Do you know of any established Reserve Fund Guidelines?

The same question came up at our Admin Council meeting last night, so I'm hoping for an answer as well. Anyone?

The key issue is what do we call reserves and what are surplus funds. Much of this depends on the overall budget size of the congregation and the seasonality if any of the weekly offerings. 

I would suggest that a reserve should be maintained that enables the church to meet its key obligations for at least one month if not two. The key obligations would include the staff compensation as well as items such as utility bills and any contractual obligations such as a mortgage payment.  These reserves should be used to handle costs during times of variations in weekly giving.

Surplus funds would generally be related to a special gift such as a bequest, a one time large contribution, or simply greater than anticipated receipts during a year.  The use of these funds should be one time in nature since it can not be assumed that the church will receive such extra income on a regular basis in the future.

The council will need to determine if the inflow of extra funds is becoming a regular occurance.  If it is, then they should consider ways to expand their ministry.

I believe it is important for the council to be very conservative in its investment of reserve funds or surplus funds.  The church's contacts at their local bank should be able to assist in this if needed.

Lost a letter in my name, this is Dale Poel, All Nations Halifax:

I am interested in a different version of "reserve fund."  After being introduced to the legally required Reserve Fund for my condominium, it FINALLY dawned on me that our church has never had or even thought of that kind of reserve fund.  The result is that we have always been caught off guard when our bulding needed some major attention. The comments above are talking about a month or two of "reserve" available to handle monthly cash flow, if necessary.

I am thinking of a Reserve Fund that is found as a line item in the annual budget and is a reserve against identifiable, future building/infrastructure expenditures.  We bought a 100 year old inner city church from the UCC in 1995 and, with the sale of existing property and a small loan from church help fund did a reasonable amount of renovations (new electrical, kitchen, bathrooms, roofing).  Then, we stopped thinking about the building (sort of), but the building didn't stop normal wear and tear.  In a condominium context, your Reserve Fund study anicipates the life span of key features of your building and establishes a recommended yearly set aside to anticipate these future needs.

Without that knowledge from a reserve fund study, a congregation will always be SURPRISED when they are confronted with the need for a new furnace, shngles on the roof, exterior painting or repointing of 100 year old masonry.  We are currently SURPRISED to need a $250,000 to $300,000 renovation/restoration to our foundation and brick work, plus some work on the stain glass windows.  Our Council has had a heart attack and, in the best of traditions, has deferred the work while we wonder whether or not we can raise that amount of money from within or without of the congregation.

Some of this surprise may come from the mistaken separation of building from mission.  In our case, the bulding -- its capacity, multi-function community and program use), its prime location within the city -- is intimately related to our church's mission.  We are in the process of developing a Mortar to Mission statement that clarifies that relationship and justifies the expenditures necessary to keep the building/mission in place. 

This issue may be exacerbated by the age of our building, but even a new church has to anticipate replacing an asphalt shingled roof within a 20 to 30 year period.  Twenty years from now when we may have to do that, it will be a $100,000 project.  If you have strong themes in your church culture against borrowing and paying interest, you have to anticipate these expenditures on in the annual budget and have that reserve set aside on an annual budget in some (conservative) investment fund.  eh?

The cash reserve we previously mentioned deals with the day to day expenses of a church and having enough cash on hand to manage through variances in the weekly offering cash flow.

What you are looking for is a "savings" type fund where certain amounts are set aside now for potential future expenditures.  My home church maintains a Building and Grounds fund for just such expenses.  A set percentage of the general fund offering (one or two percent) is allocated to this fund each month to help accumulate the needed capital to be able to address the major expenditures when they come. 

At the same time, these major expenditures can be minimized by keeping up with regular preventative maintenance.  Too often in an effort to balance a budget, simple, minor repair items are postponed to help save a few dollars.  The result can all too often be a major expenditure far sooner than was necessary.

So while developing a "savings" fund for those big items when they do come, don't forget to include enough in your annual budget for proper preventative upkeep.

Hello again,

I am familiar enough with both types of reserve funds and am interested in other church's experience with the second.  Your church's experience with approximately 2% of monthly collections in our context would not begin to meet our long term renovation/restoration needs.  In fact, 2% is just about what our annual budget includes for general maintenace (which we also find a challenge)  -- keep the building functioning, but not in a state of maintenance that in an ideal world would be desirable. We would probably need a minimum of 6-10% of general fund offerings (annual total between $160,000 to $180,00)  to anticipate the larger, capital projects without borrowing funds with interest payments.

Smaller worshipping community + large, older but very useful buidling + aversion to borrowing = temporary "immobiisme"

Cheers,  Dale

We just talked about this question of reserves last night at our deacon's meeting. Our church has had some years where it has been tough to meet expenses, the budget was trimmed and trimmed, with the result that we now have no reserve for big expenses. Within the last year we had to complete a large air conditioning repair at a cost greater than our annual building budget. I feel grateful that our "surprise" was a "mere" $10,000 compared to some of the numbers others have mentioned, although our building is still relatively new.

We are grateful that for now we are on target with the current budget, but aware that our lack of reserve could result in a collective heart attack, not just with a major building issue, but  with anything that needs replacing over time. Other things we may consider building a reserve for include office equipment (computers, copiers) and our technology for worship (more computers, microphones, sound board.)

So, here we go into budget season again (fiscal June-May) and we'll be asking our budget committee to consider this as they wrestle with next year's numbers.