Answers from the Treasurer

So as not to ambush him at tomorrow’s meeting about the parish’s finances, I wrote to treasurer Bob Johnston to let him know about my questions. To my surprise, Bob answered in writing. I am grateful for his promptness and frankness. I want to note his answers here, which I will interpret, rather than reproduce. The question numbers refer those in “Questions for the Annual Meeting.”

Question 1: The issue here is how to read the parish financial statements. Bob wrote

The amounts listed as short-term portion on the balance sheet represent the total principal payments on each loan that will be due during the coming twelve months. The amounts listed as long-term portion are the principal payments that are due in subsequent years.

Actually, this is very interesting. According to the balance sheet on page 14 of the annual report, our two loans, as of the beginning of this year, had a total outstanding principal of $65,701.86. Why, then, did the diocesan Growth Fund give us a loan to “refinance” our loans to the tune of $69,900? (See parish announcement here.) What we doing we doing with the excess of more than $4,000? Does the diocese know there is an excess of $4,198.14?

Bob went on to explain that interest payments on our loans ($4,498.39 in 2010—see line 512006 on page 16) are an operating expense, but principal payments are not. Specifically, he wrote

Principal payments are shown separately since they are repayments of amounts on the balance sheet and are not an expense to the church (they are a cash payment, however), but interest costs are an expense to the church, as well as a cash payment.

Although I don’t pretend to understand this logic, it does explain the $17,677.97 payment in the cash flow statement on page 19 and the similar, but negative, figure on page 18. It was not intuitively clear to me that “PNC and Diocesan Roof Loan Payments” on page 19 represented only the principle payments. Such payments should be labeled as principal payments in the future.

Question 2: Bob did not tell me what the Education Fund is for, perhaps because he does not know. He justified taking $3,000 from it to “educate” Kris about the Wilderness service in Denver. (The church sent him to Denver to investigate.)

Question 3: Because of the lateness of the hour—I want to get this posted tonight—I am going to reproduce Bob’s response first and make only a small comment on it.

This $25,000 was initially a loan from the Contingency Fund until it was determined that we would not have any excess cash at the end of 2010 to repay it. At that point, the decision was made to "write it off," or in other words treat it as a permanent withdrawal from the Contingency Fund. It would not be classified as revenue for the operating fund but would appear on the balance sheet for the operating fund as a liability to the Contingency Fund, if we had decided that we intended to pay it back in the near future. Interest income, of any type, is a true income item for any fund, so the interest income of the Contingency Fund needs to show up somewhere as income and we always transfer it to the operating fund as income in that fund. I don’t understand the surplus of $13,472.96 that you mention. As shown in the Operating Fund Statement on page 15, the operating fund has a deficit of $11,527.04 after loan principal payments. As you will also see on that same statement, there was a surplus realized, prior to loan principal payments, of $6,150.93. We have chosen to supplement the operating fund statement by including the loan principal payments, even though they are not expenses (rather the repayment of an amount borrowed), because we believe it shows a more complete picture of our cash deficit. I am not sure which "special funds" you have included, so I cannot recomputed the net loss of $600 that you mention.

There is no intent to obscure our true finances in order to reduce our assessment liability to the diocese. I am not sure why you say more and more items are being removed from the operating fund. The only item I am aware of removing in the past couple of years are the Children and Youth costs and we did that because we received special contributions from the Cotillion Fund specifically for Children and Youth costs and we felt it was only proper to segregate those amounts in a separate fund to which we charge expenses for Children and Youth. There has not been a discussion as to how the Salary Restoration Fund donations will be treated for revenue purposes.

I had suspected that the “loan” from the Contingency had been changed to a withdrawal. I believe this should have been treated as operating income, however. (More on that next time.)

Question 4: Bob explained that the Property Commission pays for “normal operating expenses” such as utilities, maintenance, and minor repairs. The Property Fund covers “major repairs and maintenance of a capital nature.” The $25,100 line for donations (page 22) did come from parishioners, though Bob did not make clear under what circumstances they were contributed. Clearly, the line between Property Commission costs and Property Fund costs is blurry. Here and elsewhere, as far as representing the financial condition of the parish, it makes no difference how contributions such as the aforementioned $25,100 are accounted for. For purposes of computing the diocesan assessment, it might. (Frankly, it does not seem to me as though any of the expenses of the Property Fund represent capital improvements. They all seem like routine—if perhaps too long deferred—maintenance.)

