After the Pandemic, Churches Are Done Putting Up with their Buildings

Today's post is by UM & Global blogmaster Dr. David W. Scott, Mission Theologian at the General Board of Global Ministries. The opinions and analysis expressed here are Dr. Scott's own and do not reflect in any way the official position of Global Ministries.

Many US Christians grew up singing the Sunday School song "We Are the Church" by Richard Avery, with its lyrics asserting, "The church is not a building, the church is not a steeple." Yet despite how often these words have been intoned by US Christians, they have often acted as if the church were a building.

For a long time, constructing or buying a structure has been the sign that a congregation has arrived. This understanding was actively exported around the world, too, by Western missionaries. A real church has a building, or so the reigning assumption has been.

Much of a congregation's budget often goes towards maintaining and improving that building. The average mainline Protestant congregation in the United States is well over 100 years old. That means in many cases buildings that are similarly old and thus in need of frequent and frequently costly repairs. Yet it also means generations of emotional attachments to the building, which have driven congregations to keep investing in their buildings, despite the costs.

When the pandemic hit, most churches had to worship outside of their buildings. Many US Christians were eagerly awaiting the day that they could reconvene in their buildings and once again experience the sense of God in worshiping together in that place. The togetherness is certainly important, but the place is quite important for many too.

Yet for a small but noticeable group, the pandemic has had the opposite effect: Instead of eagerly awaiting the day when the congregation could return to its building, experiencing church apart from the building got those congregations to reflect on whether the time and money it costs to maintain a building are really worth it. Again, I'm not the first person to point this out. Mya Jaradat wrote an excellent piece for the Deseret News about this trend, focused on a profile of a recent United Methodist church start in Houston.

Congregations in older, dilapidated structures are probably more likely to entertain such questions. Smaller congregations, who have experienced greater financial impacts from the pandemic, may also be more likely to ditch their buildings, especially since it is easier to accommodate a smaller number of people in a variety of alternative settings, from living rooms to cafes to other community locations. And newer congregations, with less history and emotional attachment to their buildings, may also be more willing to ask whether a building is really worth it.

The question, then, is not just whether congregations will close and leave behind their buildings because of the effects of the pandemic, but whether congregations will decide to continue to exist but without their buildings, having been pushed in that direction by the pandemic.

This possibility that congregations might decide to continue to exist but without a building is both a revolutionary approach to being church in the United States and a missional opportunity. House churches have characterized Christianity is places from the early Mediterranean to contemporary China, but the model has not been extensively used in the United States. The pandemic may make the house church model more prominent, if congregations decide to ditch their buildings in favor of more distributed or virtual places to connect.

Another pre-pandemic model that might be useful for churches considering jettisoning their buildings is the Fresh Expressions movement. Fresh Expressions focuses on creating instances of church that are adapted to a specific local community. Quite often, these expressions of church do not meet in traditional church buildings, but rather cafes, parks, restaurants, and even tattoo parlors.

If a congregation decides to dispose of its building, that creates some different missional opportunities than if a the church closes and leaves the building to the denomination. Rick Reinhard argued in a commentary for UMNS that closing congregations could leave the denomination with a "real estate crisis." Pre-pandemic, The Atlantic called attention to this problem as well.

Yet local congregations have greater incentive to sell or repurpose their properties than annual conferences or other regional bodies who are trying to manage a portfolio of closed church properties and are less familiar with the specifics of any individual property.

This has led to some examples of churches finding creative solutions to use their buildings to forward mission instead of trying to keep a too-large physical plant going for a small number of people. Tom Sine and Dwight J. Friesen share some examples. Lovett H. Weems Jr. and Ann A. Michel share another example. Even if the result of selling a church is just freeing up more money for mission and ministry, the results can be significant, as Weems and Michel mention.

Given the investment that most US congregations have in their buildings, it will likely be only a small number who decide to go building-less as a result of the pandemic. But, as in other aspects of life, this small number pushed in that direction by the pandemic will amplify nascent trends from before the pandemic. Even if church-in-a-building remains the dominant model, as it almost certainly will, the resulting ecclesiological and missiological reflections from building-less churches are likely to be helpful to the church's self understanding.

Recommended Reading: On the UMC trust clause in Africa

This blog has explored the system of UMC assets and how they might be impacted by a separation of the church. In a post in April, the Africa Voice of Unity blog has added an important central conference perspective to that conversation. In a piece entitled, "How UMC 'Trust Clause' and Impending Tussle over Assets Could Collapse the 'Protocol'," the author notes an important different in the legal context between many Western nations and many African nations. The author asserts that there are different understandings of and thus laws around trusteeship. These differences could lead to lawsuits over property in African countries, even under the provisions of the Protocol, which might avoid lawsuits in the United States. It seems that the risk for such lawsuits is greatest in countries in which there are different factions that want to stay and leave and thus control of assets becomes a contested issue. One of the argument of the UM & Global series on UMC assets was that there is a great risk for lawsuits in any division. It is interesting to hear that same concern raised in contexts other than the United States.

UM & Global Collections on Assets and Finances

The latest pair of UM & Global collections both include compilations of posts written by UM & Global blogmaster David W. Scott about assets, money, finances, and church structure.

The first collection, "A Primer on UMC Assets," includes a series of twelve posts about United Methodist denominational assets, examining what these assets are, what assets are owned by different units of the church, how these assets are impacted by the trust clause, and what might happen to these assets in various scenarios of division of The United Methodist Church.

The second collection, on "Mission, Ministry, and Finances," includes eighteen posts that examine issues related to the financing of church infrastructure, apportionments, financial subsidies of the central conferences by the United States and Europe, episcopal and pastoral salaries in Africa, and internal financial capacities of the central conferences. The posts included in this collection are intended to help readers reflect on how financial arrangements impact the church's missional partnerships and what sorts of ministries the church is and is not able to do.

Both collections include discussion questions for reflection on the included pieces. In both cases, these discussion questions are intended to help students, annual conference leaders, General Conference delegates, local church leaders, and others to think wisely about how our money does and should shape our mission.

A Primer on UMC Assets: Concluding Thoughts

Today's post is by UM & Global blogmaster Dr. David W. Scott, Director of Mission Theology at the General Board of Global Ministries. The opinions and analysis expressed here are Dr. Scott's own and do not reflect in any way the official position of Global Ministries. Dr. Scott is neither a lawyer nor an accountant, and thus the following should not be interpreted as legal advice.

Over the past three months, I have examined the assets of The United Methodist Church in a series of posts. I have tried to explain what those assets are, who owns them, what restrictions apply to these assets, and what might happen to them under a variety of scenarios for the future of the denomination.

Having done all this investigation, I would like to offer some concluding thoughts about United Methodist assets and how those intersect with the nature of the church.

1. UMC assets are part of a complex system that is strongly tied together and difficult to undo.
This complex system has its roots both in Western law and in Wesleyan tradition. Under Western law, property can only be owned by legal entities. Organizations can be legal entities, but as stipulated in the Book of Discipline, The United Methodist Church itself is not a legal entity. Thus, UMC assets are actually owned by thousands upon thousands of separate legal entities – local churches, annual conferences, jurisdictions, central conferences, church-related institutions, and general boards and agencies. This creates a complex system of property ownership in the UMC.

That complexity is further compounded when one considers the various forms of assets – money, property, intellectual property, etc. – and the various legal restrictions that the Western legal system places or allows individuals and groups to place on the use of these different forms of assets. These restrictions include endowments and donor-designated gifts.

Finally, all this complexity is tied together by the trust clause, which binds all these assets to the UMC. The trust clause, in combination with legal restrictions on how various assets can be disposed of, makes it very difficult to simply untangle the present system of UMC assets. This difficulty is in part exactly what Wesley wanted when he instituted the trust clause and in part a function of how institutions and financial systems developed over the course of the 20th century.

2. The chances for lawsuits abound in any attempt to undo the system of UMC assets.
Because the present system of UMC assets is difficult to undo, any attempts to undo it run the risk of being challenged in court. This danger reflects in part the role of Western law in holding together the system. But it also reflects two other factors:

First, different actors in the UMC have different incentives and goals when it comes to undoing the current financial system. Thus, there is no consensus about how to undo the system, leading different actors into conflict with one another.

Second, especially in the United States, the courts are where many financial conflicts are carried out. When US Americans cannot agree on something involving money, they sue each other. Thus, conflict among US American United Methodists about money is likely to lead to lawsuits.

Of course, while it may not be possible for all United Methodists to come to a consensus on issues regarding assets, well-crafted General Conference legislation that clarifies the financial rights and responsibilities of all parties and that is passed by a substantial majority of delegates can reduce the chances of lawsuits.

3. A variety of parties in the UMC can make legitimate ethical arguments about their claim to UMC assets. These ethical arguments usually overlap with self-interest.
Whether it is local congregations wanting to keep their building no matter what, annual conferences wanting to keep church buildings, United Methodists wanting to leave the denomination, or United Methodists wanting to stay in the denomination, most parties in debates about ownership and control of United Methodist assets are able to articulate ethical arguments that draw upon central moral rhetoric around fairness, equality, etc.

Yet these ethical arguments rarely reach the same conclusion, and the conclusions that different parties draw from their arguments tend to be ones that benefit themselves financially. Thus, ethical reasoning and financial self-interest usually go hand-in-hand in the positions that United Methodists take in these financial debates.

