Overview: Our committee’s goal was to take a financial inventory of all parish assets and potential revenue sources available to the parish. We researched all feasible options with the intention of providing reliable and quantifiable facts and analysis to the Discernment committee, Vestry and Parish members so they can make an informed decision on the future growth of the parish. Throughout the report, we discuss a wide variety of options. The intent is to illustrate the financial impact of decisions that we choose to follow for the discernment process. The options are not specific recommendations and do not attempt illustrate every possible situation available. Additionally we identified certain options that we believe warrant following up, as we could not accomplish these in the time allotted. The Financial Committee reviewed various options in generating funds for a building campaign. We reviewed the following areas and outlined options in generating cash in making its recommendations:

We close with a summary of conclusions and a list of recommendations. Because of the short time frame allotted for this, there are several items that we believe warrant a closer and more in-depth look.

Sale of Parish Assets & Use of Trust Funds (including Development Options):

The Parish has the following assets: 1. Rectory at 1735 19th St NW,2. Sanctuary/ Parish House at 1772 Church St NW3. Parking lot between alley and P St NW4. Endowment of $2.5 million5. Capital Reserves of $200,0006. Alice Hudders Fund of $54,000

Rectory: The District of Columbia assesses the Rectory for tax purposes at $1,500,000. At the parish’s request, James Davis performed an appraisal in May 2007. He thought at the time that it could sell for $1.6 million. For the purpose of this discussion, we are assigning a range of $1.0 to $1.6 million in possible cash. Option 1 is to sell the Rectory outright on the market. This will increase our operating budget by approximately $27,000 net as we are committed to paying the Rector a housing allowance when she moves out. This does include the approximately $9,000/ year since we would no longer pay for the utilities and repairs. Second future impact will be that we have no housing to offer to future Rectors. A recent Washington Post article noted that several city churches without rectories struggle to attract clergy because of lack of affordable housing within reasonable commute of their churches. Option 2 is not to sell the Rectory. Impact is no funds raised for the building campaign. (Parish had already planned to rent out the Rectory when the Rector moves out. The projected rent would cover the Rector’s housing allowance and the ongoing cost of repairs and generate a small surplus annually. Projections assumed that renter(s) would pay for the utilities.) Option 3 is to sell the Rectory and use part of the proceeds to purchase a condominium for use as a future Rectory. Depending on market conditions, the Parish would generate maybe half of the projected range of $1.0 to $1.6 million. Impact on operating budget will be smaller as we assume that the Parish will rent out the replacement rectory and generate income that will mitigate the cost of housing allowances.

Park/ Parish House: Property is approximately 1/3 of an acre. The 18th Street front (the Park) of the property is zoned “special usage” and the back half (parish house/ sanctuary) is zoned “residential”. The District has assessed $3.9 million for the land and another $3.9 for improvements. Option 1 is to sell part of the existing property. We could sell all/most of the Park and continue to utilize the existing parish house/ sanctuary. Alternatively, we could build the sanctuary, office, and program space on the Park land and sell the parish house/ sanctuary parcel. We might get $2 to $4 million depending entirely on how the developer plans to build there and when. Impact to us is that we raise cash immediately. However, we limit ourselves to the remaining part of the property for our plans. Option 2 is to enter a joint venture with a developer. The concept is that the developer would incorporate (and build) our space within his overall plan for the property. The major downside is the length of time this will take to find a willing and financially sound developer. Aside from the current economic conditions, it will take a developer time to obtain building permits and financing before he can start construction. It is difficult to be more specific with this option as the committee was unable to identify a developer who would meet with to provide us with a basic proposed development plan. This committee believes that we should explore this option more. Option 3 is to use the park land for a new sanctuary. We would renovate the Parish House.. Major impact to campaign is that we would need to raise the building funds ourselves and finance the permanent mortgage. We explore in detail under a subsequent heading. Major impact to operating budget is increased utilities and maintenance costs (also covered under another heading). Any sale of land and development options would also require the approval of the Diocese.

