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

Friday, November 8, 2019

It’s Pledge Season at Grace Church — Please Give Generously!

We depend on your generosity to pay those $100,000 clergy bonuses! Doesn’t your rector deserve a month on the beach every year? Please give generously!


Thursday, November 7, 2019

Issues with Diocesan Pledge Underscore Severity of Budget Crisis at Grace Church

Remember when I posted the article about warning signs that a church may be at risk of closure? The article, written by the Rev. Thom Rainer, lists one of the warning signs as resources being focused inward, versus outward.

And so it is with Grace, particularly in the case of the parish’s annual pledge to the diocese. Specifically, for many years, the amount pledged has been less than one-half of the amount proscribed by the Virginia Plan, the diocesan proportional giving plan. That’s right—less than one half.

Under the diocesan guidelines, parish pledges are based on net operating income, otherwise known as normal operating income or (NOI).

So what is NOI? Simply put, it’s all income that is used to pay operating expenses, and it includes items that are funded off-budget, like music programs, the altar guild, and EYC mission trips.

The diocese of Newark provides a good definition:


























In other words, NOI is pretty easy to calculate. If you spend it for day-to-day operations, versus capital improvements, it’s NOI. (It’s also worth noting that the Newark definition includes the church school. Just imagine if Grace School were actually included.)

With that in mind, here’s what the Virginia Plan proscribes for parish giving:































Grace church, however, has consistently pledged at roughly 10% of pledge income. That excludes:

  • Plate and loose giving
  • Reimbursements from the school.
  • Altar guild program operating revenue.
  • Music program operating revenue.
  • Income from the trust used to pay operating expenses.
The result is that when measured as percentage of income Grace Church supports the diocese at a level consistent with a church with revenue of less than $100,000 annual income. When measured by total amount, Grace’s support of the diocese is consistent with that of a parish generating $571,428 in NOI.

For example in 2015, a year in which the church pulled in more than $1,000.000 in revenue, it gave just $85,000, per the annual report.

Income:
























Again, keep in mind that this does not include items that are off-budget, like the music program, the EYC hoagie sale, the altar guild, and other program areas.

That brings us to a recurring issue when examining life at Grace Church: Thanks to years of feckless leadership, the church has been living beyond its means for decades. It can afford to pay its rector $200K a year, offer lavish farewell parties for the head of school, and provide generous purses to Bob Malm and his family. There’s plenty of money for the annual weekend at Shrine Mont, which for many is nothing but a drunken binge. And there are mountains of flowers at Easter and Christmas (yes, although these are restricted solicitations, they are still part of NOI). Nor should we forget Bob’s 2014 bonus of $100,000.

So while Jason Roberson is bloviating about how the parish is “growing and flourishing,” let’s keep in mind that it’s been ignoring its obligation to the diocese for years. That despite the fact that the diocese apparently fully honors its commitment to the national church. 

In other words, most of the church’s funds have been going to meet its own needs and desires, and to subsidize Bob Malm, versus to actually being a church. That is, or should be, a wake-up call to the parish, whoever is foolhardy enough to become interim, and to the diocese. Simply put, it is a matter of survival.

There’s also a catch-22 that confronts the parish: In a church so organizationally narcissistic that it doesn’t see an issue with a priest who commits perjury, or with trying to drag a dying woman into court, do you choose to integrate into the life of the larger diocese? If so, how do you increase your diocesan pledge by roughly $80,000 annually at a time when the parish cannot afford its current cost structure? Yet members are likely to be highly resistant to any arrangement that interferes with the whole living-life-large paradigm under Bob Malm.

In closing, it’s worth noting that I repeatedly cautioned Bob, beginning in 2014, about the looming budget debacle, warning that absent major cutbacks the church was on a trajectory to become insolvent as early as the summer of 2016. In most cases, in true Bob Malm fashion, I didn’t even get the courtesy of a response.

Things are now at a state where the church may need to consider taking on mission status, accepting help from the diocese, and rebuilding from the ground up.

Grace church is in serious trouble.