This doesn’t necessarily mean that the arguments people make are solely about self-interest. People do use significant and long-standing moral and ethical concepts in their decision-making. It is impossible to reduce the arguments that people make about UMC assets to either pure ethics or pure self-interest.

Instead, we are left with what I hope this series as a whole has shown: the church is a mix of the human and the divine. We pursue heavenly ends, but we use and must use earthly ends to pursue them. Our experience of the church reflects both our deeply held religious convictions and spiritual experiences but also the contentious politics, the drudgery of everyday tasks, the difficulty of gray decisions, and the scrounging for resources that is part of being human.

Part of me wishes that it was otherwise: That the church was a perfect place that reflected only the best of people and was free of infighting and the need to pay the electric bill. Yet part of me recognizes that if the church is to be a place where we work out our sanctification, it must be a place not only of holiness but humanity. Unless we can face the fullness of humanity in our churches and still love our fellow humans as God does, how can we do so in the world? Yet, it is to this very task that God calls us. Let us trust God’s wisdom in arranging it so.

A Primer on UMC Assets: Challenges in Dividing Assets

Today's post is by UM & Global blogmaster Dr. David W. Scott, Director of Mission Theology at the General Board of Global Ministries. The opinions and analysis expressed here are Dr. Scott's own and do not reflect in any way the official position of Global Ministries. Dr. Scott is neither a lawyer nor an accountant, and thus the following should not be interpreted as legal advice.

This post further explores the topic of dividing general church assets in the event of a division within The United Methodist Church. As indicated in my previous post, there are a variety of ways to define general church assets, and these different definitions are not just actuarial but reflect differing political and policy objectives. Moreover, there is an important distinction between General Conference designating future revenue to go to groups departing the denomination and General Conference asking the agencies to part with money that they already own as legal entities and have a fiduciary obligation to protect.

Within these big-picture questions about what “division of assets” actually means are a variety of equally significant procedural questions: Who negotiates the division of assets? What constitutes a fair share? And what claim do the central conferences have on general church assets?

In answering these questions, I will draw examples from the Protocol of Reconciliation and Grace through Separation, the New Expressions Worldwide (NEW) Plan, the Next Generation UMC Plan, a proposal by the Wesleyan Covenant Association (WCA), and legislation from the Liberia Annual Conference. While those promoting the Next Generation UMC Plan and the WCA legislation have pledged to support the Protocol instead, those plans are still useful for illustrating some of the issues involved.

Let’s begin with the question of who negotiates. In the case of the Protocol, that question has already been answered – a team of 16 people, including bishops from around the world and representatives from most major advocacy groups in the US. Much of the debate over the Protocol has been about who was and was not part of that group of 16 people. I have read commentaries from people from a variety of theo-political and social settings arguing that the group negotiating the Protocol left out representatives of important groups – liberationists, Africans, US racial and ethnic minorities, young people, laypeople, etc. Those involved in the Protocol process have responded, in part, by pointing out that it is difficult to have successful negotiations with a group size much over a dozen.

This debate over the Protocol highlights a fundamental challenge to answering the question of who negotiates – how do you have a group that is sufficiently representative while also being small enough to yield successful negotiations?

A related challenge is shown in the NEW Plan, which calls for “equitable distribution of common assets,” overseen by a Transitional Council composed of 21 people. These 21 people include the President of the Council of Bishops and five representatives from each of four successor denominations – traditionalist, centrist, progressive, and liberationist. Yet these denominations are not likely to be the same size. It is quite possible that, under this plan, 200,000 Americans could have more representation than 3.5 million Congolese, if the former were a small liberationist denomination and the latter were part of a larger centrist or traditionalist denomination, along with others.

Thus, the challenge of determining who negotiates is compounded: How do you balance having a group of negotiators that is broadly representative of all parties with the desire to make sure all parties are proportionally represented?

The issue of membership leads to the question of what constitutes a fair share of assets. The Next Generation UMC plan calls for “Grants for New Denominational Expressions of Methodism” that would be based on the number of churches, the membership, and the amount paid in apportionments for groups departing the UMC. The WCA plan provides for the division of assets based solely on membership of the successor denominations. Both past contributions and membership could be seen as “fair” criteria, but they are likely to give different results.

Moreover, one challenge for any system of division based on membership is that it gives participants an incentive to report as high membership numbers as possible. Membership figures are notoriously tricky, even in the absence of such financial motivations. US pastors already have reason to report high membership to reflect well on themselves on dashboards. There are noted differences in understanding formal membership, both internationally and within the United States. Tying large amounts of money to membership increases the chance that numbers may not reflect on-the-ground reality and therefore may be less “fair.”

Interestingly, those involved with the Protocol have said that the $25 million for departing Traditionalists and $2 million for others did not reflect some magical “fair share” calculation but rather just a number they could all agree upon.

Finally, if the UMC splits into multiple bodies, some of which do not include US Americans, what legal and ethical claims do non-Americans have on the common assets of the UMC? Regardless of where assets originally came from, are current United Methodists from outside the US entitled to some financial support if they decide to seek autonomy?

Certainly, US Americans have paid in the overwhelming majority to the apportionment system and given the most in additional gifts to the boards and agencies. Thus, most of the assets being divided were originally American assets. Yet, the trust clause does not say that the assets of the UMC are held in trust for its American members. It says that they are held in trust for the denomination as a whole, which also includes non-Americans, who are equal members of the denomination.

The Liberian Annual Conference’s legislation clearly indicates that United Methodists outside the US are entitled to some share of the denomination’s resources if there is a split. It calls for the $120 million in unrestricted general church assets (from agencies and apportionment funds) to be split evenly among the jurisdictions and central conferences. Each of these regional entities would receive about $10 million under this proposal.

Under the WCA asset division plan, the only assets that central conferences are eligible to receive if they become autonomous and unconnected to the American church are those assets associated with Africa University. Otherwise, any central conferences becoming autonomous would receive no general church assets. Yet, if the central conferences remain connected to a US successor denomination, they make a significant impact on how much assets that successor denomination receives – as much as $150 million.

Under this plan, while United Methodists in the central conferences are largely shut out of receiving assets themselves, they are very powerful players in the contest for assets among US Americans. Certainly, being such a valuable prize would give United Methodists in the central conferences some leverage in negotiating a shared future with a branch of American Methodism. Yet this arrangement could be seen as treating them as second-class members of the denomination. They are valuable, but they cannot receive that value directly themselves by becoming autonomous, and if they remain tied to the US, their value will be realized by the US-based structures of whatever denomination they stay with.

These three questions – Who negotiates the division of assets? What constitutes a fair share? And what claim do the central conferences have on general church assets? – are all tricky questions without clear answers. Where one comes down on these three questions depends on personal judgment as well as personal interest.

This does not mean that, should there be a denominational split, United Methodists should not try to figure out how to divide denominational assets. It does mean that General Conference delegates and others should not be blasé about the difficulties involved in negotiating a plan to do so.

A Primer on UMC Assets: What Does It Mean to Divide Assets?

Today's post is by UM & Global blogmaster Dr. David W. Scott, Director of Mission Theology at the General Board of Global Ministries. The opinions and analysis expressed here are Dr. Scott's own and do not reflect in any way the official position of Global Ministries. Dr. Scott is neither a lawyer nor an accountant, and thus the following should not be interpreted as legal advice.

Having examined the assets held by various legal entities within the system of The United Methodist Church, I want to examine one of the hottest issues surrounding church assets at this moment in the life of the denomination: asset division. This post will examine the different possible interpretations of the term “asset division,” and a subsequent post will examine considerations and challenges that would affect any process of asset division.

First, when talking about asset division, it is important to specify which level of assets is being discussed. As this series has shown, assets are held by local churches, annual conferences, jurisdictions and central conferences, church-affiliated institutions, apportionment funds, and boards and agencies.

Technically, allowing local churches to depart with their property is a form of asset division. Assets that were previously tied to the UMC through the trust clause are divided among successor bodies (based on the choices of those congregations or their annual conferences). The same is true for annual conferences, jurisdictional conferences, and central conferences – any time one of these departs the denomination with their assets, it is a form of division of assets.

Still, when most United Methodists refer to dividing denominational assets, what they are talking about is general church assets. Yet even within that clarification, there are important questions about what a “division of assets” actually is: What assets are included? What does it mean to divide them?

People often assume that general church assets are equivalent to assets owned by the agency, but it’s worth pointing out that there are actually two groups of assets that might be termed “general church assets.” There are the assets of the boards and agencies. But there are also collected but not yet disbursed or sent apportionment fund monies, and these count as general church assets, too. In their summary of general church assets, GCFA includes both groups of assets – agency assets and apportionment funds on hand

According to a GCFA report, there is a net of $32 million ($85 million in assets minus $53 million in liabilities) in yet-to-be spent apportionment funds in GCFA bank accounts. That’s not because GCFA is hoarding apportionment money or is collecting more than is needed. It’s because sending money through the system takes time, and it’s typical for any bureaucratic organization to have more money on hand than they intend to spend in the next week. That’s sound fiscal management.

