By Michael Walsh
[Dropping Mr Henslowe’s feet in hot coals.]
“Henslowe! Do you know what happens to a man who doesn’t pay his debts? His boots catch fire!” Shakespeare in Love (1998)
Its context is that the Uniting Church Vic/Tas has a similar financial structure (and circumstances) to other charitable and faith-based organisations, which also face the challenge of utilising their assets and resources to support their mission.
This asset structure is quite different to the corporate world.
Companies usually have underlying profitability so a mistake that represents, say 1 per cent of their asset base, is absorbed by current year profits. Life goes on.
How can Congregations help?
Open a Development Fund account. The fund’s current forecast distribution rate is 4.25 per cent per annum payable in July and 4.0 per cent per annum for the second half of 2013.
In addition, UCA Funds Management makes an annual grant to the fund of 0.5 per cent of the balance in the fund.
Why not let the profit on your investments support the Church rather than the banks?
The corporate world also sweats its hard assets. They often find they can get a better return for their shareholders by selling property and investing the proceeds into their business, which earns a greater return than using or renting the property.
And when there is a big disaster, companies can call on their shareholders, raise extra capital and replenish their coffers. Life still goes on.
In contrast, charities and faith-based organisations (non-profits) usually have a lot of their ‘wealth’ in property. While these properties appreciate in value, they can be expensive to maintain and they often produce a small financial return.
So, while the property houses missional activities it does not financially support other missional activities.
Non-profits also run tight budgets and, when mistakes happen, they have to dip into their other financial resources. However, when the income from their financial resources is also needed for their mission, there’s a problem.
Then, when you combine a heavy concentration of properties that serve mission (yet have a low or even negative financial return) with a big mistake on the other side of the ledger, that problem becomes even greater.
How to address this?
Accumulating debt to pay for mistakes is only a temporary solution and so non-profits must resort to their ‘capital’ in order to address this financing imbalance – their property.
Some non-profits are coming to the view that it would be better for their mission to have less property and invest in other resources. Then they are better able to deal with the risks and financial stress that their mission demands.
No doubt the Acacia College project was a risky venture.
The Church found itself underwriting a major property development with a financially vulnerable developer.
Then along came the credit crunch associated with the Global Financial Crisis and it all went pear-shaped. In hindsight, poor decisions were made and lessons have been learned.
Governance is being re-examined and better financial analysis is now being deployed.
But it is worth remembering that a number of major property developers went through the same process – Multiplex to name just one – and their mistakes were far more than 1 per cent of their assets.
The one pleasing aspect of the financial sustainability resolution is that it will ultimately place the Synod’s finances onto a ‘renewal’ footing. To explain: debts will be repaid; depleted reserves will be restored; a new reserve will be created that will enable missional work – and the ongoing risks that this involves – to continue anew. The Synod should be stronger, wiser and cautiously willing to support new projects.
It’s a case of reculer pour mieux sauter – to take a step backward in order to leap farther forward.
Michael Walsh is the chief executive officer of Funds Management for the Vic/Tas Synod.
Please visit our website at
www.ucafunds.com.au for more information or call us on 1800 996 888.