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Fiscal Task Force

Final Report

Introduction

The Fiscal Task Force was established by a resolution at the 2007 session of the
Tennessee Annual Conference (see 2007 Journal, pg 285). The resolution requested that
this task force investigate and respond to several issues concerning the fiscal health of the
Conference. The task force was formed in August, 2007, met repeatedly over the next
several months and completed the actions requested in the resolution. The members of
the task force are listed at the end of this report. We were most blessed to have had the
support of Rev. David Hawkins, Treasurer and Director of the Tennessee Conference
Office of Administration and Services, on our task force prior to his death, and take this
moment to thank him for his long service to the Conference. We also express our thanks
to Rev. Loyd Mabry, Rev. Vin Walkup, and Jim Allen who provided much of the
background data and information that resulted in this report.

The body of this report provides a response to the issues designated in the resolution and
recommendations as required on those issues. The report concludes with Major
Conclusions and Recommendations and a Summary.

Resolution Issues

1) Issue: Clergy Health Plan– (27.3% of 2007 Annual Budget)

All recent data provided show that the costs for Clergy Health care are accelerating and
represent the greatest increase in Conference costs over the past several years. Health
care is also the most volatile factor with respect to creating a credible annual budget.
This same condition is also prevalent in the American business environment. We are
presently self-funding and self-administering. We are burdened as a conference by the
age and physical health of the very people that we want to benefit; our people are over
fifty, over-weight and work in very stressful jobs. To reduce costs, should we consider
going to an outside agency to insure our clergy?

Response: Several times over the past few years, the Tennessee Conference CF&A and
the Conference Health Plan Committee have reviewed both our self-funding and outside
group participation costs and each time found little differences in over all costs. As a
continuation of that work, in early 2007 the committee considered moving to HealthFlex
which is sponsored by the General Board of Pension and Health Benefits. HealthFlex did
not show material benefit to the Conference over the current self-funding plan. Moving
simply to available outside group coverage programs would not have saved notable
money for 2005/6 even considering 2006 expenses as anomalous.

This position is reinforced by a study done in response to a resolution in 2004 concerning
retiree heath care coverage (see 2004 Journal, p. 358). That study included an analysis
of other insurers and plans, and ultimately concluded that the current self-funded and
self-administered plan is the most cost efficient. This information is now three years old,
but there is no reason to believe that results would be significantly different today,
especially in light of our 2005 costs and results for 2007.

decreased benefits have been imposed. This is an upfront cost of approximately $900. The current recommendation from the Equitable Compensation Commission suggests full-time clergy should be appointed for churches with a minimum congregation average attendance of greater than 100. The volatile 2006 data which exceeded our self-funding budget by approximately 20%. the resulting next and out-year (what is “out-year?) premium increases would have been equally catastrophic and imposed for years to come.000 (based upon the budget for 2007) that the Conference cannot presently afford. The data show that the Conference is insuring all full-time pastors independent of the size of the church attendance. The size of the church and other factors such as providing insurance benefits to staff positions should be closely considered before assigning pastors full-time. then the Conference budget could be decreased by approximately $600. In dollars and cents. At the discretion of the Bishop. . The churches cannot be counted upon to pay or budget for any portion of the additional costs that are levied to the pastors (even though these costs could be paid through pre-tax dollars). but this issue is very contentious. While we were not well-equipped as a Conference to absorb these budget overruns due to several other Conference problems grossly liquidating existing margin funds. if the same thing had occurred when we were within any outside agency group structure. if pastors were required to pay 25% of health care premiums. Due to the relatively few participants in the health care plan (2007:291 individuals/42 dependents. Several other factors do not encourage switching to an outside group coverage plan. 333 Total). Being self-funded has allowed us to see 2007 expenses as much more within budget (further discussed below) without a large increase being encountered for premium increases imposed because of the previous year gross overrun.e. In 2007. The past fiscal data indicate that Conference health benefit costs can be reduced by moving away from having a full-time pastor at many smaller churches. That is. These approaches should be considered by the Conference as benefit costs continue to escalate. American industry has responded to this same increasing health care cost dilemma by requiring greater employee participation in the premium payment. Another consideration and argument is that the churches may fund little of the increased health benefits cost for the pastors. however. full time pastors should be appointed only to churches with worship attendance greater than 100 in as many cases as possible. 38 % of the churches fell into this category. the Conference will realize the same total apportionment payments to the Conference with or without the full-time pastors being levied for part of the premium. do not appear feasible. resulted from major expenses on only a limited number of participants. This issue needs to be debated at both Conference and district levels. and increasing co-pays.. Further. providing incentives based upon health or age or participation in preventative (wellness) programs.Another major consideration to moving to an outside group program is that such a move will cost the initiation year approximately one quarter additional year of costs due to the new group premiums due upfront while change over timing will result in the current program payments being continued for at least another 90 days.000 or approximately 17% of the 2007 health care budget. this means that Conference costs for full-time pastors assigned to smaller churches (Health Care/Pension benefits) far exceeds the apportionment asked of that church. decreasing the number of pastors provided benefits to. increasing deductibles. For information purposes. i.

