Official Notice
THE LUTHERAN CHURCH–MISSOURI SYNOD INC.
FINANCIAL POSITION OF THE SYNOD (FY 2012)
By Jerald C. Wulf
I frequently get asked, “How is The LCMS Inc. doing?” I frequently respond, “Our God has and continues to bless the LCMS, but He also continues to challenge us.” This is how God helps us to grow and mature as Christians. Together, these blessings and challenges help us to recognize that we are utterly dependent upon His good grace for all that we are and have and for all that He is able to accomplish through us, His body in this world.
Like many individual congregations, The LCMS Inc. experiences peaks and valleys in income and spending cycles throughout each year. Unfortunately, the two cycles do not match. At June 30 each year, we are into our “revenue summer slump,” which usually lags behind the slumps experienced by individual congregations by four weeks to two months because of the process we have adopted to send money from the Sunday morning offering, through the related district, then on to the Synod. We also are paying some annual operating costs that cannot be paid on a monthly basis. With that background and in compliance with 2010 Convention Resolution 4-03, the following discussion of the financial position of Synod is presented.
I am pleased to report that, as of June 30, 2012, The LCMS Inc. has not had to borrow money from any external parties (banks, etc.). Accordingly, The LCMS Inc. has no direct outstanding long-term debt. That is a blessing. However, The LCMS Inc. is challenged by its promise to provide resources to Concordia University System (CUS) Inc. to enable the CUS to pay off a certain conglomeration of assorted debt that is commonly termed “the historic CUS debt.” That term is something of a misnomer, because this debt is an accumulation of certain decades-old capital debts, operating deficits and other obligations not only from our current colleges and universities, but also from our seminaries and certain other educational institutions that are no longer operating. The details are voluminous and not always easy to track. The blessing is that this debt is being paid down. The challenge is that Synod’s unrestricted resources are the sole source of funds available to service this debt.
In FY 2012, about 17 percent of all Synod’s unrestricted resources were “granted” to CUS Inc. to pay the principal and interest due on this historic CUS debt. If it could be eliminated, several million dollars would be available to The LCMS Inc. each year to respond to the challenges in mission and ministry that our Lord places before us.
The Concordia University System was formed by action of the 1992 Convention (Resolution 6-04). Upon its creation, goals for this new corporation were established:
- To transmit Lutheran values more effectively.
- To provide enhanced quality education to college students.
- To attain efficiencies in the operation of the campuses.
- To capitalize the schools and the System.
The 2010 Synod Convention Resolution 4-04A required The LCMS Board of Directors to create a Synod committee to evaluate the progress of the various campuses toward achieving efficiencies in operation. However, an evaluation of the goal “to capitalize the schools and the System” (to provide adequate resources to ensure continued operation) has not been made nor required to date. While the individual colleges and universities have achieved some success in growing their own capital bases, this has largely been accomplished individually, rather than collectively through the CUS System.
When the CUS was formed, it was not specifically provided with any funding mechanism to allow it to accomplish the last of its goals (i.e., capitalizing the schools and the System). The 1992 Synod Convention either assumed that The LCMS Inc. would finance the CUS Inc. or the new corporation would be responsible for identifying and implementing its own financing mechanism. One of many possible financing strategies might be for the CUS Inc. to adopt a System-wide capitalization fee that would accumulate for the purpose of making resources available to our education institutions for building projects, lessening the need for or eliminating external borrowing and for other purposes at the direction of the CUS Inc. governing board.
The June 30, 2012, financial statements for The LCMS Inc., excluding other consolidated organizations, show that the LCMS has about $74 million total net assets. (In a business, this would be called owner’s or stockholder’s equity.) Of that amount, $29 million is “permanently restricted.” (This amount must be preserved until the Day of our Lord, and the income from investing this amount can be spent only on the specific purposes allowed by the donors who gave the permanently restricted gifts.) Another $37 million is “temporarily restricted.” (This amount includes gifts that may only be spent for specific purposes in accordance with the donors’ stipulations or gifts whose use is based on the passage of time.) When allowed to be used, either because the purpose restrictions were satisfied or because the proper amount of time has passed, the temporarily restricted net assets will be released and applied against related expenses included in the unrestricted net assets account. Because of the donor-imposed restrictions on their use, these resources are the most costly to receive and administer.
Unrestricted net assets, which total over $7 million, are the aggregate of three accounts: net assets invested in capital assets, board-designated net assets and unrestricted, undesignated net assets.
Net assets invested in capital assets, about $12 million, represent the undepreciated value of land, buildings and equipment owned by The LCMS Inc. Over time, as depreciation expense is recorded, most of this balance will migrate from this account to the unrestricted, undesignated net assets account. As worn-out equipment is replaced, the value of the newly-acquired item increases this account balance. These resources are not able to be used to establish new or expand current mission and ministry opportunities.
Board-designated unrestricted net assets, about $4 million, have been identified by the Board of Directors for specific projects or purposes that the Board would like to accomplish, but these resources do not have any restrictions imposed by donors. The Board of Directors, by official action, could change the current purpose or simply reclassify all or part of this amount as unrestricted, undesignated net assets.
Unrestricted, undesignated net assets are the resources that are the most flexible and can be used for any purpose or activity allowed by Board of Directors’ policy. These resources, derived primarily from unrestricted gifts, are the easiest and least costly to administer. They allow us to quickly respond to changing mission and ministry opportunities that our Lord places before us. The balance in this account changes monthly as resources are received and spent. At June 30, 2012, the balance in this account was negative approximately $9 million. (Ideally, the balance in this account should be $-0- or greater.) A year-and-a-half ago, this account balance was negative between $14 and $15 million. One year ago, it was negative just over $10 million. We did not get into this position in one or two years. We certainly will not drastically improve it in the short term. The key to digging ourselves out of the fiscal hole we are in is receiving more unrestricted revenue and spending less than we receive each year. We are conscientiously working in both these areas.
The negative balance of unrestricted, undesignated net assets represents our use of resources in advance of receiving revenue and/or prior to the expiration of time restrictions. These revenues will eventually be collected through district remittances of their pledged support (about $16 million for FY 2013) for general Synod operations and the receipt of other unrestricted gifts.
As members of congregations of The Lutheran Church–Missouri Synod, we need to ask ourselves:
- What goals have we determined to strive to reach together as a Synod?
- Are we providing The LCMS Inc. with adequate resources to accomplish those goals?
- Are we providing those resources in the way that is the most cost effective to maximize the resources available for reaching those goals?
Here we stand, acknowledging our God’s great blessings yet facing great challenges. Could our financial position be better? Absolutely. Could it be worse? Definitely. From where we stand, we press on, trusting that our good and gracious God will continue to provide all things that He knows we need to carry out the good works that He prepared in advance for us to do.
Jerald C. Wulf is the LCMS chief financial officer.
Audit reports will be available at www.lcms.org/FYaudit on or about Dec. 1, 2012.
Posted Oct. 18, 2012
