Report of the Treasurer

Ladies and gentlemen of Annual Council, good morning, still. I’m Michael Kerr. As I said I’m a member of St. Mary’s, Goochland, and the treasurer of your diocese.

It has been a remarkable year for the Diocese, including my relatively new need for reading glasses. So if you’ll excuse me. There is a full agenda and I sadly have the usual boring stuff to plow through. But as confirmation of my ability to speak to you, I present my tax forms. I’m all about full disclosure. But to continue, I offer you six letters. CPA RFP.

Too bad this part of my report could not be blacked out by SOPA and PIPA. Those deal with intellectual property, so I am thankfully excluded.

Last year, I let you know that the Diocese and its related organizations were in the end stage of a request for proposal process for audit work. This year-long process ended in March 2011 with the selection of Cherry, Bekaert & Holland as our new audit team. They are the auditors for the Diocese proper, the Church Schools Corporation, the Diocesan Missionary Society, Roslyn, Shrine Mont, the Trustees of the Funds and Virginia Diocesan Homes. The selection process was initiated as a means of best business practices and something I do every five to seven years. I last did it in 2004 and I expect that I will do it again in 2017 or 2018—nothing like planning. We sought a best-fit solution and in doing so, we achieved as well a sizable cost savings. The Church Schools have already been through one audit cycle and the reports in from the six schools, six foundations and the central office are that it went very well—and that’s great news. The 12/31 audits for the diocese, the DMS and Trustees of the Funds will begin shortly. The auditors arrive—we’ve had two planning meetings already and staff will be at Mayo House on February 27.

A few comments on two of the organizations that my office serves: 

As treasurer of Shrine Mont, I can share the good news of a new capital project about to begin it will accommodate new Department of Environmental Quality standards. You know what DEQ oversees; I will not elaborate. If you were at Annual Council 2009, you heard me allude to the need to address “facilities” and with the great assistance of the Diocesan Missionary Society, Shrine Mont and the residents of Orkney Springs will be well-served, or not well-served to be correct, for years to come.

My friend and director of Shrine Mont, Kevin Moomaw, gave me a copy of the final bids that came in for the work to be done. It includes 5,800 linear feet of four-inch forced main pipe, so we will be able to move products.

The Trustees of the Funds, also shown on screen, manages investment funds for approximately 120 of our diocesan institutions, churches, and so on. It was a good year in 2011 for this in that we maintained balance in the portfolio, we adopted several measures that address volatility, asset correlation, and in spite of the roller coaster economy that was 2011, the portfolio is up fractionally for 2011 and that includes also issuing over two million dollars of payouts. We ended 2011 with assets of just under $91 million and with some slight changes, including a new manager for merging markets, we have added just under two million dollars of assets in January alone. That’s an annualized return of just over twelve percent. It would be nice to think that we could continue January’s return through the course of the year, but I remind you that it is an election year, and as you consider your choices I do ask that you “Vote Episcopal.”

I am canonically required to report to Annual Council on the Church Pension Group, and the financial condition of the fund remains strong.

The assets of the fund have recovered well, as has the Trustees of the Funds, over 2010 and 2011, and it continues to be one of the best run pension plans in the country. Assets are currently about $9.1 billion and to that end, the fund approved a +3.6 percent increase in benefits for beneficiaries of the fund for 2012.

In 2011, the Fund paid out just over a quarter-billion dollars in benefits, and of that, beneficiaries resident in the Diocese of Virginia received $7.4 million.  

In June of 2011 the Diocese hosted another Planning for Tomorrow conference for clergy and spouses, active clergy and retired. The Pension Fund let me know that this was the largest Planning for Tomorrow conference that they have ever held and they had to bring in additional staff in order to function for the conference. The Fund is also very interested, and careful, and conscientious of taking care of the lay people of our church; we have a Lay Planning for Tomorrow conference scheduled September 14, 2012. I expect to announce the site in a few weeks. I ask that you please make continuing education time available for your staff to attend this important one-day event.