approximately $500. and the annual conference budget includes no additional funding in to them. This study should be provided to the Conference for evaluation and/or implementation. The Conference should priority apportion for a health care contingency fund adequate to cover health care budget overruns of up to 25% in any year. increased deductibles. The Annual Conference funds CRSP at the rate mandated by General Board of Pension and Health Benefits. Retirees receive payments from up to three different funds. Some capital has been realized from expiring (pre-1982) pension funds.000 and retained at that level plus a yearly cost of living (COLA) increase. CF&A has no control over the amounts paid into CRSP. the costs are largely predictable and non-volatile year-to-year. These three funds are: a) Pre-1982 b) Ministerial Protection Plan (MPP) 1982 – 2006 c) Clergy Retirement Security Program (CRSP) (2007 -. Our pension payments have been made regularly and pension benefits represent no potential long term liability.000 has been set aside to start this contingency fund. depending on when they first served.) The Pre-1982 and MPP plans are fully funded and closed.4% of 2007 Budget) With data provided. These plans will continue to exist until the last eligible retiree dies. Recommendation: In order to maintain options.6% of average compensation for all clergy in the denomination (DAC). Such funding would greatly relieve over-budget problems as previously encountered in fiscally anomalous years such as seen in 2006 and be available to fund the cost bubble discussed above. and higher co-pays. The Conference Health Plan Committee should provide a study to show overall effects of implementing limited beneficiary participation in premium payment. Such increased payments by the participants could potentially stem the observed year-to-year budget volatilities over the short term. This fund should be built up to a level of approximately $900. It was at 124% and 121% for year-end 2005 and . Full-time pastors should be appointed only to charges with average attendance greater than 100 in as many cases as possible. It is possible to pull out some of this excess funding and use it to offset some of the CRSP obligation. That rate is approximately 3% of the clergy’s actual compensation. while Pension benefits are approximately 20% of the Annual Conference budget. with one exception: The pre-82 plan is slightly overfunded at current expenditure rates. the Health Plan Committee should continue to investigate alternatives to the current plan. This contingency should be in place by close of FY 2009. the Conference Board of Pensions has looked at this several times. and has set a benchmark cushion at 120% of plan liabilities. 2) Issue: Clergy Retirement Pension Payments – (19. However. plus approximately 9. By year end 2007. This means they have enough money to pay projected retirements.