Tuesday, December 4, 2018

See For Yourself: Grace Parishioners Asked to Pay Half the Cost of HVAC Rebuild, Despite Almost No Benefit to the Church

At a time when Grace Episcopal is barely hanging in there financially, there’s a dark cloud hanging over things. Specifically, members of the church are being asked to pay half the cost of replacing the HVAC systems in Merrow Hall, the wing of the complex that houses the school and the auditorium. Given the limited benefit to the church of the work, this expenditure, which is estimated to cost in total $626,440, is going to prove a difficult pill for members to swallow.

The work, which is confined to the Merrow Hall wing of the complex, comprises the auditorium, myriad classrooms, the tower rooms, and two small rooms on the third floor of the building — one of which has almost entirely been taken over by the school. In addition, while the offices and sacristy are not part of the same system, they should be included in the work, as the HVAC compressor on the roof that services these areas is already past end of life.

The problem comes into sharper perspective when one examines the question of who uses this space; it overwhelmingly is the school. Yes, the church uses several classrooms for an hour a week, and the auditorium for about two hours a week (coffee hour and La Gracia). The school, however, uses all the space, and on average 40 hours per week. Yet, per the terms of the agreement with the school, the church is being asked to pay half the costs. 

Yet if one looks at the use of the nave, the church uses it about five hours a week, while the school uses it one hour a week for its weekly chapel. (School staff refers to the nave as “our chapel,” and church officers as “volunteers in our chapel.” Not surprisingly, school parents often view the church as part of the school, resulting in a certain level of disrespect.) Despite this relatively high percentage of usage, however, the school contributes nothing to the cost of maintenance, utilities, and repairs when it comes to the nave. 

Similarly, the sharing of utilities favors the school. These costs are shared 50/50, despite the fact that the overwhelming majority of utilities are consumed by the school. As a result, and as a result of the school’s effective fundraising efforts, the school is relatively flush with cash, and will be able to pay for its share of the HVAC work from savings. (Amusingly, some vestry members in 2015 were very resistant to eliminating the $9,000 annual grant to the school, under the theory that “we then would be doing nothing for the school. Hardly.)

Nor is the school content to remain within its space. Over the years, it has managed to take over the clergy office attic, space in the undercroft, the music library (which was supposed to be temporary, but certainly has not been) and more. Indeed, at one point the school was trying hard to take over one or more of the vesting rooms, but it fortunately was not successful.

Is the school responsible for the church’s relatively lackadaisical attitude towards fundraising? Of course not. But at the same time, there’s little evidence that the school benefits the church. I mean, it’s not like students later become church members, or their families become long-term members. (In the past, some joined the church in order to get a discount on tuition, but pledges to the church from these “quasi-members” often were startlingly small, and a surprising number flew the coop the instant their kids graduated from the school. This discount is no longer available.) Indeed, if even half of each year’s graduating class became members, that would add up to 60 new families every year. This clearly is not the case.

The contingency funds for the project could also be an issue. Sensibly enough, the planning phase of the project includes $200,000 in contingency funding, which is a good idea when dealing with a 70-year-old building. Yes, the asbestos has all been removed, but a building that age invariably tosses contractors some curve balls, especially given the rather shoddy construction that formed the basis of the 1994 project. So, the church could wind up on the hook for another $100K.

True to form, the church has made no effort to save for this day. Even the fig leaf of the .05 percent of annual revenue, or $5,000, was zeroed out a few years ago in order to continue to pay Bob Malm’s outrageously generous compensation package. Meanwhile, staff is being asked to contribute to the costs of their own health insurance, and outreach is being cut, but Bob continues to live life large, with his annual month at the beach, his trips “out of town,” any time he feels like a week in Massachusetts or Georgia or elsewhere, and his autocratic control over the composition of the executive committee. Yet Bob has no game plan to grow the parish, no vision for the future, and no goals for tomorrow except to keep riding the Grace Church gravy train for as long as he can.

It’s time for parishioners to put the brakes on things and demand accountability from Bob, or make clear to Bob that it’s time to get the hell out of Dodge. The church simply cannot go on with an engaging but indifferent rector whose primary goals in life are to go jogging, hang at the beach, and play golf; and who evinces zero evidence of any genuine Christian conviction. Bob’s conduct over time has damaged the church on every front, and it’s time for change.