I have examined board and agency assets previously, but to briefly summarize, these assets are divided among donor-designated assets with legally-binding stipulations on how that money can be used; endowments, wherein the interest but not usually the principle can be spent; board-designated assets, which may be earmarked to cover other legally-binding financial obligations such as pensions; property such as buildings; and undesignated funds, which generally amount to 3-4 months’ worth of operating expenses, a standard margin for a business or non-profit.

Collectively, the apportionment-supported boards and agencies have about $86 million in undesignated funds. They have around $589 million in net assets (assets minus liabilities), but that additional $500 million is either in endowments and donor-designated funds where it cannot be touched, earmarked for legally obligated pension funds, or in the form of property.

The apportionment-supported boards and agencies have about $43 million in property, though there are many different ways to calculate what the value of the property is – at cost, net book value, fair market value, insurable value. Most of that $43 million in property, however valued, is in the form of headquarters buildings.

Despite chatter about Global Ministries owning property around the world, that property is almost always held in trust for mission partners, not property that Global Ministries is free to dispose of as it wishes. It can’t just sell the church buildings of one of the United Methodist Mission Initiatives and give that money to someone else.

What this review of general church assets shows is that there are many different possible ways to determine the total value of such assets depending on what categories of assets are included and the monetary value assigned to property and other tangible assets.

Thus, determining a total amount of general church assets isn’t a simple actuarial calculation; it’s a political and policy decision. Various parties in a division of church assets will have an incentive to include or not include various categories of assets or to value them differently in ways that will help them pursue their own financial interests in the negotiations.

If the question of what assets is complicated, so too is the question of what it means to divide them. In a simplistic understanding, a certain percentage of total assets, or perhaps a certain percentage of each asset would go to each party in the negotiation. Yet that view overlooks many significant legal questions that could prevent such a simple, proportional division of existing assets.

Here again, the distinctions between apportionment funds and agency funds and between restricted and unrestricted assets are important. There are solid legal cases to be made that General Conference cannot act to take away funds already owned by the agencies as legal entities and, even if General Conference could instruct the agencies to give some of their assets to another legal entity, restricted assets could not be transferred from one legal entity to another. At the very least, restricted assets could not be divided on a proportional basis, with a certain percentage being transferred to another legal entity. These theories could, of course, be tested by lawsuits, but that course of action involves extra expense and time.

If both apportionment funds and agency funds are included in the calculations for a division, and especially if both restricted and unrestricted funds are included, that gives the departing group claim to a much larger share of apportionment funds and possibly of unrestricted funds, since restricted funds and agency funds, in general, would likely be legally required to stay with the continuing United Methodist Church. A departing group could take all the cash and leave the remaining group with the untouchable money in the bank.

Yet this distinction between apportionment funds and agency funds also yields what is the legally least risky way to achieve some division of assets: a payout. In a payout, no board or agency or other legal entity is asked to part with money they already own. This avoids the lawsuits that would challenge the legality of General Conference instructing boards and agencies to violate their fiduciary responsibility to use their assets for the purposes stated in their articles of incorporation.

Instead, an amount is earmarked out of future revenue to be given to departing groups. Since that future money has not already been committed to a particular use, General Conference is free to direct that money as it sees fits. It is clear that General Conference has this budget-setting power, and this power does not conflict with the fiduciary responsibilities of other church legal entities since it applies to future income, not assets on hand.

This is the approach that the Protocol of Reconciliation and Grace through Separation takes, and this is likely why it takes that approach. It is legally much clearer that General Conference can designate where future apportionment revenue should go than it is that General Conference can require agencies to part with money that they already own as legal entities. The Protocol earmarks $25 million for Traditionalists and $2 million of other groups out of future revenues but does not try to reassign assets already owned by legal entities in the general church.

Of course, the Protocol is not the only possible approach to a payout. My next piece will examine a variety of questions related to the process of negotiating any division of assets.

A Primer on UMC Assets: Board and Agency Assets

Today's post is by UM & Global blogmaster Dr. David W. Scott, Director of Mission Theology at the General Board of Global Ministries. The opinions and analysis expressed here are Dr. Scott's own and do not reflect in any way the official position of Global Ministries. Dr. Scott is neither a lawyer nor an accountant, and thus the following should not be interpreted as legal advice.

Having looked last week at the range of sources of income for boards and agencies (hereafter just agencies), I will now turn to the several categories of assets an agency may hold. These categories of assets are not unique to United Methodist agencies but are characteristic of nonprofits generally. In addition to this post, the “Definitions of Assets, Liabilities, and Net Assets” from GCFA is helpful reading on this topic.

First, I will look at financial assets, since these tend to be the bulk of agency assets.

Within financial assets, there are unrestricted assets, which are financial assets that can be used for any purpose and may be stored in a variety of bank accounts or investments until they are needed. When many people hear the term “denominational assets,” this is what they think of: a bank account with money just waiting to be spent on whatever the denomination wants.

It is worth noting, though, that even though these assets are “unrestricted,” agencies may still not be free to spend them in any way they want and may not be free to give them to other legal persons at will. Agencies are still bound by the terms of their articles of incorporation, the legally binding documents that establish them as legal persons. The terms of those articles of incorporation may restrict what the agencies may do with even their unrestricted assets by stipulating that the agency exists for a specific purpose. Thus, for instance, GBHEM may not be able to take its money and begin operating a chain of frozen yogurt shops, since it is supposed to be in the business of supporting education. (I don’t know the specifics of GBHEM’s articles of incorporation; this is just a hypothetical example.)

Beyond undesignated assets, there are board-designated assets, which the board of directors has taken from unrestricted assets and earmarked for specific purposes. Again, these board-designated may be stored in a variety of accounts or investments.

In some instances, these board-designated purposes include meeting legally binding financial obligations such as paying for retirement funds. Thus, while a future board of directors could theoretically change how this money is designated, it may not be possible to re-allocate all of that money without a board or agency defaulting on its legal financial obligations. Boards of directors could not ignore these obligations without violating their fiduciary responsibility to the agency, and the agency could not ignore these responsibilities without risk of a lawsuit.

Together, unrestricted and board-restricted assets function as “reserves,” a cushion of money that allows for some fluctuations in spending and emergency expenses, in the same way that individuals often have more in their checking account than they intend to spend in the next month. GCFA recommends that all boards and agencies have 3-6 months of operating expenses in their reserves. https://www.gcfa.org/media/2084/final-report-of-reserves-task-force_nov2019.pdf If an agency is left short of reserves, it could end up in a situation where it was in danger of not being able to pay its bills.

Next, there are endowments, which are a specific type of investment wherein the principle is preserved, but the interest from that principle can be placed into unrestricted funds. Such endowments are subject to a variety of state laws, but these laws often prohibit the principle of the endowment from being spent. Thus, while the interest may be spent at the agency’s discretion, the agency may not be able to spend or give away the principle.

Agencies also have donor-designated assets, which a donor has stipulated how they are to be used. Some donor-designated assets are intended to be used within the near-term, and some of them are long-term investments, the interest of which is to be used for the purpose designated by the donor. These designations are legally binding, especially when gifts are given as part of a will. Were an agency to use a designated asset for a purpose other than that originally intended by the donor, it might be sued for doing so, especially by relatives of the person who gave them money. US law has a long and strong tradition of upholding such restrictions.

Finally, there is tangible, physical property, which includes land and buildings, but also things like computers, desks, books, etc. Without going into the details, there are different approaches to assigning monetary values to such physical property. For buildings and land, there is a difference between the “at cost” value and the fair market value. Moreover, while land and buildings may make up the majority of the physical property assets (for those boards and agencies that own them), it’s important not to forget about other forms of physical property. Finally, depreciation affects the financial value of physical property, but may or may not be included in a description of assets.

While there are conspiracy theories that agencies are secretively hiding money, a variety of information about agency finances is publicly available, including through the GCFA website. In particular, GCFA provides a report on general church reserves, a summary of General Church assets, liabilities, and net assets. GCFA also lists the at-cost value of agency headquarters buildings, for those agencies that own their own headquarters. Additional financial information about the income, assets, and expenditures can be found in agency reports or auditing statements and sometimes in IRS 990 forms filed by the agencies.

Aside from Wespath, the largest pools of net agency assets are those held by Global Ministries and UMCOR, GBHEM, and Africa University. Many of these are in the form of endowments and donor-restricted assets. Pension obligations eat up a significant amount of the non-restricted assets as well.

Thus, a large portion of agency assets across all agencies are not general assets that can be spent at will but rather assets set aside for specific, legally binding purposes. According to GCFA, the apportionment-funded agencies collectively have $589 million in net assets (assets minus liabilities). However, only $86 million of this is money that is not tied up in endowments, property, or pension obligations.

$86 million in cash is not nothing, but it is worth setting in three contexts: The first is the scope of the overall budgets of these agencies, which in 2018 was about $263 million dollars. $86 million is about four months’ operating costs in reserves, in line with what GCFA recommends. The second is the legal complexities around what agency money can legally be used for, even when it is unrestricted. The third is the over $50 billion in local church property owned by local congregations, which still represents the overwhelming majority of United Methodist assets.

