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Mission Funding Task Force makes recommendations

(Editor’s note: Material in the following article comes from Chapter 4 of the Mission Funding Task Force Report to the 2002 Diocesan Convention, excerpted and edited by Fred Ruppel, MFTF member. Due to space limitations, readers who wish to see the referenced tables are asked to request them from the Diocesan Office.)

At the 2001 Diocesan Convention, Bishop Sauls charged the Mission Funding Task Force (MFTF) to consider alternative funding mechanisms for how the Diocese of Lexington can best be funded through its parishes. The current canonical standard of giving in the diocese is a thirty-percent asking of all parishes out of their canonical income. The standard is an asking, not a requirement, and there is no penalty for noncompliance. Many parishioners in the diocese have felt for many years that the current formula has not been working. There have been at least three reviews of the standard, but the standard has remained unchanged.

Overriding Considerations

As the MFTF considered potential funding mechanisms, we found ourselves in hearty agreement on a number of overriding considerations, mostly items concerning fairness, equity and justice:

1. First, we agreed on the tithe as a parish minimum. Although needy parishes may occasionally need a subsidy from the Diocese after contributing a minimum of ten percent of their operating revenue, it was felt that the Biblical standard provided a good foundation for both personal and corporate giving.

2. Second, the Task Force agreed that no isolation of individual parishes — at either the top or the bottom — is acceptable. That is, as we considered various assessment rates and breakpoints we consistently required that the top and bottom operating revenue brackets always include at least two parishes, with three or more strongly preferred. Both of the alternative proposals we present below include four parishes at the top bracket and ten or more in the bottom bracket.

3. Third, we tried to maintain simplicity, consistency and order in assessment rates and breakpoints. All the rates are whole numbers (no decimals), with higher assessment rates increasing at equal increments. Likewise, all the bracket breakpoints are at $100,000 multiples.

4. Finally, we agreed on the need for transition mechanisms as parishes moved to higher brackets and assessment rates.

Tiered Assessment Structures

In a survey conducted by the MFTF, we observed that dioceses who have changed their funding structures in recent years have mostly moved to a “tiered” structure. The essence of a tiered structure is that larger, wealthier parishes within a diocese contribute a proportionately larger amount of their operating revenue than smaller, poorer parishes. Our current structure, by contrast, is a “flat” structure. All parishes are asked to contribute a flat thirty percent, regardless of their size or financial situation.

The MFTF evaluated two types of tiered structures — a “fixed tier” and a “rising tier.” Both the fixed tier and the rising tier structures are progressive assessment mechanisms. The fixed tier is a “one rate per parish” structure, in which parishes with greater operating revenues contribute a higher percentage of their operating revenue, but there is only one assessment rate per parish. In other words, a parish at one level of operating revenue will be assessed at one rate, while a parish with a higher operating revenue will be assessed at a higher rate. The rising tier is a “multiple rates per parish” structure: lower levels of operating revenue are assessed at one rate for all parishes, but higher levels of operating revenue are assessed at higher rates. However, only the revenue above the “breakpoint” is assessed at the higher rate.

Tiered Assessments Applied to Diocese of Lexington Parish Data

The MFTF applied the two tiered structures discussed above to Diocese of Lexington parish operating revenue data for 1998, 1999, and 2000 in order to see what level of parish assessment would have been required to generate various levels of diocesan funding. The two tables below present plausible assessment rates and break points (brackets) for the fixed and rising tiers that would have generated approximately $1 million in revenue for each of the tiered schemes. Although the tables report operating revenues in $50,000 increments, all brackets are at $100,000 multiples.

The “fixed tier” alternative presented in Table I would have generated just over $1 million in diocesan revenue if it had been applied to parish operating revenue in 2000. Breakpoint revenues are at $100,000 and $300,000. The assessment rates begin at ten percent and increase by four percentage points as new breakpoint revenues are obtained. The numbers in the revenue column indicate the amount of revenue generated for the diocese from all parishes whose operating revenue is at the level listed in the operating revenue column to the left. Although the fixed tier structure is attractive for its simplicity, it does have one major shortcoming — when parishes move to a higher breakpoint revenue. For example, when parish operating revenue rises from $300,000 to $301,000, the contribution assessment rises from $42,000 to $54,180 — a $12,180 assessment increase associated with a $1,000 operating revenue increase. We propose to alleviate this problem with a transition scheme that has four years of stepwise increments, one percentage point per year, until the parish has attained to the higher assessment rate.

