I often hear questions about the annual conference apportioned budget, such as, “How do we calculate this?” or “Why do we do that?” Here’s some information about one of the “hows” (our ceiling rule) and one of the “whys” (a separate line item as a contingency for uncollectible apportionments).
The Minnesota Conference has a budget “ceiling” rule that prevents the annual conference budget from increasing more than the average of local-church expenditures of the past three years.
For example, the 2013 budget ceiling is determined by the average of local church expenditures for 2010, 2009, and 2008, as reported in the churches’ annual reports. The ceilings for the 2012 and 2013 budgets were a decrease—the first time this has happened since the rule was adopted.
The local church budgets increased every year prior to 2012. However, for ten out of the 12 years from 2000 to 2012, conference budgets were below the ceiling by amounts as much as $750,000 (in 2008). Each new ceiling is calculated from the previous approved budget, so each reduction in budget provides a lower starting point for each succeeding budget ceiling calculation.
For example, when we began preparing the 2013 budget, we calculated the average of the annual increases for local church expenditures for 2008, 2009, 2010. The result, a reduction of 2.05 percent ($130,544), was applied to the approved 2012 budget of $6,367,332 to arrive at our 2013 ceiling of $6,236,788.
Why budget for uncollected apportionments?
I’m sometimes asked why we include a separate budget line for “uncollectible apportionments.” An allowance for a shortfall in apportionment receipts was always a part of the budget, but was added after the budget was approved.
We started showing this in a separate line in order to provide clarity, transparency, and honest expectations in our budget process. We would like to be able to receive 100 percent of the amount apportioned to fund the conference budget. We’ve steadily received 86 percent in recent years; in 2011, we received 84.2 percent. We receive between 25 and 30 percent of what we need to fund our budget in the last two or three weeks of the year, making it difficult to project the final receipt rate.
The allowance for uncollectible apportionments, plus careful management from conference ministry areas, allows us to fully fund most of our outcomes.
Other annual conferences use different methods. Many of them prepare and approve a budget, then determine a spending level less than 100 percent. A good portion of most annual conference budgets is fixed costs (insurance, rent, property, staff, and clergy benefits), so this method results in some areas of the budget bearing a much higher percentage of cuts. For example, a spending level of 75 percent might be approved for program areas and 100 percent for fixed areas.
We do not approve a budget at one level and then set a lower spending level, because that essentially results in a fictitious budget. If you expect that the approved level of expenditures for each board or department will not be possible, then the planned outcomes will not be fully achieved. That method also encourages boards and departments to pad their budget requests because they know they will see a reduction when the spending level is determined. A padded budget at the board or department level builds in cushions known only to a few, results in inefficiencies, and distorts the picture. It also can result in unusual trends or events going unnoticed or being improperly analyzed.
We believe that our method of budgeting for uncollectible amounts and showing them on a separate line in the budget is the most transparent method to manage use of our donated resources. It avoids setting unrealistic expectations for the outcomes we can achieve. It also allows us to effectively monitor and analyze spending. This was especially important in 2009 and 2010, when we developed a spending plan in response to the economic downturn. Because our budget did not have hidden padding, we could better determine where to reduce spending with minimal impact on our approved outcomes.
As director of finance and administration, I’m committed to accountability and transparency for donated resources. The ceiling rule provides a benchmark for our budget based on the financial abilities of the local church to fund apportionments and the budget contingency line for uncollectible apportionments helps us achieve the outcomes expected from our budgeted funds.
Barbara Carroll is director of finance and administration for the Minnesota Annual Conference.
Minnesota Annual Conference of the United Methodist Church