Flimflammery with ECUSA's Draft Budget

At the end of its meeting in Maryland this past January, ECUSA's Executive Council adopted a draft budget for the next triennium. The draft was immediately handed off to the Church's Joint Standing Committee on Program, Budget and Finance, which has the final responsibility to propose a recommended budget to the 77th General Convention at its gathering this July, in Indianapolis.

I wrote at the time about the Council's somewhat tortuous process of producing the budget (see here and here). Anyone could read between the lines to see that there were different factions vying to implement their respective agendas, and that their clashes at the Council meeting produced confusion, despair at the disjointed process, and general disgruntlement with the leadership.

Having spent some time with the draft budget in the interim, I now understand more clearly the frustrations to which the news reports of the Council's meeting alluded. The end result of three days' deliberations was not a real budget at all. Instead, it was what the Executive Committee could cobble together in haste before the meeting ended, and then get the members to vote for because they were all out of time, and had their planes to catch. (Yes, the Executive Council of the Church -- meant to function as the interim arm of the General Convention during the 154 out of every 156 weeks in the triennium in which the latter is not meeting -- itself has an Executive Committee, to function in the interim of the 50.7 out of every 52 weeks every year during which the Council is not meeting. Are you beginning to see how all this works?)

Indeed, as another blogger has already pointed out, and as the document itself blatantly admits (see below), the budget is not even balanced the way a true budget should be. Take a look first at the summary ("collapsed") budget on pages 1 and 2 of 20 of the .pdf version of the budget linked in the first sentence above. Line 4 ("Total Income") shows $104,851,849; Line 38 ("Total Expense") on page 2 shows, remarkably, $104,851,773 -- just $76 dollars of expense less than income -- and who can complain about a budget that shows a $76 surplus? Surely that is a balanced budget, right?

Wrong -- welcome to the budgetary gargoyles of ECUSA. They consist of an elaborate ring of Ptolemaic phantasms and Gregorian grotesqueries designed to ward off closer examination and scrutiny, which might harm the powers that be in the Church itself. Watch closely, and learn how they work.

Go to page 3 of 20, the first page of the detailed budget, and look at line 6 under "Income". It is titled "Investment Draw for Development Office", and equals $3,766,300. What does that mean? An "Investment Draw" is taking money out of the Church's invested funds -- essentially, its endowment funds held in trust, and donated by long-ago generations for "the mission of the Church." By this one line, the Executive Council signed on to pulling $3.8 million out of the Church's seed corn, to be spent on its "Development Office". What is that? (You won't learn much by clicking on the link.) In the world of non-profit organizations, which live on contributed funds, the function of a "development office" is to develop new sources of funding, mostly through finding new donors to the cause.

In an interview published in February 2010, Kurt Barnes, ECUSA's Treasurer, spoke about the plans for the Development Office as follows:

On the revenue side -- and this is not something we’ll achieve in the next two or three years -- the Episcopal Church has not had a broad capital campaign to build its endowment for 25 years. 

It does not have a development office. It will now have a development office. 

In the last couple of years we created the beginning of a mission-funding office. The office charter is to develop large donations from wealthy individuals for new ministries. After a few years, the church recognized that it needs more than just these limited new programs. It needs to grow its overall endowment and sources of revenue. It’s beginning to think of having a real development office, the way universities or other non-religious, not-for-profits have maintained development offices.

In February 2010, therefore, ECUSA was just beginning to have "a real development office." In the next paragraph of the interview, Mr. Barnes defined it as one which would not "be afraid" to ask people for money -- like those "wealthy Episcopalians who died in the last few years whose probated wills gave minimal amounts to their parishes, probably because the parishioners were never asked."