The “rising tier” structure presented in Table 2 has assessment rates and breakpoints that also would have generated just over $1 million in diocesan revenue in 2000. The assessment rate on the lowest levels of operating revenue is 12 percent, somewhat higher than the fixed tier reported above. The reason for the higher assessment rate at the lower levels is that all parishes have their first $100,000 of operating revenue assessed at this lower rate, thereby reducing the amount of operating revenue subject to higher assessment rates at higher operating revenue brackets. Thus, higher rates are needed for the lower operating revenue brackets. To generate $1 million in diocesan revenue, increments of three percentage points are applied to operating revenue breakpoints of $100,000; $200,000; and $400,000. An example may help to clarify these numbers. Suppose a parish has operating revenues of $450,000. Using the rates and breakpoints in Table 2 this parish would be assessed at a 12 percent rate on its first $100,000 of operating revenue (equal to $12,000); at 15 percent on its second $100,000 (an additional $15,000); at 18 percent on its next $200,000 ($36,000); and at 21 percent on its last $50,000 ($10,500) of operating revenue, for a total contribution of $73,500. Although this calculation may seem overly complex, this parish’s assessment would be more simply stated as “For operating revenue in excess of $400,000, assessed contribution will be $63,000 plus 21 percent of the amount in excess of $400,000.”

Because the Task Force strongly supports a tiered assessment structure, we did not elaborate any further on the merits of a proportional (flat) assessment structure. We simply report that an assessment rate of 16 percent applied to parish operating revenue would have generated $982,265 in 1998; $1,023,557 in 1999; and $1,040,077 in 2000.

Impact on Individual Parishes

What would have been the impact on individual parishes had our proposed structure been in place the past two years? Those results are presented in Table 3. The first two columns contain data on Operating Revenue within the parishes of the Diocese for the years 1999 and 2000. These data were obtained electronically from the National Episcopal Center and in some cases may be at odds with parish or diocesan records if parish reports were filed late or were later amended. The second set of columns contains actual contributions from the parishes to the Diocese of Lexington. The third set of columns contains the assessments that would have been asked for each of the parishes for each of these years. The fourth set of columns is the difference between the assessment and the contribution in each of these years. A negative number (denoted by parentheses) indicates that the assessment is greater than the contribution. Individual parish impacts can be read horizontally across the rows of the table. Our focus will be mostly on the bottom line of the columns. The 1999 results indicate that the amount that would have been assessed on the parishes is greater than the sum of the actual contributions by $36,138, which is less than four percent of total contributions. The 2000 contributions, unfortunately, fall $163,614 short of the assessed level, an amount equal to almost twenty percent of total contributions. This result obtains from a combination of continued parish revenue growth combined with a shortfall of $100,000 in parish contributions to the diocese from the preceding year.

Task Force Recommendations

The Mission Funding Task Force unanimously recommends that the following proposals be passed by the delegates of the 2003 Diocesan Convention:

1. That a “fixed tier” assessment structure be implemented and that the assessment rates and breakpoints presented in Table I above be used. Although the $1 million diocesan revenue figure may seem somewhat arbitrary, it does reflect our perception of the level of parish contributions that would be needed to fund the current diocesan structure and programs at reasonable levels.

2. That parishes at a breakpoint (moving from one operating fund bracket to the next highest bracket) be granted a four-year transition period to move to the new assessment rate, increasing their assessment by one percentage point per year until they are at the new rate.

3. That parish revenues be determined from the “Total Operating Revenue” line of the Parochial Report form.

4. That the Executive Council institute a three-year transition period for implementation of the new funding plan following adoption by Convention.

5. That the Executive Council appoint a diocesan body (under the Executive Council’s authority) to oversee the transition period and make determinations as to exceptions and appeals.

6. That the Committee on Canons recommend and institute necessary changes to diocesan canons under the new funding plan.

7. That the new funding plan be reviewed after 3 years.

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