Y PROJECT WARM, SAFE & DR 2 Building Vision Timeline Building - - PDF document

PROJECT WARM, SAFE & DR Y

Building Vision Timeline

Building feasibility study Congregational visioning process Congregational survey

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Congregational Visioning Process

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Top 4 Priorities from the Survey

Develop & implement a comprehensive strategy to reach new people and incorporate them into the life of the church Make necessary changes to attract families with children and youth to our church Enlarge or improve the physical facilities of the church to expand or enhance our ministries Work to renew & revitalize the community around the church by building coalitions with partners that share this vision and commitment

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Leverage Location for Ministry

• 78.5% of those surveyed agreed/strongly agreed:

“I believe that our location on Broadway is central to

• ur identity and call as a congregation.”
• Physical appearance does have influence
• Population during past 3 years within 1 mile of

APCC has risen slowly

• Increased traffic expected with Capitol Hill

Transit Station

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Proposed Building Improvements

$0 $500,000 $1,000,000 $1,500,000 $2,000,000

Aggregate Cost of $1.8 m

Masonry/Roofing/Painting Heating & Plumbing Landscaping Interiors Lewis Hall

* Consultants have also estim ated the costs of fire sprinkler ($374K) and electrical ($118K) im provem ents.

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Limited Initial Seismic Work

• Will protect people in the building, exiting the

building and on the sidewalk

• City will require seismic improvements (in line with

proposed work) for buildings with unreinforced masonry walls

• City unlikely to issue current permit for roof work

without addressing unstable brick arches

• Would cost considerably more to do seismic work

after the new roof is installed

• Current two-phase approach to roof and seismic

would allow you to see how much roof/exterior work costs before committing to extent of seismic work

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An Investment for the Future

• Improve safety
• Make church more transparent, open & inviting
• Greater income potential
• More activity in building
• Supports connection to community

Opportunity to reach new people and draw them into life of the church

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The Longer Y

• u Defer…
• Greater the cost
• Greater the liability
• Greater the risk of failure

Miss window of opportunity and ability to leverage current momentum

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General Approach

Annual Giving Building Improvements Rental Income Financing

• Base Case + 5 Scenarios
• Vary with changes to 4 key assumptions

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Base Case = Status Quo

12% ↑ Worship Attendance 2.0% of Income Given $1,700 per HH No Building Improvements Events, Room Rentals & Tenants Held Constant No Financing 11

Growth in Worship Attendance

12% 12%

Average, 20 10 – 20 13*

* Average excludes 2012 year of pastoral transition.

Church Records Congregation Survey 12

Summary of Scenarios

Scenario V

Same as above Same as above + Fire Sprinkler + Electrical CDF funds released

Scenario IV

Same as above Same as above CDF funds released + Finance “Warm”

Scenario III

Same as above + Chalice + Lewis Hall tenant Landscaping, “Warm/Safe/Dry,” Lewis Hall CDF funds released

Scenario II

Moderate giving & rental growth Landscaping & “Safe/Dry” CDF funds released

Scenario I

Base case + Increase in weddings Landscaping N/A

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Rental Income as %

• f Total in 2022

$0 $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 $700,000 Base I II III IV V

5% 7% 11% 17% 17% 17% 95% 93% 89% 83% 83% 83%

Giving Rentals 14

Rental Income

• Per WA statutes, APCC needs to ensure total

rental income is less than general operating and maintenance expenses each year

• In all projected scenarios, rental income falls

well within this budget cap

• If rental income grows farther/faster, APCC will

want to monitor to ensure continued compliance

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When Does the Church Generate a Surplus & 6 Mos. of Reserves?

Base 2021 2027 I 2021 2025 II 2018 2020 III- V 2018 2019

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Operating Reserves

Months of Cash Operating Environm ent Crisis – Scrambling for cash. Delaying payments to

• vendors. Overdrawn checking account.

<1 month Cash is tight – Relying on line of credit. Waiting (hoping!) for a check to come through. Delaying payments to vendors. 1-3 months Actively managing cash – Should consider liquidity

• planning. Little room for “rainy days.”

3-6 months Room to breathe – Can do some medium-term thinking. Can weather some unexpected events. Not a time to be complacent. 6+ months Handles risk – Can do long-term planning. Able to withstand increasingly acute shocks such as funding cuts. 17

And the Effect on CDF Funds?

$- $50,000 $100,000 $150,000 $200,000 $250,000 Base I II III - V*

* Scenario IV excludes $91,000 of interest paym ents related to the “ Warm ” financing, w hich w ould total $160,000.

