November 2016 Financial Update

Dear Friends, below for your information is an overview of the EPA financial data for the period through November 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 will bill $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 have paid $13 million to the Conference through November 2016, 78% of the total amount due for the year. Adding to this financial challenge is the fact that EPA started the year $1.5 million behind in its payments to its vendors, which essentially means that EPA has only collected 68% of the total funds that it needs for the year (78% collected less 10% used to pay vendors from 2015).

The Connectional Ministries Fund received $2.7 million, or 72% of the annual billed amount. On a straight-line basis, we would hope to receive 92% of the annual amount over an eleven-month period in order to reach our annual target. The gap between CMF funds billed and CMF funds received increased to a 20 percentage point GAP in November (92% – 72%) from a 16 percentage point margin in August (67% – 51%). This means that the Conference fell further behind in collecting funds in November 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. On the bright side, the CMF collections through November 2016 exceed those from a year earlier by $120,000., highlighting the challenging year EPA had in 2015.

In the Billed Funds area, contributions toward Retired Clergy and Health Obligations and Property and Liability Insurance were each short by over $300,000. (up from $200,000 in May and June), and Clergy Group Insurance (medical) was short by $150 thousand (an increase from $119,000 in July). These shortfalls create a financial strain on the Conference’s ability to pay for these clergy and church benefits in a timely manner. It also affects the Conference’s cash and financial management and our ability to address our long-term financial obligations such as funding the pre-’82 defined benefit liability and maintaining Conference reserves at an adequate level.

The shortfall in collecting these funds is a serious financial issue. When the collections do not meet the amount needed to pay for these coverages, the Conference must use cash resources from other sources or draw on its reserves to make these payments. A drop in giving at this level puts pressure on the Conference’s financial management plans. For 2017, this has forced EPA leadership to increase remittance charges, cut insurance and benefit programs, and reduce ministry in order to pay our bills.

In October, the Board of Pension and Health Benefits approved a motion to allow the Conference to withdraw up to $1.298 million (100% of the amount due) from the pre-’82 Conference Budget Surplus account in order to make sure that EPA’s pre-’82 defined benefit payment can be made in full at the end of the year. If this payment is not made, the retirement benefits for all active clergy will be frozen effective immediately until the shortfall is corrected. With this authorization, and by delaying our 2016 Q4 World Service and General Church payments to GCFA until January 2017, we believe that we have the resources to make the year-end pension payment. But this action highlights the emergency measures that the Conference is forced to take when churches are not making their monthly remittance payments in a full and timely manner.

At year-end 2015, the Conference had to ask the EPA Board of Pensions for an “advance” on its $325,000 December 2016 contribution to make sure that the Conference could meet its December 2015 pension payments to Wespath. The Conference has also gone to the Board of Trustees and the Council on Finance and Administration to ask for a withdrawal of approximately $253,000 in reserves to help pay for clergy and church benefits and insurance. None of these funding actions have been repaid in 2016 because collections from non-paying churches have not materialized.

In November, 181 churches have paid 92% (the current amount due) or more toward their remittance statements so far in 2016, UP from 167 at the end of October, but still below the 220 full paying church number that EPA reached in April 2016. 14 churches have paid $0 toward their remittances through November 2016, down from 22 at the end of July.

In 2015, 275 churches in the Conference paid 100% of their remittances. But this means that approximately 140 churches did not pay their full amount of their remittances. A list of all churches with the percentage of their 2015 remittance payments was published 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 and Schedule 2 – cost centers show the EPA Ministry Budget for 2016. In 2016, EPA has a Connectional Ministries Fund budget of $3.2 million to invest in our Conference ministry programs. As noted above, EPA churches have contributed $2.7 million for CMF in 2016, $13 thousand below its year-to-date estimated contribution rate BUT $120 thousand above the amount collected through November in 2015. The ministries spent $2.6 million, which was $224 thousand below the expense budget, and was $51 thousand below the amount that the Conference collected, giving the CMF budget a positive year-to-date cash flow. All five areas covered by CMF were under budget as of the November 30 report date. Overall, this bodes well for the Conference ministry budget and signals that EPA will finish this year within its CMF budget parameters.

You may note that in the second column of this schedule, 2015 Actual Results, we are showing a surplus of $329,575 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 2015. Essentially these funds are being used on an interim basis 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 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 November 30, 2016. The investment markets rebounded nicely in November, which increased the balances in the Conference Reserve fund by $14 thousand to $513 thousand at 11/30/2016, up from $499 thousand at 6/30/2016 and the Board of Trustees Reserves to $240 thousand from $234 thousand as well. The Board of Pensions Reserves increased to $3.64 million in November 2016.

The next section shows the 2016 data for our work on Resolution 2012-21 and the Pre-82 Pension liability. We recently received the most recent valuation from the GBOPHB (as of January 1, 2016). This report shows that EPA’s unfunded Pre-’82 pension liability is $7.9 million. This new unfunded pension figure is $1 million higher than the figure for January 1, 2015 due to the poor investment market performance in 2015 and a decrease in mortality assumptions as our retiree population is living longer. While this is a setback for the EPA Conference, our current position remains a significant improvement from an unfunded status of $16.2 million in 2011 and $23.2 million in 1996. The EPA churches and members should be very proud of the way that it has addressed this obligation and taken action to mitigate it. That said, there is more work for us to do.

As of November 30, 2016, the Conference Budget Surplus investment account had a balance of $1.313 million, back up to the level it reached at September 30, 2016. This is real money that the Conference has contributed into the account from expense cuts in its EPA ministry, finance and administrative areas. This is also the account that may be drawn down in order to make the year-end 2016 pre-’82 pension payment, in accordance with Resolution 2012-21.

Proceeds from Church Sales have come in below target with a total amount realized of only $282 thousand, BUT due to the recent good investment markets, this account value is up $8 thousand from $274 thousand at June 30, 2016. The Fulfilling Our Covenant Campaign has been successful, with over $3.1 million collected and over $400 thousand returned to church campaigns. We are in the home stretch as we collect the last $800 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 still time to make and fund new pledges!

Conclusion

In conclusion, we lost more ground in November as collections for the month fell below budget targets, increasing the Conference cash flow gaps to their widest point this year. It’s also important to remember, the Billed Funds are YOUR church property insurance, YOUR clergy medical insurance and YOUR clergy/lay retirement benefits that are purchased on behalf of all EPA churches. So it’s important for the churches to pay for these insurance coverages and benefits as part of your regular operating expenses. The pressure on the Conference’s financial management activities is forcing EPA leadership to take action on increasing collections, increasing bills, selling assets, and reducing expenditures while fulfilling our mission to create more disciples of Jesus Christ. Thank you for your faithful support and continued efforts to succeed in our mission.

Jim Cruickshank, EPA Conference Treasurer