthly contribution that would have been needed to save this sum is sounding better by the minute. 

The issue becomes particularly clear when we look at the delta between the cost of this project when funded via savings, versus borrowing. Factoring in the accrued interest that would have been derived from saving the money means this project will, at minimum, cost an extra $220,000 over the life of the loan, and that omits application and origination fees. That’s more than 20 percent of the church’s annual income.

The bottom line: Having to borrow the funds needed to keep HVAC on in the building makes clear that the church has been living above its means for a long time, and has been acting irresponsibly. It’s not like these expenses come as s surprise. Borrowing the money is the most expensive way possible to pay for these capital expenses.  It is irresponsible and a waste of the donations entrusted to the church to borrow, when the church all along has had the ability to save the money by effectively managing its resources, including not wasting money on under-producing employees and lavish clergy bonuses.

Who’s Responsible?

Of course, Bob (never one to be accountable for anything except as a rhetorical matter) will tell you, “Well, that’s not my decision. The vestry handles all that.”

But that ignores that fact that Bob was able to browbeat the vestry into spending more than $1.2 million on his personal residence, while demolishing another $700,000 in the form of the rectory. Then, of course, there’s the $100,000 bonus the vestry gave Bob in 2014. When was the last time you got a bonus of that size?

Plus, Bob has shown that he will unilaterally remove people from church membership via instructions to church staff. So why not a unilateral instruction to staff that there will be a real replacement reserve study? Both David Adams and I have made that recommendation on multiple occasions, but it was ignored. (I actually paid for one such study out of my own funds, but declined to provide the results to the church due to bad behavior by Lisa Medley and Bob Malm. Res ipsa loquitor.)

So, don’t let Bob tell you that he’s not ignoring his responsibilities. Everyone needs to save for a rainy day, and that includes churches. Any rector who can bludgeon his vestry into spending $2 million in total on his personal residence can damned well show the same initiative when it comes to the church’s financial well-being over time. And that’s all the more the case when, as here, the Planet Malm executive committee is appointed by Bob.

Nor does this account for other outrageous and wasteful expenditures, such as the more than $3,000 pulled from Management Reserves to pay for head of school Chris Byrnes’ farewell party. That’s right—the church paid for a party from its savings. Folks, if you are going to spend that kind of money on a party — and there’s good reason not to — it should come from operating funds, not savings. If you can’t afford to pay cash-and-carry for your party, you shouldn’t be partying. Just saying.

As things stand, the church appears to follow the same budget as Bob does at home, which is to keep up appearances at all cost, and never worry about saving for tomorrow. In short, this is one sad church.