For the record, below is the current status of permitting with the City of Alexandria, which makes clear, inter alia, that the church has nothing to do with the project except to pay its share of the bill. Note the cost of the permitting and the fact that the city apparently has rejected the church’s mechanical plans as of today due to the lack of calculations regarding refrigerant quantity. Interesting, when you consider that the project originally was supposed to have been done last summer.











Wednesday, July 25, 2018

Reality Check: Grace Church’s HVAC Project Signals Big Trouble Ahead for the Church

One of the recent discussions amongst the vestry, clergy and staff of St. Dysfunction, aka Grace Church, is about how to fund next year’s HVAC work in Merrow Hall. As a component of that discussion, some have suggested that a capital campaign is not necessary, but that the church should borrow the funds needed for the work, and that it may be possible to pay off a loan of that sort within five years.

Those discussions illustrate three key points:
  1. The management of the church and its temporal affairs has been inept, at best.
  2. The proposed HVAC project is problematic on multiple fronts.
  3. The church’s problems extend far beyond the issues at hand.
Before we go further, some important context. 
  • Today, twenty-four years after the 1994 renovations, major HVAC system components already have outlived their actuarial life expectancy by four years. In other words, the church has been living on borrowed time for years. The failure of the HVAC system in key areas of the building now drives home the fact that this issue cannot be ignored any longer; nor can one ignore the fact that the church has done nothing to prepare for the inevitable.
  • The primary beneficiary of this project will be not the church, but the school. The school uses rooms in Merrow Hall for more than 40 hours a week, while the church directly uses the space for about four hours a week—two for La Gracia, and two for coffee hour, or  about 9% of total usage. Yet half of the projected $1.2 million cost is to be borne by the church.
In the case of the nave, however — the focal point of the parish — total usage is about 9 hours a week. Of that total, roughly 8 hours is attributable to the church, while 1 hour a week represents the school’s weekly usage. (These numbers shift somewhat in the summer, but the for-profit summer camp that has used Merrow Hall over the past few summers largely has kept the ratio relatively constant, while greatly increasing wear and tear on the building.) Thus, the school’s usage represents about 11% of the total, yet there is no cost share. This, despite the fact that school staff refer to the nave as “our chapel.”

Meanwhile, the nave’s air conditioning is inadequate on hot days, or when load is heavy, as happens with large weddings or funerals. Yet there is no plan to address the serious issues with the system, including:
    1. The inadequate airflow available via the existing ductwork.
    2. The lack of humidity control.
    3. The temperature differential surrounding the pipes of the organ, resulting in it being frequently out of tune.
Thus, one wonders why these issues weren’t addressed in 1994, and why there is no plan to address these issues now, despite the proposal to spend more than $1.2 million on an HVAC project that primarily benefits the school.

Looking at the Numbers

Now, let’s look at the numbers.

As currently envisioned, the church’s share of the costs of the project will come to $600,000. Assuming the church can raise $100,000 of that (a doubtful proposition), that would leave $500,000 to be borrowed. Assuming the five-year term presently discussed by the vestry, and the 5 percent interest rate also discussed, the monthly payment would be $9,435.62. Total cost of the loan, excluding origination and processing fees, and the full audit likely to be required by the bank (an estimated $20,000 expense), would be $566,137.01.





Given the church’s tight budget, its ability to come up with an extra $113,000 a year seems improbable. Even assuming that the entire $40,000 annual draw on the trust fund is devoted to repayment, that leaves a gap of $73,000 annually. Thus, predictions that the church could pay the loan off in five years seem optimistic, at best.

There is, of course, also the issue of interest. By virtue of borrowing the money, versus paying cash and carry or having a capital campaign, the church will wind up paying $66,137.01 in interest over the life of the loan—a bad example of interest working against you, versus saving and having interest working on your behalf. Plus, again, there are the indirect costs of acquiring a loan, including the likely $20,000 cost of a full audit (not a bad investment, though, considering the dismal condition of church records in past years), origination fees, title search fees and all the other incidentals that make borrowing money such an unpleasant experience.

Keep in mind, too, that $66K is roughly the annual cost of one full-time assistant rector. Or, put in other terms, it’s a lot of money to be giving to a bank, when it could be used for ministry, helping the needy, and more. 

As I’ve said before: Not saving for the future tells me the church doesn’t think it has a future. And given the average age of parishioners, and the relatively few whose estate plans include the church, it’s just plain foolish not to save.

