Diocesan Synod 18 th June Budget

Transcription

1 Diocesan Synod 18 th June Budget DSJune12(4b) 2013 BUDGET 1. Introduction The Bishop s Growth Agenda commits us to get to regular breakeven budgets by This is a very tough but necessary discipline. In 2010 we set a broadly breakeven budget for the first time for over a decade. Things have moved rather against us financially since then and indeed it could be reasonably argued that the 2010 budget did somewhat mask an underlying deficit on account of the short-term transitional funding from the Church Commissioners in respect of previous clergy pension increases. The 2013 budget is not a straightforward proposition. There are 3 significant issues that this budget attempts to tackle: (i) There is a structural deficit in the DBF budget of 190,000. (ii) Clergy costs are set to increase by 135,000. (iii) We generally fail to collect c. 150,000 of Parish Share. As a result the budget seeks to do 5 things: (i) Set a breakeven budget. (ii) Deal with the structural deficit by cutting lay alternative posts. (iii) Create a Mission & Growth Fund for each deanery. (iv) Ensure that this Mission & Growth Fund is responsive to non payment of Parish Share. (v) Create an absolute link between clergy cost increases and Parish Share increases. 2. Some core assumptions for 2013 The following are core current assumptions for the 2013 budget: (i) The national church will recommend a clergy stipend increase of 2% in We have a policy of paying whatever the national church recommends. A 2% increase would add c. 135,000 to the stipends budget. (ii) Our allocation from the national church once again will remain broadly flat. (iii) Our contribution to the national church (which includes an amount for training ordinands) will increase by c. 2%. (iv) We cannot achieve significant further cost reductions in St James House beyond those achieved (v) The income from DBE Services will continue at the higher level achieved in The Diocese of Liverpool is an operating name of Liverpool Diocesan Board of Finance a company limited by guarantee, no and a registered charity, no Registered address: St James House, 20 St James Road, Liverpool, L1 7BY

2 3. Getting to breakeven Whilst the DBF budget has been in revenue deficit for over 15 years, we have aimed to progress to breakeven over the medium term, protecting parishes from the significant impact of clergy cost increases along the way. Although we came close to setting a breakeven budget in 2010, we ve since moved further away from that position, primarily due to external cost increases. Whilst we ve kept deficits to the minimum possible we can t continue to run a loss-making position indefinitely. An ongoing deficit position increasingly prejudices our future financial health and puts at risk our ability to provide and support parish based ministry into the future. The Bishop s Growth Agenda commits us to a breakeven budget for 2013 and beyond. Although our options are limited, we can t avoid difficult decisions simply because they are inconvenient. 4. Parish Share In any year the two most significant factors shaping the DBF budget position are the costs of local ministry and the Parish Share income due from parishes. Whilst Parish Share is used solely to pay for parish ministry it doesn t cover those costs in full. The DBF makes up the shortfall through income from the national church and earned income. DBF resources are limited and without the historic assets of many other Dioceses we rely on Parish Share as the main source of funding for parish ministry. We aim to keep Parish Share increases at the same rate as clergy costs increase. That link is a crucial element in delivering a balanced budget but it s not something we ve always been able to apply. Essentially, if the increase in clergy remuneration outpaces the increase in Parish Share, any underlying deficit will increase. 5. National church influences Many of the factors affecting the DBF budget are not within our direct control. Clergy stipends and pension increases are set by the Central Stipends Authority, income from the Church Commissioners and our contribution to Archbishop s Council are set centrally. Essentially, it s external factors that shape much of our financial decision making. In recent years, many of those external factors have worked against us. Clergy costs have consistently risen and our national church allocations have been flat. More recently, the prospects of our national church allocations increasing from 2014 onwards have diminished. 6. St James House Since 2008 we ve managed a cash reduction in St James House of over 330k a year (or over 550k a year in real terms). This has been achieved through a combination of reductions in posts, cuts in remuneration packages and general efficiency savings. This significant reduction in central costs has played a significant part in keeping Parish Share increases to a minimum and budgetary deficits more manageable. Having cutback heavily at St James House, there s little prospect of further central cost reduction without cutting essential services to parishes. We ve also frozen the clergy housing budget during that time and have worked to increase our investment and rental income. Ultimately, we do have a limited resource and there is currently no means of stretching that resource significantly further.

