Finance Committee, January 13, 2016

Minutes of the Finance Committee

First United Methodist Church, Santa Rosa

Wednesday, January 13, 2016 -- Carriage House

 

Present:  Greg Roth (Chair), Jack Dupre, Ryan Comiskey, Heather Young, Charlie Amezcua (new member), Mike Ferrel (new member), Chris Bowen (new member), Larry Schmidt (Treasurer), Bill Stevens (Lay Leader/Staff Parish), Barbara O’Rear (Lay Rep to Annual Conf), Lynn Goodison (Trustees), Blake Busick (Sr. Pastor), Lindsey Kerr (Asst. Pastor), Mary Brunet (Business Administrator), and Jennifer Dornbush (VIM)

Absent:  Tokasa Buinimasi (new member)

Greg Roth called the meeting to order at 7:00 p.m., beginning with a prayer by Pastor Lindsey.

 

Calendar of Special Offerings

Jennifer Dornbush presented a preliminary calendar of church offerings which includes the Methodist special offerings and FUMC traditional offerings.  Heather reminded the Committee that in November Paul O’Rear requested a special offering for January or February to expand the church’s installation of solar panels; a decision on this was delayed pending a decision regarding the need for a Fund the Gap 2016 campaign.  Mike Ferrel moved and Jack Dupre seconded a motion to accept the calendar as presented by Jennifer Dornbush.  Motion passed with Ryan Comiskey opposed and all other voting members voting Aye.

 

Approval of Minutes

Ryan Comiskey moved and Lynn Goodison seconded to approve the December Finance Committee meeting minutes.  The motion was passed unanimously. 

 

Finance Report

Larry Schmidt reviewed the financial statements for December 2015.  During the month the main checking account balance rose by $1,961.99 to a new balance of $49,960.70.  The operating fund balance rose by $8,205.81 to a new balance of $25,679.22. 

Year-to-date (YTD) pledges and gifts were $724,428.33, which is 99.63% of the YTD budgeted amount.  Total YTD income was $783,179.48, which is 99.26% of the YTD budgeted amount.  YTD total expenses were $781,796.13 which is 99.09% of the YTD budget amount.  Overall, YTD total income exceeded YTD total expenses by $1,383.35. 

 

Business Administrator’s Report

Mary reviewed the FUMC chart of accounts and history regarding the building fund and FUMC apportionments.

 

Stewardship Campaign

Greg reviewed the results of the 2016 Stewardship Campaign and reported a total of 161 pledging households.  Thirty-one households pledged less than last year.  Sixty-six pledged the same as last year.  Forty-four pledged more than last year.  There were 20 households that made first time pledges for 2016. Forty pledging households from last year did not pledge at all for 2016 – some are the result of deaths. Approximately a dozen of these non-pledging households were responsible for approximately $60,000 in 2015 pledges.

The campaign has resulted in a drop of approximately $85,000 in operating income and an approximate drop of $32,000 in the mortgage/building fund.  After a Budget Summit meeting to reduce the 2016 budget gap, the new estimated budget shortfall amount is $156,582.

Discussion occurred regarding the possible reasons for the reduced pledges and possible budget areas for review and revision because of the lower contributions.  Two actions were taken as a result of this discussion:

  1. Greg submitted a formal statement for the Finance Committee to send to FUMC Church Council members, and the statement was adjusted to read as follows:
    ---------------------------------------------------------------------------------------------------------------

Finance Committee Report to Church Council, Trustees and SPRC

Sudden Deterioration in FUMC’s Financial Outlook

1/13/2016

 

Relying on the same annual forecasting method that has been successfully used for many years at FUMC, the Finance Committee believes there has been a sudden and severe deterioration in the Church’s financial health.  The Committee believes that extraordinarily difficult steps toward both raising income and cutting expenses must be identified in the next few weeks to avoid extremely damaging outcomes.

The primary reason for this sudden deterioration in financial health is a drop in anticipated income for 2016, although the Finance Committee has warned about the level of Church expenses since at least March, 2015.  The results of the most recent Stewardship Campaign show an unprecedented decrease in the level of funds pledged to the Church.  The current forecasted annual deficit for 2016 is $156,582.  This means that, on average, Church spending is expected to exceed Church income by about $13,049 per month.  The most recent balance sheet shows the Church has $49,824 in unencumbered cash available in its checking accounts.  At the current rate of expected cash depletion, FUMC will exhaust all available cash in 49,824/13,049 = 3.82 months.  If this were to occur, the Church would have great difficulty in paying its regular monthly bills, including its mortgage payment and payroll for pastors and staff. 

