Wednesday, April 18, 2012

Budget Update: Time to Start Sniffing Glue

The following is CORRECTED from the original posting on 4/18, thanks to an intrepid COD reader who pointed out an error -- or rather an error extrapolated from the ambiguity of the official statement he was working from (see, COD can weasel out of admitting being wrong).

Crusty Old Dean had two pieces come across his morning reading. One was a fascinating interview in Foreign Policy magazine on the complexities of economic disparity in the USA. Edward Luce has written a new book, "Time to Start Thinking: America in the Age of Descent." These economic problems are compounded by the inability of government to address the root causes of them, due to legislative dysfunction. So depressed by the prognosis for fixing our situation of economic disparity, Mr Luce noted that had he picked a more colorful title for his book to express this dispair, it would have been "Time to Starting Drinking" or, in Britain's case, "Time to Start Sniffing Glue."

Then Crusty Old Dean read the newly released, "An Official Statement on the Budget," which made him think the Foreign Policy article was really about the Episcopal Church. Read it in full here.

Friends, maybe it's time to start sniffing glue as we head towards General Convention. It's the only way any of this can make sense.

In essence, there are three points to this official apology...at least I think these are the points, because it is so confusing.

1) The income for the proposed development office is $3.7 million. The expense is $2.5 million. The statement then says: "If [COD: what do you mean, if? Is their an option?] the two numbers are brought into alignment, either by decreasing income or increasing expense, then the budget will be unbalanced by about $1.2 million."

CORRECTED: COD originally misread this as a $1.2 million surplus -- which the statement released implies (income is $3.7 million, expense $2.5 million). The problem is the two different funding line items are not identical. So the statement is ambiguous if not incorrect: income is not $3.7 million, it is $3.7 million in one section of the budget but not another. Page 3, Line 6 of the draft budget adopts a figure of $3,766,300 in income for the Development office. Line 366 of the detailed line item budget lists an adopted figure of $2,516,300. This is hilarious, because the note in Line 366 says the income number should reflect Line 6, when it does not.

On the other hand, maybe this language is perfect. Unbalanced describes this process on so many levels.

What is unsaid here is that this is voodoo income anyway, since the funding for the development office is taken from a draw from the principal, not interest earnings, of endowed funds held by the DFMS. So does it really matter if there is a surplus here? We are raiding endowment principal to set up a development office the Executive Council recommended against, anyway.

2) The statement then points out: "There is also an apparent inconsistency in the sum of the amounts proposed for Grants and Covenants. The total listed is $15 million. Adding the internal line items results in a sum of something less...it’s about $14 million, but it’s not clear at this time if the active spreadsheet would correct this seeming error in the pdf copy of the draft proposed budget."

Now this is curious: it is not the spreadsheet's job to correct the error. Humans are the sentient beings, who have invented things like Microsoft Excel which comes with an auto-sum feature which automatically adds up columns.

However, this really doesn't seem to answer the question: what is the nature of the "unbalance"? Does this explain why funding to domestic dioceses like Navajoland and Alaska and the Anglican Communion Office is slashed - that is, they shouldn't have been cut so much, and this $1 million was inadvertently removed from those line items? Or that the funding to overseas dioceses and other provinces of the Communion, which was increased, was not increased by a $1 million more? Decisions were obviously made somewhere about which line items to increase or decrease; cannot someone tell us where this $1 million difference comes from? This budget was put together by actual people, so you would think someone could explain how these line items got the numbers they got.

3) And the jewel in the crown: "Finally, the amount of $286,438 for Formation and Vocation is an error...the actual number was lost in the complex process of combining the 15% and 19% cases the Executive Council used to build the draft proposed budget. The budget was adopted and Executive Council adjourned before the error was discovered. Questions have been asked regarding what the 'real' number might have been. Council members...suggested something in the range of $1.9 million. Other knowledgeable persons suggested $1 million. PB&F will need to address this matter at General Convention. Restoring funds to Formation and Vocation will require taking funds from other places."

This is utterly incomprehensible on at least three levels.

Level 1: Are they really, honestly, truly telling us they presented a budget with a variance of up to $1.7 million, seen by perhaps over fifty people (staff and elected representatives of this church like the Executive Council), many of whom openly questioned the size of this cut, and nobody seemed to know this was an error?

In fact, this cut was defended by those who cited a survey conducted which showed that Vocation and Formation was something identified which should be done at the diocesan or local level (Crusty Old Dean has disputed this whole concept in other posts).

I am just at a loss as to how this could have happened without some kind of massive system failure. Which leads to level two...

Level 2: This shows a problem with the budget system we have. Funds now have to be found because of this error from elsewhere in the budget? Because the Executive Council and the staff that put this budget together screwed up so royally, the onus is still on fixing the $286,000 figure that they mistakenly approved? Are we that beholden to a budgeting process that Vocation and Formation becomes the fatted calf of this story, the one that gets slaughtered as a result of decisions made by other people? Could we not take the $1.2 million surplus you "found" in Development and apply it here!

Level 3: Lack of accountability oozes through this entire process, as evidenced in some of the language here. Wasn't clear if the spreadsheet "would correct" the error in addition. The real Vocations and Formation number "was lost." The budget "was adopted." These things didn't just happen. The number didn't lose itself. The column didn't add itself wrong. The Council adopted a flawed and inaccurate budget. And somehow COD doubts that anyone will be held accountable for this at all. We will all be told mistakes were made, we could play the blame game and live in the past, or we could move forward. True, in a sense, but also words which can be used to paper over incompetence and dysfunction.

I have been saying ever since I watched the 2009 budget fiasco that the process for putting the DFMS budget together is broken. It is marked by lack of transparency, and lack of clarity in how it reflects our mission and budget priorities. It is undemocratic, since the final budget is presented to the floor of Convention with the only option to accept it or else.

