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.
Dedicated to fostering conversations about the global nature of The United Methodist Church
Monday, March 16, 2020
Friday, March 13, 2020
Recommended Reading: Christmas Covenant Legislation
The legislation from the Christmas Covenant group is now publicly available online.
As the subtitle for the legislative package indicates, this legislation is intended to create "An Equitable Structure of Global Regionalism." The eight petitions draw upon but go beyond the Connectional Table's proposal to create a US Regional Conference. The Christmas Covenant legislation also converts central conferences into regional conferences, thereby establishing parity across the world.
The legislation was developed primarily by United Methodist leaders outside of the United States, especially from the Philippines. The principles of the Christmas Covenant have been endorsed by leaders from the Philippines, multiple African countries, and Norway. The Philippines Annual Conference - Cavite voted last month to endorse the legislation and send it to General Conference. In so doing, PAC - Cavite linked the Christmas Covenant and the Protocol of Reconciliation and Grace through Separation together.
The Christmas Covenant proposal has also received support from within the United States. General Conference delegates from Florida and the Western Jurisdiction have indicated their intention to support it, in conjunction with the Protocol. The Inter-Ethnic Strategy and Development Group has asked that the Christmas Covenant be the first item of business to be considered by General Conference, to be followed by the Protocol.
The Christmas Covenant regionalization plan is thus one of the central proposals that will come before General Conference, and this legislation deserves to be closely read and carefully considered by all General Conference delegates.
As the subtitle for the legislative package indicates, this legislation is intended to create "An Equitable Structure of Global Regionalism." The eight petitions draw upon but go beyond the Connectional Table's proposal to create a US Regional Conference. The Christmas Covenant legislation also converts central conferences into regional conferences, thereby establishing parity across the world.
The legislation was developed primarily by United Methodist leaders outside of the United States, especially from the Philippines. The principles of the Christmas Covenant have been endorsed by leaders from the Philippines, multiple African countries, and Norway. The Philippines Annual Conference - Cavite voted last month to endorse the legislation and send it to General Conference. In so doing, PAC - Cavite linked the Christmas Covenant and the Protocol of Reconciliation and Grace through Separation together.
The Christmas Covenant proposal has also received support from within the United States. General Conference delegates from Florida and the Western Jurisdiction have indicated their intention to support it, in conjunction with the Protocol. The Inter-Ethnic Strategy and Development Group has asked that the Christmas Covenant be the first item of business to be considered by General Conference, to be followed by the Protocol.
The Christmas Covenant regionalization plan is thus one of the central proposals that will come before General Conference, and this legislation deserves to be closely read and carefully considered by all General Conference delegates.
Wednesday, March 11, 2020
Renewing Our Relationships with Affiliated Methodist Churches
Today’s post is jointly written by Rev. Dr. Kyle R. Tau, Ecumenical Staff Officer for the Council of Bishops, and Dr. David W. Scott, Director of Mission Theology for Global Ministries. The opinions and analysis expressed here are the authors’ own and do not reflect in any way the official positions of the Council of Bishops or Global Ministries.
The United Methodist Church is one of over 70 Methodist, Wesleyan, and United denominations around the world that have their roots in the Methodist movement beginning with John and Charles Wesley. These churches include traditionally African-American churches such as the African Methodist Episcopal (AME) Church and the AME Zion Church, holiness denominations such as the Church of the Nazarene and Free Methodist Church, united churches including former Methodists such as the Church of South India and the Uniting Church in Australia, and independent, nationally-based Methodist churches, most of which have a historic connection to either British or American Methodist mission.
The United Methodist Church continues to have on-going ministry partnerships with many churches in these last two categories that are based on historic ties. Many united churches and independent, nationally-based Methodist churches were once part of The United Methodist Church or its Methodist Episcopal, Methodist Episcopal South, Methodist, and Evangelical United Brethren predecessors.
Starting in 1909 and most recently in 2012, annual conferences outside the United States and occasionally entire central conferences have chosen (or have been pushed) to separate from The United Methodist Church and its predecessors. This has happened for a variety of reasons, including the desire for ecumenical mergers, local political pressures, and post-colonial impulses.