Parking Lot: The District has assessed the parking lot (platted as a double townhouse lot) at $1,000,000. Option 1 is to sell this lot for cash. Possible range is between $750,000 and $1.2 million depending on what the buyer plans to do with the property. Major impact to us is loss of 12 parking spaces. This may complicate our plans for new construction if code requires off-street parking. Option 2 is to not sell this lot and maintain use as our parking lot. Retention of the parking spaces may help us in negotiations with the District if there are parking set-aside requirements for new construction.

Endowment: The endowment of $2.5 million is a legacy of the insurance policy paid out after the 1970 sanctuary fire. Option 1 is to liquidate the endowment entirely or in parcels. Ellen F. Martin, our investment manager, advises us that each $500,000 tranche liquidated will cost the Parish approximately $ 20,000 annually in interest & dividends income. Presently the Parish counts on the endowment income stream as a significant funding source ($90,000 in 2008) for our operations. To summarize, for every $500,000 we raise by liquidating the endowment, the Parish loses $20,000 in operating budget funding. If we liquidate the entire endowment, the impact on the operating budget would be a deficit of $90,000. Option 2 is to sell nothing and rely on the endowment as collateral for building loans.

Capital Reserves: The Vestry set aside funds as Capital Reserves several years ago to provide discrete funding for capital projects and repairs. Option 1 would be to liquidate this fund. Impact is to raise $200,000 for the building campaign. Major impact is loss of specific funds for capital projects and repairs. The Vestry would have to raise replacement funds for future projects and repairs. Option 2 is not to touch this fund. While, the goal of this report is not to make specific recommendations, the committee strongly recommends the retention of a capital reserve fund at or exceeding the present amount of $200,000.

Alice Hudders Fund: This is a bequest from a parishioner specified for “Art and Spirituality”. As such, we believe that this account (valued at $54,000 recently) could fund a broad range of purposes relating to music, art, and worship.

Summary of Potential Sources of Revenue for Building Campaign:

(*)Liquidating the entire endowment will generate a deficit of $90,000 for the operating budget.

Debt & Obtaining District Grants:

This section covers our options for borrowing funds for a building campaign. We are including our options for obtaining assistance from the District of Columbia in this section.

Borrowing from the Diocese: Essentially EDOW has two loan funds – one for short-term needs (under five years) and another is for Missionary Development. The MDF loan program has a cap of $200,000 per parish. Per Eva Myking, both funds are 100% loaned out nowadays. Eva noted that EDOW recently amended guidelines for the MDF to restrict loans to parishes unable to get loans on their own. She suggested that the guidelines would consider St. Thomas “too wealthy for consideration” because of our endowment.

Borrowing from Commercial Banks: Eva mentioned that Chevy Chase Bank has a long history of making loans to EDOW parishes. Drew Boatner, a member of this committee, discussed specific borrowing parameters with a colleague at Chevy Chase Bank. Initial thoughts pending underwriting would be a construction loan priced at Prime + 1% (6%) – interest only monthly. A $2 million construction loan would be $10,000/ monthly or $120,000/ annually. A $4 million construction loan would be twice that. After construction is completed, Chevy Chase Bank would convert the $2,000,000 loan to a permanent 15 year mortgage with interest rates reset every 5 years. Payments would be $17,500 P & I/ monthly ($210,000/annually) if amortized at 15 years. Our main challenge is going to be demonstrating to a bank that we can support the monthly payments despite our history of low pledges and plate relative to total budgets. Banks are not keen to take risks on church loans given the publicity and legal challenges of seizing God’s Assets.

