The Presbyterian Mission Agency board is asking the 2016 General Assembly to change the rules for how much money the Presbyterian Church (U.S.A.) needs to keep on hand in reserve funds – money that could be used in an emergency. The change is being recommended in an environment in which board leaders have warned repeatedly that the PC(USA) expects to deplete its available unrestricted reserve fund by 2017.
On Feb. 4, the board approved the proposed changes – and a plan to build the PC(USA)’s mission budget for 2017 and 2018 with the assumption that the General Assembly will approve the changes in the reserve policy as well. The board is expected to vote on the new budget at its meeting in Louisville April 27-29. The new rules, if approved by the assembly, would remove a requirement imposed in 1990 that the PC(USA) keep in what is called the Presbyterian Mission Program Fund (PMPF) reserve a minimum of 30 percent of the unified portion of the General Assembly Mission Budget.
That reserve requirement was set by General Assembly action – and now the board is asking that the assembly change the rules to give the board and the Presbyterian Mission Agency (PMA) chief financial officer, in concurrence with the agency’s executive director, much more discretion in determining the amount of reserves needed.
The revisions are being recommended to change both the specific rules and the tone of the conversation.
PMA has significant financial resources, with annual revenues of $70 million, said Ken Godshall, who led the Finance Committee subcommittee which developed the proposal, and who has been elected as the chair of the board for 2016-2018, pending General Assembly approval.
“We have over $500 million in restricted and unrestricted assets that are available for mission and ministry,” Godshall told the board. “By any measure we have enough money to do our job.”
Despite that, church leaders have warned that the PMA is on the brink of a “fiscal cliff,” and “we have adopted a language of scarcity and anxiety rather than one of abundance,” Godshall said.
“We have been using the reserve fund to paper over projected operating deficits,” by using those funds to balance the budget, Godshall told the board’s finance committee. For example, he said, $4.2 million will be pulled from reserves this year to balance the 2016 budget.
Making these changes will demonstrate to the broader church that the PMA is managing its resources wisely, and has a plan for building the reserves back up, Godshall said.
The report to the board states that “on June 30, 2015, PMA had unrestricted assets of $230 million available for mission and ministry. PMA has additional restricted assets of $270 million that must be maintained in perpetuity but which generate income each year for restricted mission purposes. PMA has annual revenues of $69 million.
“By any measurement the agency has significant financial resources. By allowing PMPF reserves to be depleted to cover projected budget shortfalls, we have inadvertently created an atmosphere of scarcity rather than abundance. The recommended policy changes will improve our ability to manage the agency’s resources wisely.”
It’s not totally clear, however, how much of those assets PMA has available to spend.
Asked about the assets held by the Presbyterian Foundation, Greg Rousos, the Foundation’s chief financial officer, responded by email that:
“The Presbyterian Foundation group holds title to approximately $500 million in endowment funds for the General Assembly of the PC(USA). The Presbyterian Mission Agency has a beneficial interest in or serves as the mission disbursing agent of these funds.
“The principal is permanently restricted for $333 million of these funds. Both principal and income for the remaining funds are expendable; however, they are restricted for purposes such as church loan funds.
“All of these must be used in accordance with donor restrictions.”
In a presentation made to the finance committee Feb. 3, Foundation officials reported that the Foundation sends the PMA $16 million to $17 million annually in funds generated by the permanent endowments.
As of Nov. 30, the balance in the PMPF reserve fund was $6.35 million, according to a report presented to the board. The 30 percent reserve requirement at that point was $5.14 million – so the reserves stood $1.2 million over the required minimum, the report states. That reserve fund balance of $6.35 million includes, however, an uncollected receivable from Stony Point Conference Center in the range of $1.5 million to $2.4 million, “which is being reviewed and evaluated for collectability by the Legal and Finance & Accounting offices,” the report states.
Finance committee member Wendy Tajima said the board may face difficulty in both sending the message that “we do need to cut our budgets” and shouldn’t avoid hard financial decisions when the 2017-18 mission budget comes up for a vote in April, and that “we actually have a whole lot of money. How will that play to the larger church?”
The plan that the board approved Feb. 4 includes these features:
- The Presbyterian Mission Program Fund (PMPF) requirements established in 1990 would be set aside.
- For the 2017 and 2018 budget cycle, the Presbyterian Mission Agency’s chief financial officer would be authorized to set the reserve fund levels, with concurrence from the executive director of the Presbyterian Mission Agency.
- The reserve levels would be built up bit by bit. The PC(USA) would continue to seek new unrestricted gifts from donors. And money would be set aside from the operating budget to replenish the unrestricted reserves, with funds “allocated annually until the reserve minimum levels are attained.” The plan does not specify how much the minimum levels would be.
- For specific PMA divisions, the requirements would vary depending on the source of funds.
- Mission areas that rely on restricted revenue would be required to accumulate and manage their own reserve funds. Some have tried to do that in past, but “under budget pressures they have not done it systematically,” Godshall said. Now they will be required to contribute annually to reserves.
- Mission areas funded with unrestricted revenues tend to have smaller budgets. They’ll be covered by an agency-wide reserve fund the PMA will establish to cover the group as a whole, which the agency’s financial staff will manage.
