The USA National Caucus met in 2005 during the General Assembly in Indianapolis. It approved Resolution USA-906 authorizing the Board of General Superintendents to create the Budget Allocation Committee (BAC).

RESOLVED that the Board of General Superintendents shall appoint a commission that shall create a proposed apportionment system based on the biblical principle of tithe and offerings, as we affirm for our local church (Manual paragraphs 38.1-2). . . .

By amendment, the results of this study were to be made public, and were to be presented at the 2007 meeting of the General Board.

The BAC was formed in 2006, but the scope of the changes required a postponement of the original due date, approved by both the Board of General Superintendents (BGS) and the General Board. In trying to meet the original deadline, the committee did draft a recommendation for 2007. However, this recommendation involved differing fund percentages for each district and would have raised essentially the same amount of money as under the current system. Neither the BAC nor the BGS was satisfied with this solution, so the committee continued its work for a longer period.

The committee’s final work was presented to the USA Finance Committee at the time of the 2008 General Board, but further study was still deemed appropriate. The BGS, in consultation with the BAC and its chairman, Dr. Bob Brower, incorporated all the principles of the BAC recommendations in its 2009 presentation to the USA National Board and the General Board. The proposal by the BGS did modify the methodology of the committee recommendation, but none of those changes was outside the dialogs of the committee in its meetings.

Unchanged Principles

There were several principles that the BAC adhered to throughout its discussions. They revolved around the concepts of fairness, simplicity, and current financial realities.

Lower allocations: The committee soon realized that any change to the allocation system had to involve a reduction in total amounts requested from local church. Simply shifting the current requests from one group of churches to another was regarded as futile. The BGS agreed that reductions could be considered.

The committee, in considering the original request, suggested that raising an amount equal to ten percent plus offerings would fulfill the resolution’s mandate.

Current year financial base: The committee recognized that one of the most common adaptations to the current formula was an adjustment for changing financial conditions. Some districts averaged the previous several years’ financial reports before calculating allocations. The Global Treasury Services office reported that requests were received throughout the year to adjust WEF and Pensions allocations for individual churches (and therefore district totals), and these changes were almost always based on drastically changed financial realities in the local church. Finally, an increasing number of districts were going to a current-income base for non-WEF allocations.

The committee strongly recommended that any new system be based on current year finances, not previous finances.

Income based: The committee recommended that any new formula be based on income, not expenditures. This was in keeping with the language in the original resolution. Tithe is based on income, not expenditures.

Simple calculations: The committee wanted as simple a formula as possible. A straight percentage of total raised was considered, but the committee was open to the pragmatic reality that some exemptions might be necessary. In that case, the exemptions would have to be clear-cut. They would be based on income, not expenditures. And, if exemptions were given, then the percentages would have to be adjusted upward to adequately fund the denominational ministries.

The committee strongly recommended that a new formula involve easy-to-compute percentages on an easily recognized base. (The explanation of the committee’s proposed methodology is in the next section.)

District autonomy: The committee discussed several options for including district obligations within the 10% tithe concept. One early proposal would have asked each district to raise a total of 10% for its own purposes, for the educational institutions, and for Pensions. WEF would have been considered “offerings” above that tithe level.

However, this would have meant that some districts would have raised up to 9% of the 10% for their own needs, apportioning the remainder between pensions and the university. Other districts, needing less than 3% for their own needs, would be paying much larger proportions for pensions and education, essentially subsidizing districts with higher relative expenses.

Since there is no mechanism in place to oversee district expenses, the possibility would exist that changing financial conditions for districts might continue to reduce the funding for pensions and education with no recourse but to use WEF dollars to make up any deficits.

The committee suggested that the Manual autonomy given to the districts mandated that their funding not be considered part of the 10% equivalent.

These concepts were all adopted by the BGS in their proposal to the 2009 USA National Board and the General Board.

Adaptable Methodology

In order to implement a formula, the committee had to make some recommendations about actual methodology. The committee understood that the BGS and the General Board would have additional insights into which methods would work best. But the committee did not believe its mandate was to provide only a conceptual framework, so specific recommendations were made. These were not always as universally accepted by committee members, and the report by the chairman included the alternatives the committee considered.