The Book of Discipline includes provisions whereby an annual conference outside the US or a central conference can, with approval by the General Conference, leave the denomination and become “autonomous,” a church polity term that means self-governing. All independent denominations are autonomous, but the process in the UMC and its predecessors often spoke of “granting autonomy” to departing portions of the church.
The Book of Discipline, however, also provides a variety of possibilities for on-going relationships between The United Methodist Church and separate Methodist denominations. Part of the process for an annual or central conference to become autonomous includes establishing the terms for such an on-going relationship. Yet there are also other relationships that can be established between the UMC and any other separate Methodist denomination.
The Council of Bishops and Global Ministries are both primary agents of The United Methodist Church in maintaining these ecumenical partnerships with our sibling denominations. These partnerships are in many cases vibrant collaborations that facilitate a great deal of joint mission and ministry. Both the Council of Bishops and Global Ministries value other Methodist denominations as essential mission partners.
The Book of Discipline uses a variety of language to describe these partner denominations, but much of that language has not been updated in decades, and in some places, it is unclear or no longer reflects the realities of 21st century global Christianity. Therefore, the Council of Bishops and Global Ministries have jointly proposed two resolutions to General Conference 2020 to update that language - Petition # 20651 (pp. 962-964 of ADCA) and Petition 20645 (pp. 991-992 of ADCA).
These two petitions work together to change the term “affiliated autonomous Methodist church” to simply “affiliated Methodist church” and to eliminate the term “autonomous Methodist church,” a term that presently does not have a clear meaning or function in the Book of Discipline. An explanation of both changes is in order.
By changing “affiliated autonomous Methodist church” to “affiliated Methodist church,” The United Methodist Church sends a signal to its partner denominations that what is important is our on-going mutual ministry, i.e., our affiliation, and not the status of those partners as previously subject to the General Conference, i.e., having been granted autonomy. We feel that to continue to emphasize the term “autonomous” in these relationships functions primarily to re-emphasize these denominations’ previous role in a system dominated by United Methodists in the United States. In this regard, the term feels outdated – a product of the de-colonization of the middle of the 20th century and not a reflection of the equality and mutuality that we hope will characterize relationships between The United Methodist Church and partner denominations in the 21st century.
The term “autonomous” is also unnecessary in the phrase “autonomous affiliated Methodist churches.” Affiliation already implies that the two parties are separate. We do not describe annual conferences, jurisdictional conferences, or central conferences as “affiliated Methodist churches.” We reserve that language only for separate denominations. Since “affiliated” already implies separate, self-governing denominations, it is not necessary to repeat that implication by including the term “autonomous.”
The term “autonomous” is unnecessary for another reason – all denominations are autonomous, so it does not add any definitional clarity to the ecumenical relationships described in the Book of Discipline. This is a reason not only to remove it from the term “autonomous affiliated Methodist church” but to do away completely with the term “autonomous Methodist church.” That term does not have a clear and consistent meaning in the Book of Discipline, and in most instances can be either simply removed or can be replaced by more explicit references to other Methodist/Wesleyan churches.
In submitting these two petitions to General Conference, the Council of Bishops and Global Ministries hopes that these changes will create greater clarity about these valuable ecumenical relationships – greater clarity in the technical language of the Book of Discipline, but more importantly, greater clarity about the spirit of humility, equality, and partnership with which the UMC should engage other Methodist/Wesleyan denominations.
The United Methodist Church is one of over 70 Methodist, Wesleyan, and United denominations around the world that have their roots in the Methodist movement beginning with John and Charles Wesley. These churches include traditionally African-American churches such as the African Methodist Episcopal (AME) Church and the AME Zion Church, holiness denominations such as the Church of the Nazarene and Free Methodist Church, united churches including former Methodists such as the Church of South India and the Uniting Church in Australia, and independent, nationally-based Methodist churches, most of which have a historic connection to either British or American Methodist mission.