In accordance with those guidelines. Although the Board of Pensions has not sought an increase for 2009 because of a good stock market performance in 2007. 4) Issue: Increasing the Percentage of Funding Available for Conference Ministry and Mission Activities Currently. the relatively low salaries provided our ministers makes a retirement plan much more necessary. Ad hoc actions border on “last ditch” mentality unless the Conference would set a policy for continual review of facilities for liquidation. If the stock market falls 21% from 12/2006. This task force understands that the Cabinet has requested the formation of an independent task force to consider the future of Cedar Crest. very dependent upon stock market performance and will be less as the stock market falls. 2006. the stock market has been falling since early November. Response: While American industry has begun to eschew personnel retirement plans. 2007. That loss of value probably has burnt through some of the pre-82 plan excess. although the exact valuation will not be known until received in the 3rd quarter 2008. however. and c) change in fund value (investment performance). so the whole issue may be moot. sale of capital assets could be routinely addressed and recommendations presented to the Annual Conference. These values are. there may be no excess funding left. b) increase in clergy compensation (inflation). A Conference level task force or the Conference Trustees should set both the rules and identification guidelines of the assets for any potential sale actions and present them to the Annual Conference for approval. The volatility of retirement payments in year to year conference payments is low. . Recommendation: No changes at this time. Their work could serve as the model for establishing policy. Conference Ministry and Mission budgets amount to approximately 50% of the Annual Conference Budget. 3) Issue: Sale of Capital Assets Should certain Conference capital assets be sold to provide endowments/cash for the annual budget to fund Conference Ministry and Missions? Response: This task force could not find existing Conference guidelines for considering selling existing facilities such as Cedar Crest or others. it is reasonable to figure on the Pension budget going up by COLA amounts every year. Recommendation: Conference-level rules and guidelines to identify assets for potential liquidation are required. this is not a task assigned to CF&A. The cost of funding for pensions will change based on a) change of number of clergy and their average age (this is pretty flat). At this time. These operational budgets have been routinely decreased as a percentage of Annual Conference Budget since 2000 as Health Costs have dramatically increased and apportionment payments have not increased similarly. For example. We found no such guidelines or requests for information provided to CF&A to consider such sales. rules and guidelines for initiating all future sale recommendations.

The following table shows these data since year 2000.414 budget. If apportionments were paid at the 2001 rate. in 2007. $1.56%).281.42% 2004 11. However. these various funds amounted to $6. Both the Laity and the Clergy need to have a renewed teaming to have all churches understand and respond to the need to fully pay apportionments.4% of the total budget. Total Year Apportionment Apportionment Paid Percentage Paid 2001 10. The critical need to fully pay apportionments is not being communicated convincingly to the churches.719 91.522.726 90.414 12.332. Still.741 11. a) higher apportionments or a greater percentage of apportionments would have to be paid by the individual churches. or 31.854. a) Increased Apportionments/Higher Apportionments The percentage of apportionments paid by the local churches has generally declined over the past several years while total apportionments have gone up.247.153 of a $14.380 10. approximately 20% of the Conference churches did not pay full apportionments. (92.407.397.711 91. In looking at the revenue ledger. and the Equitable Compensation Fund were 49% of the total budget in 2001 and 54.154 9.000 additional would have been available to Conference ministry and missions. If apportionments were paid at 100%.4% in 2007.56% 2002 10.547. approximately $500. it must be noted that in 2007.490. This most basic element of Methodism must be restored before the church can hope to go forward boldly in ministry and .410. Response: There is only one way to increase the percentage of the Annual Conference budget devoted to Ministry and Mission activities. Health Care benefits increased approximately 83% (greater than $1. the budget increased by 40% over the same period.In 2007.41% 2007 14.112. This basic tenet of Methodist connectional tradition is not being met.045. b) more churches would need to contribute to apportionments.02% 2003 11.235 90. c) other sources of income for Ministry and Mission activities would have to be found.368. This presupposes that funds can be found to cover these increases.5M more would have been available. pensions. the Episcopal Fund.301.37% 2006 13.32% 2005 12.369 9. The Tennessee Annual Conference budget for Conference Ministry was $4.542 89.045. This highlights the leading factor in reduced funding available for ministry and mission tasks. the District Superintendent Fund. in 2001. paying in 35% more in 2007 than 2001.672M) between 2002 and 2007 and were responsible for 49% of the increased apportionment. The Conference must increase the annual budget more for these activities than seen in recent history to percentages equal to or greater than the increases seen in Health Care and retirement benefits.091 92.959 92. 36% of the budget was for Annual Conference ministry.027. the reduced apportionment rate paid seen in these data is significant. health benefits. when the total budget was $9.184 11. Accordingly. Similarly.892.118 10.551. In contrast.16% These data show that the churches have responded to required higher apportionments over this period.278.827.