3 7. Parish-based posts Since 2006 (when we achieved the Diocesan Review target for clergy posts) we ve consistently budgeted for 209 parish based posts. However, nationally the number of trained stipendiary clergy available has been falling and the number of clergy available in this Diocese will fall to c. 175 by 2018 significantly below our budgeted number. To date, we ve used the available funding in the stipends budget to employ lay posts as an alternative to stipendiary clergy as our clergy share falls, maintaining the total numbers of posts at 209. These posts have varied in nature but deaneries have had flexibility in determining the nature of those posts to suit local needs. That s been a part of our focus on local decision making. However, that decision making has not yet been backed with a flexible financial resource because the only option thus far has been to employ people. 8. Approaching 2013 We start the 2013 budget process with an underlying deficit of 190k, being the 2012 deficit of 90k and the 100k notional allocation to clergy housing from capital. That allocation was originally applied during a period of sustained growth in asset prices, pre That growth can no longer be relied upon in the current economic climate. In addition to this underlying deficit we expect an increase in Clergy Remuneration costs of 2% or 135k, for 209 posts. That gives us a starting deficit of 325k. If Parish Share collection does not improve, we could expect that position to worsen by a further 150k, and a loss in 2013 of almost 500k. That level of deficit is simply not a realistic option. After several years of cost reduction and cuts, creating a real terms saving of over 500k, St James House departmental budgets are stretched. In 2013 a modest increase will be necessary to ensure the continuation of essential services. Whilst we continue to develop income streams in all areas, the extent to which we can boost our investment and rental incomes is limited to the relative strength of our asset base. We continue to budget for modest increases in both areas but without significant capital receipts our ability to do more is limited. 9. Dealing with the deficit - Deanery Mission & Growth Funds To 2012, we ve attempted to work towards breakeven whilst operating within the existing financial framework and avoiding significant increases in Parish Share. Whilst we have made significant progress we ve not ultimately reached breakeven owing to external factors consistently hindering financial progress. Crucially within the existing framework and based on our current assumptions there s now no realistic prospect of reaching breakeven. As a result, we re proposing to restructure the basis of the stipends budget to set a new framework for financial sustainability. This restructuring will enable the following: The first breakeven DBF budget in over 15 years Increased local decision making with a focus on mission and growth Cash support to back up that decision making

4 A reduction of the budgetary impact of the non-payment of Parish Share There are three key elements to this restructuring: (i) Lay alternative posts will be phased out. (ii) Deanery Mission & Growth Funds will be introduced to fund local mission and ministry, replacing the existing lay posts allocation. These Mission & Growth Funds will be set at c. 700,000 a year. (iii) The total number of budgeted posts will reduce by five, the impact of which will be felt within the Mission & Growth Funds. To be absolutely clear we are not proposing a cut in clergy numbers beyond the 2013 deanery targets. The way in which the Deanery Mission & Growth Funds will work is as follows. In future, rather than appointing lay alternatives we will pay grants to deaneries that they can use to promote the Growth Agenda based on local plans and needs. Money can be used to employ people, to give grants to parishes for new mission activities or for whatever each deanery believes will be the most effective way of taking forward the Bishop s Growth Agenda. Deaneries will not need to apply for permission to use their grants in any particular way; rather they will be determined within the deanery and then processed either by the deanery or by St James House, whichever is more convenient for each deanery. If there is any unpaid Parish Share within the deanery that will be set against the Deanery Mission & Growth Fund and the Fund will be reduced by the corresponding amount. As such unpaid Parish Share will impact directly on local mission. We hope and expect that this will have a beneficial effect on Parish Share collection rate as there is that much more of a local connection between Parish Share paid and local mission and growth possibilities. The restructuring will take place in We will not be suggesting that any existing post-holder will be made redundant as part of this process; rather we expect their contracts to run their course after which time they will not be renewed. As such we recognise there will be a phasing element to the implementation as existing lay posts are phased out naturally. (For further details on how the Deanery Mission and Growth Funds may work please see appendix 1.) The stipends budget will be re-structured with a 2013 budget of 6,860,500 on the following basis: Appointments No. FTE Posts Incumbencies curacies 30 5 bishops appointments 5 2 university chaplains 2 2 archdeacons 2 1 Cathedral Canonry 1 Average vacancy rate -15 Lay posts / Deanery Mission & Growth Funds 21

