Committee pulls plug on church tax plan
By Parker T. Williamson, The Layman Online, September 26, 2003
MONTREAT, N.C. – A controversial plan to levy a tax on all donor-designated gifts was temporarily shelved Thursday after John Detterick, executive director of the General Assembly Council, requested more time to negotiate alternatives.
The plan is negotiable, he insisted, but not dead. It will come up again, in some form, at the council’s next meeting in early 2004.
Meeting in the “Way Out Building” on the campus of the Montreat Conference Center, the council’s Mission Support Services Committee heard an impassioned plea for the tax.
“We have a real problem, folks,” staff member Joey Bailey declared. “Presbyterians are telling us how to spend their donations … Fifteen years ago, 70 percent of our income was unrestricted and only 30 percent was restricted. Now it is just the reverse. Do you realize how that ties our hands? It makes a huge impact on how we pay our bills.”
“We live in changing times,” said Bruce Hendrickson, chair of the committee. “We all know that. We have been forced to deal with major budget cuts in the last two years, a total of almost $8.5 million, and we’re going to have to cut more.”
Referring to the restrictions that donors have applied to their gifts, Hendrickson lamented that the General Assembly Council can only use 30 percent of its income “for what we believe is the mission of the church.”
He said the proposal to levy a five-percent tax on donor-restricted revenue would free up an estimated $1.4 million in costs from the unrestricted (30 percent) portion of the budget.
“We could use that to support our programs,” Hendrickson said, “so I ask you to try to be flexible, realizing that we live in difficult times.”
More cuts to come
Bailey underscored Hendrickson’s concerns with some gloomy predictions. He said the $8.5 million that has already been cut is only the beginning. “We expect that we will have to cut another $4 million over the next two years,” he said.
Bailey warned that the committee could not expect much immediate relief from the rising stock market. He pointed to a formula that the council had negotiated with the Presbyterian Foundation for spending income from invested funds. Income released to the council is based on a five-year floating average, not a one-year investment experience. The formula has helped the council’s income during bear market years, but it also dampens income when investments begin to rise. Bailey said the council cannot expect any significant help from Foundation funds until 2008.
“We’ve got a problem, folks,” he said. “Inflation on staff salaries alone adds $400,000 to $500,000 per year to the budget. If we had the $1.4 million, it would help tremendously with the $4 million deficit. We could handle it if we had that income.”
Depleting the reserves
Adding to the council members’ woes is the fact that repeated dipping into the denomination’s reserves to plug deficit budgets has brought them perilously close to the bottom of the barrel. A July 31 report from the Comptroller’s office shows that the council has borrowed $4,843,107 from the reserves in order to pay its 2003 bills. That reduces the reserves to $11,046,736, which is $1,851,034 below the minimum reserve requirement that was established by the General Assembly.
The reserve requirement is a bottom line figure calculated to allow the denomination to meet its obligations in the event that it must go out of business. In order to manage its cash flow problems, the council is allowed to borrow from the reserves but, at the end of the year, it must not have taken the reserves below their $12,897,770 floor.
Comptroller Nagy Twafik told The Layman Online he is not concerned that the council is currently below the bottom line, citing the fact that, historically, the greatest part of the council’s income comes in the final months of the year.
Frontier Fellowship raises objections
David Hackett, executive director of Presbyterian Frontier Fellowship, appeared before the committee to voice his opposition to the tax plan. “Our donors want to see their gifts land on target, and they are more careful about that than ever before,” he warned. “This is not an environment in which you apply an administrative fee.”
Hackett said his organization has 14 staff persons who work very hard at attracting new money for missions. “Presbyterian Frontier Fellowship assures its donors that every dollar they give goes to the project that they have named,” he said.
Frontier Fellowship takes no administrative fees for raising the money, Hackett said. Instead, the organization asks some of its donors who understand that there are costs involved in raising and accounting for funds to contribute directly to Frontier Fellowship for its administrative expenses. That frees up 100 percent of the gifts they receive to go directly to donor-specified General Assembly mission projects.
Hackett warned the council that if the General Assembly assesses an administrative fee on those gifts, it could expect disastrous consequences. He said he asked his own board members for their reaction to the proposal and found that the denomination “would lose $1 million on the spot.”
Hackett said other major donors to Frontier Fellowship made the following comments: “suicidal to mission funding,” “will drive another nail into the coffin,” “a sign of desperation that will surely backfire,” “For heaven’s and mission’s sake, don’t go down that road.”
Hackett ended his message with a stern warning: “Don’t take a misstep that alienates a large and growing sector of donors.”
Medical Benevolence Foundation objects
Dan Force, executive director of the Presbyterian Medical Benevolence Foundation, echoed Hackett’s objections to the tax plan. Unlike the Frontier Fellowship, the Medical Benevolence Foundation does apply a five-percent administrative fee to the money that it raises for medical missions. He said his donors understand that cost and they do not object to it.
“But if the General Assembly adds five percent on top of that … that’s 10 percent. It would cause a huge stumbling block,” Force said. “Our donors would ask, ‘Why would I send a gift through Medical Benevolence Foundation when I can wire it directly to a hospital in Malawi?’ Good question!”
Louis Weeks speaks
Louis Weeks, president of Union Theological Seminary/Presbyterian School of Christian Education, also addressed the committee. His approach emphasized “commitments” and “fidelity.”
Weeks distributed a General Assembly document that he said represented a covenant between the General Assembly and the theological institutions that serve it. He said the 1986 document commits the General Assembly to support its theological institutions. Financially, that support is channeled through the denomination’s one-percent theological education fund. Weeks said that, if the General Assembly Council taxed that fund for its own administrative purposes, it would break faith with the covenant.
Weeks said the covenant is also binding on the seminaries. “Our institutions are to be faithful to the theology and polity of the Presbyterian Church (USA),” he said, “and we have done that.”
Weeks, whose seminary includes faculty members who deny the bodily resurrection of Jesus Christ and has sponsored special speakers who deny the existence of a transcendent God, told the committee, “We are teaching the theology and polity of the church better now than ever before, and most of us are healthy theological institutions … If you tax our revenue, people will feel that their gifts are not going to what they were given for.”
Times are tough for the seminaries, he said. “We are in the same bag that you are in – restricted giving vs. unrestricted giving. Last year, we gave no raises to our senior staff,” he said.
Detterick calls for delay
After hearing these and other objections, Detterick asked the committee to table the controversial plan. He said he would like to work with Hackett, Force, Weeks and others to negotiate a better plan, saying he understood their problems and believed that they understood the problems faced by the General Assembly Council.
“I have heard from them that this proposal is perceived as a door closer, so I recommend that we postpone action and see if we can find a way to cover administrative costs that is a win/win solution,” Detterick said. “I realize there could be a risk in that, if we don’t find a solution by January.”
Per-capita issue raised
During the committee discussion, one of the members raised a question about using per-capita income to cover administrative costs. The per-capita budget, which is collected by Stated Clerk Clifton Kirkpatrick’s office ostensibly to underwrite the exercise of his duty to protect and preserve the Constitution and to cover General Assembly overhead expenses, raises approximately $12 million annually.
When asked why per capita could not be used to pay restricted fund administrative expenses, Bailey answered that they are being used for that purpose “to some extent.” He said the General Assembly Council’s internal audit is funded by per capita.
But Bailey added that, by his calculations, it costs the council approximately 13 percent to administer restricted funds, so the five percent that is requested in the tax plan is only “a partial fix.”