Nazarene Communications Network

New Funding Formula - Church of the = Nazarene

Global Ministry Center

Wednesday, June 10, 2009

The USA National Caucus met in 2005 during the = General=20 Assembly in Indianapolis. It approved Resolution USA-906 authorizing the = Board=20 of General Superintendents to create the Budget Allocation Committee = (BAC).=20

RESOLVED that the Board of General Superintendents shall = appoint a=20 commission that shall create a proposed apportionment system based on = the=20 biblical principle of tithe and offerings, as we affirm for our local = church=20 (Manual paragraphs 38.1-2, = 131-131.2)....

By=20 amendment, the results of this study were to be made public, and were to = be=20 presented at the 2007 meeting of the General Board.

The BAC was = formed=20 in 2006, but the scope of the changes required a postponement of the = original=20 due date, approved by both the Board of General Superintendents (BGS) = and the=20 General Board. In trying to meet the original deadline, the committee = did draft=20 a recommendation for 2007. However, this recommendation involved = differing fund=20 percentages for each district and would have raised essentially the same = amount=20 of money as under the current system. Neither the BAC nor the BGS was = satisfied=20 with this solution, so the committee continued its work for a longer = period.=20

The committee's final work was presented to the USA Finance = Committee at=20 the time of the 2008 General Board, but further study was still deemed=20 appropriate. The BGS, in consultation with the BAC and its chairman, Dr. = Bob=20 Brower, incorporated all the principles of the BAC recommendations in = its 2009=20 presentation to the USA National Board and the General Board. The = proposal by=20 the BGS did modify the methodology of the committee recommendation, but = none of=20 those changes was outside the dialogs of the committee in its meetings.=20

Unchanged Principles

There were several = principles=20 that the BAC adhered to throughout its discussions. They revolved around = the=20 concepts of fairness, simplicity, and current financial realities. =

Lower allocations: The committee soon realized that = any=20 change to the allocation system had to involve a reduction in total = amounts=20 requested from the local church. Simply shifting the current requests = from one=20 group of churches to another was regarded as futile. The BGS agreed = that=20 reductions could be considered.

The committee, in considering = the=20 original request, suggested that raising an amount equal to ten = percent plus=20 offerings would fulfill the resolution's mandate.

Current = year=20 financial base: The committee recognized that one of the most = common=20 adaptations to the current formula was an adjustment for changing = financial=20 conditions. Some districts averaged the previous several years' = financial=20 reports before calculating allocations. The Global Treasury Services = office=20 reported that requests were received throughout the year to adjust WEF = and=20 pensions allocations for individual churches (and therefore district = totals),=20 and these changes were almost always based on drastically changed = financial=20 realities in the local church. Finally, an increasing number of = districts were=20 going to a current-income base for non-WEF allocations.

The = committee=20 strongly recommended that any new system be based on current year = finances,=20 not previous finances.

Income based: The committee = recommended=20 that any new formula be based on income, not expenditures. This was in = keeping=20 with the language in the original resolution. Tithe is based on = income, not=20 expenditures.

Simple calculations: The committee wanted = as=20 simple a formula as possible. A straight percentage of total raised = was=20 considered, but the committee was open to the pragmatic reality that = some=20 exemptions might be necessary. In that case, the exemptions would have = to be=20 clear-cut. They would be based on income, not expenditures. And, if = exemptions=20 were given, then the percentages would have to be adjusted upward to=20 adequately fund the denominational ministries.

The committee = strongly=20 recommended that a new formula involve easy-to-compute percentages on = an=20 easily recognized base. (The explanation of the committee's proposed=20 methodology is in the next section.)

District autonomy: = The=20 committee discussed several options for including district obligations = within=20 the 10% tithe concept. One early proposal would have asked each = district to=20 raise a total of 10% for its own purposes, for the educational = institutions,=20 and for pensions. WEF would have been considered "offerings" above = that tithe=20 level.

However, this would have meant that some districts = would have=20 raised up to 9% of the 10% for their own needs, apportioning the = remainder=20 between pensions and the university. Other districts, needing less = than 3% for=20 their own needs, would be paying much larger proportions for pensions = and=20 education, essentially subsidizing districts with higher relative = expenses.=20

Since there is no mechanism in place to oversee district = expenses, the=20 possibility would exist that changing financial conditions for = districts might=20 continue to reduce the funding for pensions and education with no = recourse but=20 to use WEF dollars to make up any deficits.

The committee = suggested=20 that the Manual autonomy given to the districts mandated that = their=20 funding not be considered part of the 10% equivalent. =

These=20 concepts were all adopted by the BGS in their proposal to the 2009 USA = National=20 Board and the General Board.

Adaptable=20 Methodology

In order to implement a formula, the = committee had to=20 make some recommendations about actual methodology. The committee = understood=20 that the BGS and the General Board would have additional insights into = which=20 methods would work best. But the committee did not believe its mandate = was to=20 provide only a conceptual framework, so specific recommendations were = made.=20 These were not always as universally accepted by committee members, and = the=20 report by the chairman included the alternatives the committee = considered.=20

Deductions: The committee agreed that few, if any,=20 exemptions should be given when computing allocation percentages. The = argument=20 against exemptions stressed that the "biblical principle of tithes" = did not=20 include exemptions. However, the committee recognized that many = churches have=20 built their current financial structure on the assumption that capital = improvements require no allocation support.

