Note: The following is a transcript of Terry Jones’s comments to the parish delivered in person at the March 3, 2024 Annual Meeting. Terry completed her term as Grace’s Treasurer with this excellent overview of Grace’s financial health and the Wardens thought making Terry’s comments more broadly available was important.

We have much to discuss today.

I want to discuss the results for 2023 and present the 2024 budget in the context of trends. There are trends that concern me. These are trends that I believe with a bit of intervention on our part, we can influence the outcome and change the trajectory. These trends are not unusual to Grace, but are common among other churches in our diocese, in denominations all around the country, and in faith communities all around the world. But they are happening right here at Grace. It is important that we name and acknowledge these trends, start talking about them and consider ways that we might be able to act in ways that would change their direction.

We have discussed 3 such trends over the past 2 years:

  • Pledge income has been stable year over year, but flat;
  • Expenses have also been relatively flat, and they are holding at a higher level. The steep inflationary pressures we felt in 2022 have moderated, and expenses are settling in at this higher level;
  • Pledge & Plate alone have always been insufficient to cover our operating expenses. We have been dependent on non-recurring sources of income to cover operations. I would question the sustainability of such reliance.

I want to add the following trends to our discussion:

  • The number of pledging households has been declining over the past 6 years, meaning fewer households are pledging more for us to achieve that stability.
  • We are starting to experience a larger percentage of unfulfilled pledges, meaning that the gap between pledges made and pledges received is starting to widen.

Let’s review how these trends impacted our results for 2023.

Total income for the year was about $718K, of which pledges represented $625K and plate was $44K. Pledge and Plate together made up 93% of our total income for the year. We are very dependent on pledge & plate to cover operations, but remember that this alone doesn’t cover operations.

In the non-recurring sources of income category, total Income includes a $100K non-recurring pledge from an anonymous donor.

Expenses were $678K. This was about $54K less than budgeted. The difference came primarily from wages & benefits. We didn’t have a parish administrator for a couple of months, and we didn’t have a faith formation director for a good portion of the year. Neither our budget nor our actual results included Outreach. Remember last year we approved a budget that funded Outreach from a donor-restricted fund rather than from operations. In fact, we funded over $16K for Outreach from that fund, putting these funds to work in our community.

We ended 2023 with a $40K surplus. We did that because we had the $100K non-recurring pledge income, for which I am incredibly grateful. Because If we had not had that additional gift, total income would have been $618K and, we would have instead reported about a $60K deficit, even considering the $54K reduction in operating expenses.

The trend on unpaid pledges is concerning. We ended 2023 with about $39K in pledges receivable. That represents 6% of our total pledges, or 7% if we take out the non-recurring gift. We normally have some number of unpaid pledges. In fact, we budget for that by reducing our expected income by an expectation of unfulfilled pledges. That amount in recent history has been $15K, or roughly 2% of our total pledges. So, 6%-7% is concerning. I understand that stuff happens that is out of our control. I’m not talking about that. We budget for that. What I am suggesting is that the magnitude of this change is concerning to me. It may be an anomaly in 2023. After all, one year does not a trend make. But I mention it so we can be aware and determine whether it is becoming a new trend. After Diocesan Support, that extra $39,000 would net $33,345 in income that we could use in 2024. If you are able to do so, and only if you are able to do so, it’s not too late to fulfill the remainder of your 2023 pledge.

The trend on pledging households is concerning. Pledging households are declining. We had 218 pledging households in 2017. We increased that to 226 in 2018, and by 2023 we had 161. That has reduced further to 159 in 2024. So, in a 6-year period between 2018 and 2024, we lost 67 pledging households. Although pledging households have decreased, the amount pledged has stayed fairly stable. That means fewer households are contributing more on average. I am grateful for those people. I see a core group of people who care deeply about this church and are stretching to support it, and many of these same people also make additional plate contributions throughout the year. However, this trend doesn’t seem sustainable, and it is not right to ask a few households to continue to stretch even further to support Grace’s operations. Perhaps the unfilled pledges in 2023 is a symptom that households are financially stressed, and that it’s time to intervene to alleviate this situation.

There is a normal tendency to say, “we need to reduce expenses to match what the parish is able to fund”. I completely understand this perspective, but I would suggest that this really isn’t an expense problem. Rather, it’s an income challenge. We’ll talk more about that when we discuss the 2024 budget. Remember that expenses were $54K less than budget and that without that extraordinary pledge, we would have posted a deficit rather than a surplus. Cutting expenses often creates other, unintended consequences, too.

I occasionally hear “We have all these reserves, why aren’t we spending them? Why do we keep asking for more pledge revenue??” So, let’s talk about our reserves:

We had about $1.7MM in cash resources at the end of 2023.

Of that, 49%, or $822K is restricted for capital expenditure or other donor-restricted purposes and cannot be spent on operations. In fact, just this year, we have already had to repair our boiler and replace the freezer. So, these reserves are very important to us.

$663K, or 40%, is Vestry Designated, and of that, about $300K is available at the Vestry’s discretion to direct toward operations. In fact, the vestry has approved some portion of this to be allocated toward the 2024 budget. Over and above that, we have about $123K in cash resources that can be used to supplement operations. We did that in 2022 when our unrestricted cash balance reduced to 12 days operating expenses, and we moved $10K into our checking account.

4% is permanently restricted for our Columbarium, and we have a small endowment.

