From Finance Committee’s Doug House and Brent Ling
At the Annual Meeting on Feb. 7, your Finance Committee will give a high-level summary Session’s budget for 2021. (To get into the nitty-gritty, you can review a detailed 2021 budget here.) It includes funding for essentially all requests made by NYAPC Boards, Committees and Programs and provides for enhancements to staff, a major improvement to Sanctuary technology, and much more.
It also calls for us to spend about $180,000 more than we take in from ordinary revenues and annual endowment draws – before the planned HVAC project.
A Moment to Celebrate. As we get ready to discuss 2021, it’s useful to look back at what’s happened financially in 2019 and 2020. And to take a moment to celebrate what were really two very, very good financial years for NYAPC! Read more.
Let’s start with nuts and bolts: Accounting. As you’ll recall from Finance Committee’s last communication with you, our accounting team has been playing catch-up since Q4 2019, fixing some posting issues caused by our amazingly complex web of Funds, investments, and GAAP accounting requirements. And dealing with floods, building closures, and responding to the needs of the church in pandemic-times.
The first piece of good news: we’ve caught up! We finally closed 2019 financials this past summer and posted November 2020 reports right on time, around the 22nd of the following month. December Financials, reflecting the “close” of the year, normally post the second week of February. We’re on course to do that and deliver January Financials in late February, right on schedule. Add in a “clean” audit for 2019 and we can say our accounting function is back on its game. And with more improvements to come.
Excellent 2019 and 2020 Results. What do those completed and now-timely reports show? Financial results in 2019 and through November 2020 are…shockingly great! Our annual budgets as configured today look at a slice of the church’s financial life that we can call “operations.” The budgets pay attention to “ordinary” revenues like pledges, other contributions, income from trusts, building use revenue, and grants and ignores any investment income or losses (since they mainly impact endowments versus our “spendable money”). And we include in the budget our cash operating expenses for things like salaries, supplies, utilities, and any grants we make to other organizations but ignore “non-cash” expenses like depreciation and benefits accruals and omit large capital projects supervised by Trustees.
In 2019 we budgeted and almost $800,000 gap between our operating revenues and operating expenses. In 2020, the budgeted gap was around $440,000. After applying our annual “draw” from endowments to those numbers, our 2019 budget called for us to “burn” around $550,000 in cash in 2019 and around $180,000 in 2020.
What actually happened? Instead of “burning” cash on operations, we actually collected more revenue than we spent! In 2019 revenues from operations exceeded operating expenses by $112,000. Through November of 2020, that number is around $115,000 and will go higher. A HUGE turnaround from the budget!
Even after adding non-budgeted capital expenses into the picture, things look pretty good. In 2019 we booked capital expense (capex) of around $600,000, mostly on the work getting our building ready for the Business Improvement District’s Downtown Day Services Center. In 2020 (through November), we’ve booked around $165,000 in capex for security improvements and asbestos and mold abatement. Which means that overall, we still “burned” some cash both years. But the bulk of 2019’s capex is being paid for by the BID over time. So even with capex, we’ve been doing great!
Why were the 2019 and 2020 results so much better than budget? Lower than expected costs both years tell a lot of the story. In 2019, personnel costs were under-budget following Roger’s departure, and interest payments were below expectations because rates remained gloriously low. And we booked $135,000 less than budgeted to repairs and maintenance due to a mixture of work that did not need doing and moving some of the work we did do to capex vs the budget. [If you don’t understand that last sentence and want to, let us know.] In 2020 most expense categories were under budget because of pandemic-related disruptions.
But higher than expected revenues are important as well, with overall revenues $785,000 over budget in 2019 and $322,000 over full year budget already in November of 2020. What’s going on with that? Three things:
1) Big increases in non-pledge giving in 2020. There was a pandemic. There was great need. You and many of our neighbors stepped up and sent NYAPC money to use to respond. A huge blessing.
2) Bequests. Our budget generally ignores bequests because projecting them feels a bit ghoulish and it’s hard to know in advance if a bequest we do receive is available to pay for regular operations or it’s going to be designated to pay down debt or to add to our endowments. Our budget for bequests in 2019 and 2020 were $0 and $90,000 (the latter a bequest we were notified of in 2019). Our actual bequest receipts were $411,000 in 2019 and $395,000 in 2020 (through November and not even including the astonishing gift from Amy Gillespie). We need to do more work to fully unpack the details of these bequests and understand how they shape our overall financial condition. We may want to report on them differently in the future. More to come!
3) Under-budgeting for Pledges and Contributions. In 2019 we received $315,000 more in pledge and non-pledge contributions than budgeted. In 2020, through November we’ve received $98,000 more than the total we expected for the whole year.
In preparing the 2018, 2019 and 2020 budgets, Session (on recommendation of Finance Committee) took a conservative approach to budgeting two of our three main sources of revenue: pledges and non-pledge contributions. Why? Because our accounting challenges of 2010-2015 meant we had little definitive data on what had actually been happening. And the Finance Committee felt it was safest to assume that our only pledge revenue would be whatever amount of pledges were in-hand when the budget was finalized in early December. And that non-pledge revenue budgets should be built up from best estimates of likely giving to specific programs and accounts.
Looking at 2021. As we’ve finally had three full years (2017-2019) and one partial year (2020) of data, we can see that this approach way, way underestimates how much we’ll actually collect in pledge and non-pledge contributions. So our 2021 budget for contributions is substantially higher than what you’ll find in either the 2020 or 2019 budgets. But, we think, much closer to what we’ll actually experience.
In fact, “much closer to what we’ll actually experience” is a theme that runs through many different sections of the 2021 budget. Using now-available multi-year spending history, Trustees were able to develop a full and robust projection of what we’ll be spending on things like software licenses, maintenance contracts, legal fees, and more. The 2021 budget includes these items – many of which have been missed in previous budgets – as well as a $45,000 allowance for unplanned repairs and maintenance because, you know, things break! And that’s about what we’ve spent on non-HVAC-related repairs over each of the past three years.
As you’ll see at the annual meeting, that doesn’t mean we know what’s going to happen. We’re unsure how the pandemic and limited building operations impact our tenants and what that will mean for building use revenue. At the time the budget was drafted, we were looking towards returning to the building for worship at the start of Lent. That timetable now seems unlikely to materialize. And while the budget carries a substantial allowance for debt service, we won’t really know what we’ll need there until HVAC contracts are let, the work done, and the dust (and cool breezes) settle over the final bills. Think of the budget as a tool that the governing boards of the church can utilize to notice irregularities, and make decisions about spending or saving funds based on the performance we are seeing in real time.
We’ll need to walk that path and see what happens together. But for now we hope you’ll join us in celebrating two great financial years at NYAPC, years in which we learned, grew, and built resources we can use to answer God’s call to us on this corner of Washington, DC.
