Who are the partners who design the financial plan for your congregation? The Finance Committee? The Treasurer? The Pastor? The Chair of the Long-Range Planning Committee?

Who are the partners who design the financial plan for the regional judicatory of your denomination? The chief executive officer? The treasurer? The finance committee? The budget committee? The trustees? The executive committee?

For the past four or five decades, one of the most influential voices to be included in both paragraphs has been and is the United States Congress. By August 2005, the decisions of the Congress had made it one of the two or three most influential partners in that process for nearly all Christian congregations averaging more than 100 at weekend worship, as well as for many of those with fewer than 100 at weekend worship. This point can be illustrated by two examples.

Two Points of Intervention
How does the federal government intervene in the financial planning of congregations? A rapidly growing example is, "Should we provide a church-owned home for our pastor or pay a housing allowance?" For a growing number of ordained or licensed ministers, the federal tax laws encourage the option of a tax-exempt housing allowance. The longer the tenure and/or the older the age of the pastor and/or the more rapid the rate of inflation and/or the more pressing the question, "Where will we live when I retire?" the more persuasive the case for a housing allowance.

The second example changes the agenda from the annual operating expenditures to capital outlays. In 1967, for example, one congregation debated how to finance a $2 million building program. One side argued in favor of a big three-year building fund campaign to raise the entire $2 million. The other side found a lender who would provide a 20-year mortgage for $1.6 million. One argument was, "Let the people who will use the building help pay for it." A second was to take advantage of inflation. Despite objections to "paying all that money in interest for two decades," those favoring a mortgage prevailed. What happened? Twelve years later, thanks to that inflationary era affirmed by the federal government, in 1979, that congregation could use the 50-cent dollars of 1979 to pay off the 100-cent dollars borrowed in 1967. By 1983, they were using 34-cent dollars to pay principle and interest on that mortgage.

Is your congregation about to launch a major building program? If so, how will you pay for it? The answer may depend on what you believe the federal government will do about inflation. An annual inflationary rate of nine percent devalues the dollar by 50 cents over eight years.

A Brief Historical Review
The first big intervention by the federal government in church finances after World War II came with amendments to the National Housing Act in 1956, 1959, 1961, and 1962. While the federal government had been subsidizing church-related hospitals and children's homes for many decades, this was a first effort to subsidize private housing for the elderly and for low-income adults. Section 231, adopted in September 1959, was designed to increase the supply of low-cost housing for persons who had passed their 62nd birthday. This turned out to be the most popular choice with Protestant congregations and regional judicatories.

Section 2002 was less popular, but exceptionally well administered and produced fewer failures. One reason behind the success stories was the availability of 30-year or 40-year mortgages. Thus, the 30-year mortgage taken out in 1964 needed its final payment in 1994, when, thanks to inflation, a 22-cent dollar was required to pay off that dollar borrowed in 1964.

One consequence was the construction and administration of tens of thousands of apartments for the elderly and for low-income families by religious organizations. A second consequence was those who protested this broke the wall of separation between church and state usually lost that battle.

A third consequence was several financial disasters by both regional judicatories and congregations. In one case, the well-intentioned pastor who initiated the proposal became the chief executive of the new housing venture. He operated on a cash flow system. After the building was completed and occupied, his monthly financial reports to the board of directors always showed a modest surplus. Several years later, when the building required substantial repairs and renovations to be paid for out of the depreciation account, it turned out that fund did not exist!

From a long-term perspective, those FHA-guaranteed mortgages of the 1960s turned out to be only one of many interventions in the financial plans of religious organizations. Many of these, especially in recent years, have been designed to encourage donors to increase their charitable contributions. The Tax Reform Act of 1969, for example, increased the maximum deduction for charitable contributions by individuals and married couples from 30 percent to 50 percent. A consequence of another change was the grants made by foundations doubled from $1.25 billion in 1966 to $2.5 billion in 1971! Many of those additional dollars went to religious institutions.

From a denominational perspective, one of the most significant interventions has been the favorable tax treatment for family foundations and for a variety of 501(c)3 religious corporations. The number of foundations has tripled from 25,000 in 1984 to more than 75,000 in 2007. One consequence has been a sharp increase in the accumulated assets of both congregations and denominational foundations. The tax laws now encourage large gifts and bequests both to congregations and to denominational agencies.

