A Resource to General Conference Delegates for Considering the Florida Proposal on General Agency Reserves

March 18, 2008

This resource has been developed for General Conference delegates in light of the Florida Annual Conference delegation proposal suggesting that the aggregate net assets of the general Church could be used to offset a significant amount of the proposed 2009-2012 World Service Fund apportionment. The information contained in the following document will assist delegates to more accurately interpret the proposal of the Florida delegation.

What constitutes net assets and how they can be used is complex. Oversimplifying the matter, as in the case of the Florida delegation proposal, is unhelpful and does not promote good stewardship of Church resources. Below is a response to the more salient assertions and implications from the Florida proposal.

First let us be clear, net assets are not available reserves. This is a crucial understanding to have as you consider the Florida proposal. The general agencies with oversight from GCFA categorize assets for various reasons including funds that are restricted, either temporarily or permanently; funds designated to maintain property, plant, and equipment; and funds for other needs that provide the foundation from which mission and ministry flow. A process for determining the level of reserves needed for each agency includes a methodology that was developed by GCFA with input from the agencies. This process is then applied to each agency recognizing its unique functions and needs. The resulting analysis is reported to GCFA and becomes a part of Volume 3 of the Daily Christian Advocate (DCA) which is distributed to all delegates.

Proposal Assertions and Implications:

“…these Agencies are holding reserves of almost $1 billion…combined total net assets equal $900, 289,038.”

The various totals included in the Florida proposal overstate the financial position of the general Church. The spreadsheet is a compilation of net asset balances from a variety of sources. The net assets of the audited financial statements of the agencies do not approach this number. The report’s spreadsheet information includes certain numbers twice, includes entities that are not general Church agencies and includes pools of assets that are not included in the audited financial statements of the agencies whose reserve levels are being challenged.

Aggregating the net assets of the many general agencies is an appropriate means of determining whether apportionments should be reduced.

The report’s methodology aggregates net assets and assumes that funds or program responsibilities can be shifted from agency to agency based upon where a financial need might exist or where excess financial resources might reside. The legal separateness of these organizations and the Disciplinary framework that governs them does not permit this shifting of resources or responsibilities to occur.

To place these aggregating practices in “Church” terms, if we were to look at the net assets of an annual conference using the methodology of the Florida Conference delegation, one would total all assets and funds of each local church plus the annual conference. This would include the value of all buildings, local church memorial funds, cemetery and building maintenance funds, annual conference foundation assets, and any other designated pools of funds set aside for particular uses such as health care, even individual Sunday school classes and women’s circle accounts. Totaling these net assets, one would conclude that the entire amount was available for the mission and ministry of the annual conference irrespective of the liabilities, future commitments, intent of givers, cash flow or ongoing ministry needs of the local churches and annual conference. This is the logic implied in the Florida proposal (i.e. that all agencies’ net assets should be added together)—a methodology that does not make sense for an annual conference nor the general Church.

“The current level of unrestricted net assets is $292,148,756.”

The proposal presents an inflated net asset figure. The amount includes net assets not related to general Church agencies. The Women’s Division, The Higher Education Foundation and The General Funds of The UMC are separate entities that do not receive general funds nor are they included in the audited financials of the affected agencies.

The proposal also fails to make clear that many of the unrestricted net assets have been designated by the boards of the particular agencies to be available only for specific purposes over a longer timeframe. These assets would not be available to absorb spending shortfalls, resulting from reduced apportionments, without action by the governing board.

The use of reserves to offset apportionments is a long-term solution.

The proposal by the Florida delegation will only impact the coming quadrennium. By reducing apportionments with an offset from reserves, the proposal only defers an increase in apportionments until the 2013 – 2016 quadrennium. In fact, the proposal could likely create additional future burdens for the general Church if reserves are depleted in such a way that income earned on the reserves to fund ministries no longer exists or is significantly reduced. This suggestion amounts to leveraging against the future for the short-term gain of reducing apportionments for a single quadrennium.

This practice was implemented by the 2000 General Conference with unintended consequences. The financial crisis following 9/11 in 2001 significantly impacted the general agencies and their connectional ministry efforts during the quadrennium. The large increase in the budget adopted by the 2004 General Conference was a direct result of the artificial budget reduction generated by the spending down of agency reserves by the 2000 General Conference. Nothing indicates that the result would be different if we implement a similar strategy at the General Conference. With the current economic climate, we could actually expect a similar result.

The general agencies do not appropriately use reserves, where possible, to fund operations and programs.

Since 2000, the general agencies have worked with GCFA to evaluate the level of reserves and report to the General Conference. This is done through Volume 3 of the DCA. Further, agencies consistently use reserves to expand their work beyond what can be done through apportionments as well as to maintain the infrastructure (buildings and equipment) that undergird the programming of the Church. Delegates are encouraged to review the budget proposed by GCFA in collaboration with the Connectional Table. While doing so, delegates should be aware that the recommended budget represents only the portion of the total spending plan that will be resourced through apportionments. The general agencies have already designated about $30 million in reserves to supplement programmatic spending over the next quadrennium.

Conclusions

A discussion concerning agency reserves is important to have, but it is also important that this discussion refer to and use financial data appropriately. The Florida delegation proposal fails to do this. If we were to adopt the methodology in the proposal—an approach GCFA is not advocating—but handle the reported Total Unrestricted amounts appropriately, the beginning total would be considerably less than displayed. To explain, the proposal starts with the figure of $292,148,756. That total includes several amounts, taken from the Florida proposal, that are not available to support either the World Service Fund in its entirety or the specific agency to which certain amounts are attributed:

GCFA $ 27,335,529   General Administration Funds not World Service Funds.
GCAH $ 1,250,765   General Administration Funds not World Service Funds.
UMDF $ 29,141,316   Primarily loans to local churches; the funds are not available to support GBGM.
UMCOR $ 15,022,086   Primarily funds contributed for a specific relief purpose and not available to GBGM.
Women’s Division $ 31,655,317   Not a World Service Fund agency; all funds owned by the Division and not available
to GBGM.
Upper Room $ 15,992,480   A fully-owned business subsidiary of GBOD, not a World Service Fund agency, these
assets are available only to the business enterprise, not to GBOD.
Higher Ed. Foundation $ 27,989,924   Not a World Service Fund agency, the assets are owned by the Foundation not by GBHEM.
Total $ 148,387,417    

While this approach is not necessarily appropriate, if applied, subtracting this Total from the proposal’s starting point of $292,148,756, the beginning amount would be $143,761,339. If we apply this, using the proposal’s methodology, we see the following:

a)   Current level of unrestricted net assets   $143,761,339
b)   2009-2012 World Service budget   $333,356,000
c)   50 percent cap (1/2 of line “b”)   $166,678,000
d)   Excess unrestricted net assets (difference between current level (a) and the proposed cap (c))   ($22,916,661)

Thus, using the proposed methodology the agencies appear under-reserved by almost $23 million. None of us would agree that this is the case. It is too simplistic, the full story behind the numbers is not being told, and the treatment of the financial data is not being displayed consistently with the audited financials of the agencies and the practices of previous General Conferences. For these reasons, we should be cautious regarding the conclusions of the Florida proposal.

General Church reserves are vital to the long-term health and sustainability of the mission and ministry of the Church. The discussion of the amount and use of reserves is appropriate and encouraged. Please refer to the homepage of the GCFA website (www.gcfa.org), after April 3, 2008, for a preview of the materials related to reserves that will be distributed to delegates through Volume 3 of the DCA. This report will assist you in making informed, long-term decisions that will undergird the mission and ministry of the Church and provide for good stewardship of Church resources for generations to come.


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