Episcopal Church Foundation Vestry Papers - for leading congregations

I hope you’re reading this blog post after your vestry has finished the 2022 budget. I hope it lands in your email or newsfeed after your 2022 Annual Meeting, and that your church’s finance committee and leadership are already well on their way in this year’s spending / resourcing plan. I hope you stumble upon this post long before anyone in your congregation starts talking about 2023.

Oddly enough, the lull between annual pledge drives, stewardship campaigns, budget setting and Annual Meetings is the perfect time to begin talking about spending and resourcing plans for 2023 (and future years). It’s the perfect time because you can talk freely about budget standards, using this Snapshot of Church Finances. It’s an excellent worksheet prepared by Dan Hotchkiss, senior consultant for the Alban Institute.

The snapshot poses really good, albeit hard-hitting questions:

1. What percentage of operating income comes from current giving? Hotchkiss asserts that pledge and plate giving should be at least 80% of current giving. Sure, you could rent more rooms, pull off more fundraisers, generate more income. But the relative ease of all that is, itself, a danger zone. The more energy and time your church leadership spends even thinking about “alternative sources of income” is directly equal to the negative trendlines that will in future years show up decreased financial investment in pledge and plate giving. You cannot generate more fundraisers and do meaningful, impactful ministry (that then shows up in sustained pledge and plate investments). You cannot do both. Don’t go there. As Dan Hotchkiss writes, “Anything less than 80 percent runs the risk of weakening the congregation’s sense of ownership and responsibility.”

2. What percentage of operating income comes from building rentals? Hotchkiss writes: “If this is more than 20%, does the congregation believe there is something more ‘profitable’ to do with their building than to have a church there?” Like the first point, above, there is a direct connection between increased income by way of “alternative sources” and decreased giving investment. The opposite is also true: bring on board more partners in ministry and building stakeholders (not just renters), and do so with the full engagement and blessing of your congregation, and pledge and plate giving will, more than likely, increase.

3. What percentage of operating income comes from endowments or other invested funds? The standard is less than 20%. “If this is more than 20 percent,” Hotchkiss writes, “it raises the question whether the vision could be enlarged so that it requires both investment income and current gifts.”

4. What percentage of operating income is dedicated to staff compensation, including clergy? When I was rector of one church – before we merged Ascension and St. George’s – my total compensation was 74% of total income. There is a congregation I’ve been working with where the rector’s total compensation is 89% of total pledge and plate income (note that I’m decidedly not including rental income and “other” fundraiser income because those categories blur the lines and have actually driven down member investment in Christ’s mission; see numbers 1 and 2, above). Hotchkiss writes that “this is apt to approach 60%” in a small church; closer to 40% in large churches. Taking note of my previous post about the cost and benefits of the current clergy model, let’s first admit there are other ways to fund clergy compensation. Yes, ministry sharing models are untested, and scary (which is why they’re mostly untested!). But I’m also painfully aware how many congregations buy their clergyperson by throwing everything they’ve got, financially, into the new rector’s compensation package, while not considering how they’ll resource annual step increases. It’s like buying a house at the top of your spending limit without any money set aside to invest in the property. I’m not sure 60% is a safe number. That’s already a danger zone. I’d say a wiser standard should be that the rector’s total compensation be 40%, no higher than 50% of pledge and plate giving. Anything more than that has the power to actually start to drive down other resources which are essential for mission and ministry.

5. What percentage of operating income is dedicated to debt service payments? Hotchkiss: “Over 25% is usually too high.” This one’s matter-of-fact. Dear church, stop it with the capital campaigns you cannot afford. Church membership and religious participation trends over the next several decades years will, on the whole, only move downward, not up. If you cannot raise the money now, don’t do it.

6. What percentage of operating income is dedicated to all building-related costs? “If this is over 30 percent of the total budget,” Dan Hotchkiss writes, “the congregation is apt to feel ‘house poor.’” How much do your buildings cost? Charge your Buildings & Grounds Committee to study this and report back no later than the May Vestry meeting. Can your costly buildings be improved or shared or (dare I say!) sold? Yes. Yes, they can. Perhaps they should.

7. What percentage of the congregation’s budget is dedicated to projects that primarily benefit non-members? Hotchkiss stipulates that a congregation cannot include the diocesan / judicatory assessment in this category. I’ve known too many Episcopal congregations who brag about their generous “outreach” budget but include the Diocesan Assessment in that number. The biblical tithe of 10% seems a great goal to strive toward. If it’s at 4% this year, could it be moved to 5% over the next three? And what’s the plan to get there? What resources will be gained? What existing expenses will be trimmed? What economies of scale will be achieved?

8. How much operating cash is on hand, as a multiple of monthly operating expenses? “Three months’ expenses is a good minimum for a family or congregation,” Hotchkiss writes. An average-sized Episcopal congregation with an annual budget of $325,000 will need a checking + savings balance of $81,250. That may seem like a high number to many vestries and finance committees, but it’s good practice to establish a “cash on hand” standard.

9. Are your congregation’s records audited by an objective outsider at least once every two years? Actually, The Episcopal Church’s standard is once every year, although it does not necessarily need to be a professional audit. The standard in this question is an “objective outsider.” That can be a small audit team from a neighbor congregation, perhaps in an audit-team swap among neighbors. Using the form in the Manual of Business Methods in Church Affairs is a good place to start. It’s a very user-friendly template. From my own experience, these audit swaps can also generate goodwill and ministry connections between neighbor congregations, thus also opening the doors to other ministry-amplifying (and cost-saving) measures to come.