December 2016 Financial Update

Dear Conference, below for your information is an overview of the EPA financial data for the period through December 2016.

Church Giving Report

Schedule 1 is the Church Giving Report. This report shows the amount of money that EPA has billed all of our churches and the amount of money that it has received from all of our churches. The report is divided into three sections: Apportioned Funds (funds that support United Methodist Ministries), Billed Funds (funds that pay for church and clergy benefits and insurance), and Health Savings (funds used for missional church clergy benefits or withheld from clergy and lay paychecks for health benefits). (A description of each individual fund can be found by clicking the link to the Budget Narrative documents on the EPA website.)

Overall, EPA billed $17.2 million to its churches in 2016, $10.6 million for benefits and insurance, and $6.6 million for Conference and Denomination ministries. Of this amount, the EPA churches paid $15.5 million to the Conference through December 2016, 90% of the total amount due for the year. This is a good finish to the year, taking in $2.2 million in December to help make the year-end payments, but $600 thousand short on our billed funds. Its important to remember that EPA started 2016 $1.5 million behind in its payments to its vendors. So in 2016, EPA had to use funds from reserve draws ($1.2 million), from closed church/parsonage property sales ($600 thousand), and its CMF surplus ($300 thousand) to cover the $1.5 million owed to vendors at the beginning of the year and $600 thousand shortfall in billed funds.

The Connectional Ministries Fund received $3.2 million, or 85% of the annual billed amount. On a straight-line basis, we would hope to receive 100% of the annual amount over a twelve-month period in order to reach our annual target. The gap between CMF funds billed and CMF funds received decreased to a 15 percentage point GAP in December (100% – 85%) from a 20 percentage point margin in November (92% – 72%). This means that the Conference recovered some ground in collecting funds in December that pay for its local EPA ministries.

Our Conference has to pay for the ministries that support our Methodist work and the insurance and benefits needed to keep our churches open. The CMF collections through December 2016 exceeded those from a year earlier by $19,000.

In the Billed Funds area, contributions toward Retired Clergy and Health Obligations was short by $230,000 (down from $300,000 in November), and Property and Liability Insurance was short by $186,000 vs. $300,000 in November. Clergy Group Insurance (medical) closed the gap to $75,000 deficit from $150 thousand the previous month. While the line item deficits recovered with December’s giving, the year-long cash shortfalls create a financial strain on the Conference. It really is important for our churches to pay their billed funds regularly on a monthly basis so that the Conference can effectively invest in our local mission and ministry initiatives.

For 2016, 283 churches have paid 100% (the total current amount due) or more toward their remittance statements, UP from 167 at the end of October, and the highest full payment amount for EPA during the year. 7 churches paid $0 toward their remittances through December 2016, down from 22 at the end of July. A list of all churches with the percentage of their 2016 remittance payments will be published electronically in the coming weeks and in the Spring issue of the NewSpirit Digest.

Some churches are facing challenges and are working diligently with their District Superintendent and financial staff to create plans for the success and sustainability of their ministry. We wholly support these efforts and want to work with our membership to help these efforts succeed. We are committed to supporting faithful, vital, sustainable congregations. But please have regular dialogue with your District leadership and use the Conference programs and resources to support your ministry. Consider leasing/renting/downsizing facility alternatives for your congregation if your building is too expensive, big or old for your congregation to support.

EPA Ministry Budget

Schedule 2 shows the EPA Ministry Budget for 2016. In 2016, EPA had a Connectional Ministries Fund budget of $3.2 million to invest in our Conference ministry programs. As noted above, EPA churches contributed $3.175 million for CMF in 2016, $25 thousand below its budget BUT $19 thousand above the amount collected in 2015. The ministries spent $2.9 million, which was $278

thousand below the expense budget, and was $300 thousand below the amount that the Conference collected, giving the CMF budget a positive cash flow for the year. All five areas covered by CMF were under budget as of the December 31 report date. Thanks to all of the EPA ministry directors, the DCM, cabinet, and Bishop for carefully managing their spending in 2016.