The Congregational Development Team. To keep pace with the current growth of Tennessee. a graduated plan to move toward full payment of apportionments is put in place. Engaging the community and befriending people is the beginning. The past five years have an annualized net gain of 13. More people also increase our ability to reach out and fulfill our mandate to make disciples of Jesus Christ. It is possible for every local church to grow. This task force recognizes that this is one of the means that has great potential for ensuring that the ministries which extend the love of Christ will continue across time. and Conference Council on Connectional Ministries are working together to start new churches and faith communities.missions and meet our goal of making disciples for Jesus Christ for the transformation of the world. and others could have been started from the growth in the investments. Some new means.000 for the Mission to Middle Tennessee as part of the Together We Can Campaign. Building relationships with persons in the community is a vital link to church growth.8%. the Tennessee Annual Conference would need to annually start six churches averaging two hundred in worship. Cabinet. c) Funding Conference Ministry and Missions beyond Apportionments As discussed earlier. and the contributions from churches have not increased to cover overall budget requests and needs. once a church is chartered. b) New Church Starts/Church Growth Having additional healthy churches within our conferences will make a significant fiscal impact over time. as health insurance costs have dramatically increased. Obviously. had the Conference already fulfilled the goal of raising $10. the budgets for Conference ministry and missions have decreased as a percentage of Annual Budget over the past several years. There are unchurched persons in every community. The following is one example: Board of Higher Education and Ministry Budget . The Board of Directors of the Nashville Area United Methodist Foundation has set a goal and is committed to assisting in raising “significant” endowment funds for the various ministries of the Tennessee and Memphis Conferences. beyond apportionments.1%. we do not have the trained personnel to reach this goal. some of our ministries could have expanded. the net gain was 12%. Full payment is expected within ten years. Currently. The Foundation’s investments of endowments for our churches and ministries during 2007 had a net gain of 9. The return on investment for new churches is not immediate. other budget lines have grown. must be developed to meet the need for these ministries in the coming years. more people giving more helps the financial constraints of the Conference.000. Ministry must take place outside the walls of the church as well as inside.000. In 2006.000 to $20. While past returns do not promise future results. At this time.

capital assets (District Supervisor parsonages/office space). At this time.277M endowment would have had a net gain of $207. A $5. Response: This task force considered the above issue and investigated integrating the Cumberland District into the contiguous Nashville. life insurance policies.000 from the growth in investments. Reduction and consolidation to a lesser number of districts could provide savings in terms of District Supervisor salary and entitlements. would cover this deficit. Based on results in other annual conferences that reduced the number of districts. a $2. Except for the concentrated Nashville District. A $5. The lack of understanding at the individual churches level to the need to pay apportionments is an example that the Conference needs more presence. In 2007. The churches and members do not have a running summary of how the Conference is fairing financially.000.394 budget for a deficit of $113.000. and that all of us – laity and clergy – must be committed to make this happen.000. and estate gifts can do for churches and ministry in our Conference.000. and personnel support (District Secretary salary/entitlements). there is no status of the Conference finances regularly distributed to the churches or membership during the fiscal year. It is reasonable to expect . the Cumberland District is the smallest district. 6) Issue: Conference Fiscal Reporting Presently. yielding 5% annually.546 against a $638. Clarksville.000 annually could be realized by closing the Cumberland District. Average annual funding level – 82% of budget Amount Received in 2007: $524. Recommendation: Every ministry of our conference should be supportive of one another and act to raise the awareness of what direct gifts. This task force believes that we must have significant endowments for existing and future ministry by the end of 2011. and in most years the fund would continue to grow. More troubling was the feeling that consolidation was going in the “wrong direction” and away from our Wesleyan roots by further degrading our interconnectivity.000 endowment for campus ministry could provide (5% annually) $250. 5) Issue: Consider the Financial (and other) Impact of Reducing the Number of Districts in the Tennessee Conference. the Tennessee Conference is made up of seven districts. we believe that these savings would be offset by increased mileage costs and other increased costs in each of the other four districts absorbing the Cumberland District.848. at the individual church and clergy level. wills. not less. Endowed funds of $2.000. We estimated that a maximum savings of $150.277. and Cookeville Districts.000 endowment in 2007 would have provided $450. Murfreesboro. Recommendation: The potential financial savings from consolidation are not compelling considering the increased work levels imposed on the other District Supervisors and reduced visibility of the District Supervisor within the District.