Since the = "equivalent of=20 10%" goal was set for non-district allocations, the committee = recognized that=20 exemptions would require increased percentages to raise the equivalent = funds.=20 Essentially, this means that churches without exemptions are asked to = pay more=20 to allow churches with exemptions to pay less. This constantly raised = the=20 issue of defining "fair," one of the universal principles: Is it fair = to=20 churches to change the financial ground rules when they are committed = to large=20 building payments? Or is it fair to ask those without such commitments = to pay=20 more allocations so that others do not need to?

Knowing that = there were=20 good arguments on either side of the fairness issue, the committee = recommended=20 that money raised for capital improvements and paying off property=20 indebtedness be excluded from allocation computations. Instead, the=20 non-district allocations would be set at 13.5% to be equivalent to 10% = of=20 total raised.

The proposal by the BGS chose to limit all = churches to=20 10% of total raised rather than ask those without building payments to = allocate 13.5%. The Board is aware that some transitional assistance = may be=20 needed for churches that are already committed to large property = payments.=20

Extended time frame: The BAC anticipated that a = transition time=20 would be needed before implementing any new system. Reporting systems, = electronic funds transfers, annual awards, and local church financial=20 structures are all built around the current system.

The = committee=20 recommended a two-year implementation period.

The BGS, = recognizing the=20 current financial crisis and the desire for a simpler, fairer, and = less=20 expensive allocation system, has asked that the change occur in the = next=20 (2010-2011) assembly year.

Universal percentages: The=20 committee, as noted above, considered having each district set its own = percentages for education and pensions. However, this was seen as = counter to=20 the spirit of the resolution, so that approach was abandoned. The = committee's=20 assignment was for the United States only, so little effort was given = to=20 making the recommendation more widely usable.

The committee = recommended=20 specific percentages for each local church: 7.6% for WEF, 2.3% for = pensions,=20 and 3.6% for educational institutions. These percentages were based on = exempting money raised in capital or debt-reduction campaigns. These = applied=20 only to Churches of the Nazarene in the United States. This would have = raised=20 essentially 10% of the total raised annually for these three funds.=20

The BGS, as noted above, chose to base the allocations on = total raised=20 annually. The percentages were changed to 5.5% for WEF, 2.0% for = pensions, and=20 2.5% for education. (This is actually a different ratio than the = committee=20 recommended, based on additional concerns mentioned = below.)

While the=20 committee work applied only to the United States, the BGS recommended = that=20 5.5% of total income be raised for WEF globally. =

Some of=20 the specific recommendations of the BAC were modified by the BGS, but = only after=20 further consultation with both the committee and its chairperson. None = of the=20 changes were in contradiction to the committee's discussion and = analysis.=20

Additional Concerns

The BAC recognized that = its=20 scope was limited to proposing a new funding formula. However, several = related=20 concerns were obvious to committee members, and those concerns were = shared in=20 its report.

Funding the U.S. pension program: The committee was = very=20 aware that current trends have cut financial support for the U.S. = pensions=20 program. The committee did not assume it had authority to increase the = pension=20 allocation, but urged the BGS to consider such a step.

The BGS = proposal=20 included an increase in the level of funding, both proportionately and = in=20 actual dollars, for the U.S. pension fund.

Links to = the=20 universities and colleges: One solution for reducing allocations = was to=20 reduce the amount given to the educational institutions. The committee = discussions included recognizing the desirability of maintaining = strong=20 denominational connections with the schools. Cost savings are always = to be=20 urged, but cutting local church financial commitments might be=20 counterproductive for the denomination.

The BGS proposal = maintained=20 the same level of proportional support for the U.S. educational = institutions.=20 Rather than cut educational funding to increase pension funding, the = BGS=20 suggested that WEF funding be reduced somewhat. (By appealing to the = rest of=20 the world to increase its giving to the 5.5% level in Canada and the = United=20 States, the BGS hoped to offset some of that = decrease.)

District=20 costs: The committee appreciated the autonomy of the districts in = our=20 denominational polity. Still, some churches are asked to pay 9% of = total=20 income for district support, and this seemed problematic to committee = members.=20 The committee made no recommendations about district finances, but did = raise=20 the issue for consideration.

The BGS proposal recognized the = autonomy=20 of each district to set its own funding priorities with the approval = of its=20 constituent churches.

The BGS proposal, based upon = the work=20 of the BAC, was adopted by the USA National Board and by the General = Board in=20 their February 2009 sessions.

Budget Allocation Committee=20 Members:

Bob Brower, chair

Steve Borger   =20       Mark Patrick
Carlton = Hansen =20 Mary Paul
Rick Harvey   =20          John = Seaman
Geoffrey=20 Kunselman   Dan West

Ex officio: James Diehl, David Wilson, = Marilyn=20 McCool

For further information, you may contact Mark Lail (mlail@nazarene.org), = Budget Formula=20 Implementation Team Chair, at the Global Ministry Center. =20
--Nazarene Financial Services