Editor’s note: This article was written by Roger Simpson. Roger is a regular commenter at SBC Voices, a retired software engineer, and decades long Southern Baptist. His statistical analysis in this post is very much appreciated.
I. Introduction
The International Mission Board is again facing a shortfall in recurrent sources of funding. Recurrent revenue sources are received periodically such as a portion of Cooperative Program gifts from the churches forwarded to the IMB via the Executive Committee, Lottie Moon offering monies, and other gifts.
Many will remember the “hand raising opportunity” which was a program to induce personnel, both in the field and in Richmond, to leave the IMB. Now, in 2017, the IMB is implementing a second wave of staff reductions to reduce expenses. This time, the epicenter of the staff reductions is with the Information Technology group in Richmond.
In both cases, IMB management liquidated assets to be able to fund ongoing personnel expenses. But in both cases, the liquidation of assets, while giving temporarily relief, did not solve the underlying problem of inadequate revenues to meet salaries, pensions, benefits, and other personnel related expenses. As a result, Unrestricted Net Assets are significantly reduced without any permanent benefit to the stability of the organization.
II. First Use of Unrestricted Net Assets to meet Operating Expenses [2007 – 2011]
Unrestricted Net Assets were at an all time high at year end 2007. They stood at $256,036,000. By year end 2012 Unrestricted Net Assets were down to $91,078,000. At year end 2012, Unrestricted Net Assets were reduced to only 35% of the 2007 value. It became evident that the problem meeting the payroll, and associated personnel expenses, was going to have to be solved by increasing revenues or cutting manpower because raiding Unrestricted Net Assets, while possibly being a wise move during a temporary revenue dip, was no longer tenable. The decrease in revenues was not just a situation that was unique to 1 or 2 years; in fact it was recognized as longer term trend. As a result, management instituted the “hand waving opportunity”.
III. Second Use of Unrestricted Net Assets to meet Operating Expenses [2013 – 2015]
Unrestricted Net Assets recovered from a low point in 2011 to $118,987,000 at year-end 2013. Since 2013, Unrestricted Net Assets have been in decline. Liquidating assets is again being used by IMB management in an attempt to maintain staffing levels. As we now see for the second time, liquidating assets is not able to solve the revenue shortfall problem. So the IMB announced a “Phase II” headcount reduction in the first half of 2017. The cut back was centered on the Information Technology group in Richmond. From year end 2013 to year end 2015 Unrestricted Net Assets fell from $118,987,000 to $76,057,000.
IV. Unrestricted Net Assets, Temporarily Restricted Net Assets, and Permanently Restricted Net Assets
Total Net Assets are divided into several classes. These classes are (1) Unrestricted Net Assets, (2) Temporarily Restricted Net Assets, and (3) Permanently Restricted Net Assets. Temporarily Restricted Net Assets can be moved to the Unrestricted Net Asset account under a proviso specified in the notes to the Financial Statements for a given year. The most recent Financial Statements of the International Mission Board is for the year ending 2015. These Financial Statements appear starting on page 281 of the 2016 SBC Annual. Note 10, on page 291 of the 2016 SBC Annual, states “Net assets were released from donor restrictions by incurring expenses satisfying the restricted purposes . .” In Note 10 a total of $35,875,000 is declared as being moved from the category of Temporary Restricted Net Assets to Unrestricted Net Assets. This reassignment was broken down between years 2014 and 2015 as follows: Year 2014 = $18,552,000; year 2015 = $17,323,000. The net result of this transaction is that about $35.9 million of Temporarily Restricted Net Assets were released so they then became Unrestricted Net Assets.
V. Summary
IMB management should address its plans going forward on (a) The moving of Temporary Restricted Net Assets to Unrestricted Assets, and (b) Its plan to use Unrestricted Net Assets to cover annual operating expenses. Management should make the case that [1] continuing to “raid assets” provides more than just a temporary “band aid” solution to budget shortfalls, and [2] that any use of Unrestricted Net Assets does not draw down asset accounts to a level that is not consistent with prudent management of funds. Two real-world cases since 2007 demonstrate that asset draw downs — while delaying headcount reductions for a few years — have not fundamentally altered the trajectory of the financial stability of the organization.
VI. Questions relating to reducing personnel costs in the IMB
- Can the IMB reduce full time staffing proactively and move to a shared cost model where churches supply and finance personnel for selected projects?
- Can the IMB enlarge the scope of where it engages in work cooperatively, and more economically, in structures where it shares management of the given ministry in specified settings?
- Is it possible to navigate to a paradigm involving less labor cost without bringing about what Mark Terry has called “the ‘amateurization’ of missions”