The United Methodist Church continues to have on-going ministry partnerships with many churches in these last two categories that are based on historic ties. Many united churches and independent, nationally-based Methodist churches were once part of The United Methodist Church or its Methodist Episcopal, Methodist Episcopal South, Methodist, and Evangelical United Brethren predecessors.
Starting in 1909 and most recently in 2012, annual conferences outside the United States and occasionally entire central conferences have chosen (or have been pushed) to separate from The United Methodist Church and its predecessors. This has happened for a variety of reasons, including the desire for ecumenical mergers, local political pressures, and post-colonial impulses.
The Book of Discipline includes provisions whereby an annual conference outside the US or a central conference can, with approval by the General Conference, leave the denomination and become “autonomous,” a church polity term that means self-governing. All independent denominations are autonomous, but the process in the UMC and its predecessors often spoke of “granting autonomy” to departing portions of the church.
The Book of Discipline, however, also provides a variety of possibilities for on-going relationships between The United Methodist Church and separate Methodist denominations. Part of the process for an annual or central conference to become autonomous includes establishing the terms for such an on-going relationship. Yet there are also other relationships that can be established between the UMC and any other separate Methodist denomination.
The Council of Bishops and Global Ministries are both primary agents of The United Methodist Church in maintaining these ecumenical partnerships with our sibling denominations. These partnerships are in many cases vibrant collaborations that facilitate a great deal of joint mission and ministry. Both the Council of Bishops and Global Ministries value other Methodist denominations as essential mission partners.
The Book of Discipline uses a variety of language to describe these partner denominations, but much of that language has not been updated in decades, and in some places, it is unclear or no longer reflects the realities of 21st century global Christianity. Therefore, the Council of Bishops and Global Ministries have jointly proposed two resolutions to General Conference 2020 to update that language - Petition # 20651 (pp. 962-964 of ADCA) and Petition 20645 (pp. 991-992 of ADCA).
These two petitions work together to change the term “affiliated autonomous Methodist church” to simply “affiliated Methodist church” and to eliminate the term “autonomous Methodist church,” a term that presently does not have a clear meaning or function in the Book of Discipline. An explanation of both changes is in order.
By changing “affiliated autonomous Methodist church” to “affiliated Methodist church,” The United Methodist Church sends a signal to its partner denominations that what is important is our on-going mutual ministry, i.e., our affiliation, and not the status of those partners as previously subject to the General Conference, i.e., having been granted autonomy. We feel that to continue to emphasize the term “autonomous” in these relationships functions primarily to re-emphasize these denominations’ previous role in a system dominated by United Methodists in the United States. In this regard, the term feels outdated – a product of the de-colonization of the middle of the 20th century and not a reflection of the equality and mutuality that we hope will characterize relationships between The United Methodist Church and partner denominations in the 21st century.
The term “autonomous” is also unnecessary in the phrase “autonomous affiliated Methodist churches.” Affiliation already implies that the two parties are separate. We do not describe annual conferences, jurisdictional conferences, or central conferences as “affiliated Methodist churches.” We reserve that language only for separate denominations. Since “affiliated” already implies separate, self-governing denominations, it is not necessary to repeat that implication by including the term “autonomous.”
The term “autonomous” is unnecessary for another reason – all denominations are autonomous, so it does not add any definitional clarity to the ecumenical relationships described in the Book of Discipline. This is a reason not only to remove it from the term “autonomous affiliated Methodist church” but to do away completely with the term “autonomous Methodist church.” That term does not have a clear and consistent meaning in the Book of Discipline, and in most instances can be either simply removed or can be replaced by more explicit references to other Methodist/Wesleyan churches.
In submitting these two petitions to General Conference, the Council of Bishops and Global Ministries hopes that these changes will create greater clarity about these valuable ecumenical relationships – greater clarity in the technical language of the Book of Discipline, but more importantly, greater clarity about the spirit of humility, equality, and partnership with which the UMC should engage other Methodist/Wesleyan denominations.
Monday, March 9, 2020
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.
