As church congregations, we traditionally try to build upon and honor the efforts and accomplishments of all those who have come before us. This is true of almost every aspect of our religious communities, whether we are talking about our most fundamental beliefs, our ministries and outreach programs, our membership numbers, our family and community traditions, or the brick and mortar that make up our church facilities.

As part of this commitment, we all try to be caring and dedicated stewards of our church community. To do this effectively, however, we need to realize that "good stewardship" means not only building upon those previous efforts, but also protecting the fruits of those efforts. When it comes to the brick and mortar facilities of the church, it means protecting physical assets through sound financial planning.

Let's be clear here about something before we get too far. We're not talking about the fundraising planning for the new addition to the fellowship hall or the new religious education wing. We're talking instead about protecting the physical assets of what we and our predecessors already have accomplished (i.e., making sure that we have funds to replace the roof of the main sanctuary or to repave the parking area). This also means not having to postpone other programs in order to fund major building repairs.

An integral aspect of protecting these physical assets is ensuring that adequate funds are budgeted each year for the "timely" replacement of major building components and systems as they wear out. It's true that not all building components will be replaced. Foundations and building structure, interior walls and trim, mechanical ductwork, and major electrical wiring typically last the life of a building. However, roofing materials, siding and trim, windows and doors, parking lot paving and sidewalks, carpeting, and interior furnishings are but a few examples of building components that will require potentially costly replacement over time.

Putting off these replacements, or deferring major repairs, can make things even more costly. And, the unexpected additional costs can sometime mean that we have to sacrifice more than money to be able to afford necessities.

One Example
Mount Carmel Church in Wilson, North Carolina, (we have changed the name and location) is a historic, 120-year-old wood-framed structure that serves a congregation of 825 members. The Mission Outreach Fellowship at Mount Carmel had developed plans to send a group of 22 mission volunteers to Honduras. Their goal was to help renovate classrooms over the summer and set up a computer system for a village school sponsored by their sister church. Their year-long campaign had generated substantial community support. Computer hardware and software had been donated by families, and several local businesses had volunteered to clean up the hard drives and upgrade the operating systems. A local moving company had agreed to crate all of the items and even arranged reduced costs for shipping. Car washes, raffles, and fundraising drives had generated about half of the cash needed for the travel and other costs. The church had agreed to cover the rest of the costs, about $20,000, out of church funds set aside for "Special Projects."

During late-winter choir rehearsals, a roof leak, thought to have been previously repaired, was discovered. The contractor subsequently informed the building committee that the leak was actually coming from the failing 22-year-old roof shingles. As a result of the ongoing leaking, water intrusion had badly damaged the wood framing at the base of the steeple. Not only was the steeple framing rotted, but the leak had structurally compromised a substantial section of main roof. Repairs were estimated to run somewhere around $100,000 to $125,000, plus structural engineering fees and permit costs. Immediate costs to shore-up the roof beams and stabilize the steeple were estimated at about $25,000. The money had to come out of the Special Projects fund. In the meantime, because of safety concerns, all services would have to be moved to the Fellowship Hall. Saving the beautiful old church building from further deterioration had to take priority. Plans for the Honduras mission were put on hold "indefinitely."

An Effective Planning Tool               
One of the most effective tools available for financial planning for the protection of buildings and grounds assets is a Replacement Reserve Study. This well-established practice, borrowed from the community association management industry, is ideally suited to religious and educational institutions. A Reserve Study assists us in knowing how much to regularly budget for the long-term "replacement reserve" expenditures.

In this way, we know that the money will be readily available for the replacement of larger-cost items, like the roof or parking lot. It also means that when the building committee informs us that the old heating or cooling system needs to be replaced and upgraded, we don't have to worry about where we will come up with the necessary funds. It also helps us to understand the stewardship concept that "everyone who worships under this roof helps to pay for the replacement of this roof."

For those who are new to the role of church finances, it is sometimes easier to separate the normal annual "building and grounds" budgets into identifiable categories. (This does not include the special budgets for mission projects, internal programs, or other charitable programs.) Typical "building & grounds" annual budgets include the Operating Budget that pays for salaries, insurance, and utilities; the Maintenance Budget that covers the costs of maintaining of the various building and grounds for as long as they can be maintained; and the Replacement Reserve Budget that sets aside funds for the eventual replacement of the many components and systems that make up the buildings and grounds. It is the last of these obligations—the large, long-term replacement costs—that too often go unaddressed until such time as the expenditures are upon us. And, it is exactly these replacement fund issues that the Reserve Study helps us identify.

Logical Process         
The method behind a Reserve Study is really pretty simple and logical. An experienced and accredited Reserve Specialist, usually a professional engineer or architect, measures and evaluates the condition of the individual building "replacement" components. These are typically the larger, longer-lasting items such as things with a cost of more than $1,000 and a normal life of longer than three years. This evaluation takes into consideration the age, quality, and condition of these components.

Based on this evaluation, a timeline projection is made as to when each component will likely require replacement. An estimate is also made of the cost of each replacement. This data is then financially "modeled" over a period of 20 to 30 years. The resulting financial recommendation tells us how much money we should be setting aside each year in the Replacement Reserve Fund.

The mathematical model that is used is also pretty straightforward and logical. A "cash flow" model looks at how much funding is projected to be needed in each of the next 20 to 30 years. The model then simply considers, based on a starting balance of "X," how much money we need to contribute to this fund annually on a consistent basis so that the Reserve Fund never drops below a certain dollar value. This dollar value is whatever we determine to be a comfortable or logical "threshold" margin.

Reaping the Benefits
There are many benefits to this type of budgeting. On a financial management basis, it allows us to predict how much funding we are going to need for major repairs and replacement and when we are going to need it. It also lets us know, based on this cash flow analysis, how much of this money we can invest and for how long we can invest it before it is needed for its intended purpose.

But the more important benefit to proper financial planning may be that it frees us up to focus our fundraising efforts for more important goals. As one of our clients said, "If we're going to approach one of our benefactors for a major donation, that person is going to know what that gift is being used for. And, more often than not, our major donors are successful businesspeople who, whether they state it or not, do look at how we budget and spend. If we are managing our internal finances correctly, we shouldn't have to ask them to help with something as mundane as paving our parking lot. Not that they wouldn't gladly help out, but it makes it a little harder to go back to that well again later. Besides, we want them to feel good about helping out financially with a truly important goal or cause."

Good stewardship dictates that to make progress toward our goals, it is wise to protect and enhance what has already been accomplished. The Roman Poet Ovid, who lived in the last century BC, put it this way: "It is no less a feat to keep what you have than to increase it. In one there is chance, the other will be a work of art." Ecclesiastes 3, verses 1-8, tells us that "there is a time to reap, and there is a time to sow." By using sound financial planning tools, like Reserve Studies, we can protect and enhance what we and others before us have gained and free our efforts toward pursuing our true goals as a church community.

Peter B. Miller, Architect, RS, is a principal with Miller - Dodson Associates, Inc., a nationally recognized consulting firm specializing in Capital Reserve Study consulting for religious and educational institutions, community associations, country clubs, and resorts throughout the U.S., Mexico, and the Caribbean, www.mdareserves.com.