A Primer on UMC Assets: Board and Agency Income

Today's post is by UM & Global blogmaster Dr. David W. Scott, Director of Mission Theology at the General Board of Global Ministries. The opinions and analysis expressed here are Dr. Scott's own and do not reflect in any way the official position of Global Ministries. Dr. Scott is neither a lawyer nor an accountant, and thus the following should not be interpreted as legal advice.

Part of the discussions around the future of The United Methodist Church has been a possible division of denominational assets. When people talk about denominational assets, they are discussing those assets held by denomination-wide boards and agencies (hereafter agencies). This includes not only the thirteen official boards and agencies but also entities like the Connectional Table, the Office of Christian Unity and Interreligious Cooperation, and the Africa University endowment, which are also legal persons with assets and denomination-wide responsibilities.

Again, The United Methodist Church as a whole is not a legal entity capable of owning assets itself. Agencies, however, are legal persons, incorporated as 501(c)3 organizations under various US state laws, and thus they can hold assets in trust for the denomination.

This post and the following one will attempt to add some clarity to what agency assets are, where they came from, and the legal restrictions that may apply to them. First, this post will talk about where agency assets come from and the associated restrictions. A subsequent post will talk about the categories of assets and the restrictions on them.

One source of revenue for agencies is direct giving – donations made by individuals, foundations, and other entities to those agencies. Usually donations come in the form of financial gifts, but donors also may give gifts-in-kind, another way of saying that they may give tangible assets such as land, buildings, equipment, medicine, foodstuffs, etc. Sometimes these donations are made to the general expenses of an agency (or “area of greatest need”), but often they are given to support particular programs or for particular purposes, such as building up an endowment. Agencies must use donations as directed; they cannot use a donation designated for one purpose for another purpose.

Another source of revenue is investment income. Some of the donations given to agencies are invested rather than spent, and those investments generate income through interest or dividends. That investment income is treated as revenue. Income from an endowment can generally be used as the agency sees fit, whereas income from donor-designated investments must be used for the purpose designated for that investment.

A third source of revenue is business income generated by sales, fees for service, or other contract work. This source of revenue is really quite broad, because it applies to everything from the fees that GCFA charges other agencies for tech support to the income the Publishing House receives from selling books to the money that Wespath makes by managing the denomination’s investments. Business revenue is also generally available to be used as an agency sees fit (once the costs of operating that business are covered). Since the agency earns it, the agency can decide how to use it.

Agencies can also earn money through grants from foundations and governments. Grant money is almost always tied to programs, and the income received from grants must be spent on the operation of those programs. However, many grants allow a small percentage of the grant funds to be spent on overhead, so grant money can be used to offset the general costs of an agency such as office space, utilities, and senior leadership.

Most agencies, but not all, receive some money from general apportionments, the subscription fee that local churches in the US pay to receive the bundle of denominational services provided by the UMC. (For more on apportionments, see “A Primer on United Methodist Apportionments.”) While people often think of agencies as apportionment-funded, that is not true in all cases, and even for those agencies that do get apportionments, the magnitude of apportionment funding compared to other sources of funding varies. Some agencies rely almost entirely on apportionments, some have a mix of income streams, and some are not funded by apportionments at all.

Notably, the United Methodist Publishing House (UMPH), Wespath, and United Methodist Women are not and never have been supported by apportionment giving. UMPH and Wespath are self-funding through revenues generated, and United Methodist Women is self-funding primarily through the generous donations of faithful women.

The General Council on Finance and Administration and the General Commission on Archives and History are funded out of the General Administration Fund. The Interdenominational Cooperation Fund pays for the work of the Office of Christian Unity and Interreligious Cooperation (OCUIC). The World Service Fund supports the work of Global Ministries, Higher Education and Ministry, Church and Society, Discipleship Ministries, United Methodist Men, the General Commission on the Status and Role of Women, the General Commission on Religion and Race (GCORR), and the Connectional Table, along with other expenses. For those agencies that are apportionment-funded, the amount of apportionment funding is projected to drop steeply in upcoming years.

Some agencies also administer other apportionment funds. For instance, GBHEM administers the Methodist Educational Fund and Black Colleges Fund. Moreover, GCFA administers all apportionment funds before they are disbursed. Such funds, however, must be used for whatever purposes are attached to that fund, perhaps minus a small administrative fee. Thus, GBHEM cannot decide to use Black Colleges Fund money to support higher education in the Philippines; it must be used to support UMC-affiliated historically black colleges and universities in the US. In this way, agencies serve as “pass-throughs” for these other funds. They administer them, but the funds are in a separate pot from the rest of their revenue streams.

Whatever source the money (or gifts-in-kind) comes from, once an agency receives it, it becomes an asset. For financial assets, agencies may then spend them, save them, or convert them into tangible assets (by buying new desks or computers for its employees or purchasing books for the GCAH library, for instance).

What an agency does with the assets depends a lot on where that asset came from and why it was given, as noted above. Again, grant monies must be spent on the project described in the grants, donations to an endowment must be added to the endowment, and donations for a particular program must be used for that program. To do otherwise would be to break trust with the person giving the asset and expose the agency to lawsuits.

Moreover, the use of an agency’s income and assets is governed by the complex set of foundational documents and decision-makers that include, on one hand, the General Conference and Book of Discipline, but also include, on the other, the agency’s own articles of incorporation, by-laws, board of directors, and staff leadership. (For more, see “A Primer on Board and Agency Organization”). General Conference, thus, does not have completely free reign in telling an agency what do to with its assets.

Information about agency income and expenses can be readily found online from GCFA in the form of audited financial statements for apportionment-funded agencies. Additional financial information about the income, assets, and expenditures can be found in agency reports or auditing statements and sometimes in IRS 990 forms filed by the agencies.

Next week, I will take a different perspective on agency resources and look at asset groups instead of income streams.

A Primer on UMC Assets: Departing Annual Conference and Remaining Local Churches

Today's post is by UM & Global blogmaster Dr. David W. Scott, Director of Mission Theology at the General Board of Global Ministries. The opinions and analysis expressed here are Dr. Scott's own and do not reflect in any way the official position of Global Ministries. Dr. Scott is neither a lawyer nor an accountant, and thus the following should not be interpreted as legal advice.

The vast majority of UMC assets (over 90%) are held by local churches. While local churches own this property, the trust clause stipulates that local church property (of all sorts – real estate, tangible personal property, and intangible property including financial assets) “shall be held in trust for The United Methodist Church and subject to the provisions of its Discipline.”

Yet annual conferences have important roles to play in managing these UMC assets. They exercise oversight of local assets held in trust for the denomination, as is also made clear in the BOD. ¶2503 states that local church property is “subject to the Discipline, usage, and ministerial appointments of said Church as from time to time authorized and declared by the General Conference and by the annual conference within whose bounds the said premises are situated.” (Emphasis added.) Elsewhere, annual conferences are given clear rights in the purchase and sale of any real property by local churches.

If, as explored last week, a US annual conference were to declare itself independent of the UMC, this would raise the question of what would happen to the assets of the local churches within that annual conference. Would they remain with the UMC or go with the departing annual conference?

While the Protocol (and perhaps other proposals) would address this question, since the BOD currently makes no provision for US annual conferences to leave the denomination, the answer to this question is complicated, more so than the relatively straightforward answer to the question of the property of local congregations exiting annual conferences that remain within the UMC.

The BOD connects local church property both to the denomination as a whole and to the annual conference in which it resides. This would raise complications for local church property within a departing annual conference. There would be conflicting obligations of trust for the local church to the departing annual conference and trust to the continuing denomination.

A local church who wanted to abide by the annual conference’s decision could say that it was acting in accordance with its obligation to use its property in trust for the annual conference. A local church that wanted to stay in the UMC in opposition to the annual conference’s decision could say that it was acting in accordance with its obligation to use its property in trust for the denomination. The latter might be the stronger case, but that doesn’t mean the former would have no case. Either way, lawsuits would likely ensue.

Here’s where the difference in legal statuses of the UMC as a whole and of the annual conference would come into play. The denomination as a whole is not a legal person able to own property or bring lawsuits to claim property; the annual conference (or at least its board of trustees) is.

Since the annual conference is generally the body tasked with enforcing the trust clause on local churches, a departing annual conference would have no incentive to enforce that clause on its churches on behalf of the denomination it was leaving. Thus, it’s safe to assume churches that wanted to leave with the annual conference would not face trust clause property barriers from that annual conference.

However, a local church or factions within a local church that wanted to stay with the denomination probably could sue to sever their trust clause obligations to the departing annual conference, arguing that they were instead being faithful to their trust clause obligation to the denomination.

One of the questions they would face in making their case would be how the situation could be remedied under a legal settlement. In other words, they would probably have to propose joining another annual conference to remain part of the UMC, thus entangling the other annual conference and probably the jurisdiction (who has authority over annual conference boundaries) in the lawsuit.

It is also possible that either loyalist churches or individuals within the departing annual conference or an adjacent loyalist annual conferences could sue to try to gain control of the property of local churches that willingly depart with an annual conference. They would have to prove standing, as discussed last week. That is, these loyalist players would have to demonstrate that they were harmed by the departing local churches and indicate who should receive the property if it was found that the property should stay with the UMC.

The BOD makes no provisions for the transfer of local church property to another church or an individual without consent of the annual conference, so it would probably be difficult (though not impossible) for other local churches to sue to gain control of the property of churches departing with their annual conference. That property would probably need to be given to a loyalist annual conference.