Another consequence has been the proliferation of user-fee financed nonprofit parachurch organizations since 1965. This has transformed the options available to congregations needing sources for worship, education, financial campaigns, planning, missions, evangelism, pastoral care, children's ministries, youth programs, and problem-solving in general. As recently as the 1960s, the vast majority of Protestant congregations turned to their denominational headquarters or publishing house for these resources. Today, they are more likely to purchase them from a parachurch organization, a non-denominational publishing house, a retreat center, a college or university or an independent entrepreneur. This new competition for resourcing congregations has reduced what had been a major income stream for both regional judicatories and national denominational agencies.

Perhaps the most widespread impact of inflation on the income streams of congregations is illustrated by the member who purchased shares of common stock in a profit-driven corporation in 1983 for $20 a share. By 2007, the market price had increased to $60 a share. Inflation accounted for $20 of that increase, and the increased profitability of the corporation accounted for the other $20. The member donated the stock to the church and received a deduction of $60 a share in calculating taxable income for 2007. Inflation accounted for one-third of that charitable deduction.

Income or Wealth?
Every Christian is expected to return to the Lord a tithe. The shift from an agrarian economy to an urban economy raised a question. The wheat farmer tithed one-tenth of the year's wheat crop. In a cash economy, is the tithe defined as one-tenth of a person's income before or after taxes? More recently the question has been asked, does the tithe refer to one-tenth of one's income? Or one-tenth of one's accumulated wealth? An estimated 10 percent of all American households possess a net wealth of $2 million or more. Should they tithe that wealth only once? Or every year? In recent years, the United States Congress has approved legislation encouraging well-to-do older Americans to contribute to charitable causes out of their accumulated wealth. In August 2005, the "Katrina Amendment" became law. It provided attractive tax incentives for Americans age 70 1/2 or older with a traditional Individual Retirement Account to contribute up to $100,000 from their IRA to charitable causes before December 31, 2005.

That opened the door for congregations and regional judicatories to solicit donor-directed contributions. In 2006, the deadline was extended to December 31, 2007. Legislation to continue it has been introduced into Congress and probably will be approved in late 2007. A modest number of congregations and regional judicatories report this has become a new, large, and welcome income stream, but most have ignored it. Why change our system for only one or two or three million dollars? Institutions of higher education, museums, hospitals, and parachurch organizations appear to be more likely to do that than are Protestant denominational systems. After all, 30 gifts averaging $70,000 each comes to only $2 million! Why bother changing our system?

Another expression of encouragement by Congress for charitable contributions to churches comes when adults realize the choice of "leaving it to our children and grandchildren" is being redefined as "the first half of the taxable amount goes to Uncle Sam." The current federal laws on estate taxes probably will be changed, but the current legislation offers mature Christians five choices: (1) die in 2007, 2008, 2009, or 2011 or later and leave approximately one-half of your taxable estate to Uncle Sam, (2) die in 2010 when there will be no estate tax, (3) give your money away before you die, (4) do nothing and let Congress decide what happens to your estate, or (5) plan ahead.

One consequence is every year sets a new record for the number of dollars given to charitable causes by individuals and foundations in America.

A second consequence is a continuing rise in the level of competition among potential recipients of these charitable congregations. That includes an increase in the level of intra-denominational competition.

Three Responses
One response comes from those opposed to change. "We are not receiving the number of dollars we would like to receive, but we are not interested in making the changes required to become a more effective competitor."

A second, and smaller, response comes from those who decide to make the changes required to make their cause more attractive to donors who are influenced in their giving by the tax laws. One example is to help members understand the potential benefits from the recent and future changes in the tax laws.

A third response begins with an affirmation of the separation of church and state. It goes on to urge that the churches, not the federal government, should decide how they will fulfill the commandments in Matthew 25:35-46 and Matthew 28:19-20. This response may include the admonition that neither competition nor the tax laws should influence the sources or the choice of the ultimate recipient of a Christian's charitable gifts.

Lyle Schaller's past vocations include city planner, municipal finance officer, parish pastor, seminary professor, parish consultant, and writer. His most recent book, From Cooperation to Competition, was published by Abingdon Press in May 2006.

Copyright 2007 Lyle E. Schaller