While 2012 will be a year of transition for the diocese (“Full marks, Dave”), 2011 was a year of transition for the Church Pension Group: the announcement of Mary Kate Wold to succeed Dennis Sullivan as both CEO and president of the Church Pension Fund. I spent some time at some board meetings in New York this past fall. I had a chance to spend some time with Ms. Wold and she is absolutely fully capable of taking the Pension Fund, not only in the present but into the future and continuing to sustain the Pension Fund’s work of “Serving the Episcopal Church and its People,” as begun in 1917.

The last three years, I have been advising Annual Council of some developments rooted in General Convention 2009. The two key elements central to my office and human resources have been the requirement of lay pensions and participation in the Denominational Health Plan. Each of these is to be effective January 1, 2013.

While most dioceses across the country required provision of lay pensions many years ago after General Convention 1988, implementation has been increasing in this diocese and I expect will continue in 2012. All churches, and those employers subject to the authority of the Church, have been contacted at least twice in 2011 to confirm staffing. The process will continue to make sure that any employee working 1,000 hours or more is provided a pension benefit as they are entitled. The base employer requirement is fairly modest and with respect to the work expectations of the lay professionals of this diocese, I do encourage vestries to be very sure of what is expected of them January 2013.

The transition to the DHP, the health plan, went well. We had our first renewal in 2011 for the 2012 year. Our nine plans had a blended increase of 5.3 percent which was below the pre-negotiated cap of 7 percent, so that is good news. For the over 1,000 people, bodies that are covered by the plans, operated through the Diocese of Virginia, there were only about a dozen or so folks who needed some assistance from my assistant, Laura Cramer, to help make their choices electronically for 2012. A reminder to everyone in the room: that is a process that will continue. So in the fall, when you get a package of materials with a log-in ID, you must do this each year. That’s simply a matter of how they’re functioning with the Denominational Health Plan.

That being said, if you have it handy, I ask that you turn to the packet of finance materials that was posted to web this past Monday. Key to the DHP provisions of General Convention was that each diocese establish a standard for “parity.” And that relates to the health insurance.

The Budget Committee of the Executive Board spent much of 2011 working to establish a “parity” standard. The proposed Model for Parity that is in that supplemental packet as adopted at the Executive Board’s December 2011 meeting is in the first few pages of that packet of materials. So as you are finding that, and as you are considering this, I’m going to invoke the Collect for Parity:

Almighty God, to You all ears are open, all canonical requirements known, and from You no benefits are hid: Cleanse the budgets of our heads by the inspiration of Your Holy Spirit in our hearts, that we may treat our employees properly, perfectly love You, and worthily magnify Your holy Name; through Christ our Lord. Amen.

So the Model for Parity is not a simple explanation of a minute or two and I ask that you give this serious time and attention as it was created over the course of a year with serious time and attention.

There is background material providing what has happened since General Convention 2006, when the Pension Fund was authorized to begin this process. There is an outline of the requirements of General Convention 2009; there is the effective date of January 1, 2013; and then there is an explanation for the work that has been done since 2009 by this diocese in order to accomplish this. Information gathering involved multiple sources – national to local, cCurch to non-church– and relied heavily on information-gathering through an electronic survey in September. Key learning’s from that survey are included and outlined on page two of that report.

The model that evolved was predicated on a base diocesan standard of regressive minimum percentages – so, really what that means in short-hand is a sliding scale on those percentages.   The standard was developed with great care so that the diocesan “floor” provided enough upside so that local church employers could be as generous as they so chose. At the local level, the church employer would select a base plan from which they would budget. So once they select that plan, that establishes the most that they would pay for any one person. So this would be the local standard provided to all employees, from rector to sexton, clergy or lay. Parity. Everyone is treated the same. It’s pretty simple. The individual then has the option to select a higher cost plan for which they would pay the additional cost, or they would select a lower-cost plan and perhaps have less money out of pocket for the supplying of their health insurance.

While this model would take a short time to understand, it is suggested that the employer, as you see, will pay at least 90 percent of single coverage, 80 percent of couple or parent coverage and at least 60 percent of family coverage. Again, it gives you a lot of room the upside as to what you may select at the local level. The example that is provided is simply an example to show you how the employer would pick a base plan, in this case the CIGNA plan, and then there are two other plans: a higher and a lower cost plan, and you can see sort of the static level of the employer contribution, and then the dynamic element of what the employee would be paying. I expect the Executive Board will be asking for input in 2012 so that a definitive standard can be put in place for the Diocese sometime next year.
Turning to parish audits, we have received 115 audits for the 2010 audit year. I will be posting the audit forms for 2011 in February, so I encourage you, from a fiduciary standpoint, to complete and send in a copy of your completed, and canonically required, 2010 and then 2011 audits.