Adjacent annual conferences could also sue, since under current principles of United Methodist polity, they could, with the jurisdiction’s consent, claim the territory “vacated” by the departing annual conference. Such a case might be weaker for annual conferences trying to cross jurisdictional lines to claim territory, since the BOD clearly gives jurisdictions the right to set annual conferences boundaries within their own territory.

GCFA could also use its authority to “safeguard and protect the interests and rights of the denomination,” but it is unlikely that GCFA would have the resources to bring thousands of suits against all departing congregations.

A departing annual conference could also try the reverse strategy: to sue a local church within its borders that wanted to remain in the UMC, seeking that their property be transferred to the departing annual conference. It’s not clear that the annual conference could win such a suit. It’s likely that a lot of the argument would hinge on when and to what extent the BOD applied to a departing annual conference vs. when and to what extent whatever new rules it adopted for itself were in effect.

Of course, sometimes the threat of a lawsuit is an effective tactic to force others to negotiate. Thus, even if they weren’t confident that they could win, departing annual conferences could threaten to sue loyalist local churches, hoping to provoke negotiations about financially severing the tie between the church and the annual conference.

The bottom line is, again, that there are plenty of opportunities for lawsuits. Note that I am not recommending any of the lawsuits mentioned in this piece. I am merely trying to explore some of the legal issues around property that might arise in the UMC within the tumult of the next several years with the hope that by surfacing these issues, such lawsuits can be avoided.

A Primer on UMC Assets: Annual Conferences and Jurisdictions

Today's post is by UM & Global blogmaster Dr. David W. Scott, Director of Mission Theology at the General Board of Global Ministries. The opinions and analysis expressed here are Dr. Scott's own and do not reflect in any way the official position of Global Ministries. Dr. Scott is neither a lawyer nor an accountant, and thus the following should not be interpreted as legal advice.

While the vast majority of UMC assets are held by local churches, annual conferences and jurisdictional conferences have important roles in managing UMC assets held in trust for the denomination (as described last week). In addition, annual conferences and jurisdictional conferences, as incorporated “legal persons,” own assets themselves, which are also held in trust for the denomination.

Perhaps the most interesting question regarding annual conference and jurisdictional assets related to possible futures of the UMC is what would happen to these assets if a US annual conference or jurisdiction were to leave the denomination.

Based on samples of 10 annual conferences in the US, the assets owned by the annual conferences run a range from $15 million up to $100 million in net assets. Most annual conference net assets were in the $15-50 million range. This represents between 3-7% of the total assets within an annual conference’s area. Since districts tend to own little if any property, this means that over 90% of the assets in any given annual conference are still in its local churches.

Jurisdictions also have some assets. Based on publicly available information for four out of the five jurisdictions, they each have between $300,000 and $1,200,000 in assets, almost entirely in financial rather than tangible form. No information on assets was publicly available for the Western Jurisdiction, but it seems likely that their numbers are similar to the other jurisdictions. Again, the trust clause applies to these jurisdictional assets as well.

Currently, the Book of Discipline makes no provisions for a US annual conference or jurisdiction to leave the denomination. There are provisions for central conferences and/or their annual conferences to become autonomous, but these apply only outside the US. Certainly, GC2020 could add a provision for US annual conferences to exit the denomination (as in the Protocol), but for now, there is no provision.

An annual conference or jurisdiction could, nonetheless, declare itself independent of the UMC, and such a scenario is not completely implausible in the current situation of the church. There have been rumblings of such a plan from the Western Jurisdiction or parts thereof, but it is also possible that a traditionalist annual conference could try to exit the UMC, as Tom Lambrecht has submitted legislation to allow that.

By departing with its property, an annual conference or jurisdiction would be breaking its trust to the UMC. The BOD is not clear, however, who would have the job of enforcing the trust clause against a departing annual conference or jurisdiction. This raises the legal question of standing. Not just anyone could try to sue to reclaim that property on behalf of the UMC. Suit could only be brought by a person or entity with standing, a legal term that essential means a valid interest in the case.

To determine standing, courts usually ask whether the party bringing the lawsuit has been harmed by the actions of another, and whether that harm could be redressed by a court ruling in their favor. Thus, to prove standing, a United Methodist entity would have to prove that they were financially or in some other way harmed by the departing annual conference taking their property, and that the situation could be made better by giving the property to someone else.

As it turns out, there are a variety of possible entities that might have standing in such a case. ¶2509.2 of the BOD says, “Any denominational unit authorized to hold title to property and to enforce trusts for the benefit of the denomination may bring suit in its own name to protect denominational interests.” That is a potentially broad category.

The entity with the best case for standing in a lawsuit against a departing annual conference would be that annual conference’s jurisdiction, who could make the case that the loss of the assets of that annual conference interfered with the jurisdiction’s ability to provide United Methodist spiritual care for the people living within its area. The jurisdiction could then seek redress by the property of the departing annual conference being given to a neighboring remaining annual conference, who could then extend its ministry to the area vacated by the departing annual conference.

It is also possible that suit could be brought by a loyalist church within the departing annual conference, who could argue that their ability to receive United Methodist spiritual care had been harmed by the loss of the assets of the departing annual conference. The proposed redress would be the same: give the assets to a neighboring annual conference, who would then extend its ministry to the area of the departing annual conference. Such a suit might be more difficult to bring if the jurisdiction opposed it or had taken no action to reassign the vacated territory, since the jurisdiction has the right to determine the boundaries of annual conferences within its territory, not churches or the secular courts. Nonetheless, such a suit could still be brought.

A neighboring loyalist annual conference could also sue to claim the assets of a departing annual conference, but it might be more difficult to prove how they were harmed by the departing annual conference keeping their assets, since their purview for the care of the UMC’s interest covers only their own territory. Similarly, any annual conference, local church, or individual at a further distance would have more difficult time yet providing standing.

GCFA is another possibility to bring a suit. GCFA has authority “[t]o take all necessary legal steps to safeguard and protect the interests and rights of the denomination; to maintain resources related to the denominational interests of The United Methodist Church, and to make provisions for legal counsel where necessary to protect the interests and rights of the denomination.” Since annual conference property could be construed as relevant to the “interests and rights of the denomination,” GCFA could have standing to bring a suit. The proposed redress, however, would probably involve giving the assets of the departing body to a remaining body, not to GCFA itself, since GCFA only administers the general funds of the church and is not in the business of holding local church property.

An entire jurisdiction might present a more difficult situation for those remaining to try to prove standing to sue for the property of that jurisdiction, but there are still plenty of opportunities for lawsuits here. The BOD reserves the right to determine jurisdictional borders to the General Conference, which cannot itself bring a lawsuit, but it could direct some other church entity to do so. GCFA might also use its authority here to “safeguard and protect the interests and rights of the denomination.”

For both annual conferences and jurisdictions, it is possible that courts would want to avoid becoming entangled in the politics of a church split. In the absence of clear provisions within the Book of Discipline for who is supposed to enforce the trust clause on annual conferences and jurisdictions, a lawsuit related to exercising the trust clause on annual conferences themselves (not on churches) might be dismissed. Or it might be allowed to proceed. There is, however, a very clear potential for lawsuits, perhaps from a variety of parties, even if the outcome of those lawsuits is not clear.

This still leaves questions about the property of churches within a departing annual conference or jurisdiction, a topic I’ll address next week.

A Primer on UMC Assets: Local Church Assets

Today's post is by UM & Global blogmaster Dr. David W. Scott, Director of Mission Theology at the General Board of Global Ministries. The opinions and analysis expressed here are Dr. Scott's own and do not reflect in any way the official position of Global Ministries. Dr. Scott is neither a lawyer nor an accountant, and thus the following should not be interpreted as legal advice.

As previously discussed, The United Methodist Church as a whole is not a legal entity capable of owning property or financial assets. Local church property (real or personal, tangible or intangible) is owned by local legal entities and held in trust for the denomination as a whole.

This trust clause applies to the property of all parts of The United Methodist Church, but local churches are in a unique position with regard to the trust clause for several reasons: ¶2503 explicitly names the annual conference, which generally is a legal person capable of owning property, as having authority over local church property. Several other places in the BOD also give the annual conference explicit powers regarding the sale or transfer of local church property or its release from the trust clause. ¶2509.2 gives annual conferences the authority to bring lawsuits to enforce the trust clause. All of these provisions add up to clear enforcement of the trust clause on local churches by annual conferences.

Thus, the trust clause as applied to local church property has generally stood the test in secular courts. While in some instances departing congregations have negotiated with their annual conferences to take assets, when the trust clause has ended up in court, annual conferences have almost always won ownership of the property of departing congregations. Incidentally, that’s true not just for the UMC, but also for the Episcopalian Church and other bodies that also have a trust clause in their church law.

As cut and dried as the trust clause may appear, there are facets to keep in mind when thinking through the sorts of conflicts and potential lawsuits that might arise over ownership of local church property.

First, while most people assume that the trust clause means that the annual conference owns local church property, that’s not technically true. The annual conference has authority over local church property, and local church property reverts to the annual conference if it ceases to be owned by a local UMC congregation, but the annual conference is not the legal person who owns the church property.