Tax Exempt Financing: There are two elements to this issue. One is that the lending institution making the loan can have this declared as “tax exempt”. Many of us think of this as an “industrial revenue bond”. The issuing bank drives this process since it benefits from the tax-exempt interest income, not us. Impact to us would be slightly lower interest rates; however, the granting agency has already maxed out at its congressionally established limits so there’s little chance of this happening. The second element is a District of Columbia bond issue sold to the public. The District government can issue taxable and tax-exempt revenue bonds to finance the acquisition, construction, and renovation of a wide array of capital projects owned by private enterprises and non-profit institutions. DC for all practical purposes restricts “for-profit” access to designated “DC Enterprise Zones” (defined as having 20% or more poverty rate). However, not-for-profits (including churches) are eligible for city-wide application if they are providing community services that will revitalize or “enhance” their neighborhoods as “sustainable communities”. There is an alternative: the Commercial Property Acquisition and Development Grant Program. Churches are eligible to participate. The law requires that the church must buy and redevelop otherwise abandoned or neglected commercial properties. Under both programs, there are guidelines for St. Thomas to qualify such as minimum percentage of floor space designated for “community services”. A major challenge is that Zip Code 20036 based on 2000 Census had almost no households with income levels below the poverty level. Another option is a private bond issue. One committee member told us about an Alexandria Methodist church that did a bond issue for construction purposes. Because of the SEC rules regarding their vetting if there are more than 35 investors, the church found this option to be quite expensive. Essentially the church issued bonds in blocks of $5,000 face value (not discounted) and paid interest only for the life of the bonds (5 years). At maturity, the church paid back the principal. Many of the parishioners opted to forgive the principal.

Revenue Generating Options:

A general note about the revenue generating options discussed below: our building campaign advisor, Eleanor Weiss, has stated several times “the money raised to build our church will come from those persons sitting in the pews on Sunday morning”. Eleanor’s point is that building a church is similar to building a personal residence - it is not customary for others (friends, neighbors and businesses) to help the homeowner pay his mortgage. The committee still believes there is value in exploring the options below. If for no other reason than to communicate to the general discernment committee, the vestry, and the parish that we have at least explored all options. Overall, the committee did not find a “pot of gold”. However the committee believes the following options are worthy of further considerations. Additionally, we believe that we should explore further through the National Council of Churches and the Episcopal Church other churches’ success stories in funding construction without recourse to borrowing. We did not have time to do this within the timeframe for this particular process.

External Fundraising Sources/ Private Grants: We defined this as everything other than borrowing or District of Columbia financing/ grants.

Alumni: In consultation with Mike Mattmiller, we determined that we have a mailing list of perhaps 200 names available from our ICON database. Since our use of ICON is recent and we were not able to ascertain any other mailing list (i.e. previous editions of our directory), we are not optimistic that we can readily expand this list to include members prior to 2004. Now here is an idea we should explore! A database of a couple hundred names is probably not enough to yield a large sum of cash to fund a building campaign. However, the committee believes that the parish should explore and pursue building on the existing database and work to communicate with alumni, friends, and supporters. It has the potential to be a source of contributions to the parish as well as supporting our goal to be a beacon of progressive Christianity to those beyond Dupont Circle. Two possible ideas to explore along these lines:

• Alumni, Friends Newsletter
• National Membership Program

GLBT: We are inquiring through our contacts at Human Rights if we can have access to their mailing lists for a solicitation.

Connection to Franklin D. Roosevelt: We are investigating if there are possible grants available from the FDR Historical Society. We are investigating the premises to see if we can locate discarded cig butts or a wheelchair that FDR may have left behind after a healing service. (That last sentence was Drew’s - what are we going to do with him!?)

Federal Grants: There are federal grants available for limited or specific programming purposes such as literacy programs. Our option here is to share this information with our programming folks to see if there’s interest in starting up a particular mission. However, these funds are specific and limited to operating purposes, not brick and mortar infrastructure. We cannot count on these grants for funding our building campaign.

Private Grants: Essentially, we have determined that in obtaining private grants we face the same challenges that we did with Federal grants. Grants are for programs, not brick and mortar. Additionally the private foundation world focuses on “seeding” projects meaning that the grants will fund operating program start-up costs. Foundations are asking as part of the grant approval process what are the plans for ensuring programs’ sustainability after the grants run out. Further, we note that many of the private foundations specifically exclude religious institutions from their grant parameters. We did find that there are grants for specific infrastructure purposes – paying for “green” design work or installing/ upgrading technology systems. Definitely, this area’s worth pursuing in depth as a means of defraying parts of the construction costs.

Future Maintenance & Programming Costs:

Maintenance Costs: Based on our 2008 Budget and using 6,500 interior square feet (rough estimate) and 9,600 square feet (rough estimate) for the exterior space, we estimate that our current annual costs for the following are: Services 2008 Budget Per Sq. Ft. Utilities $23,000 $3.54Routine Maint. $9,500 $1.46Sexton $15,600 $0.97 (both interior & exterior)Insurance $19,000 $1.18 (both interior & exterior)Park Maintenance $4,655 $0.48 The Parish architect can provide more specific industry rules of thumb for these costs, too. A lot depends on the square footage increase, building materials used and efficiencies of any replacement heating/ air conditioning plants.