Question 5: Bob said he has to check on this. Apparently, the money is not in an interest-bearing account. Why not?

Question 6: Bob indicated that Bryan’s salary is split 80% to Refuge and 20% to other activities. As best as I can tell, the $5,264.86 represents Bryan’s salary and FICA. Bob did not say whether other musicians were being paid for Refuge and, if so, where the money is accounted for. The 20% of Bryan’s salary and FICA is included under Total Personnel Commission. Bryan’s salary, therefore, seems to be accounted for responsibly. (I still want to know if we are paying other musicians for Refuge.)

Question 7: Bob did not know who was paid $1,000 out of the Friends of Music account. Apparently, Virginia Schaap is the Music Guild Administrator. Her duties seem to include publicity and soliciting funds.

Question 8: Bob could not explain this figure fully, and said he would have to consult with Kris. He suggested that staff time to prepare bulletins and the like might be included here. If this is the case, why does it not show up in Refuge Service Fund revenues?

Question 9: I think I will just reproduce Bob’s answer here.

At this point in time, given our budget position, we do not anticipate providing any support to Old St. Luke’s. It is up to Doug where he saves $2,100 in the music area. He is given that budget and needs to adhere to it, unless he comes to the Vestry for authorization to spend more. As part of the process of determining the best way to balance the budget, it was decided that Music was an area we would look to for savings.

Question 10: Again, let me just give Bob’s answer, which includes information I did not know.

I will have to get back to you on what the budget is for Refuge in 2011, but we have already received a grant from the diocese for 2011 expenses. I will confirm that amount, as well.

Question 11: From Bob:

You should ask Kris and/or Lou this question. I have not been intimately involved in discussions about Refuge.

Question 12: Bob reported that we now have 232 pledges totaling $591,320, but he admits that this might not be up-to-date. It is, however, more than was reported in the annual report. There are five additional pledges, but the average amount of the new pledges is substantially below that of previously reported pledges. (We have sometimes shown the distribution of pledges, which was very interesting. I’m sure some parishioners were surprised at how much they were giving, and others were surprised at how little they were giving. In general, the average pledge is usually above the median pledge.)

Bob also provided answers for the questions in my post “Questions for the Treasurer.” His answers to these questions were particularly helpful, and I have no need to elaborate or comment on them. I reproduce them below.

Question 1:

The basis of the requests made in 2010 was that we were projecting a deficit and did not want to decimate our Contingency Fund by using a large portion of it to cover the deficit. Having no endowment fund to tap for income, we were in a tough situation. Early in the year, we requested a $6,000 reduction in our assessment. The Budget and Assessments Committee of Diocesan Council deferred action on that request and asked that we approach it again later in the year, if our financial position worsened or we determined that we still needed the $6,000 based on actual results further into the year. In the fall, we felt that our position had worsened, based on projections for the balance of the year. We therefore approached the Budget and Assessments Committee again, with a higher request (around $12,000, if I recall correctly). In the end, we were granted a reduction of $10,600. That amount represented two months of our assessment. We anticipate requesting a small reduction in our 2011 assessment based upon our current budgeted income being lower than the average of the last three years. The calculation of what we will request is based upon the diocesan formula for determining assessments and applying that formula to our projected 2011 income.

Question 2:

As you know, St. Paul’s has two loans outstanding. One is with the Diocesan Growth fund at 3% and has about 4 years left on its term. The other is with PNC Bank at over 7% but I do not know the number of years left on its term off the top of my head. It was the amount borrowed when we renovated the Nursery School area and purchased the organ. In order to conserve cash by spreading the payments over a longer period of time and paying a lower interest rate, we decided to apply to the Growth Fund for a loan to refinance these two loans. This week, we were granted a loan of $69,900 (amount owed on the loans as of the beginning of 2011) at 3% interest with an amortization period over 10 years and a balloon payment at the end of 5 years. Our intention is to pay off this loan with the first proceeds of the anticipated capital campaign in the next 12-18 months.

See my comments to the first Question 1.

Question 3:

This entire amount represents our diocesan assessment, national church assessment and Growth Fund contribution. We classify this as Mandated Outreach, as you will note on page 18 of the 2010 Annual Report, as it is money used outside of St. Paul’s to support diocesan programs, national church programs and Growth Fund activities.

Question 4: Bob sent a spreadsheet with the requested information.