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.
Friday, March 6, 2020
Recommended Reading: Michigan-Liberia Partnership
The Michigan Annual Conference recently posted this report about signing a new covenant to continue a 20-year long partnership between United Methodists in Michigan and those in Liberia. What makes this story particularly interesting is the way in which it honestly acknowledges the deep differences between Michigan and Liberia about the place of LGBTQ persons in the church and the tensions that those differences bring to the partnership. Moreover, the story indicates that those tensions exist for both parties - Liberians, as well as Michiganders, debated whether to reaffirm their partnership. Ultimately, both parties did, for the sake of the mutual mission and ministry that their partnership has facilitated and will continue to facilitate, despite the real potential that the two groups could end up in separate denominations. While it may or may not appear in official press, the sorts of conversations, tensions, and reassessment of missional relationships described in this article are certainly occurring for many such partnerships across the denomination.
Wednesday, March 4, 2020
Recommended Readings: Methodist Women Leaders in Africa
United Methodists are justly proud of Bishop Joaquina Nhanala, the first African woman bishop in the UMC. In addition to breaking that gender barrier, Bishop Nhanala has been a skilled leader for the Mozambique Episcopal Area.
But she's not the only Methodist woman to take the reins of leadership in Africa. Looking beyond the UMC, there are at least two other Methodist denominations in Africa that have women as their top leaders: the Methodist Church of Southern Africa and the Methodist Church of Togo.
The Rev. Purity Malinga was elected last year as the 100th Presiding Bishop of the Methodist Church of Southern Africa, the first woman to hold that position. With nearly 2 million members, the MCSA is one of the largest Methodist denominations in Africa. It is also one of the oldest. At the same time as Bishop Malinga was elected, three other women were elected as regional bishops, meaning that 1/4 of the church's 12 districts are now led by women. Dr. Dion Forster has written this article about Bishop Malinga's election, the history behind it, and what it means for the MCSA.
The Methodist Church of Togo (Eglise Methodist du Togo) is a much smaller - about 40,000 members - and younger - independent since 1999 - church, but it too is currently led by a woman. In fact, it's led by two women. Rev. Grace Lawson is President, the highest-ranking clergy in the church, and as General Secretary, Rev. Angele is responsible for leading the work of the church. This partnership visit report by Dr Bunmi Olayisade, Africa Partnership Coordinator for the Methodist Church in Britain shares more about the ministry of these two women.
With episcopal elections coming up for United Methodists in Africa later this year, the question now stands: Will African United Methodists elect more women as episcopal leaders, as their fellow Methodists across the continent have?
But she's not the only Methodist woman to take the reins of leadership in Africa. Looking beyond the UMC, there are at least two other Methodist denominations in Africa that have women as their top leaders: the Methodist Church of Southern Africa and the Methodist Church of Togo.
The Rev. Purity Malinga was elected last year as the 100th Presiding Bishop of the Methodist Church of Southern Africa, the first woman to hold that position. With nearly 2 million members, the MCSA is one of the largest Methodist denominations in Africa. It is also one of the oldest. At the same time as Bishop Malinga was elected, three other women were elected as regional bishops, meaning that 1/4 of the church's 12 districts are now led by women. Dr. Dion Forster has written this article about Bishop Malinga's election, the history behind it, and what it means for the MCSA.
The Methodist Church of Togo (Eglise Methodist du Togo) is a much smaller - about 40,000 members - and younger - independent since 1999 - church, but it too is currently led by a woman. In fact, it's led by two women. Rev. Grace Lawson is President, the highest-ranking clergy in the church, and as General Secretary, Rev. Angele is responsible for leading the work of the church. This partnership visit report by Dr Bunmi Olayisade, Africa Partnership Coordinator for the Methodist Church in Britain shares more about the ministry of these two women.
With episcopal elections coming up for United Methodists in Africa later this year, the question now stands: Will African United Methodists elect more women as episcopal leaders, as their fellow Methodists across the continent have?
Monday, March 2, 2020
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.
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.
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