Now go to page 10 of 20, and take a look at lines 362-366, under "Development Office." Notice the historical figures given in Column F for the previous triennium. Remarkably, in this Expense section of the budget, the first line (362) shows income, projected to be raised by the Development Office over the period from its start-up in 2010 through the end of the current year, of $94,448. The next two lines show two cost items: "Staff Costs" of $1,079,613, and "Development Office Other Costs" (taking prospective donors to the Four Seasons Restaurant, or to Sardi's and a Broadway show?) of $303,701.

Adding up lines 363 and 364, and subtracting the income raised (shown in line 362), produces the net Development Office expense figure of $1,305,166 given in line 366.

Before going further, let us pause to put these historical figures into perspective. From the time it got started in 2010, through December 31, 2012, the Church's existing Development Office is projected to produce a grand total of $94,448 in new contributions (i.e., not included in the "Other Income" category of line 9 on page 3, because otherwise that would be double counting).

But during that same period, the Development Office cost the Church $1.4 million to operate. That is to say, the Church spent $1 for every seven cents the Development Office brought in. And given that track record, what did the Executive Council decide to do?

As already noted, it doubled down -- no, tripled down. It decided to pull from the Church's invested funds -- the moneys which the Development Office is supposed to augment -- a total of nearly $3.8 million over the next three years.

And what did the Council project the Church would receive in exchange? Take a look at lines 362-365 on page 10 of 20 again, in Column R  -- there are no projected revenue or cost figures for the next triennium. Instead, there is only the cryptic notation: "Amounts in this section to be reallocated in consultation with Management." But the Council did furnish a "Development Office Total" expense amount, in line 366: it is the figure of $2,516,300.

Where did that figure come from? As we shall shortly see, the Council snatched it out of God's blue sky, in order to make its draft "budget" appear to be balanced.

Take a look now at the text over at the far right of line 366 (page 10 of 20 again). It says (I have added the bold, for emphasis):

Also NOTE: Line 6. This expense should equal income on line 6; will be corrected at General Convention. Start-up funds will be provided by accessing endowment assets.

The "income" on line 6, as already noted, is not "income" at all, except in a strict bookkeeping sense. It was $3,766,300 pulled out of the Church's endowment funds. And set off against this amount is only $2,516,300 of expenses.

Do you begin to see the hat trick that has been pulled here? The draft budget approved after three days of wrangling in the Executive Council shows the Church taking out $3,766,300 of endowment to cover just $2,516,300 of expenses. Where did the remaining $1,250,000 of endowment money go? And why is that amount ($1,250,000) such a conveniently round figure? (Compare it to that $2,516,300 of expenses, or to the $3,766,300 to be taken out.) 


If there is $1,250,000 more money being taken from endowment than is being spent, then there is only one answer to those questions: this draft budget in fact is $1,250,000 out of balance. Since it shows revenues over expenses of just $76 after all is added up and subtracted, then the endowment funds are being used to plug that hole in the budget. And as far as the Executive Council was concerned, it will be the problem of General Convention to correct the imbalance.

This rigging of the books to the tune of $1.25 million is taking place after Executive Council determined that the 2012-2015 projected income would be $4.6 million less than the income received in the current triennium (page 1 of 20, line 4, Column H). In reality, therefore, if we subtract out the raiding of the endowment funds to fund Development and "balance" the budget, then projected income is really $8.4 million less for the coming triennium. (That is the sum of the $4.6 million "apparent" drop and the $3.8 million taken from endowment. Endowment funds, as any accountant will tell you, should never be used to cover operating losses.)

We have barely scratched the surface of this budgetary sham. (Scroll through the document and look how many times the messages like the "to be allocated later" one on lines 362-365 appear in place of actual figures.) For Executive Council to have produced such a joke after all the accumulated time, input and money devoted to its production over the last year is truly a travesty -- which in turn is an indicator of the poor health of the Church, especially at the top.

Recall the words of one Council member, quoted in this earlier post, who said: “This was not a strategic exercise, but this was a mathematical exercise.”

Yes, it certainly was -- but not an exercise in normal mathematics, because the Executive Council's figures simply do not add up.


(To be continued.)