by Reid Hester, Finance Committee and Stewardship Chair

The best of times and the worst of times. We’re experiencing challenges in 2020 that are bringing our church community together in new and innovative ways, and those same challenges are straining our day-to-day finances quite considerably. Here’s the good news, our church rests on a very solid financial foundation, and the leadership of the church has taken a number of steps to strengthen that foundation even further.

For those who attended the congregational meeting on April 5th, you will know that we applied for federal support via the Payroll Protection Program. As of this posting to the Heirloom, we do not yet have final word from our contacts at Fifth Third Bank on whether we’ve been approved. We are continuing to be asked for supporting documentation, so we’re taking that as a good sign that we might still receive funds via this program. Any loan amount received via this program will be converted into a grant if we use the funds to cover payroll and utility expenses over the three months that follow the receipt of the funds.

The Finance Committee made the decision in early April to redeem funds that were invested in the Dodge & Cox Balanced Fund and the Vanguard STAR Fund. We did see a decline in the value of our investments, but we missed the market lows at the time of our withdrawal. These investments returned substantial gains over many years, and they had gotten far out of balance. We were planning to rebalance our investments in the weeks prior to the onslaught of Covid-related market gyrations, and the extreme volatility of the markets over the course of late March and early April added considerable urgency to our decision-making process. We redeemed about $17,000 from Vanguard STAR and $52,000 from Dodge & Cox. We had also redeemed $15,000 in funds from Dodge & Cox earlier in March. We do expect to leave a considerable buffer in our primary church checking account, as commitments on our church balance sheet already lay claim to a share of these funds of roughly $30,000. We are in the process of writing a new investment policy and expect to re-invest accordingly when the markets settle down.

Our Endowment Fund exists separately from all of the funds discussed above. It has its own investment policy and will stay invested in the markets. The policy associated with the Endowment Fund states that we cannot draw any funds from the Endowment into the operations of the church until it has reached a balance of at least $100,000. It is currently at a balance of about $40,000.

Now, back to our day-to-day finances. From a pledge and other income standpoint, we had received about 73% of budgeted income at the end of March, which was 75% of the way through the fiscal year, so we came into the Coronavirus crisis running just a bit behind on income but looking pretty good. The final quarter of our fiscal year will be more challenging given that rentals and fund-raising make up a substantial portion of our budgeted income. Both of these activities are at a standstill through the end of this current fiscal year on June 30. It is very likely that we will end our 2019-2020 fiscal year with a deficit.

The pledge drive for our 2020-2021 fiscal year could not be occurring in a more challenging financial environment for our members and friends. I want to thank all those who have pledged their support to the church for next fiscal year. We seem to be tracking towards a total amount of pledge income of approximately $200,000, but we could come in below or above this number when all pledges are in. And it is very difficult to say when we will be able to re-open the church to resume rental and fund-raising operations. So devising a budget for 2020-2021 will be challenging. If you have questions or suggestions for how we might approach our budgeting process for the fiscal year that will run from July 1, 2020 through June 30, 2021, please reach out and let me know.

Jenn and I started attending Heritage in 2005, and we became members in 2006. We have seen the church through some pretty challenging times, and there is no doubt that significant challenges confronted this church many times before we came along. We’ll get through this too, and we’ll support each other all along the way. After all, love is the spirit of this church.

Reid Hester
Finance Committee and Stewardship Chair

4/24/2020

by Reid Hester, Finance Committee Chair

Greetings Heritage Members & Friends!

I am very pleased to be writing this fall to share the first in what will become a regular quarterly update on our church finances.

We closed the books on last year’s finances in October, and we finished the year healthily “in the black”. You can see for yourself by visiting the new Financial Statements page within the password-protected area of the HUUC website here: https://huuc.net/members-area/financial-statements/. Click on “FY 2018-19 Income and Expenses Closed Books”.

We ended the year with very strong pledge income and some expenses that came in lower than they had been budgeted. Even with lower than budgeted fund-raising and rental income we were able to close out our 2018-2019 fiscal year with an excess “Net Income” of $5,073.39. That surplus allows us to bolster our church finances against unexpected expenses in the new church year or farther out into the future.

For the current fiscal year, we’re right on track overall for income (pledges, rentals, and fund-raising), but our budgeted pledge payments in particular are running behind for this time of the year. This is a good time for all members and friends to evaluate where you are with regard to your 2019 tax situation. If you do aim to itemize your taxes, then you’ll want to make sure you’re on track with your pledge payments or even pay ahead if you’d like more of your pledge donations to be counted as part of your 2019 tax year.

On the expenses side this year we’ve had a couple of unbudgeted maintenance expenses come up. New flooring was determined as a critical need in the Religious Exploration rooms. Also, our outdoor shed was in dire need of being replaced. Our new shed will allow our Taekwondo renters to store some of their supplies in addition to providing more spacious and organized storage for the church. We’ve covered these expenses partly through the Furnishings lines in our current year budget. We’ve also tapped into the Memorial Garden and Maintenance funds that are not directly associated with this year’s budget, a move that was made at the discretion of the Board of Trustees.

The Finance Committee is meeting regularly on the Sunday before each Board meeting. We’re currently evaluating the church’s investment strategy to determine whether the funds that we’ve been invested in for many years now are ready (or perhaps overdue) for re-balancing and re-allocating. We’re working with the Board to try to bolster our maintenance funds as we confront an aging church building that is likely to require upkeep expenses in the coming years.