Who technically owns local church property depends on whether a congregation is incorporated. Most sizable congregations are incorporated as 501(c)3 organizations, but many small congregations are not. This means that for incorporated congregations, the property is owned by the local congregation as a corporate entity. For unincorporated congregations, the property is technically owned by the trustees, who as humans are legal persons. In either case, property ownership is exercised in trust for The United Methodist Church. The owner(s) of local church property can’t do whatever they want with it; they must abide by the stipulations of The Book of Discipline.

One problem here is that most bankers, investment brokers, and real estate agents are not familiar with the intricacies of the BOD. While it would violate the BOD, it might be possible for local leaders to work with bankers, brokers, or real estate agents unfamiliar with the trust clause to sell or otherwise dispose of local church property without annual conference consent. Such action would violate the Book of Discipline and thus expose the local church and its leaders to lawsuits from the annual conference, but it might be harder for the annual conference to recover property that was already disposed of.

Of course, the exit provision passed by General Conference 2019 and any future exit provisions passed by General Conference 2020 reduce the chances for lawsuits between local congregations and annual conferences over control of property.

Second, it’s important to remember that local church property includes more than just buildings. The trust clause applies to all other property that a local church owns, from its hymnals to its choir robes to its sound equipment to its vans to its tableware. It also applies to all financial assets owned by a local church. Thus, the question of property ownership goes beyond whether departing congregations can continue to worship in their same building. Any or all of these items could be a point of conflict between a departing church and the annual conference.

Certainly, the church building itself (and perhaps a parsonage) would likely be the biggest point of contention, since that generally represents the largest chunk of a local church’s assets. After that, who cares who keeps the Sunday School books, right? Maybe, but maybe not.

Especially when it comes to financial property, local congregations may have significant assets beyond their building over which annual conferences may want to assert their ownership. And larger churches may have a non-negligible amount of property in the form of vehicles, equipment, books, supplies, etc. Annual conferences have an incentive to assert their right to this property, even if just to give themselves better leverage in bargaining with a departing congregation.

Again, exit provisions reduce the chances for lawsuits between local congregations and annual conferences over control of buildings, equipment, and any other property. It is therefore worthwhile to keep in mind the scope of assets that could be at stake in such lawsuits.

Third, it is worth noting the variety of local church financial decision-makers established by the BOD. This array of decision-makers increases the chances for conflict over assets within the local church itself.

The Book of Discipline outlines property-related responsibilities for the charge conference, the board of trustees, the financial secretary, the treasurer, the finance committee as a whole, and, in cases where they exist, the permanent endowment committee and the directors of the local church foundation. Moreover, in multiple-point charges, there may be both local church trustees for the property of each congregation and a board of trustees for property owned by the charge as a whole.

The authority to make all decisions regarding property, both real and personal, is vested in the charge conference. Yet, to carry out its property and financial decisions, the charge conference relies upon the work of the board of trustees, the treasurer, the finance committee, and (if they exist) the permanent endowment committee and directors of the local church foundation. These individuals have access to and oversight of the property of a church. Thus, they might be able to direct this property to another church body (either another denomination or the annual conference) in defiance of or in absence of a charge conference decision, especially since charge conferences usually meet rarely.

Again, such action would violate the Book of Discipline and ultimately lead to lawsuits, but in an instance in which there is a lot of internal conflict within a church about that church’s continued relationship with the UMC, there is the possibility for factions within the church to use control of church property as a means to achieve their preferred outcome.

Since this type of conflict would occur within a church, an exit plan would not necessarily mitigate it. Control of property within a highly divided congregation may actually become more contentious with the existence of an exit plan. Such a plan could make local property a prize to be fought for between local “leave” and “stay” factions, with each group seeking control of the property. Nonetheless, an exit plan that sets or allows a congregation to set a relatively high standard of agreement for exiting is likely to reduce internal conflict around that decision.

A Primer on UMC Assets: Church-Related Institutions

Today's post is by UM & Global blogmaster Dr. David W. Scott, Director of Mission Theology at the General Board of Global Ministries. The opinions and analysis expressed here are Dr. Scott's own and do not reflect in any way the official position of Global Ministries. Dr. Scott is neither a lawyer nor an accountant, and thus the following should not be interpreted as legal advice.

As indicated in a previous post on the ownership of church assets, there is a lack of clarity in how the trust clause applies to one particular set of assets: those of church-related institutions. United Methodists and their predecessors have been persistent founders of a variety of non-profit institutions and organizations: colleges, universities, seminaries, hospitals, nursing homes, social service agencies, camps, retreat centers, and more.

Many such institutions founded by United Methodists and their predecessors have since become independent of The United Methodist Church. They may still recognize their Methodist or EUB heritage, but there are no longer any formal ties between them and the denomination.

Yet many such institutions do still maintain some sort of formal connection to the denomination. The trust clause in ¶2552 refers to “[t]rustees of schools, colleges, universities, hospitals, homes, orphanages, institutes, and other institutions owned or controlled by any annual, jurisdictional, or central conference or any agency of The United Methodist Church,” indicating that such institutions may be bound by the trust clause.

These connections raise a host of related questions: How does one know if an institution is bound by the trust clause? Are such institutions also bound by the Book of Discipline? If there is some sort of split within the denomination, does that effect the assets of these institutions? What happens if these institutions try to cut their ties to the denomination as a result of the church’s turmoil? And of course, how could conflicts over control of these institutions lead to lawsuits?

Conflict over control of church-related institutions has already generated one high-profile lawsuit: the South Central Jurisdiction of the UMC is suing Southern Methodist University over SMU’s unilateral decision to sever (most of) its ties to the jurisdiction. This case has served to increase the questions and anxieties around the relationship of the denomination to its church-related institutions: Will SMU be a pattern for other cases?

Several factors influence the answer to this question.

As previously noted in this series, assets can only be owned by legal persons, including corporations. All or nearly all church-related institutions are established as their own legal corporation, most of them 501(c)3 corporations, i.e., non-profits. This status as legal corporations gives these institutions the legal standing that they need to own assets and do business. It also requires them to have articles of incorporation, which lay out the basic structures and rules by which each institution will function.

These articles of incorporation may also establish some sort of relationship with The United Methodist Church. There is not, however, any formulaic version of that relationship. In writing articles of incorporation, each institution draws upon its own unique history, purpose, church context, and time of writing in laying forth what (if any) formal relationship it has with The United Methodist Church (or predecessor body, if the articles were written before 1968). Thus, each institution’s relationship with the UMC is in many ways unique to that institution.

In general, however, it is useful to think about the sorts of relationships church-related institutions have with the UMC as dealing with one or both of two major issues: ownership and control.

Under ownership provisions, the articles of incorporation would stipulate a body of the UMC that is itself a legal entity as the owner of the church-related institution. This could be a local church, an annual conference, a jurisdiction, or a board or agency. Part of the issue in the SMU case is that SMU’s articles of incorporation previously said that SMU was “owned … by the South Central Jurisdictional Conference.”

Ownership gives a church body some right to the assets of the church-related institution. But that right can mean various things, according to the durability of the institution and the exact wording in its articles of incorporation.

Since each institution is itself a corporation capable of holding assets, ownership can be a largely theoretical concept if the institution is likely to endure indefinitely and has the right to keep all of its assets for itself, which legal persons generally do. On a practical level, an on-going, autonomous institution would continue to manage and control all its own assets, even if the church theoretically owned them.

The articles of incorporation would have to include an unusually strong ownership clause for a church body to take assets from a still-functioning, on-going church-related institution. Such provisions may exist for church-related institutions that are directly overseen and operated by church bodies, such as camps, retreat centers, and perhaps some social service agencies or clergy retirement homes (though I’m not certain about that). Yet for colleges, schools, seminaries, hospitals, and most social service agencies that are not directly run by church bodies, such strong ownership clauses are very unlikely.

Ownership becomes more relevant if an institution closes or dissolves. Who gets the remaining assets? Who assumes the remaining debts? Shutting down might seem like a remote possibility for a large university like SMU, but it might be a more realistic possibility for a church-related camp or retreat center.

Questions of what happens when an institution closes can be answered by a survivor clause in the articles of incorporation that stipulates who assumes assets and debts. If an ownership provision is accompanied by a survivor clause specifying that a part of the church would be the legal successor to that institution, should it ever cease to exist, that gives the church a good claim to the assets of the institution. Without such a clause, it might be hard for a church body to actually benefit tangibly from its theoretical ownership of an institution.

In addition to ownership, the other main avenue of relationship for church-related institutions is control. Here again, SMU’s articles of incorporation are illustrative. They also stipulated that the school would be “controlled by the South Central Jurisdictional Conference.”

Control can come in a variety of forms related to personnel or policy. One common form is the power to appoint some portion of the institution’s trustees, who then exert big-picture control over the institution. Another possible form of control would be the power to appoint staff leadership for the institution, which might be the case for annual conference-related camps, retreat centers, and social service agencies. Yet another possible form of control is the power to approve or veto certain decisions by the institution. Alternatively, the articles of incorporation could require an institution to adhere to certain denominational policies for the institution, perhaps related to some provisions of the Social Principles. Again, the possibilities are many, and the exact arrangements vary from institution to institution.

