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Churches struggle with debt load


1:30 P.M. EST June 7, 2010

New report recommends careful debt analysis for church building projects. A UMNS file photo by Mike DuBose.
New report recommends careful debt analysis for church building projects. A UMNS file photo by Mike DuBose. View in Photo Gallery

The U.S. housing crisis has filtered down to United Methodist congregations.

A new report shows that the congregational debt load of local churches rose from approximately $260 to $420 per member between 2000 and 2007, growing about 6 percent faster than the annual inflation rate.

“The United Methodist Church tracks the major demographics of the nation,” explained the Rev Stan Sutton, treasurer of the denomination’s West Ohio Annual (regional) Conference. “The country took on a whole lot of debt in housing; the church took on a whole lot of debt, too.”

Since then, Sutton said, the level of debt has started to drop. But indebtedness has affected the ability of some congregations to pay their apportionments for the denomination’s mission work.

Sutton is a member of the Sustainability Advisory Group, a group of volunteers from 15 of the denomination’s annual (regional) conferences and staff at General Council on Finance and Administration and Board of Pension and Health Benefits. Their report examining the church’s short- and long-term financial challenges was released in May.

Overall, the report suggests some tough solutions may be necessary to help the denomination remain financially viable as membership continues to decline. Such solutions range from eliminating clergy job guarantees to closing and selling “unsustainable” churches to revamping clergy and lay pension plans.

Sutton used statistics on local church indebtedness from his own conference to extrapolate a trend for the U.S. church. “I found in West Ohio that we had, over the last decade or more, growth in debt – aggregate debt—more than health care,” he said. “Health care costs grew 8.1 percent; debt grew at 8.6 percent.”

The Rev. Stan Sutton.
The Rev. Stan Sutton.

From 2000 to 2007, the report said, the amount churches paid in principal and interest on debts rose from $400 million to more than $600 million, representing almost 12 percent of total local church expenditures.

A little or a lot

The situation isn’t quite as bad as it seems.

“When you look across the statistics, you see that it’s not that 35,000 churches have taken on a little debt; it’s that a few churches have taken on a lot of debt,” Sutton said.

Churches sometimes overreach on their debt accumulation, which can lead to a loss of flexibility, said Lonnie Chafin, treasurer of the Northern Illinois Annual Conference and a member of the advisory group.

“A third of our churches (in the Northern Illinois Conference) have debt,” he added. “Of that third, every church has a financial crisis in the first seven years of having a mortgage.”

During that first seven years, a church may underpay its apportionments to the mission and ministry of the general church, Chafin said.

The Sustainability Advisory Group report found that debt levels “appear to be inversely related” to a local church’s financial support of the denomination’s connectional ministries.

In 2007, the more than 20,000 churches that paid 95 percent to 100 percent of their apportionments to the general church had an average debt of $476 per congregant.

For the more than 8,000 churches paying less than 95 percent, the debt figure was more than 50 percent higher -- $721 per church member.

Bad decisions

Bad real estate choices can lead to financial pitfalls, Chafin pointed out.

“Because we had folks making real estate decisions who were sometimes doing this for the first time, deciding the where, how big, how to pull it off – we’ve made some very big, expensive, bad decisions,” he said.

One solution may lie in the approval process for such deals. The advisory group is recommending that the Book of Discipline, the denomination’s law book, be amended to require approval of local church loans by the annual conference itself, rather than just a district of the conference.

The group also suggests the denomination establish a debt analysis training initiative for churches and district boards of church location and building and distribute a debt analysis process across the connection.

“Because we had folks making real estate decisions who were sometimes doing this for the first time, deciding the where, how big, how to pull it off – we’ve made some very big, expensive, bad decisions.” --Lonnie Chafin.

The Texas Methodist Foundation has created a model for the analysis process. “It’s the sort of thing that a shrewd banker would use – do the financial analysis and ask the question, “What is a reasonable amount of debt for the church to take on?” Sutton explained.

Such tools are needed to sustain a church’s financial future. “Right now, the process is the church thinks it’s a great idea to go into debt,” Sutton said. “The district superintendent approves because the church wants to grow. The district committee approves it because they want the church to grow.

“So there’s a payoff for the pastor, there’s a payoff for the D.S., and there’s a payoff for the committee. The problem comes when the church has so much debt it can’t do anything else.”

*Alsgaard is a freelance writer and clergy member of the Detroit Annual Conference. Bloom is a United Methodist News Service news writer based in New York.

News media contact: Linda Bloom, New York, (646) 369-3759 or newsdesk@umcom.org.

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