Congregations have several unique elements as non-profit charities. Their dependence upon one source of income presents perhaps one of their most challenging characteristics. It is true that some congregations may have endowments or may operate some ministry programs which generate modest income or own property whose rental income supports the operational budget. However, even in these cases the vast majority of the monetary income comes from the gifts of the congregants. If these people reduce their giving, stop giving, or change their giving patterns in some other significant way, the entire congregational enterprise is placed in jeopardy.
Church boards whose congregations have a sustained history of faithful giving and remarkable generosity may be lulled into thinking that this pattern will continue abated. Their governance leadership will not affect it and so in their decision-making they gradually lose sight of this fundamental reality. They forget that good governance encourages and helps to sustain faithful, generous giving. Conversely, they forget that if they make consistently inappropriate decisions and lose the confidence of the congregation, this will impact eventually the bottomline.
Congregations are faith-based entities and church boards lead with a deep sense of trust in God’s provision through his people. No question — and there are countless stories of God’s unexpected help when times are tough and resources scarce. However, good governance will never presume upon such grace nor the unlimited generosity of God’s people.
It is also the case that from time to time unexpected, externally generated, crises emerge that have nothing to do with the lack of good governance. For example, if the entire country experiences a serious economic depression, then the ability of people to give will also be affected. Or if a major industry in the town shuts down and this impacts a third of the congregation’s families, this is not a failure of good governance by the church board. However, how the church board responds in such cases will become a measure of good governance.
We all know from various studies of church growth that congregations experience cycles of growth and decline. There are few examples of churches that experience sustained growth over twenty or thirty years. A few stand out in this regard, but for the most part cycles of growth and decline mark local church histories. Like corporations, dare I say it, churches come and go, albeit often for very different reasons. However, in many cases the shift from growth to decline can be traced to a deficit of good governance.
The chair of a church board needs to keep these dynamics in mind. Enthusiasm for ministry is great, but sustaining it over the long term requires good governance and significant faith. The board members, if they understand their role in governance, will be torn between two competing responsibilities. On the one hand, they will desire to advance the mission of the congregation as expeditiously as possible. On the other, they must act prudently to preserve the resources of the congregation. Finding the balance between these two somewhat contrasting responsibilities is never easy.
For example, what is the appropriate amount of contingency funding that should be built into the annual operational budget? What amount should be targeted over time to be placed in a segregated contingency fund? And if your church owns a facility, what amount is the board placing in replacement reserve to cover the replacement of big ticket items over time? I would suggest that this kind of financial planning is probably the weakest area of risk management that church boards demonstrate. The demands of ministry and the urgency for mission seem to preclude such financial prudence. Some even argue it is morally wrong for churches to develop significant amounts of cash and not use them to help people. The result is that we work on a model of no reserves and pay as you go. We load the responsibility for the upkeep of the facilities, for example, onto the next generation.
I am probably being a bit harsh in my assessment, but my years serving on church boards and seeking to lead as chair generally would support my comments. If your board is different, then you are blessed as a chair.
One way to try to deal with this constant tension is to develop a contingency fund policy and a replacement fund policy. This allows the board to work the issues through, develop good guidelines and then implement. It might even be possible to consider one fund that would support both contingency and replacement issues. In the matter of contingency a goal would be to have enough in the contingency fund to support operations for a three month period in the event of an emergency. Another way to deal with this is to build into your annual insurance policy something that will pay for continued operations in case of fire or some other damage to your facility. The replacement fund is a more difficult matter because each facility is different in terms of age, size, quality, etc. However, again seek to develop some minimum standard and expectation.
Another area that needs careful consideration is the percentage increase in the annual budget that a board should recommend. If a significant increase (i.e. more than 3 – 5%) is being considered, then the board should make sure it has done its homework as to the reasons why it thinks additional resources will be available, not just for that coming budget year, but for the ensuing years. Dollars added to operational budgets are very difficult to take off the table. Retrenchment is never an easy process. Because the majority of a church budget, apart from facilities, tends to be located in personnel, the ability to reduce a church budget significantly and quickly always impacts staffing. Good governance will seek to find ways to grow ministry and staff in ways that are sustainable.
However, in the midst of all of these factors, the primary point is that the practice of good governance does encourage the generosity of the people. As they have confidence in the spiritual maturity and wisdom exercised by the board, they generally will support with their gifts the mission advancement they perceive. The chairperson is aware of this relationship and seeks to help the board demonstrate good governance and thus enable the people to give generously and confidently. In each of these various financial matters developing good communication and explanations for the congregation will generate unity of perspective.