Moreover, it is also possible for an institution to be church related without that being spelled out in its articles of incorporation. There may be historical ties, on-going funding patterns, missional collaborations, or other bonds between an institution and a body of the UMC. If those relationships are not spelled out in the articles of incorporation, however, then the church has very little leverage in asserting any claims of ownership or control over the institution. It would be easy for the institution (or the church body) to break such connections.

So, is the SMU case indicative of things to come? The answer is likely yes and no. It is possible that there will be other cases wherein ownership and control are contested and even litigated, but each case is likely to play out differently because of the unique relationship established between each church-related institution and the UMC in that institution’s articles of incorporation. SMU had relatively strong language in its articles of incorporation connecting it to the South Central Jurisdiction. Most church-related institutions will not have such a strong connection laid out in their founding documents. Indeed, three other colleges have disaffiliated without triggering lawsuits.

Moreover, while church-related institutions directly run by church bodies (such as camps) may allow those church bodies to claim the institution’s assets for their own use, assets for most church-related institutions will remain in the hands of those institutions and cannot be transferred to the church itself. Thus, the fights that do occur are more likely to be fights about control over institutions rather than fights about ownership of property, as is mostly the case for SMU.

A Primer on UMC Assets: Trust vs. Ownership

Today's post is by UM & Global blogmaster Dr. David W. Scott, Director of Mission Theology at the General Board of Global Ministries. The opinions and analysis expressed here are Dr. Scott's own and do not reflect in any way the official position of Global Ministries. Dr. Scott is neither a lawyer nor an accountant, and thus the following should not be interpreted as legal advice.

As recounted in my previous two posts, the assets of The United Methodist Church are governed by the two principles of ownership by legal entities (usually non-profit corporations) and trust for the denomination. These two principles apply to all forms of property owned by any official entity within The United Methodist Church – including annual conferences, jurisdictions, boards and agencies, and others – not just to buildings owned by local churches.

Having laid out this basic framework, it is worth exploring in some greater detail the relationship between trust and ownership. Both give certain parties rights relative to property, but the nature of those rights and who holds them differs in the two scenarios.

Before I go further, however, it is important to note a couple of very important caveats. First, as indicated above, I am a theologian, not a lawyer. The following is an attempt to give a general explanation for laypeople of broad principles that structure the polity of the church. It is not specific legal advice that will be accurate in all cases.

Second, the specifics of property law vary from place to place. There are differences in property law between the different countries in which The United Methodist Church exists. But there are also differences across state property laws in different states in the United States. Since a lot of property law exists at the state rather than the federal level, that means there can be significant variation across annual conferences or other bodies of the church. Very little can be said with any specificity that will apply to all United Methodist bodies in all places.

Those caveats out of the way, here’s some of what can be said generally about ownership and trust.

Both ownership and trust come out of a Western legal tradition of understanding property wherein ownership is largely construed in terms of the rights to use that property and control over the use of that property. Put simply, an owner is a legal entity that has the ultimate right to control how and by whom a piece of property is used. The owner can use it themselves, or they can allow others to use it, but the decisions regarding that use lie with the owner. In general, an owner can do whatever they want with their property, within the limitations of the law.

Trust is an arrangement between three parties that puts some restrictions on the rights and use of property not found under the most basic form of ownership. In a trust, one party (technically, the grantor, trustor, or settlor) conveys ownership of a property to a second party (the trustee) with the stipulation that the property must be used for the benefit of a third party (the beneficiary).

Prior to setting up a trust, the trustor owns the property outright. But they give up that ownership in transferring that property to the trustee. There are certain cases in which a grantor might be able to receive that property back (“revocable trusts”), but in general, they relinquish all claims of ownership to the property (“irrevocable trusts”).

The trustee assumes ownership of the property, but they are not free to do anything they way with it, as under basic ownership. Their rights to the property are limited by the stipulation that they use that property for the good of the beneficiary. They are legally prohibited from doing anything with the property that would harm the interests of the beneficiary. Yet as owner of the property, the trustee does get to make decisions about how to use that property for the good of the beneficiary.

The beneficiary does not own the property – the trustee does, but the beneficiary does receive the benefits of the use of that property. The beneficiary cannot make any and all decisions about the use of the property – again, that power is reserved for the trustee, but those decisions are supposed to be in the beneficiary’s best interest. The beneficiary may have some power to assert what they see as in their best interest, but that power is limited. They don’t own the property, so there are things they can’t legally force the trustee to do with the property.

To give an example from family property, let’s assume there is a wealthy parent with a chunk of money. As owner of that money, they can use it any way they want – spend it, invest it, give it away, even gamble with it. As long as they’re not doing anything illegal with it (buying drugs, offering bribes, etc.), it’s theirs to use.

Now assume that parent acts as a trustor to put this money in a trust administered by their lawyers, who would serve as the trustees, for the sake of their children’s education, the children thus being beneficiaries.

The parent relinquishes ownership of the money put into this trust, but they establish some rules for how that money should be used when they transfer it to the trust. Doing this with the money might bring a tax benefit to them, but they can no longer spend or use that money for themselves.

The lawyers, as trustees of the money, are responsible for making sure the money is being well-stewarded and used for the purposes set up. They cannot spend that money however they want, even though they are the executors of the trust, which legally owns the money.

The children benefit from that money, but they don’t own the money. They benefit from the money is thus limited by the rules set up by the parent. They cannot use the money to buy a car, for instance, since the parent stipulated that the money be used for their education.

How does this basic framework apply to the UMC? In this instance, individual donors are the trustors, giving over money to various UMC legal persons, who function as the trustees, for the benefit of the denomination as a whole, the beneficiary.

Not all donors may realize that’s what they’re doing when they give to the offering plate, but that’s essentially what’s going on. Except in rare circumstances, upon giving property to a church entity, the donor loses ownership of and rights over that property. Just as you can’t get your money back after a donation to the Red Cross, you generally can’t get back the money you give to the church.

The UMC legal entity (local church, annual conference, board or agency, etc.) as the trustee is the legal owner of the property. But they are required to use that property for the benefit of the whole of the United Methodist connection, within the restrictions and stipulations set up by donors for particular pieces of property. They cannot simply use their property in any way that they want. This is why, for instance, there are rules and restrictions regarding selling, mortgaging, or renovating local church buildings – those buildings must contribute to the good of the connection as a whole.

The UMC as a whole is the beneficiary of the trust, which means that all property owned by UMC entities is supposed to benefit the connection as a whole. But since the UMC is the beneficiary and not the owner, that means that there are things that General Conference (as decision-making body for the whole connection) might not be able to ask or require that various church entities do with their property, since the UMC as a whole does not own it and thus does not have full rights to decision how to use that property.

Again, there are many very complicated and technical issues at stake here, and it is impossible to comment on the application of these basic principles to all of them. Future posts will try to look at how these general issues play out in more specific cases and especially how this system can break down.

A Primer on UMC Assets: What Are They?

Today's post is by UM & Global blogmaster Dr. David W. Scott, Director of Mission Theology at the General Board of Global Ministries. The opinions and analysis expressed here are Dr. Scott's own and do not reflect in any way the official position of Global Ministries. Dr. Scott is neither a lawyer nor an accountant, and thus the following should not be interpreted as legal advice.

As explained last week, ownership of UMC assets is determined by the concept of legal personhood and the trust clause.

Having looked at ownership, it’s worth looking more specifically at what exactly is meant by assets or property. The trust clause covers “all real and personal, tangible and intangible property,” which essentially means all assets. But what is real, personal, tangible, and intangible property?

First, “property” is defined as something that can be owned. Technical definitions of “asset” vary, but within accounting, an “asset” is something of positive value owned by a legal entity. For the sake of this blog series, I will use the terms property and asset interchangeably.

Real vs. personal property and tangible vs. intangible property are two separate ways of breaking down the categories of property. The inclusion of both in the trust clause implies that the trust clause applies to all property, regardless of type.

Real property is property that cannot be moved, like land and buildings. When most people think about the trust clause, this is what they think of – church buildings. It is worth noting, however, that the trust clause applies to all land and buildings owned not just by local congregations but by any United Methodist legal entity: parsonages, annual conference and agency headquarter buildings, church camps, land purchased for possible future use, and the property of church-owned social service or outreach ministries. Real property goes far beyond just the category of church buildings used by congregations, even while church buildings make up the largest share of real property.

Personal property, by contrast, is all property that can be moved, including financial assets, i.e., money, and intellectual property. The term “personal” here refers to legal personhood, not human personhood; thus personal property is a much larger category than the things you might think of yourself as owning. Few United Methodists own an ocean freighter or the rights to the use of a cartoon character, but these are also forms of personal property.

The breadth of the category of personal property makes the second distinction – between tangible and intangible property – useful.

Tangible property is any physical property that can be touched. It includes real property (you can touch land or a building), and a lot of personal property as well. Furniture, equipment, supplies, vehicles, books, clothing, jewelry, etc. – all of these are forms of tangible personal property. Thus, everything from a communion chalice owned by a local congregation to the books owned by GCAH to a van owned by an annual conference-run summer camp would count as tangible personal property and be subject to the trust clause.

