March Newsletter Article

Working to Make Aldersgate a Debt-Free Church

(published in March newsletter)

At its meeting on February 23, 2010, the Church Council voted to hire the firm, James D. Klote & Associates, Inc., to conduct a feasibility study this spring on whether Aldersgate can become debt free within 5 years. The $4.3 million Shepherd Hall debt includes the building mortgage ($3.3 million), bonds ($686,000), and the HVAC system for the sanctuary ($315,000).

Some Background on the Financial Situation

The most immediate concern of the Finance Committee is the redemption of bonds sold to congregation members in 2002 - 2004 to fund initial building costs for Shepherd Hall. Between 2012 and 2014, $686,000 is needed for bond redemption. This is over and beyond monthly payments on the Shepherd Hall debt.

In 2008, in an effort to create an equitable lottery system for redeeming the bonds, all of the outstanding bonds were reissued into $1,000 increments.  The church was able to redeem some of the bonds and, to date $183,000 of the original $884,000 debt has been redeemed.  In addition, some bond holders chose to donate their bonds to the church ($15,000).

The commitment campaign in the fall was very successful in raising pledges to cover the church’s operating costs for 2010. And while pledges toward the Shepherd Hall mortgage were good, they fell short of what is needed to fulfill the looming bond redemption obligation. The Finance Committee continually has considered options for raising the required funds to redeem the bonds, since contributions over the past few years have not been at a level needed to build up this fund. 

One of the goals in the church’s 2006 Joel Committee Report is to work toward making the church debt free. Leadership does not want to leave this burden for the next generation of members in the church. Aldersgate spends $440,000 a year on servicing our debt.  If we could pay off that debt, we could use that $440,000 a year on other more important ministry priorities.

Therefore, renegotiating the loan and including the bond obligation with current debt was something the Finance Committee did not want to do. Refinancing the mortgage to include the bond debt (if we can get an interest rate better than the current 6.75%) would still leave the church with the Shepherd Hall principal and interest to pay for many, many more years. These options would only enlarge or extend the church’s indebtedness.

The Finance Committee met in late 2009 and faced a difficult realization. Even with the relative success of the commitment campaigns over the past few years, the church still has not raised enough money to cover upcoming bond redemption costs, much less to even begin to retire the debt.  While things are improving, fifty percent of Aldersgate congregation members did not make any financial commitments to the church for 2010. (In 2009, sixty-five percent made no financial contribution to the church.)

A major financial commitment campaign for debt retirement is inevitable. However, in the wake of the most successful commitment campaigns ever run at the church, the committee was at a loss as to how the church could better tackle this yet-to-be-met building debt. They realized that running another campaign using the same techniques was not likely to yield new money.  This would result in more campaigns being needed in succeeding years.

An Outside Consultant is Considered

The Virginia Conference of the United Methodist Church has hired a faith-based fund raising firm to assist them in raising capital to build new churches in the state. Rev. Dennis Perry contacted the firm, James D. Klote & Associates, and invited them to meet with the Finance Committee and present ways in which they might be able to help Aldersgate.  Mr. Klote was confident that his firm can work with leaders within our church to create a campaign that could result in the church being debt-free within 5 years.  Other churches that have worked with the firm were contacted. They reported positive results and highly recommended Klote & Associates.

The Finance Committee voted to propose to the Church Council that this firm be contracted to work with Aldersgate this year. At the February 23^rd meeting, the Church Council and several concerned congregation members asked questions and discussed the proposal.  The cost associated with bringing in outside assistance was a primary concern.

Years ago, Aldersgate did hire another consultant. However, as Steve Larkin, chair of the Finance Committee notes, “while Klote seems like a lot of money compared to consultants that we have used in the past, Klote actually is offering significantly more support than any consultant has given us in the past.”

The breakdown for costs of hiring this firm are as follows:

• Initial retainer: $5,000
• Feasibility study/meetings with congregation members (includes coordination by an onsite Klote & Associates representative $5,000/week for 4 weeks)
• Campaign management – if after the feasibility study, the council decides to continue (includes a Klote & Associates representative onsite who will train and manage volunteers for 20 weeks at $7,000/week)

The Finance Committee calculated that if this campaign is successful, the savings in interest we would have paid over the course of the loan would save Aldersgate approximately $3 million.

How This Would Work

During the feasibility study, the firm will assess whether or not Aldersgate is ready for a campaign at the level needed to retire the $4.3 million debt. Everyone in the church will be invited to participate in one of many meetings that will be conducted over that month.  No one will be asked for money at that time. These are informational meetings in which the consultant learns more about our congregation and the church. It is with this information that a unique commitment campaign is designed for Aldersgate.

Volunteers from the congregation are then trained to effectively talk with other congregation members about making multi-year commitments toward retiring the church debt. The Klote & Associates consultant will work onsite in an office at Aldersgate during this entire period.

The Church Council voted to proceed, with the caveat that the council would meet at the end of the feasibility period to assess whether or not to continue having the firm manage the fall commitment campaign.  The church can discontinue working with Klote & Associates at any point in the process, paying only those fees already incurred.

“What we are doing is reaching out past the fifty percent of the congregation that is already supporting the church to a sizeable number of potential contributors that we have not been able to reach either on our own or through other consultants,” said Steve Larkin. “The point of the campaign is not to ‘manage’ our debt but to eliminate it.”

As long as we have this debt, the church will struggle with finances.  By eliminating our debt, we are free to expand the programs we have to better spread the good news of Christ and serve our community.  This is what Christ calls us to do.

Contacts: Cindy Amos, chair of the Church Council, 703-799-1458, &  Steve Larkin, chair of the Finance Committee, at 703-358-2965