7%, or about $120K is in our unrestricted checking and savings accounts from which we pay our operating expenses. At the end of 2023, this represented about 59 days expenses. This balance fluctuates throughout the year because although expenses are fairly predictable month to month, receipts are lumpy. We tend to collect less in the summer months than we do at the beginning and end of each year, which is another reason why that $123K in excess liquidity is important.

Remember that our reserves are non-regenerating and once spent are permanently gone. Reserves can only be increased from operating surpluses, donor gifts, or earnings on our investments. We had a good year in the market and reported investment gains of over $96K, of which, about $1,600 was related to our small endowment.

To recap:

  1. Pledge income is stable but flat.
  2. Pledging households have declined by 67 over the past 6 years.
  3. Fewer households are pledging more on average, a trend that is likely not sustainable.
  4. The trend on unpaid pledges is concerning. We ended the year with $39K in pledges receivable, representing 6%-7% of total pledges vs 2% or less historically.
  5. Expenses are more than pledge & plate income alone will support, but stable year over year at a higher level. We had the benefit in 2023 of a $54K reduction in expenses vs plan.
  6. We are dependent on non-recurring sources of funds to cover expenses and balance the budget. Without that $100K in non-recurring income, we would have posted a $60K deficit even with the reduced expense level.
  7. Because expenses were lower than budget AND we had $100K in non-recurring pledge income, AND we received more plate donations than expected, we reported a $40K surplus for 2023.
  8. Reserves provide some safety net, but our ability to use them for operations is limited.

2024 Budget Discussion:

The Stewardship campaign generated $600,559 in pledges for 2024 from 159 households, 2 households fewer than last year. That’s also $25K less than last year, but adjusting for the non-recurring pledge, it is $75K more. That’s worth celebrating! But, again, we see fewer households contributing more in order to achieve that result. The average is about $3,800 per household.

Total income of $651,399 is expected to be $62K less than the 2023 budget and $67K less than 2023 actual. Most of that, of course, is the impact of that non-recurring pledge income.

Expenses are projected to be $741,218, or $63K more than 2023 actual. This includes $18K for Outreach and contemplates full staffing for the entire year. We have essentially reversed the impact of the lower wages & benefits from 2023 and have a 2024 expense budget that is consistent with what our expectation was going into 2023—except that we have added outreach back into the operating budget. Expenses do not include $11,200 in capital projects that, if done, will be paid from our capital expense or maintenance reserves.

The result is about an $90K deficit for 2024.

Remember I said this is an income challenge not an expense problem. Faced with that deficit level, the Vestry, stewardship committee and finance committee engaged in a 3-year planning discussion in January of this year. We started with the projected 2024 budget and assumed that the $300K I referenced earlier would be available from our reserves to cover operating deficits. Our forward look, considering the trends we have discussed this morning indicate that without additional income that $300K in reserves would be exhausted in 18-24 months. The use of our reserves solely to cover operating deficits is neither advised nor prudent. We need to solve for the underlying trends.

Total budgeted income for 2024 includes $30K for “new membership initiatives”. That could be seen as a proxy for non-recurring income. However, if we execute right, this will be a source of recurring income beyond 2024. This $30K represents about 20 new households at $1,500 per household. It is important to note that the $90K deficit assumes we will successfully execute these initiatives, because without that $30K, our deficit could be greater.

What’s the plan, then, to cover that $90K deficit? We will cover $40K from the 2023 surplus. We will also use enough of our reserves to cover another $40K. That leaves a net deficit of almost $10K. What is not reflected in our budget is receipts during 2024 of any of our outstanding 2023 pledges. To date we have received about $7,500 of the outstanding $39K 2023 pledges. That generates, after Diocesan Support, about $6,400 in operating income to help offset that remaining $10K deficit. I will say again, if you are able, and only if you are able, every dollar we receive from 2023 will benefit us in reducing that deficit in 2024.

Remember that our budget funds the ministry of Grace: Stewardship of Facilities, Worship & Liturgy, Youth & Family Ministry, Pastoral Care, Spiritual Formation/Adult Education, Outreach, Communications, Administration, Diocesan Support, and things like Parish Life and Home Groups. If it were me, I would add Stewardship of our Financial Gifts, because everyone engages in that endeavor—every member of staff and clergy stewards our resources with utmost care. This I know.

Attracting new members is just one of a number of initiatives that you will start hearing more about during 2024. These initiatives are focused on reversing the pledge trends and are meant to improve Grace’s operating sustainability. This is important, because we aren’t expecting to have a surplus that will help us cover expenses in 2025. The vestry is committed during 2024 to start growing our membership, and by extension, our pledging households. It is an important initiative.

The table is set. We have a new rector and faith formation. We are a welcoming place for children, youth, families, and adults. As Eric says every Sunday, all who hunger for spiritual food are welcome at this table. We just need to invite everyone to the banquet!

I was a commercial banker for 37 years. At one point in my career, I managed a group of bankers in the Seattle market. At the same time, the bank hired a woman to manage a group of portfolio managers. These bankers were important to my group, because these were the bankers who did the analytical work. Many of them at the time were new to their role. After a few weeks, this woman came into my office, sat down, and said, “Terry, these portfolio managers need so much training! Who’s going to do that?” I looked across the desk at her and said, “Well, I think YOU are!”. So, I ask you: if growing our church membership is an important initiative that will help us manage these trends, so they don’t define us, then who’s going to do that? I hope your answer is a resounding, “We are!”