Programming Costs: One consideration is that if we expand useable spaces within the parish premises, we will more spaces to support both new and expanded programs. The impact is higher operating budgets.

Learning from others - unplanned construction and operating costs: Per Drew Boatner’s experience with his two previous parishes, both parishes had not planned for increased operating expenses during the discernment/ planning phases. One parish, Grace Church in Haddonfield (New Jersey outside of Philadelphia), renovated a parish house such that available programming space doubled within the original footprint. Grace moved the Sunday school classes from the undercroft to the parish house. Additionally, the parish offered use of the spaces to the community (with opportunity to supplement operating income.) Average attendance did increase for Grace because of a more robust Sunday school program and a higher profile within Haddonfield. Major impact on the operating expenses was on utilities. Because of the dramatically improved efficiency of the new heating/ air conditioning plant, the architect estimated that we would see only “a modest increase” in our bills. However, because of the dramatic use of the renovated spaces (and the political difficulty in recovering our true operating costs) Grace experienced a 50% increase. Additionally because of higher profile coupled with proximity to a commuter rail line station, Grace experienced a surge in break-ins. The Parish had to spend money on an alarm system that proved extraordinarily cumbersome to use. As an aside, alarm companies will tell us that churches are hard to protect because of the physical plant layout (multiple doors/ windows) and the constant turnover in trained users. Grace Church had to pay “false alarm” fees to the town because of chronic confusion in setting the alarms. The second one, St. Timothy’s (Signal Mountain, Tennessee), built a new & significantly larger sanctuary that doubled as a showcase for the organ and the parish’s varied musical programs. The new sanctuary allowed St. Timothy’s to expand Sunday services from two to four to accommodate significant increase in attendance levels. However, there were unexpected increases in both construction and operating expenses. The Parish had to purchase a rebuilt second hand organ because the original organ proved woefully inadequate in the new spaces. This added approximately $250,000 to the cost of the building. (Anecdotally, parish leadership ignored the organist’s warnings at the onset.) From an operating expense standpoint, St. Timothy’s had to hire another sexton in spite of the architect’s specific design considerations meant to reduce maintenance demands in the new sanctuary. Utilities increased roughly 40% despite more efficient heating and air conditioning plants because of higher usage of the spaces coupled with the need to protect the new organ against humidity extremes. After construction, St. Timothy’s experienced break-ins, a rare event in this mountain top community. Police attributed this to the parish’s significantly increased profile in the Chattanooga community. The Vestry had to fund the cost of rekeying some 25 external doors and purchasing a security system. Additionally, Vestry members had to undertake checking the doors & setting the alarm on Sunday nights and responding to nocturnal alarms.

Conclusions:

Sale of parish physical assets are possible but with significant consequences on the operating budgets. Liquidation of the endowment or capital reserves has similar profound impact on the operating budgets. We recommend caution in pursuing these options as we can render ourselves house-rich but cash-poor. Borrowing would be problematical, as St. Thomas does not have the cashflow to support the monthly payments. Financial assistance from the District of Columbia has slim chances, given the City’s emphasis in rejuvenating blighted or struggling neighborhoods. We do recommend that the Parish explore the following areas in detail: 1) Partial sale of the parish house/ sanctuary to a developer, or2) A joint venture with a developer3) Sale of the parking lot4) Fundraising campaign(s) touting St. Thomas’ role as a house of progressive christianity to alumni and other Christians and5) Private grants for funding specific design or infrastructure elements of a building campaign. We recommend relaying information about operating grants (Federal and private) to the Parish’s program committees for consideration in expanding our missions.

Respectfully Submitted,

Finance Subcommittee

Dan Costello, Co-chair
Jaye Lopez, Co-chair
John Carter
Aaron Adkins
Byron Smalley
Greg DuRoss
Kurt Jacobs
Tepin Tuma
Ivan Santos
DrewBoatner