Intangible property, then, is anything with value or potential value to a legal person that cannot be touched. This category of property can include patents, other intellectual property, brand reputation, and, perhaps most importantly, financial assets such as bank accounts and investments. Again, everything from the copyright of agency-penned books to a local church checking account to an annual conference trust fund to support new church starts is subject to the trust clause.

Within the world of financial assets, there is also a difference between cash on hand – money that is kept in bank accounts, cash, or other forms that can be spent immediately – and long(er)-term investments of one sort or another – stocks, bonds, mutual funds, managed funds, options, etc.

Among financial assets, there is a further distinction between designated and undesignated assets. Designated assets are those that can only be used for a particular purpose. Undesignated assets can be used for any purpose that the church, annual conference, agency, or another owner would like.

Usually, the purpose of a designated asset is determined by those who originally gave it. That designation is legally binding, especially when gifts are given as part of a will. Thus, were the church to use a designated asset for a purpose other than that originally intended by the donor, it might be sued for doing so, especially by relatives of the person who gave them money. The strength of such designations can persist even when the church no longer does whatever the money is designated for. Hence, if there is a local church fund that was donor-designated for choir robes, that money probably cannot be used for other purposes, even if the church choir hasn’t worn robes since 1984.

By now, it should be clear that when there’s a discussion of dividing up church assets, that potentially applies to much more than each of the agencies writing a check for a fraction of whatever’s in their bank accounts.

Where there is talk of dividing assets, it is critical to determine what type(s) of assets people are talking about: Does this division apply just to financial assets, or are all assets being taken into account? Within financial assets, are just undesignated assets considered, or are designated assets included in the calculation? Within non-financial assets, how will the value of the asset be determined? Who gets to say what a building, tract of land, van, copyright, vestment, or historical artifact is worth? Finally, when there’s a discussion of division of assets, what level of the church is being discussed: local congregation, annual conference, or general church?

As these questions show, the simpler the division of assets is, the less room there is for conflict. A specified lump sum from clearly designated sources is much simpler and therefore less open to litigation than a percentage of total assets or another more complicated formula.

A Primer on UMC Assets: Who Owns Them?

Today's post is by UM & Global blogmaster Dr. David W. Scott, Director of Mission Theology at the General Board of Global Ministries. The opinions and analysis expressed here are Dr. Scott's own and do not reflect in any way the official position of Global Ministries. Dr. Scott is neither a lawyer nor an accountant, and thus the following should not be interpreted as legal advice.

There has been a lot of discussion about the “assets” of The United Methodist Church related to the possibility of a division within the church. What will happen to those assets has become a topic of debate, with varying proposals part of the different plans.

Yet before United Methodists make plans to divide their assets, it is important to come to a clearer understanding of just what those assets are and how they may (or may not) be disposed of in the future. Thus, this is the first post in an on-going series about UMC assets.

First, it’s important to explain two critical legal frameworks that impact all United Methodist assets: the concept of legal personhood and the trust clause.

Under most countries’ property laws, assets can only be owned by “legal persons,” a lawyerly term meaning both actual humans and government-recognized entities such as corporations. The United Methodist Church is not a human, with the exception of individuals who own property in trust for unincorporated local churches (more on that in a future post), and it does not have legal claim over the assets owned by any of the humans associated with it. Thus, when we’re talking about United Methodist assets, we’re mostly talking about the assets of government-recognized non-human legal entities, which in the US usually take the form of 501(c)(3) non-profit corporations.

But there is a very important point to be made about assets and legal entities within the UMC. The United Methodist Church as a whole is not a legal entity itself, as ¶141 of the Book of Discipline makes clear:

“These terms [“The United Methodist Church,” “the general Church,” “the entire Church,” and “the Church”] refer to the overall denomination and connectional relation and identity of its many local churches, the various conferences and their respective councils, boards and agencies, and other Church units, which collectively constitute the religious system known as United Methodism. Under the Constitution and disciplinary procedures set forth in this Book of Discipline, “the United Methodist Church” as a denominational whole is not an entity, nor does it possess legal capacities and attributes. It does not and cannot hold title to property, nor does it have any officer, agent, employee, office, or location. Conferences, councils, boards, agencies, local churches, and other units bearing the name “United Methodist” are, for the most part, legal entities capable of suing, and being sued, and possessed of legal capacities.” (emphasis added)

Thus, The United Methodist Church as a whole does not directly own any assets, since the church as a whole is not a legal entity capable of owning assets.

Thus, when people are talking about the fate of UMC assets, what they’re really talking about is the assets owned by local churches (and associated entities), annual conferences (and associated entities), jurisdictional and central conferences (and associated entities), and boards, agencies, and other general church legal entities. There is not some pool of money out there separate from the assets of these specific groups.

While the UMC as a whole does not own assets, all of the assets of each of these groups are held in trust for the UMC as a whole. This is the famous “trust clause” of the UMC, which reads, in part:

“All properties of United Methodist local churches and other United Methodist agencies and institutions are held, in trust, for the benefit of the entire denomination, and ownership and usage of church property is subject to the Discipline. … In consonance with the legal definition and self-understanding of The United Methodist Church (see ¶ 141), and with particular reference to its lack of capacity to hold title to property, The United Methodist Church is organized as a connectional structure, and titles to all real and personal, tangible and intangible property held at jurisdictional, annual, or district conference levels, or by a local church or charge, or by an agency or institution of the Church, shall be held in trust for The United Methodist Church and subject to the provisions of its Discipline. Titles are not held by The United Methodist Church (see ¶ 807.1) or by the General Conference of The United Methodist Church, but instead by the incorporated conferences, agencies, or organizations of the denomination, or in the case of unincorporated bodies of the denomination, by boards of trustees established for the purpose of holding and administering real and personal, tangible and intangible property.” (Book of Discipline ¶ 2501; emphasis added)

In other words, the UMC as a whole doesn’t own anything, but ownership by specific UMC-related legal persons is subject to the provisions of The Book of Discipline. This applies to most famously to local churches, but also to districts, annual conferences, jurisdictions, and boards and agencies.

There are different amounts of property at each of these levels, though. US local churches, districts, and annual conferences collectively owned $63.5 billion of property in 2018, an average of $1.2 billion per annual conference, over 90% of which is at the local church level. All five jurisdictions together held less than $4 million in property, though corporate entities related to the jurisdictions held additional assets. The apportioned funds, Africa University, and the apportionment-supported general boards and agencies collectively had $621 million in net assets in 2018, or about half the property in an average annual conference. The vast majority of UMC assets, then, are in the form of local church property.

The trust clause may or may not apply to other UMC-related entities like colleges and hospitals. ¶2552 refers to “[t]rustees of schools, colleges, universities, hospitals, homes, orphanages, institutes, and other institutions owned or controlled by any annual, jurisdictional, or central conference or any agency of The United Methodist Church,” yet it continues, “It is recognized that there are numerous educational, health-care, and charitable organizations that traditionally have been affiliated with The United Methodist Church and its predecessor denominations, which are neither owned nor controlled by any unit of the denomination.” It depends upon the specifics of each entity’s articles of incorporation, as a future post will elaborate.

While The United Methodist Church is not a legal entity capable of owning assets, General Conference can make rules that impact the assets owned by units of The United Methodist Church that are legal entities. General Conference can do so by inserting such rules into the Book of Discipline, which functions as a legal document for local church, conference, and agency government.

One well-known example of General Conference exercising such power is the restriction on agencies investing in companies that engage in businesses contrary to the Social Principles. ¶717 reads, in part: “United Methodist institutions shall endeavor to avoid investments in companies engaged in core business activities that are not aligned with the Social Principles through their direct or indirect involvement with the production of anti‐personnel weapons and armaments (both nuclear and conventional weapons), alcoholic beverages or tobacco; or that are involved in privately operated correctional facilities, gambling, pornography or other forms of exploitative adult entertainment.” There are a variety of other examples of such rules.

Thus, it is possible that General Conference 2020 (or any other General Conference) could, by normal legislation, insert provisions into the Discipline that would allow or even require legal entities that are part of the system of The United Methodist Church to transfer assets to other legal entities not part of the UMC, such as successor denominations or departing congregations, thereby effecting a division of assets. It is also possible that doing so might conflict with the fiduciary responsibility of such legal entities to use their assets for the purposes stipulated in their charters. Part of the question hinges on whether this process would involve the transfer of the trust (more likely allowable, since the legal entity would continue as is) or the transfer of parts of the entity's assets (less likely allowable, since it could violate the charter).

Of course, agencies, annual conferences, and congregations routinely make grants to support the ministry of non-United Methodist legal entities (partner denominations, non-UMC nonprofits, etc.), and such units of the church could certainly make grants to support the ministry of departing portions of the denomination, if they so chose and if those grants fit within the designated missional purposes of those agencies and annual conferences. However, such grants would be at the discretion of the (still-UMC-affiliated) agency, annual conference, or congregation. It would not be required unless stipulated by General Conference by amendment to the Book of Discipline.

Barring action by General Conference, UMC assets will continue to be held in trust for the UMC as a whole, regardless of who may or may not be part of the denomination at any future point. As ¶2501.2 says, “Property can be released from the trust, transferred free of trust or subordinated to the interests of creditors and other third parties only to the extent authority is given by the Discipline.”

Editor's note: The third-to-last paragraph of this article has been updated from its original version in response to reader feedback.