Can the Church Even Get a Loan?

But would the church qualify for such a loan?

There is reason to be dubious. Consider:
  • The church has lost more than 100 of the 320 pledging units it had only a few years ago. 
  • Average Sunday attendance, or ASA (a key metric of parish health), has dropped by 17% over the past two years.
  • Pledge revenue is down sharply, and it was only year-end gifts of appreciated stock and other major gifts that kept the church from running a deficit last year. 
  • The church devotes no portion of its pledge income to savings, and, as stated previously, is dangerously reliant on a handful of major donors, some giving more than $60K annually. Loss of even one of these pledging units could throw the church’s finances into a tailspin.
  • The church has burned through much of its management and replacement reserves, in some cases drawing on savings to fund luxuries like Chris Byrnes’ farewell party. And, of course, there is the $100,000 bonus paid to Bob Malm in 2014.
There also are signs that parishioners are getting stretched pretty thin. Participation in events like the altar guild tea is sagging, as are flower donations and other non-essential expenditures. Loss of any further membership or giving well could push things to the breaking point.

Of course, to qualify for a loan, the church would need to submit a repayment plan to its proposed lender. Additionally, under Canon 14 of the diocese of Virginia, debt exceeding 20 percent of the prior year’s total receipts must be approved by the diocese. Total receipts cannot include funds from an endowment when such funds are designated for other purposes, which means that repairs paid for by the endowment in 2018 cannot be counted as revenue for purposes of the 2019 project.

Moreover, when one looks at the diocesan debt repayment worksheet available here in PDF, it asks the same sort of tough questions any good banker would ask, including growth or decline in number of pledges, as well as pro forma budgets for the next five years. The latter is problematic, if for no other reason than Bob Malm must, under church canons, retire by the time he turns 72. That will almost certainly erode revenue, as this happens at all churches when there is a change of rectors. And in Bob’s case, having lingered on for 27 congenial but ineffective years already, the effect of his retirement likely will be substantial.

There’s also the challenge that none of this occurs in a vacuum. As noted in a previous post, the faux slate roof needs to be replaced, numerous double-paneled windows need to be replaced, there is extensive deterioration of the rake boards, window trim and other exterior wood, the stained glass is due for restoration, the parking lot is due to be resurfaced, and much of the interior finish of the 1994 renovations is at the end of useful life or beyond. Thus, overall costs will continue to climb in the coming 5-10 year period. Meanwhile, given the average age of the parish population, one should expect the number of pledging units to decline during that time. Plus, there are a number of expenditures in the offing that likely will upset parishioners greatly...more on those issues in future posts.

Then there is the issue of the church, its power dynamics, and its suitability for mission. Specifically, I am not the only person to leave St. Dysfunction having concluded that the place is toxic. Whether it’s bullying, Bob Malm’s little power games, urging people to commit suicide, or disclosing confidential giving information, there is irrefutable evidence that this is one messed-up church. That does not bode well for the long-term health of the church, financial or otherwise.





Summing Up

No matter how one parses things, St. Dysfunction is in a bad way. It’s been doling out 100K bonuses, paying for lavish parties from savings, and otherwise living high on the hog, all the while not saving for the future. Even worse, it’s lost sight of its real purpose, which should be a place of healing, welcome and reconciliation for all persons. Instead, it’s become a religious-themed fraternity/sorority, in which people think it’s okay to bully others, to gossip, to shun people, and to engage in behavior few would contend is Christian or even ethical. (The gossip about an allegedly gay married man in the parish is particularly ugly. If nothing else, it’s none of your business, folks, and if I were his wife and found out about your stupid chatter, I’d be more than a little ticked off.) People aren’t stupid, and they instinctively know when a church has become toxic (look for further documentation on those issues this fall). And few want to give generously to a church that thinks shunning, bullying, and other adolescent antics are acceptable. That would be doubly the case as people increasingly realize that Bob Malm and the vestry have not been accurate, for example, in their recounting of recent events, including the false claim that I resigned from the church in 2015.

So, paying for the HVAC work is going to be a major problem for the parish, but it’s only the tip of the iceberg when it comes to the problems facing St. Dysfunction, aka Grace Church.