Lemon explained that from 1995 to 1999, the stock market posted gains of more than 20 percent per year. But since that time there have been major declines, including a decline of more than 20 percent this year. These conditions gave rise to a decline in the value of investments held by the church of over $6 million since January 1, 2002, eating heavily into the reserves set aside of $5.9 million for securities fluctuations and the extra $11 million of working capital built up between 1995 and 1999.
The current economic conditions have had an effect on members' earnings and tithe income. The North American Division's tithe, that had an increased more than seven percent in 2000, dropped to about four percent in 2001, said Lemon. More than 62 percent of the world budget revenue comes from North American Division tithe. Further, offerings have remained stable in terms of dollars but are declining as a percentage of tithes, and thus make up less of the world budget revenue.
"With the shifting pattern of giving from world mission offering to local church offerings, and the overall decrease in offerings as a percentage of tithe, the size of the world budget of the General Conference, as compared to the total of tithe and mission offerings throughout the world, has decreased from 42 percent in 1930 to less than 10 percent in 2000. This certainly signals a changing role of the General Conference budget in financing the work of the church around the world," said Lemon.
For many years, the GC's in-house expenses have been running well under the church's designated expense cap. However, Lemon said "It will be a challenge for the General Conference to meet the targeted five-year phase-in to the new reduced cap." The reduced expense cap arose as a result of the five-year phase-in of a new tithe sharing formula in which the NAD reduces the percent of gross tithe it remits to the GC (from 10.7 to 8 percent over five years) and the other 12 world divisions increase their tithe remittance from 1 to 2 percent. Net effect will be a reduction in dollars coming to the GC world budget of approximately $16 million per year or 15 percent.
Lemon stated that as of the end of August, GC investments totaled $82.6 million. Of this approximately $16.8 million is in stocks that would generally track with the Standard & Poor 500 index. To help the delegates perceive the impact of the stock market, he explained that a one point change in the S&P500 stock index means approximately a $20,000 change to the value of the GC's investments. So far there has been a $6 million decline.
"Individuals sometimes ask, how can the General Conference experience more than a $6 million decline in market value if we are following the conservative investment policies outlined in the General Conference Working Policy?" Lemon noted. "Don't the policies protect us from such declines? Aren't we precluded from investing in such 'risky investments'?"
He answered his own question: "The answer is, we do have conservative investment policies, but that does not mean we are exempt from declines in the market." Lemon also explained the need for the current $82 million in investments, the majority of which is not in stocks but in short term investments which do not decline with the market. He explained the Working Policy that requires a working capital equal to 30 percent of the previous year's unrestricted income plus the requirement to keep funds on hand to cover commitments for various projects.
Lemon outlined how the General Conference had strengthened its "reserves" by more than $17 million during the past five years while at the same time passing on more than $42 million beyond normal budget appropriations to divisions and institutions. This, he noted, has helped to strengthen the work in the field while also helping the General Conference handle the phase-in to a reduced income under the new tithe sharing formula.
The Future
Lemon concluded with an analysis of future prospects:
"Given the specter of decreasing tithe income through 2005 under the new tithe sharing formula, the poor performance of the financial markets, and market declines sustained to date, and the large increases in insurance costs since 9/11, how should we plan for the next five years? There can be a tendency to feel that all plans and programs must be put on hold and that nothing big can be accomplished until we get through this period of adjustment. We must tighten our belts and reduce costs where possible. We may even experience some losses during the next three years."
After noting that the General Conference's conservative budgeting of income has resulted in actual income exceeding budget by more than $9 million for each of the past four years, Lemon said: "It may be wise for us to budget a little less conservatively for the next three years and even risk the possibility of having only break-even operations or even a slight loss each year, rather than budget so conservatively on the income side during this transition that we cut appropriations and programs drastically and then end up with operating gains for the year. Unless the stock market improves between now and the end of the year, we will definitely have a loss for 2002. It will not have been from operations, but rather from market fluctuations."
Lemon ended on a positive note, however encouraging leaders to "make big plans," noting that we should be careful not to underestimate God's power, for "He can provide the funds needed for His work."
After Lemon's remarks, undertreasurer Steven Rose (above) provided a summary of the GC financial statement for September 30 and proposed next year's budget. The church's $115,866,451 budget increased less than two percent over last year.
"The current loss, before adjustments for timing issues, is $3.3 million," Rose explained. After adjustments, the situation is break-even from operations. However, the unrealized decline in investment value must be factored in giving a decline through October 7 of approximately $6 million.
He also proposed a special action (which was later voted by the executive committee) to take $3.1 million from existing working capital for one year to help cover the "skyrocketing" premiums of overseas hospital and aviation insurance, until adjustments can be made for the field to absorb these increased costs.
Discussion on the reports affirmed the work of the treasury department. Southern Asia Division president Ron Watts expressed appreciation that there had been no negative impact on division appropriations as yet. Others also appreciated the good report, though they were troubled at the income decline, especially tithe reduction due to a combination of the new tithe-sharing formula and the weakening economy.
The financial section concluded with a tribute to the work of retiring GC associate treasurer Gary DeBoer and his wife Alma. Lemon thanked DeBoer for his contributions. "I am delighted to have had the privilege of having you here." Noting DeBoer's service in many areas, including as conference president, Lemon wished the couple well in their retirement.
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Jonathan Gallagher is the United Nations liaison director for the General Conference.
sing biblical imagery, General Conference (GC) treasurer Robert Lemon (above) referred to the financial markets and the condition of the economy in terms of the "fat and lean cows" of Genesis 41:4. With the negative impact of the markets on church investments, and the new tithe sharing formula, the GC is facing major budget challenges.
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