Church Radically Changes Budgeting Process

Post a Comment » Written on March 27th, 2008     
Filed under: News
SANTA BARBARA, CA (March 27, 2008) – A change in the way Montecito Covenant Church developed its budget for this year has enabled the congregation to more closely align its expenses with ministry priorities, says pastor Don Johnson.

Most churches use an incremental system of budgeting in which they determine general increases or decreases based on the current budget. Johnson says congregations may want to consider a different approach when it comes to sections dealing specifically with ministry.

This year, Montecito staff began with zero dollars in their respective ministry areas. They then evaluated their needs in connection with the church’s priorities and goals before proposing an allocation, regardless of whether the cost was higher or lower than the previous budget.

The change came at the suggestion of Bob Ludwick, chair of the Stewardship and Finance Committee, who has a master’s of administration degree and 30 years of “entrepreneurial business” experience.

“At first it was threatening to the staff, but it became inspiring,” Johnson says. The budget process helped to better convey to staff members the importance of their positions. They realized “they were taken seriously and not just seen as overhead.”

Personnel costs were considered for each program and objective, Johnson says. The process helps the ministerial and office staff to examine more closely how much time they devote to each aspect of their job and programs, as well as to make any needed changes.

As a result, Johnson says, “We built a leaner budget,” explaining that staff is thriftier when they develop their own budget. Still, the re-evaluation of ministry objectives led to a much higher increase than anyone expected as ministry needs for reaching goals were re-evaluated.

“We came up with a 17 percent increase in the budget,” says Johnson, who was shocked by the figure. “That’s untenable in a time of recession.”

“What we elected to do is create a two-level budget with ‘base’ and ‘provisional’ components,” says Ludwick. “The base amount is a conservative plan with modest growth over the prior year’s expenditures,” Ludwick says. This year, the base amount totals $651,574, a 3.7-percent increase over the previous budget.

“The provisional component contains expense items—we prefer to call these ‘investments’—that are pre-approved by the congregation based on certain income targets being met by mid-year,” Ludwick says.

He believes the two-level budget provides flexibility as well as inspiration. “In this way the congregation understands the dreams and objectives of the pastoral and council team at the outset, and we challenge ourselves to support those higher goals,” Ludwick says. “However, if there are changes in the economic realities of our congregation—as there well may be this year—then the base budget is all we accomplish, and we are not feeling any crisis about this.”

In June, the Stewardship and Finance Committee will re-evaluate the budget after looking at receipts and then make appropriate recommendations for possible increases. The provisional budget is set at $756,372, which represents the 17-percent increase.

Ludwick says the process also leads to accountability. “One thing small to mid-size churches could do better would be to introduce and embrace more control in the operations of the ministries.” Too often, he adds, “after the church budget is adopted, the onus is on the congregation to ‘step up to the financial plate’ when at least some of the onus should be on the pastor, staff, and administration of the church to be as judicious with the checkbook as possible.”

He advocates that churches develop a protocol or a series of good questions similar to the Four-Way Test of Rotary Club International.

Johnson says the committee may decide to make a recommendation that is somewhere between the base and full provisional amount, depending on income. He emphasizes that only areas directly related to the church’s local ministry began with zero in the budgeting process. Areas such as missionary support, as well as building and maintenance, were budgeted as the congregation always had done.

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