Thanks for taking the time to read this column and keep up with our church finances. If you have questions or would like to see specific topics covered in the future, please let me know.

Reid Hester
Finance Committee Chair

by Reid Hester, Finance and Stewardship Chair

Many thanks to our Board President, Jaime Castle, who reminded me that at last year’s Annual Meeting, several questions were raised about how exactly we maintain our finances and close the books each year on our annual budget. I hope this article will provide some answers to those questions as well as a timely precursor to our spring pledge drive, which will formally kick off in March.

First off, a little background. We’re a “program size” congregation that has only recently grown from what’s known as “pastoral size.” For many years HUUC stayed within the pastoral size membership range of 50-150 members before we finally made it over the hump to the 150-350 program size level of membership in 2014. Members who have been around for a little while (like more than 25 years) might remember when most of our church budget was funded by the earnings of a large endowment. In those days, which were before my time, we didn’t always have to put much of an emphasis on soliciting pledges from our members. Breaking free from that endowment (i.e., cashing it in to make a big bet on the future) is what allowed us to pay off the mortgage on our beautiful facility that we’ve inhabited for almost 35 years now.

Fast forward to January 2019, and we’re a congregation of more than 170 members. We set our budget each year at our Annual Meeting, typically in late May or early June. Every year for roughly the last 8-10 years we have passed a balanced budget at our Annual Meeting, meaning that we go into a new church year intending to spend only what we will bring in. A budget is a projection, on both sides of the ledger. We never spend exactly what we say we will, and we never receive exactly the income that we expect to receive. We have plenty of buffer within our church accounts to cover those fluctuations (see below for more on the health and structure of our church balance sheet).

The church budget is the roadmap for the day-to-day financial functions of the church. When we need to do something big, we take on a capital campaign. But for our day-in and day-out expenses we rely on pledges, rental income, and fund-raising efforts. Here’s a little more detail on those income categories:

Pledges are now our biggest source of income by far, and, thanks to the dedication of our members, pledges are a predictable and reliable income stream. This is especially true as we move to more pledges coming in via Electronic Fund Transfer (EFT), an automatic way to have your pledge deposited into Heritage’s checking account each month. Members sometimes move away halfway during the pledge year, or maybe they can’t keep up with the pledge that they thought made sense for them financially when they first made it. But overall, we routinely receive at least 95% of the pledge income that we’re expecting each year, and pledges make up about 85% of our budgeted income.

Rental income has been quite reliable, and in fact it’s been an area of growth (notwithstanding deliberate changes that reduce rental income, like when we decided that it no longer made sense for the church to serve as a polling location). Overall, rentals make up about 7.5% of our budgeted income.

Fund-raising is a substantial part of our budgeted income each year, but a less reliable one. We’ve fallen short of our projected fundraising goal by double digits in some years and exceeded it in others, so it’s a challenging projection for the Board and Finance Committee to make. Like rental income, fund-raising income currently makes up about 7.5% of our budgeted income.

We’re in a very healthy place with steady, reliable, and generous pledges serving as a strong part of membership at HUUC. We are all stewards of this church, financially and through our volunteer efforts. The church isn’t something other than us. It is us.

How about the other side of the ledger? Expenses consist primarily of our people costs: the salaries and benefits of our two Ministers, our Church Administrator, and our Music and Childcare staff members. Our next single biggest expense is utilities, then office & technology costs, then denominational dues. The amounts drop off very quickly from there with the top line items for church programming going to Religious Education and the Music Program, which I think nicely reflect the priorities and values of our church community.

In most of our fiscal years we come in right at or just under our budgeted expenses. We are a frugal congregation. The variances occur on the income side of the ledger, and as I suggested earlier, those variances tend to be associated with our fund-raising income. While our budgeted pledges might come in at 95% of our projection, we always have an unbudgeted line for new pledges that come in throughout the year, and those usually more than make up the difference. We don’t have a back-up for our fund-raising or our rental income, so if either or both of those numbers is off, then we can end the year at a deficit of a few thousand dollars; or if either or both of those numbers is high, then we’ll end the year with a surplus.

How do we figure out whether we’ve ended the year “in the red” or “in the black”? First, Denise Martinez, our Church Administrator, balances the church checking account through the end of the fiscal year to make sure that all income and expenses have been accounted for. Next, I check in with the Church Treasurer, Rebecca Pace, to make sure that pledges in QuickBooks have been assigned to the right pledge year (some pledgers pay the following year’s pledge all at once before the end of the current fiscal year, and some pledgers catch up on a deficit in pledging for the prior year after that fiscal year has ended). I print the final Income & Expense report for the fiscal year and present it to the Board, and they vote to officially close the books for the prior year. This tends to occur somewhere between August and October after the prior fiscal year has ended on June 30.

We have a very healthy balance sheet with a checking account and CDs that tend to carry an extra $10,000 to $15,000 (this fluctuates depending on the proximity in the year to the church auction, our biggest fundraiser of the year). We also have investments of roughly $95,000, only about $25,000 of which is committed to certain funds, like the Barbara Howe Fund or the Social Justice Fund. These investments are the legacy of a larger endowment that continues to be a source of great financial security for our congregation.

Please contact me directly at the email address below if you have any questions or suggestions about the financial operations of Heritage Church. Going forward, I’ll try to keep up at least a quarterly column in the Heirloom. I’d love to go into our next Annual Meeting with everyone a little bit more informed about the latest in the state of our current year’s income and expenses. You can contact me at:

January 2019.