You may note that in the second column of this schedule, 2016 Actual Results, we are showing a surplus of $300,035 and $0 contribution to Resolution 2012-21 Pre-’82 Pension. Unfortunately the Conference will not be able to transfer this amount to the Pre-’82 account at this time because of the lack of funds collected from non-paying churches. The financial strain caused by non-paying churches over the past several years has affected the Conference’s ability to fund this commitment from 2016. Essentially these funds are being used to pay for the amounts not collected for property insurance, clergy medical insurance, and clergy retirement benefits. When the non-paying churches are able to reimburse the Conference (283 full-paying churches) for these insurance and benefits, it will transfer these funds into the Resolution 2012-21 accounts.

As is the practice with many non-profits, the EPA Conference uses a centralized cash management account to pay its bills (for the churches) in full and in a timely manner. We use a fund accounting system to track funds collected and funds disbursed. The EPA Conference also tracks balances due from churches who have not paid their bills in full. The cabinet and district leadership are pro-actively working with these churches to develop plans to pay the remittances and balances outstanding to the best of their ability. We appreciate our churches faithful effort to honor their obligations to their fellow EPA connectional churches and the Conference offices.

Resolution 2012-21 and the Pre-82 Pension liability

The top section of Schedule 3 shows the Conference Reserves as of December 31, 2016. The investment markets continued to perform nicely in December, which increased the balances in the Conference Reserve fund by $19 thousand to $518 thousand at 12/31/2016, up from $499 thousand at 6/30/2016 and the Board of Trustees Reserves to $242 thousand from $234 thousand as well. The Board of Pensions Reserves increased to $3.67 million in December 2016.

The next section shows the 2016 data for our work on Resolution 2012-21 and the Pre-82 Pension liability. The most recent valuation from the GBOPHB (as of January 1, 2016) shows that EPA’s unfunded Pre-’82 pension liability is $7.9 million. While this amount is $1 million higher than the prior year, EPA made a $1.3 million payment toward this obligation in December 2016 and had approximately $3.2 of additional investments from its Resolution 2012-21 capital raising efforts. This effectively makes EPA’s “net” unfunded liability for its Pre-’82 pension liability $3.4 million as of 12/31/2016.

As of December 30, 2016, the Conference Budget Surplus investment account had a balance of $564 thousand, down from $1.3 million because the Conference had to use $750 thousand to make its year-end $1.3 million payment. This is better than expected since the Conference had authority to use up to $1.3 million to make the year-end payment, but did not need it. This is real money that the Conference has contributed into the account from expense cuts in its EPA ministry, finance and administrative areas.

Proceeds from Church Sales have come in below target with a total amount realized of only $284 thousand, BUT due to the recent good investment markets, this account value is up $10 thousand from $274 thousand at June 30, 2016. The Fulfilling Our Covenant Campaign has been successful, with $3.2 million collected and over $400 thousand returned to church campaigns. We are in the home stretch as we collect the last $700 thousand of the $3.9 million in outstanding pledges to successfully complete the campaign. We look forward to working with you to make this happen and remember – there is always time to make and fund new pledges!

Conclusion

In conclusion, we made up a lot of ground in December as collections for the month brought us up close to budget targets, reducing the Conference cash flow gaps from their widest point this year in November. The Billed Funds are part of your church’s operating budget; if the Conference doesn’t buy these coverages on a group basis, then each church would have to buy them individually. Thankfully, EPA ended the year with a 94% collection rate for the Billed Funds. This was the highest collection rate in the past 5 years, but was still approximately $632 thousand below the expenses EPA paid out for

these benefits and insurance coverages. It creates a lot of pressure on the Conference’s financial management activities when we have to wait until December to collect such a significant portion of the annual remittances. Please try to do whatever you can to pay your remittances on a monthly basis during the year. Thank you for your faithful support and continued efforts to succeed in our mission.

Let’s Invest in Excellent Ministry, Commit to serve the under-privileged and under-served communities in our Conference, Effectively manage our resources (people, property, and financial assets), Live within our means, and Boldly proclaim our commitment to our Connectional Ministry.

God Bless you and thank you for everything that you do for our EPA churches, districts, and Conference.

   Jim Cruickshank, EPA Conference Treasurer