Since placing this report on the Web, I have also received the 2010 audits for Aquia Church, Stafford; Christ Church, Luray; Grace Church, Miller’s Tavern; and the 2006 audit for St. Andrew’s, Richmond. Thank you for going back and trying to fill in those gaps to show to the folks in your congregations that you are minding accounting standards.

Turning to the income statement, this is dated January 23, which was our cut-off for the report. This is the unaudited income statement for the Diocese. It’s essentially a summary of our income and expenses for the year. The first six pages reflect, by regional order, the pledges made and then paid in 2011, as well as showing prior year information on the far right-hand side. On page six of that income section, you will see that while pledges were budgeted at $4,356,984, as of January 23 they had been received at $4,268,798, which is a difference of about $88,000. So that deficit from pledge versus paid of $88,000 impacts our bottom line for the year. Adding in the “other income” from the restricted funds – Virginia Episcopalian subscriptions and so on, that brings the total unaudited revenues for 2011 to approximately $4.8 million.

Expenses follow and the layout mirrors the budget format. Most lines items and overall budget categories are tightly on target. I trust you can review the items carefully. There are a few that I will point out to you.  Page eight of the income statement, under Missions and Revitalization: the line item itself is real estate tax for undeveloped property. You will note that this was over in by about $24,000. With the expected and concluded sale of property in Loudoun County in 2011, we were able to drop this category. If you look at the 2010 line, we had an actual of about $177,000. You can remember, back in ’09 to ’10, jurisdictions, localities were trying to find as much tax revenue as they could, and they were pretty brutal for some of the properties that we held for church planting.  So in 2012, with the expectations that we will have another parcel sold, this somewhat and oftentimes volatile category should continue to come closer to our expectations.

Under Bishops, Staff and Support, there was some cost savings to be had. There were some insurance lines which came in under budget. We had some delays – self-imposed delays, in filling positions. We also reworked some contracts, particularly with communications, that achieved some cost savings. We also achieved some savings on a reduction in the use of the line of credit that’s been explained in the last few years.
 
However, under Professional Fees, there at the bottom of page 10, you will see an overage of $2,383,000. We missed it by “this much.” While I expect that Henry Burt will say more about this a little later on, and the reasons for this. Remember that line includes audit costs and our usual and customary legal expenses. The true impact, however, is the expense of the litigation. Remember, please, that the litigation is funded off-budget by that a line of credit, but I do feel full disclosure for the leadership of the Diocese gathered here, you should know that.

So to that end, I direct your attention to the Transfers line, right there at the bottom of page 10. You will see a credit of just over $2.7 million. Again, I expect Henry may mention some of this to you, the reasons for this credit, but the amount is essentially the proceeds from the settlement with the congregation known as Church of the Word in Gainesville as well as the sale of the Loudoun property. A good portion of this was used to pay down the balance in the line of credit, but it does mean, as you can see, that we ended with a paper surplus of $386,000.

That is good news. However, please remember that pledges for 2011 were in deficit by about $88,000, and expenses, less the extraordinary legal overage, were held under budget. I could very easily have used additional portions of that proceed money from the property and the settlement to pay down the line of credit, but I wanted to retain cash and some liquidity in the line of credit for 2012. Now, this is pending court expectations and what steps we might need to take. The picture has changed somewhat, and again, you will hear more on litigation. But as a diocese, it’s clear that we have spent a great deal of time and money since 2006 to protect Episcopal property and to restore Episcopalians to those properties. I intend to honor both Bishop Lee’s pledge, Bishop Johnston’s pledge and my pledge to the Diocese to manage the cost of litigation external to the operating budget, so that the budget of the Diocese goes for the mission and ministry outlined in the bishop’s pastoral address .It will take some additional time, it will take some patience.