5 The above represents a reduction in full-time equivalent parish based posts from 209 to 204 ( ). The total available for the Deanery Mission and Growth Fund will be equal to the number of lay posts listed above (21) multiplied by the Stipend, NI and Pension costs of Incumbent status clergy (c. 33k). Deaneries will receive an amount in proportion to the number of incumbencies budgeted for their deanery. Parishes could also make additional contributions to their deanery pots and deaneries would be free to use the deanery funding independent of the DBF. There is an allowance for parish vacancies within the overall budget calculation. This is based on the average vacancy rate over recent years. Please note the following: The length of a vacancy has never been determined by financial considerations; nor will they be into the future. If we find that the vacancy rate in any one year is lower than budgeted then the DBF will absorb those extra costs. If we find that the vacancy rate is higher than budgeted resulting in a surplus within the stipends budget then this surplus will be rebated in full to the Deanery Mission & Growth Funds. We expect that this new structure for the stipends budget will produce an annual saving of over 200k once fully implemented, thereby dealing with the structural deficit Budget In addition to the restructured stipends budget we will take further action to set a sustainable basis for future budgets, whilst getting as close to breakeven in 2013 as possible. Firstly, we propose that Parish Share will increase by 2% in This is absolutely in line with the anticipated increases in clergy costs. Although this is higher than the increases in 2011 and 2012, it s a below inflation increase and remains within the limits set by the Growth Agenda. Alongside this after successive years of significant cost reduction and cuts we propose to uplift St James House departmental budgets will by 2.5%. 11. Key recommendations for the June Synod In the light of the above we have constructed an outline budget for 2013 which we have attached for information. The key recommendations for this budget are: (i) A breakeven budget, or a maximum deficit of 25,000 (ii) A Parish Share increase of up to 2% (iii) The phasing out of lay alternative posts (iv) The introduction of Deanery Mission & Growth Funds (v) A reduction in the total number of budgeted posts by five (set against the Deanery Mission & Growth Funds rather than stipendiary clergy numbers) (vi) A 2.5% increase for St James House departments (vii) Establishing an absolute link between clergy costs increases and Parish Share increases Between now and the end of 2012 the Finance Committee will continue to monitor possible changes to the budget (eg. clergy costs and the costs of ordination training) and make adjustments accordingly. Diocesan Synod is invited to support these recommendations.

6 APPENDIX 1 DEANERY MISSION & GROWTH FUNDS A core element of the 2013 budget is a move from lay alternative posts to Deanery Mission & Growth Funds (see pages 4 5). Over time this will create a mission fund of over 700,000 spread across the deaneries. We believe that this continues to put deaneries at the heart of mission planning and thinking but now gives them the means to do this. This appendix seeks to answer 2 questions: 1. How will each deanery allocation be worked out? 2. How will each fund be managed? 1. Deanery allocations Within the overall stipends budget there is provision for 153 incumbencies (see page 5). Each deanery receives a proportion of this overall number according to the current formula for allocating clergy. The number ranges from 6 for the smallest deanery (Widnes) to 19 for the largest (Wigan). Each deanery will receive a proportion of the overall Mission & Growth Fund in accordance with their allocated clergy number. The budget also assumes an overall allocation to the Deanery Mission & Growth Funds. In 2013 this is based on 21 lay alternative posts each budgeted at the cost of an incumbent ( 33,000). This creates an overall allocation of 693,000 in For example: Widnes Deanery has an allocation of 6 incumbents (A) The overall number of incumbents is 153 (C) The overall allocation to Deanery Mission & Growth Funds is 693,000 (B) The Widnes allocation would be (A) (B) x (C) = 27,176 The Wigan allocation (Wigan has 19 incumbents) = 86,059 NB Each allocation is reduced by any unpaid Parish Share in the relevant deanery. 2. Managing the Deanery Mission & Growth Funds Deaneries don t have any formal legal status under charity law. Unlike PCCs or the Diocesan Board of Finance they are not separate charities. As such they can t employ people or receive or distribute significant funds. One of the key ideas behind the setting up of Deanery Mission & Growth Funds is to give deaneries the freedom and flexibility to make and finance mission and growth-orientated decisions. No doubt this will include the ability to make grants and employ people locally. We will therefore need to set up a structure to enable this to happen. We propose to create a model constitution to allow each deanery to set up its own charity and register it with the Charity Commission. We propose that the trustees of such a charity would be the members of the Deanery Mission & Pastoral Committee, although that would be subject to local negotiation. The Resources and Finance Departments at St James House would support each

7 deanery charity as they set up bank accounts and banking arrangements and to develop spreadsheets for managing money in and out. They would also support deaneries in the production of annual accounts. The HR department of St James House would support the deaneries through any employment process. However, we recognise that this is a significant shift in the way in which deaneries operate and deaneries will need to take time to think and plan their way through all of this. Therefore until each deanery is ready to fly solo each deanery fund can be managed from St James House (under the instruction of the deanery as to any expenditure decisions) and then be transferred over as and when each deanery charity is ready. We don t have a fixed timescale for this process. However, we would anticipate that most if not all deanery charities are up and running by the end of 2015.