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Resources for Wardens and Vestry Parish Finances
Although we do not think of church as a business, parishes do not live "by bread alone." As warden, you have the responsibility for seeing that systems are in place to accurately account for the congregation's financial resources. As the chief lay official, the senior warden serves as the legal representative of the parish, exercising signatory authority on behalf of the vestry. Junior wardens and treasurers often have signatory authority for check-writing purposes as well and are able to sign in your absence. However in addition to bank accounts, your signature is required on the annual audit, any legal document involving the parish, and the annual parochial report. When investment decisions need to be made, your signature will again be needed to authorize any changes in the portfolio. You will be the one holding salary and benefit discussions with your rector (see Personnel Guidelines) and will oversee the development of an annual budget for your parish (though the actual work of putting it together will probably fall to a finance committee). These financial responsibilities often come as a surprise to new wardens, but the rector and other knowledgeable people on the parish staff or under contract to the parish can explain how the procedures in your parish work. Make sure that parishioners with a background in finance or banking serve on your parish's finance committee so you and the vestry have the best advice possible when making financial decisions. Diocesan staff can also provide advice and link you to appropriate resources. Personnel Guidelines (top) The diocese has a thorough set of Personnel Policies and Guidelines for parishes to use. The guidelines contain direct links to compensation tables from the diocesan Personnel Committee for clergy, lay employees, and church musicians, available as downloadable pdf files. Planning for Major Expenses (top) The text for this part of the site was contributed by Jim Williamson, a member of the diocesan Finance Committee and of the vestry at St. Thomas', Dupont Circle. He was instrumental in establishing St. Thomas' Capital Reserve Fund and has given workshops at wardens' conferences on this topic. Paying for major, occasional expenses such as roof repair, furnace replacement or repair, remodeling/building programs and equipment purchases places the largest fundraising strain on parishes other than the annual Every Member Canvass. Often parishes do not budget for these expenses until a problem arises, at which point additional funds must be raised or money borrowed. Major expenses that are handled in this way wind up placing a burden on the parish and causing extra work for vestries and finance committees. A Capital Reserve Fund (Fund) is designed to address these types of financial needs before they arise. In its simplest form a Fund is a savings account that is separate from the parish operating budget and is used only to fund major capital expenses. These expenses can largely be anticipated: at some point in the life of every parish, the air conditioning will break down, kitchen equipment will need to be replaced, and the roof will need to be replaced or repaired. If the parish maintains a rectory, all of the expenses associated with keeping a home in good order will arise. A Fund is a very useful tool for covering these expenses in an orderly stress-free fashion. Developing a Capital Reserve Fund The first step in developing a Fund is defining what constitutes a "capital reserve item." A good rule to start with is: A capital reserve item is any building system or component or piece of equipment with a life expectancy of over 10 years and a cost of over $1,000. Defining the rule for capital reserve items is key to identifying what should be covered and paid for by the Fund. The definition can be adjusted to fit the needs of individual parishes, but you want to include items whose cost would put a strain on the operating budget in any given year. For example, your parish may decide that it could handle an extraordinary capital expense of $9,000 as part of its annual operating budget, and set its capital reserve rule as a life expectancy of 10 years and cost of $10,000 or more. How to Get Started To establish the need for the Fund, you first must develop a Capital Reserve Plan (Plan). This requires inventorying all of the parish's physical assets and determining each item's initial cost, life expectancy, repair needs and probable replacement cost. Getting the expert advice of engineers, building inspectors, and architects is critical in the development of this Plan. There may be professionals within your congregation who will assist with the inventory, or you may have to contract with someone to give you a realistic appraisal. Your regular roofing, heating and air conditioning, electrical, and plumbing firms are one such source. The diocesan property manager, Robert Tomlinson, may also be able to help you locate such professionals. Once the inventory is complete, only items that meet the rule requirements established by your parish should be placed in the Plan. Note that some kinds of repairs or maintenance (e.g., a