With what should be a very positive result for the Episcopal Church and the Diocese of Virginia with the litigation, as the bishop outlined we will have many more positive moments in 2012. And rather than rely on a property management strategy of PUSH – Pray Until Something Happens – as the bishop noted, we have increased our timetable with Dayspring in order to address those issues properly.

Turning to the pledge report, at the time we went to press on January 23, we had received 147 pledges with 36 outstanding. At that point, pledges were up +1.73 percent. To update this report further, I will run a short roster of changes or new pledges I have received, and which the Budget Committee will address later today:

•    Trinity, Lancaster, a pledge of $6,450
•    St. Mary’s Whitechapel, Lively, a pledge of $13,500
•    Kingston Parish, Mathews, a pledge of $20,880
•    St. Peter’s, Arlington, has increased their pledge from $57,000 to $58,000
•    St. Clement’s, Alexandria, a pledge of $16,401
•    Region 11, St. Paul’s, Hanover, a pledge of $17,500
•    St. Peter’s, Purcellville, a pledge of $9,000
•    Grace Church, Casanova, a pledge of $2,160
•    Our Redeemer, Aldie, a pledge of $2,500
•    Christ Church, Winchester, a pledge of $40,000
•    St. Stephen’s & the Good Shepherd, Rocky Bar, a pledge of $2,000
•    Our Saviour, Charlottesville, a pledge of $53,091

That leaves us with about two dozen churches still outstanding. If you do not have your church reflected either in that report or in the names that I just read, and you do know of a pledge, the Budget Committee would welcome that information.

The Budget Committee of the Executive Board was charged to prepare the initial budget for 2012. It was chaired, as the bishop mentioned earlier, by Ms. Helen Spence of St. Christopher’s, Springfield. Tomorrow, you will receive a report from Ms. Spence, as the chair of the Budget Committee of Annual Council.  

This budget was adopted December 8 by the Executive Board with about 30 percent of pledges in and was balanced at the time at $4,849,397, or roughly $36,000 less from 2010. With pledges known as of this point, including the ones that I just read, and using a formula for estimating the remaining pledges, the budget committee has decisions to make on closing a gap to the good of about $9,000. I hope you have familiarized yourself with the line item budget that was posted in December, as well as the narrative budget which was posted to the Web about a week and a half ago.

The bishop outlined the Rules of Order. Those were included in the initial “click to print” materials that were on the Web. You should be familiar with this process. The Budget Committee must bring you a balanced budget tomorrow, and in order for a budget item to be spoken to, it must be spoken to at one of the open hearings, either in Richmond, or the one this afternoon at 3:30.

When Ms. Spence presents the budget, you will have at your tables a one-page document with proposed changes in income and expenses. There will also be a list of the budget categories eligible to be spoken to on the floor. Each listing will be presented in their order of where they fall in the budget, either income or expense. If you wish to speak to one of the eligible line items with a stated amendment in funding, the Rules of Order require that you also make a recommendation to offset that proposed change, thereby keeping the budget balanced.
    
As I said at the outset, it has been a remarkable year for the Diocese and the Episcopal Church. As a diocese and as a Church, in our ministries domestic and abroad, the Episcopal Church, I am glad to say, is still serving millions. The recent opinion from Fairfax Circuit Court brings to the surface deep emotions, some held in check for many years, as to how we make our way forward to restore our brothers and sisters in Christ to their churches.

In closing, a Buddhist story says that two monks on their way to a monastery came to a river they had to ford. A beautiful woman stood by the river. She also wanted to cross the river, but the water was too high. One of the monks lifted her onto his back and carried her across. The other monk was scandalized. As they continued their journey, he berated his brother monk on his negligence of his vows. Had he forgotten that he was a monk? How dare he even touch a woman, let alone carry her across the river? What would people say? Had he not brought their religion into disrepute? The offending monk listened patiently for two hours. Finally, he said, “Brother, I left the woman at the river. Why are you still carrying her?”

As individuals and as a diocese and as a church, we must take those steps that allow us to heal and to therefore grow. Let’s show the world that we have spoken truthfully in all that has transpired since December 2006. Let’s show the world that we continue to speak truth with love for Christ.

On behalf of your diocesan staff, thank you for allowing us to serve, and God bless you all.