In this Special Edition, the Senior Warden & Treasurer have provided an advance look at their reports for 2018, as well as the Budget for 2019. The entire Annual Report will be distributed via email next week, in the hopes that everyone will have ample time to review it before the Annual Meeting on January 27.
Senior Warden’s Report
January 16, 2019
Dear Fellow Parishioners,
In this letter, my last to you as Senior Warden, I would like to discuss four topics:
- What’s our “scorecard”--how have we done versus the goals we set two years ago?
- What are our near-term priorities?
- How are we doing financially?
- What are the capital projects that St. John’s will eventually have to undertake?
Two years ago, we set five priorities:
- Start growing our membership (pledges) from 150 toward a goal of 200 by 2022
- Increase our efforts to attract newcomers and make them feel more welcome
- Strengthen our stewardship campaign and experiment with new approaches
- Improve the Sunday School experience for children and teachers
- Assess the condition of our buildings and estimate our likely capital improvements
In 2017, we made good progress on most of these initiatives. Ten new families joined St. John’s, we held special events for newcomers, and our membership started to grow. A dedicated group of parishioners revitalized our stewardship campaign and came up with creative approaches like the chili-bake-off, which has become a new tradition at St. John’s.
We also conducted a comprehensive assessment of our properties and developed a solid estimate of our long-term capital costs.
We formed several new committees, and recruited new members for some existing ones, to bring more parishioners into leadership roles at St. John’s. These committees have made very important contributions, and they are a good way to prepare future senior leaders for our parish. In my opinion, one of my most important contributions has been recruiting new leaders for our parish. I encouraged nine parishioners to serve on committees. They have served with distinction, with four of them eventually joining the Vestry.
However, despite a lot of effort, improving the Sunday School experience remained a challenge.
Then in early 2018, we hit a sharp curve in the road, with the departure of our rector, Rev. Joe Greene. Our membership (pledging units) declined 13% to about 130, which is unfortunately typical in such situations. The number of children in the Sunday School also decreased, for various reasons. Despite the decline in the number of pledges, the dollar amount remained stable in 2018, thanks to the generosity of our parishioners.
So we are a far cry from our goal of 200 members by 2022, which has financial implications that I’ll discuss later. However, since Rev. Gwyneth Murphy, our gifted interim priest, arrived in March, our situation has stabilized and we have regained momentum. That reflects Gwyneth’s blend of compassion, learning and humor. We also have a talented Associate Rector, Rev. Alissa Anderson, and a remarkably dedicated group of parishioners.
Despite some discord over Rev. Joe Greene’s departure, our sense of community has remained strong. Our beloved Greg Hall initiated a men’s dinner in the spring, which was a great success. We revived our “Beyond the Walls” outreach project. Newcomers continued to be attracted to St. John’s because we are a warm, welcoming parish. At her first meeting with the Vestry, Gwyneth asked, “Are you always this welcoming?”
Improving Sunday School is A Key Priority
To sum up, we made good progress on various initiatives over the last two years, but not on growing our membership or improving the Sunday School. We are focused on addressing the Sunday School issues. Alissa is devoting a great deal of her time to adopting a new curriculum and recruiting volunteers. We intend to hire a part-time Sunday School Director in 2019, who will work closely with Alissa to revitalize the program.
The new wardens and the Vestry members will determine additional priorities at their upcoming retreat. However, the Vestry has already identified two other areas of focus, in addition to the Sunday School:
Outreach: I am very pleased that we revived the Beyond Our Walls Project, under Andy Brenner’s leadership. We plan to build on this success by initiating other “physical” outreach projects this year.
Newcomers: We have created a warm, welcoming environment for newcomers, but we realize that we can do more. Several Vestry members are focusing on enhancing our efforts to meet and welcome newcomers to St. John’s.
Calling a new rector is also a priority, of course. However, the Search Committee, not the Vestry, is conducting that process. Hopefully the Search Committee will identify candidates in the spring or summer for the Vestry’s consideration, so that a new rector will join St. John’s sometime in the fall. There is no fixed timetable for a search, though, and we don’t want to rush the process. It’s more important to find the most suitable candidate for our parish.
An Enviable Financial Position…but A Deficit
Overall, St. John’s is in an enviable position, although we are running an operating deficit. We have an endowment of about $6 million. In terms of financial resources, St. John’s ranks among the top churches in the Diocese of New York--which has 200 parishes.
About 50% of the parishes can only afford a half-time priest or share one with another parish. For a parish of our size and complexity, with the variety of programs we offer, we think it is essential to have two priests.
However, we should have 175-200 pledging members to sustain a church of our size and maintain our broad array of programs. Our operating deficit was modest while St. John’s had 200 members, which was the case until 2011. Our pledging units gradually declined to about 150, because of national trends and some issues specific to St. John’s. The number stayed flat at 150 until last year.