major repainting job) may meet the Fund requirements - the Fund is not limited to funding replacements. Example: Replacing an item such as the air conditioning system, carpeting, roof or hot water heater would easily cost more than $1,000, and any of these have at least a 10-year life expectancy. They should be in the Plan. Items such as air conditioning filters or professional carpet cleaning should not be in the Plan as they would not meet one or both of the rule requirements. They should be paid from the appropriate line item of the operating budget. However, the Plan should include set-asides for such major repairs or maintenance as periodic repainting of the exterior of the rectory (repainting would cost more than $1,000 and last at least 10 years). To the list of existing physical assets should be added any such items the parish plans to purchase or undertake in the future, such as new pews, additions to the organ, or major renovations. Once the Plan has been completed, transfer it to a spreadsheet with the capital items listed in the rows down the left and the time line for replacement, refurbishment or purchase in columns across the top, one column for each of the next 10 years. Between the name of the item and the first year of the time line, insert two columns showing the original cost and the estimated replacement cost. Divide the estimated replacement/refurbishment cost by the number of years before the replacement/refurbishment needs to occur (life expectancy). This will show you how much the parish needs to save each year in order to pay for the replacement/refurbishment of that item in the year it is due. If you total each year's column, you will have the amount the vestry needs to have each year for capital items - either to pay for replacement or refurbishment that year or to save toward a future year's expense. Funding the Capital Reserve Plan There are several ways to initially fund the Plan. The vestry may decide to make a one time transfer from the operating account into a Capital Reserve Fund or, if the parish has endowed or trust funds, to set some of them aside to start the Fund. An alternative is to conduct a fundraising drive to provide the start up funds. The initial funds need to be sufficient to cover unforeseen expenses and emergencies, as well as to begin the build-up of set-asides to meet projected expenses in future years. Once an initial amount has been raised, the Capital Reserve Fund should be placed in a Capital Reserve Account, which is separate from that for the operating budget and maintained separately from the operating budget account from then on. Beyond the initial funding, the Fund must be maintained with a regular infusion of funds. These can come from interest on the funds in the account itself or regular transfers that appear as an annual budgeted savings line item in the operating budget. Another possibility is to designate all or some unrestricted gifts or end-of-year surpluses for the buildup of the Fund. A Fund budget should be prepared annually for the approval of the vestry, showing the projected expenditures, the actual work to be undertaken, and the resulting balance in the reserve account. Remember that the Plan is established based on life expectancy estimates - simply because the roof is projected to last 20 years does not mean that it will need to be replaced exactly 20 years from now. If you are lucky it will last longer, and the Fund money will simply accrue. However, it might have to be replaced after 15 years, in which case you may not have all the money needed set aside. You will still have some savings, however, and you may be able to hold off on other expenditures you had planned to make in year 15 in order to replace the roof. Seek the advice of a financial planner to help you determine how much money is needed in a Fund to generate sufficient revenue to cover capital expenses in the future. This calculation needs to take into account how much you can reasonably be expected to set aside each year out of your operating funds or other sources and the resources of your congregation to fund a major capital campaign. Again, there may be professionals within your own congregation who can provide this kind of advice, or you can contact the Rev. Mary Sulerud, diocesan Canon for Ministry and Resource Development, for suggestions. Conclusion The initial process of setting up a Capital Reserve Plan will require a lot of time and research. That's the bad news. The good news is that once the inventory of capital items is done, you need only update the list annually to extend the projections for another year. Periodically you will need to do a more extensive revision to incorporate your real world experience of capital expenditures and adapt the plan to the ever-changing needs of your parish. The important thing to remember is that each parish can construct the Capital Reserve Plan and establish a Capital Reserve Fund in a way that makes sense given its circumstances. The Plan can be funded any way a parish chooses and may contain any items the parish chooses. Whatever steps you take, you will have placed your parish on a much sounder financial path. (top)
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