• To support the continuing operations of the church,

APCC would need to draw down on the CDF funds

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Key Takeaways #1

• There is an “optimal” size for this building to make sense

financially

▫ 335 in Worship (without rental income) ▫ 230 in Worship (with rental income)

• There is a role for rental income to play

▫ Leverage space ▫ Create vibrancy ▫ Attract new members ▫ Stabilize financial situation

• APCC could “turn the corner” in 5 years
• Surpluses allow you to

▫ Replenish Budget Reserve Fund ▫ Expand programming in the future

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Sustainable Endowment Spending

• Set a new dollar amount each year, based on the issues facing the
• rganization
• This is how Designated Funds & Budget Reserve Fund are set up

Set Annual Spending Budget

• Spend only the current income from investment portfolio
• Currently applies, in part, to CDF

Income-Based Formula

• Most common formula
• Spend a fixed % of the average market value over previous quarters or years
• Generally, a 3 or 5-year rolling average

Rolling Average

• Separates the calculation of spending levels from the market value of the

investment portfolio

• Set an initial dollar amount and adjust the level each year based on inflation

Inflation-Adjusted

• Attempts to combine rolling average and inflation-adjusted formulas
• Typically, only largest endowments (universities) use these, due to

complexity

Hybrid Model

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Spending Benchmarks

• Rolling average models distribute 4-6% annually
• Inflation-adjusted models use 3% floor and 6%

ceiling to further ensure stability in spending

• IRS requires 5% annual distribution of private non-
• perating foundations
• Upper limit of 7% set when “prudence standard”

updated following adoption of Uniform Prudent Management of Institutional Funds Act (UPMIFA )

▫ WA State did not adopt this (optional) provision of the act, though prevalent throughout the nation

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Risk of Portfolio Exhaustion

0% 10% 20% 30% 40% 50% 60% 70% 80% 3% 5% 7%

Spending Rate

After 40 Years

70 % Stocks/ 30 %Bond s

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Replacement Reserves

• Facilities
• Equipment
• Appliances
• Interiors
• Exteriors

NOT

• Routine maintenance
• Emergency repairs

▫ A reserve schedule should be created to estimate the future cost and anticipated year of replacement for each item.

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Fund Recommendations

• Do not replenish Patsy Gray Fund with monies “owed”

from other funds

▫ Patsy Gray will be depleted in 2013 ▫ There are no restrictions, so these funds have been used for an appropriate purpose ▫ No rules to enforce conservation of equity ▫ Terminate fund

• Next, use Budget Reserve Fund

▫ Once Patsy Gray is depleted, use Budget Reserve as primary source of supplementing operating expenses ▫ Historically, both churches chose to spend principal ▫ If depleted, rebuild when practicable ▫ Over long term, surpluses used for new programming

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Fund Recommendations

• Draw down from Church Development Funds…

▫ To cover deficits, after tapping the Budget Reserve ▫ If you proceed with building improvements, spread out projects to continue generating investment returns ▫ May also use to finance “Warm” for added assurance

• Continue to strive for 50/50 split between UCF and CCF

▫ Create a replacement reserve schedule for capital assets ▫ If proceed with building improvements, keep minimum $ amount in fund for this purpose

• Could be accompanied by targeted fundraising campaign

for smaller projects (e.g., landscaping, interior, Lew is Hall

rem odel)

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Fund Recommendations

• Do not replenish McEachern Fund

▫ Monies previously on loan have been repaid ▫ Council could designate funds at the time of future pastoral search and relocation event (lies dormant) ▫ Could also terminate fund

• Camps & Conferences

▫ Consider applying these funds ”creatively” toward recurring items to supplement future budgets

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Spending Policy Recommendation

• For Dedicated Funds (Cam ps & Conferences,

Sam aritan, Scholarships)…

• Increase annual distribution rate to 5% of 3-year

trailing average

▫ Improves consistency of distributions ▫ $ amount varies with investment performance ▫ Preserves capital through ‘average’ spending

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Benefits of Borrowing

• Loans can be valuable tools for cash flow and

financial stability

• Right time to borrow is when you:

▫ Know how the funds will be used ▫ Have a plan for repayment

 (Not when you “need it most!”)

• Provides ample breathing room for unexpected

to occur

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Debt Financing

• APCC unlikely to qualify for a loan from a

traditional financial institution

• If you did qualify, CDF funds used as collateral

▫ Would preclude church’s ability to cover deficits

• Christian loan funds have greater understanding
• f your ministry and added “mission” benefit
• General sense that interest rates will increase

▫ Loan funds would arguably offer better rates

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Strategic Use of Invested Assets

Financing

• 5-yr term loan at 4.75%
• Total interest ~ $91,000
• Would leverage CDF funds

during a 5-year window until target liquidity is reached

• After loan is repaid, enough

remains to cover fire sprinkler, electrical, and $60K for replacement reserve

…Or Not?

• Can afford to pay outright
• Spreading projects over time

allows for greater conservation of equity

• If revenues increase as

projected, budget reserve will be replenished

• Prospect of smaller, targeted

capital campaign as well

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Key Takeaways #2

• Recommendations intended to simplify overall

structure and leverage Designated Funds

• Fund draws should take place in a prescribed order
• APCC would be complying with intended purpose of,

and restrictions on, existing funds, except:

▫ Budget Reserve: not preserving capital value ▫ Scenarios I and II: drawing down over the cap set in CDF policy to supplement operating income

• Continue to monitor – or consider updating policy

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