We are not focused on growth for growth’s sake. We want to provide a spiritual home for adults and a vibrant Sunday School for our children. We want to preserve our beautiful buildings—beauty is one of God’s gifts and helps us to understand the glory of God’s creation. We want to help those in need, both in our local community and elsewhere.
Our revenues were about $800,000 in 2018. Collections, which consist mostly of your pledges, are our largest revenue source, at about 60%. Pledges and other collections have been flat for about 10 years, at roughly $650,000 while our costs have risen, mostly because of inflation. We have some other revenue sources, such as the nursery school and renting out the parish hall, but they are a relatively small percentage.
Contributions from pledges and other collections now cover only about 60% of our expenses, compared to 75% 15 years ago. As a result, we have relied increasingly on investment income from our portfolio to fill the gap between our revenues and expenses. Investment income has risen from 10-15% of our “revenues” 15 years ago to 25-30% in recent years, as we have increased our “draw” on the portfolio.
Our expenses run about $1.1 million a year. About 60% are for personnel costs, which you would expect. Another 20% covers other operating costs (office, maintenance, utilities etc.).
Expenses (Accounting Basis)
However, those accounting categories don’t capture what we do with the money we spend—what “services” St. John’s provides, if you will. Frank Pierson, our Treasurer, has developed an alternative way of looking at this issue, on a functional basis, which we think is more useful. We spend 19% on worship, 9% on Christian Education, 6% on pastoral care and 8% on outreach. That’s about 40%.
Administration expenses (office staff and related costs) are about 25%, on a functional basis. Keeping the doors open, or running our physical plant, is about 20% of our cost base. Our diocesan assessment is 12%. That is the amount that we contribute to the New York diocese, which is based on our expenses. The assessment helps to pay for the Bishop’s staff and to support less affluent parishes.
What We Spend Money For
We Run An Operating Deficit
Because our membership base has declined, and our pledges have not increased, we have run an operating deficit for several years. In 2018 our deficit was about $300,000. That does not include the $625,000 that we spent to repair the bell tower, which is a capital expense, not part of our day-to-day operations.
We fund the deficit by using investment income from our endowment funds, which we call the “draw”. The Vestry believes that a “draw” of 4% per year from our investment portfolio is a prudent level over time. That level should allow our investment portfolio to maintain its value, in most years, assuming normal investment returns and taking inflation into account.
However, we have drawn more than 4% from our portfolio in eight of the last ten years, and that is not sustainable. In 2018, our draw was 4.7%, not including the bell tower expenses. Last year, the total investment return on our endowment was less than our draw plus inflation. The last 12 months have reminded us that the stock market can go down as well as up, which is another reason why we should reduce our dependence on investment income.
The chart below shows the three-year total return on our endowment funds (blue line) versus the draw on the portfolio (red bar) and inflation (green bar). The net effect was positive, that is, the total return was greater than inflation plus the draw, except during the Great Recession (2007-09) and last year.
I am optimistic that St. John’s can buck the national trends and increase our membership. If we cannot accomplish that, however, at some point we may have to consider curtailing or eliminating various programs, or reducing our staff, to bring our operating deficit to an appropriate level.
Frank has prepared an excellent, in-depth analysis of St. John’s finances, titled “Finances 101”, which you can access through the "For Parishioners" section on the parish website (stjohnslarchmont.org). These charts are taken from his presentation.
We’ll Need A Capital Campaign …Eventually
We are very fortunate to have a beautiful church and an extensive physical plant. We are also fortunate that our parish has not deferred maintenance over the years, which for many churches results in extensive, expensive repairs and even rebuilding. However, our lovely buildings are old, so they require upkeep. St. John’s will have to complete two major capital projects over the next few years:
- Repairing part of the roof over the Education Building—estimated cost of up to $500,000, sometime within the next 3-5 years
- Replacing all the slate roofs on the church, Murray Hall (Parish Hall), and the Education Wing—estimated at up to $1.4 million, sometime within 10 years
In my opinion, St. John’s should not finance these projects by using more of our endowment funds. We’ve already reduced them to $6 million to pay for repairing the bell tower, which was time-sensitive. I believe that St. John’s ought to launch a capital campaign within three to five years and should begin the planning for such a campaign in 2020.
I am confident that St. John’s can rise to this challenge.
It has been a privilege to work with my colleagues on the Vestry for three years and a great honor to serve as your Senior Warden for the last two years. Thank you for entrusting me with this responsibility.