- New fundraising initiatives would be temporarily exempted from contributing to reserves – to give them a chance to achieve financial independence before the reserve requirements were applied, Godshall said.
- The denomination’s Capital Reserve Fund would be replenished, to be used for needed technology projects equipment and physical improvements related to health and safety of workers.
There also would be limits on the way both restricted and unrestricted reserve funds could be used.
- Neither restricted nor unrestricted reserve funds could be used to cover projected operating budget shortfalls. In ordinary circumstances, PMA can’t balance the budget by drawing on reserves.
- The funds could be accessed with approval from the Presbyterian Mission Agency board.
Unrestricted reserve fund
The board’s action states that:
- The money comes from unrestricted revenue – including money given by congregations, presbyteries or individuals; unrestricted bequests and investment income; and money not spent from the annual operating budget.
- The unrestricted reserve fund won’t be used to manage projected operating budget shortfalls.
- It could be accessed with approval from the Presbyterian Mission Agency board.
- It can only be used for “revenue shortfalls and expense overruns in the current budget cycle, emergency purposes and new mission opportunities.”
- It will be held in a separate account.
- It will be increased by “allocating unrestricted gifts and budget accumulations.”
- Mission areas that rely on unrestricted reserve funds “will rely on an agency-wide emergency fund.”
- The unrestricted reserve fund balance would be approved by the PC(USA)’s chief financial officer with concurrence from the PMA’s executive director.
- Any use of the fund must be based on a plan that “takes into account income estimates and provisions for all the anticipated changes in the fund. Such plans will be approved by the Finance Committee of the Presbyterian Mission Agency board and further approved annually by the Presbyterian Mission Agency Board.”
- Ordinarily, the unrestricted reserve funds wouldn’t be used for capital expenses, “except in the event of an emergency and the capital replacement funds are fully expended or allocated for use” within three years. The chief financial officer would report the emergency expenditure to the board’s Finance Committee, and seek “timely approval” from either the board’s executive committee or its chair.
- The board should authorize all expenditures from the fund “through established policies.”
- Availability of restricted funds “shall be considered in conjunction with budgeting of unrestricted funds with restricted funds being depleted first.”
Restricted reserve fund
- This money is subject to donor restrictions.
- This fund would not be used to manage projected operating budget shortfalls.
- It could be accessed with approval from the board.
- Its use would be limited to “revenue shortfalls and expense overruns in the current budget cycle, emergency purposes and new mission opportunities” within the restrictions provided for by the donor;
- It will be held in a separate account;
- Reserves will be increased through the allocation of restricted gifts and budget accumulations;
- Mission areas that rely on restricted reserve funds “will rely on the restricted reserve fund for emergencies.”
- The restricted reserve fund balance would be approved by the PC(USA)’s chief financial officer with concurrence of the PMA executive director.
- Any use of the fund must be based on a plan that “takes into account income estimates and provisions for all the anticipated changes in the fund. Such plans will be approved by the Finance Committee of the Presbyterian Mission Agency and further approved annually by the Presbyterian Mission Agency Board.”
- Ordinarily the restricted reserve fund would not be used for capital expenses.
- The board should authorize all expenditures from the fund “through established policies.”
If there’s unspent unrestricted money at the end of the budget year, it would stay in the unrestricted reserve fund. An exception would be to complete an authorized project not provided for in the next year’s budget.
The funds could not be claimed or encumbered to “expand a general or ongoing budget” or to “exempt the specific budget and program item from the usual review” and the priority setting used to construct a budget.
The PMA staff would provide financial information (including guidelines for preparing budget requests) – annually for approval by the finance committee and quarterly for review by the audit and finance committees
In explaining why the changes are needed, the report states that over the past 15 years, the finances of the Presbyterian Mission Agency have significantly declined and PMPF has become a source of concern. Without a change in the rules, PMA would be in violation of the current rules by 2017 – it would fall below the minimum reserve requirement, Godshall said.
In September 2015, the board’s finance committee created a subcommittee to take on the work of possibly changing the policy and to develop a strategic plan for managing the denomination’s reserves.
In doing its work, the subcommittee concluded that “there is an immediate need” to create a restricted reserve fund.
“The Finance Committee understood that in the past these ministry and mission areas were encouraged to do this but have not done so consistently because of budget pressures,” the report states. The subcommittee “recommends that restricted fund mission areas create a reserve beginning with the 2017-2018 budget and in the future as a matter of policy. PMA mission areas that benefit from restricted funding will be required to accumulate and manage reserve funds in collaboration with finance and accounting.”
Some ministry areas that now rely primarily on unrestricted funds are trying to raise money that will be restricted for use in those areas, the report states.
“There will be no reserve requirement on these restricted funds until the initial round of funding has been substantially completed. This temporary exclusion will help these mission areas establish financial viability before a reserve requirement is imposed.”
The Presbyterian Mission Agency’s outside auditor “emphasizes there is no cookie- cutter formula for financial reserves,” the report states. “Each organization is different and needs to come up with a plan that works in their environment.”