Deductions: The committee agreed that few, if any, exemptions should be given when computing allocation percentages. The argument against exemptions stressed that the “biblical principle of tithes” did not include exemptions. However, the committee recognized that many churches have built their current financial structure on the assumption that capital improvements require no allocation support.

Since the “equivalent of 10%” goal was set for non-district allocations, the committee recognized that exemptions would require increased percentages to raise the equivalent funds. Essentially, this means that churches without exemptions are asked to pay more to allow churches with exemptions to pay less. This constantly raised the issue of defining “fair,” one of the universal principles: Is it fair to churches to change the financial ground rules when they are committed to large building payments? Or is it fair to ask those without such commitments to pay more allocations so that others do not need to.

Knowing that there were good arguments on either side of the fairness issue, the committee recommended that money raised for capital improvements and paying off property indebtedness be excluded from allocation computations. Instead, the non-district allocations would be set at 13.5% to be equivalent to 10% of total raised.

The proposal by the BGS chose to limit all churches to 10% of total raised rather than ask those without building payments to allocate 13.5%. The Board is aware that some transitional assistance may be needed for churches that are already committed to large property payments.

Extended time frame: The BAC anticipated that a transition time would be needed before implementing any new system. Reporting systems, electronic funds transfers, annual awards, and local church financial structures are all built around the current system.

The committee recommended a two-year implementation period.

The BGS, recognizing the current financial crisis and the desire for a simpler, fairer, and less expensive allocation system, has asked that the change occur in the next (2010-2011) assembly year.

Universal percentages: The committee, as noted above, considered having each district set its own percentages for education and pensions. However, this was seen as counter to the spirit of the resolution, so that approach was abandoned. The committee’s assignment was for the United States only, so little effort was given to making the recommendation more widely usable.

The committee recommended specific percentages for each local church: 7.6% for WEF, 2.3% for pensions, and 3.6% for educational institutions. These percentages were based on exempting money raised in capital or debt-reduction campaigns. These applied only to Churches of the Nazarene in the United States. This would have raised essentially 10% of the total raised annually for these three funds.

The BGS, as noted above, chose to base the allocations on total raised annually. The percentages were changed to 5.5% for WEF, 2.0% for pensions, and 2.5% for education. (This is actually a different ratio than the committee recommended, based on additional concerns mentioned below.)

While the committee work applied only to the United States, the BGS recommended that 5.5% of total income be raised for WEF globally.

Some of the specific recommendations of the BAC were modified by the BGS, but only after further consultation with both the committee and its chairperson. None of the changes were in contradiction to the committee’s discussion and analysis.

Additional Concerns

The BAC recognized that its scope was limited to proposing a new funding formula. However, several related concerns were obvious to committee members, and those concerns were shared in its report.

Funding the US pension program: The committee was very aware that current trends have cut financial support for the US pensions program. The committee did not assume it had authority to increase the pension allocation, but urged the BGS to consider such a step.

The BGS proposal included an increase in the level of funding, both proportionately and in actual dollars, for the US pension fund. 

Links to the universities and colleges: One solution for reducing allocations was to reduce the amount given to the educational institutions. The committee discussions included recognizing the desirability of maintaining strong denominational connections with the schools. Cost savings are always to be urged, but cutting local church financial commitments might be counterproductive for the denomination.

The BGS proposal maintained the same level of proportional support for the US educational institutions. Rather than cut educational funding to increase pension funding, the BGS suggested that WEF funding be reduced somewhat. (By appealing to the rest of the world to increase its giving to the 5.5% level in Canada and the United States, the BGS hoped to offset some of that decrease.)

District costs: The committee appreciated the autonomy of the districts in our denominational polity. Still, some churches are asked to pay 9% of total income for district support, and this seemed problematic to committee members. The committee made no recommendations about district finances, but did raise the issue for consideration.

The BGS proposal recognized the autonomy of each district to set its own funding priorities with the approval of its constituent churches.

The BGS proposal, based upon the work of the BAC, was adopted by the USA National Board and by the General Board in their February 2009 sessions.

Budget Allocation Committee Members:
       

Bob Brower, chair
Steve Borger	Mark Patrick
Carlton Hansen	Mary Paul
Rick Harvey	John Seaman
Geoffrey Kunselman	Dan West
Ex officio: James Diehl, David Wilson, Marilyn McCool

For further information, you may contact Mark Lail, Budget Formula Implementation Team Chair, at the Global Ministry Center.