Recap of 2018
The Vestry approved the budget in last year’s Treasurer’s Report at its December 19, 2017 meeting. The Vestry approved the updated, final 2018 budget (which is shown in this report) at its January 27 & 28, 2018 retreat. The final 2018 budget reflected updated pledge and operating expense estimates, as well as extraordinary costs associated with Fr. Greene’s departure, which included severance, relocation assistance and the costs of an interim priest.
The original budget anticipated an operating deficit of $285K, which would have been a draw from our investment portfolio of 4.5%. The revised and final budget called for an operating deficit of $394K, which represented a draw of 6.1%.
The forecasted operating deficit for 2018 is $305K, or a draw of 4.7%. The main differences between the final budget and actual expenses were: (1) higher recordable non-pledges, (2) lower personnel costs, (3) lower Christian Education expenses and (4) significantly lower maintenance costs. The lower maintenance costs reflect the absence of typical annual roof repairs (which were addressed in part by the “bell tower” project), and far less use of outside contractors, because of Francisco Vargas, our very capable Buildings & Grounds Supervisor.
If we eliminated the extraordinary costs, the deficit would have been $202K and the draw from the investment portfolio would have been around 3%, significantly below our target draw of 4%.
Besides the operating budget, we also had to fund the repairs to the bell tower project (which included the flat roofs over the cloister walk and portions of Murray Hall). The bulk of the work was completed in 2018 for approximately $629K, representing an additional draw from our portfolio of 9.8%. There is still approximately $70K to be paid in 2019 with respect to this project.
Assets & Liabilities
Our investment portfolio as of 12/31/18 was $5,847,655, invested as follows:
The value as of 12/31/17 was $6,945,434. The decline in value was due to the bell tower project ($625K) and funding the operating deficit ($305K). Unlike prior years, the total return on investments in 2018 was approximately -3%. Clearly, that was not enough to cover our operating deficit and inflation.
Besides our investment portfolio, we have $331K in our operating accounts (i.e., checking and savings). We typically draw these funds down during the year and don’t rely on them for investment income.
Other than the church properties, including the rectory and curate’s apartment, there are no other material assets as of 12/13/18.
Other than the remainder of the bell tower costs, there are no material liabilities as of 12/18/18.
Budget for 2019
The budget for 2019 anticipates an operating deficit of $364K, which is an increase of $59K or 19% over 2018. The main drivers of the increase are: (1) lower recordable non-pledges, (2) increased personnel costs due to raises and higher benefit costs, (3) return to “normal” expenses for Christian Ed, hospitality and maintenance, (4) repair of a stained glass window (we schedule repairing one window every other year), (5) rector search costs, (6) higher insurance premiums and (7) inflation.
The budgeted operating deficit would require a draw of 5.6% from our portfolio. Without the search costs, the operating deficit would be 4.8%. The Vestry recognizes that this is above our target of 4% and not sustainable in the long-run. However, the Vestry believes that this budget is prudent in the short-term and addresses important on-going needs of the parish.
The budget attached to this report provides details by accounting categories. That detail is important to forecast and track where our money comes from and what we spend money on. But that detail is not always helpful to make decisions. Sometimes a simpler or different view can be more enlightening. For example, we might summarize our revenue sources as follows:
Note: Collections include pledges, recordable non-pledges and plate collections. Recordable non-pledges are what we call donations from people who put checks in the plate frequently throughout the year but don’t fill out a pledge card.
Likewise, for expenses, the table below provides an alternative view of our expenses by functional areas. The intent of this alternative view of the budget is to focus on what we spend money for instead of what we spend money on. For example, instead of looking at personnel costs as simply what we pay people, we can allocate their time for what they do. In this way, we can see that about 40% of our budget is for worship, pastoral care, Christian Education and outreach. Keeping the doors open (physically) costs about 26% of our budget, while keeping the doors open (logistically) costs about 22%.
Note that I removed the $48K of rector search costs in the final budget from the allocation above.
Besides the outreach included in the budget, we have our Easter Appeal and the ECW donates the net proceeds from the Christmas Bazaar and other fund-raising to local charities. Adding these to our 2018 budgeted amount, our outreach contributions totaled approximately $90,000, rather than $42,000. In addition, the Bishop allocates a large part of our Diocesan assessment goes to support needy parishes and other worthy causes.
Our current investment portfolio benefited significantly from several very large bequests in the past. The last one was the Trunk bequest ($2.2Mn) in the early 2000s. However, in the last ten years, St. John’s has received only one bequest. In 2019, we plan to educate the parish on the importance of this form of stewardship.
The attached budget (approved by the Vestry at its December 18th meeting) will be reviewed again by the Vestry at its February 9 & 10 retreat. Please do not hesitate to contact me or other members of the Finance Committee or the Investment Committee, who are listed below.