The Committee recommends that a “Close the Gap” type of fundraising campaign, similar to last year’s campaign, be initiated quickly.  The Committee expects that such a campaign would be helpful in buying time, but would likely fall far short of balancing the 2016 budget.  Last year’s Close the Gap campaign raised about $15,000.  If we assume that such a campaign would be twice as successful this year, raising $30,000, that would still leave a forecasted annual deficit for 2016 of $126,582.  Under these assumptions the Church would run out of cash in 49,824/10,549 = 4.72 months.

Because anticipated income increases from a Close the Gap fundraiser are not expected to close much of the budget deficit, the Committee recommends that steps be initiated to substantially decrease expenses.  Any proposed decrease in expenses will be painful, but the cost of insolvency would be an inability to pay staff salaries and/or losing control of both Montgomery and Stony Point properties.  (Recall that our mortgage is secured by both properties.)

About 90% of Church expenditures go to these three items:  Church Personnel (57.7%); Building, Maintenance & Mortgage (24.2%); and Conference Apportionments (8.39%).  Any realistic proposal for cutting expenses significantly must affect some combination of these three items in a meaningful way.   The Committee believes that the Church congregation would be most opposed to layoffs of pastors and staff.  Conference Apportionments is not a large enough item to eliminate the budget deficit.  That leaves Building, Maintenance & Mortgage.  This item is potentially large enough to close the budget deficit.  Mortgage interest and principal alone for 2016 is $108,630.  Other expenses tied to this item include property tax, property insurance, maintenance, repairs, and utilities. 

The Committee believes that the Church should immediately begin gathering information on the value and marketability of its real estate holdings.   The Montgomery and Stony Point properties are currently shown on the balance sheet as having values of $2.63 million and $2.85 million, respectively.  It is possible that both properties are actually worth more than these book (accounting) values.  The current mortgage balance is about $1.4 million.  It is conceivable that by selling Montgomery, or by selling Stony Point, or by selling only the “unused” section of Stony Point (along Stony Point road) we could eliminate the mortgage, decrease other real estate expenses, balance the budget, and increase our cash balances.  

Commercial real estate is an illiquid asset, meaning that it usually takes substantial time (months or even years) to sell for its full value.  If the Church wishes to keep a possible property sale on the table as an option for discussion, then the information regarding its value and marketability should be gathered immediately.   The Committee’s view is that the commercial real estate market in Santa Rosa currently may be advantageous for sellers.  However, real estate markets are cyclical and there is no guarantee that the market will be advantageous in the future. 

Of course, another major benefit of eliminating the mortgage soon is that the Church faces a mortgage balloon payment of about $1.1 million in less than 8 years.  The Church has made very little progress on saving for this deadline.  There is no assurance that the Church will be able to roll over (refinance) the $1.1 million loan in 8 years at interest rates prevailing at that time.  The demographics of our congregation suggest that it may not be of sufficient size in 8 years to qualify for a $1.1 million loan.  Again, both Montgomery and Stony Point properties are pledged as collateral for the Church’s mortgage.  Consequently, a failure to make regularly scheduled mortgage payments or to refinance the loan would allow Bank of the West to take control of both properties.

Finally, given the illiquidity of commercial real estate, even if the Church chose to sell real estate today, any funds from such a sale might not come in time to prevent insolvency.  The major opportunities for decreasing the deficit quickly would most likely come from (1) fundraising; (2) decreasing conference apportionments; and/or (3) decreasing personnel costs. 

---------------------------------------------------------------------------------------------------------------

 

Heather moved and Jack seconded this adjusted statement from the Finance Committee.  The statement was approved unanimously.

 

  1. A freeze on discretionary spending was discussed and the following statement was formulated, “The Finance Committee recommends essential spending only, and limiting all discretionary spending until a 2016 budget is approved.” Chris moved and Mike seconded; approved unanimously.

 

The meeting ended at 9:20pm with a closing prayer from Heather Young.

 

Next meeting: 7:00 p.m. February 10, 2016 (Ash Wednesday), Carriage House

 

Respectfully submitted, Heather Young

Page Topic: 

Event Date: 

Wed, 01/13/2016 - 19:00