Response: This task force reviewed the current process for setting the budget and the subsequent methodology for distributing funding according to the priorities and funding levels received. Further. . 2) The current Clergy pension policy is fiscally sound and should not be changed at this time. Recommendation: This task force recommends no change to the process for setting the Annual Conference budget. Response: This task force investigated the possibility that the Conference Treasurer could provide a regularly distributed financial report through a medium such as the monthly “Reporter” or via internet. the Treasurer should provide feedback on the adequacy of the data provided at the 2009 Annual Conference. This is not the case and if additional apportionments were collected. using the analysis of whether or not to sell Cedar Crest as the model for identification/selection of future similar sales. Further. not the apportionments assessed. This task force recommends that this contingency pool be built to no less than $900. We found that building a budget on expected receipts is no less a trial and error methodology than that in place at this time. Changes to alter the priority funding levels of line items as needs are seen and understood may be negotiated. This fund would be used only to pay health care overruns in any given large expense year or enable movement to outside agency insurer if that is recommended in the future by the Conference Health Plan committee. 2008. the current system allows an increased priority distribution with available funding. that timely information on Conference finances could make both the churches and the members more aware of the fiscal health of the Conference. Income from this fund could be used to cover needed COLA increases in any given year (3-5%) and any additional income returned to the Conference general fund. Major Conclusions/Recommendations 1) Maintaining fiscal responsibility on growing health care costs is critical to the Conference. 3) Conference policy for the routine review and identification of potential sale of capital assets should be established. priority funding to establish a contingency fund pool set aside for annual health care costs is critical. The churches and membership should be cautioned that these would not be final audited numbers. This should be possible. but no later than September. basing budgets on “expected” apportionment payments is a tacit agreement that full apportionments are not required. Recommendation: The Conference Treasurer should begin initiating regular Conference financial reporting as soon as practical. 7) Issue: Consider setting a true Annual Conference budget based upon expected apportionments to be received. With our current self-funding and self-administered health care approach shown to be the most economical method available to us at this time.000 by the completion of FY2009.

Understanding this. Clergy and Laity to effectively communicate the ministry and mission activities we need to do but can not do because of the reduced funding made available. We can do more within our churches. The major costs and liabilities are being paid on a priority basis and if the health care contingency fund can be established. We are constrained by funding. and. from being able to step out boldly and forcefully in both our communities and the world and fully engage to make disciples for Jesus Christ. Summary The fiscal health of the Tennessee Conference is sound at this time if we consider keeping the bills paid and the doors open sufficiently sound. providing education and answers concerning the use of apportionments. However. the atmosphere is one of maintenance not growth. Similarly.4) Full apportionments are not being paid by approximately 20% of the churches within the Conference. and encouraging that church to prayerfully seek ways in which the road to full apportionment paying could be travelled. faith in that funding. each and every church within the conference that pays full apportionments should be recognized at the Annual Conference for their exemplary accomplishment. This indicates a real failure within the Conference. 5) This task force fully supports the endowment program of the Nashville Area United Methodist Foundation and recommends full support at the church. district. we can continue to operate within our available means. district and Conference levels. Chair Ann Love Ayre--Laity Don Fields—Laity Roland Scruggs—Clergy Mosae Han—Clergy Diane Luton Blum—Clergy . This would not be a punitive. Does keeping the doors open answer God’s call to us? Respectively submitted by the Fiscal Review Task Force Don Kenne—Laity. each and every church that does not pay full apportionments. finger- pointing exercise. Conference and world. but rather one looking for information as to why apportionments were not paid. should have a Conference-level task force visit that church before the end of the next Charge Conference period and investigate with that church why apportionments were not previously fully paid.