It should be no surprise that the eventual fruit of such a process is the utter mess that is before us. The chickens are coming home to roost.

Reject this budget. Reject this process for designing our budget. Do not let this kabuki theater go on any longer. Crusty Old Dean has said in other posts we need a massive reorientation, restructuring, and focus on discipleship, mission, evangelism, and service. We need to call special diocesan conventions and special provincial conventions in the fall of 2012, as COD has mentioned in other postings, in order to allow for all levels of the church to identify what our priorities should be, rather than be told what they should be by General Convention.

In some upcoming posts, COD will offer some thoughts and suggestions for how to navigate a budgetary restructuring in service of mission. It's not time to start sniffing glue, as bad as this all may be. It's time to be serious about doing things differently.

9 comments:

  1. "mistakes were made" It really is unbelievable. Imagine if you or I presented budgets with a 5% error factor to our vestries or boards. How long would we keep our jobs?

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  2. Stunning that several months later, only after other bloggers began pointing out some problems with the numbers, that all we get is an "Oops." Whatever shred of credibility this process has is completely gone.

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  3. Right on, brother! Just one correction, though: the error related to the Development Office results in a deficit budget, not a surplus. See my blog post at http://goodandjoyfulthing.blogspot.com/2012/03/jarndyce-vs-jarndyce-and-short-term.html

    That $1.25 million error, plus the $something error for Formation that no one knows the amount of, takes the deficit to somewhere in the neighborhood of $2.5 to $3 million. This MAY be partially offset by the error in Grants Covenants Appropriations, if they decide that the numbers should add up the way they actually add up, rather than the way someone input an apparently random total.

    Incompetence outrageousness tomfoolery - are Abbot and Costello running our budget process? Who's on first, anyway?

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  4. Riddle me this, Batman--who is ultimately responsible for this? it just can't be true that we are paying for high rent Manhattan real estate, blocks away from the financial district, and we don't have anyone on staff whose job is making the numbers add up before they are posted widely. I kinda want names....

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  5. Crusty Old Dean has some thoughts about that (no surprise to many) but accountability has to be a collective process, with cooperation from those within, or else it can just sound accusatory. There is clearly some ball-dropping from individuals, but also deep, systemic problems with the very budgeting process itself and with areas of governance.

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  6. Agreed. The line between accountability and accusation is fine, and ultimately it is the whole system that is broken. I'm tempted to sarcasm but that only speaks to the powerlessness I feel in the face of this whole situation.

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  7. COD has raised some very important issues. I'd like to add an additional thought about the budget, as follows:

    Comment on Executive Council Draft Budget 2013-2015 – Investment Income
    In studying the Executive Council’s Draft budget for the triennial 2013-2015, and having heard a presentation with respect to the budget at the Province I Synod meeting of New England dioceses’ deputations, I am concerned by what may be a faulty assumption with respect to Investment Income (line 5). The comment states it assumes a “5% dividend payout”.

    In the economic and investment climate experienced for most of the past 4 years I would be astonished by ability to confidently assure such a generous dividend payout. When I raised this concern at the Province I meeting last week I was informed the investment fund had enjoyed an annual total return of 8% during the current triennial. Frankly, I am very skeptical of that assertion.

    Before the Program, Budget and Finance Committee concludes its work on this Draft Budget I ask that the Executive Council confirm it has received a presentation that will be distributed to all of the deputations, of the underlying data demonstrating there can be confidence the budget can rely upon a “5% dividend payout”.

    I am not unfamiliar with the management of investment funds; I have not seen any reputable funds able to sustain an annual total return of better than 5% without materially increasing the “risk profile” of the instruments in which such a fund invests. The endowment funds of the Episcopal Church are “OPM” – other peoples’ money – and must be administered and managed first, and foremost, to protect and preserve capital; only after that objective is assured, as far as humanly possible, can efforts be made to “maximize” total return.
    Harpswell 139, Deputy from the Diocese of Maine

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  8. I'd like to add one more comment on the Proposed Budget:

    Comment on Executive Council Draft Budget 2013-2015 – Funding a Development Office

    In studying the Executive Council’s Draft budget for the triennial 2013-2015, and having heard a presentation with respect to the budget at the Province I Synod meeting of New England dioceses’ deputations, I am concerned by lines 361 – 365, inclusive, that provide for a very large increase in funds allocated to a “Development Office”. The accompanying note states “Start-up funds will be provided by accessing endowment assets”.

    Two major issues rise with respect to this proposal, both of which should be very carefully considered by the Program, Budget and Finance Committee:

    • It is easy to be in favor of “development”, i.e., fund-raising. What is difficult is achieving it. If such a large financial commitment is to be made to this effort, the Committee should require very specific, achievable and measurable goals for what this investment is to return during the triennium. Without “benchmarks” it is very difficult to determine whether the investment is providing the kind of “return” needed and desired. Further, such metrics make it possible for Executive Council, during the triennium, to either “pull the plug” or to increase the allocation of resources, depending upon what is being accomplished. Convention should charge Executive Council with responsibility for regular, detailed and intentional oversight of the activities of such a Development Office, as measured against specific goals presented to General Convention in July.

    • The statement that “start-up funds will be provided by accessing endowment assets” is troubling, first because it is unclear, and second because it will put further strain on the Endowment Fund. It is unclear because it is not stated whether such “start-up funds” will come out of either endowment principal, or an increased draw upon endowment income (which may well result in drawing down principal). In either event, the proposal contemplates taking precious endowment assets and spending them on an activity for which no goals for achievement have been stated. Generally, I am opposed to invading principal to pay current expenses; I am even more opposed when the purpose of those expenditures is stated so indistinctly.

    Harpswell 139, Deputy from the Diocese of Maine

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