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Structured Saving

by Martin Sinderman     Added July 19, 2010

As published in Worship Facilities, Jul/Aug 2010

Capital reserve planning is not a common feature of the overall financial planning done in the world of worship facilities, and it may not be anything you and your congregation have even given any thought to doing.

But when it comes time to pay up for major facilities-related expenses—whether they’re roof repairs, replacing the HVAC system in the sanctuary, resurfacing parking lots, or redoing the lighting—churches that have gone through the process known as “capital reserve planning” and set up “capital” or “replacement” reserve funds should have the money they need on hand to address these costs without scrambling to raise funds from their congregations.

What capital reserve planning is …

Establishing reserve funds for larger, long-term replacements such as roofs and mechanical systems is a great way to simplify and improve a worship faciliy’s budgeting process, according to William I. Scrivens, reserve specialist with Annapolis, Md.-based Miller Dodson Associates, a firm that specializes in capital reserve consulting for homeowner and condominium communities, religious and educational facilities, timeshare resorts, and golf courses throughout the United States.

While this exercise may be new to churches, the process is well-established, Scrivens notes. Originally developed for homeowner and condominium associations about 20 years ago, the capital reserve planning process is easily adapted to worship and educational facilities.

“There is no reason to reinvent the wheel here,” says Scrivens. “Many of our worship facilities clients are those that have had a reserve study performed for their community association, and realize that this service is equally relevant to the annual budget of their church or private school.”

Other entities that go through a similar exercise include potential buyers evaluating a property as an appropriate investment, according to Carson Horton, partner and operations manager for Beaverton, Ore.-based Capital Reserve Consultants LLC.

“What you are doing is creating a long-range funding projection—much like putting together a savings or a retirement program,” explains Horton. “You are trying to figure out how much money to set aside each year to achieve a goal, be it replacing your carpeting, repairing your parking lot, replacing your furnace—at certain ‘target dates’ in the future, which are predicated upon when projected replacements and/or repairs are expected.”

Target dates for each replacement/repair are projected as a result of the life expectancy of various assets, according to Horton. Costs for each are calculated, and plotted out on an asset vs. year spreadsheet that shows “peak years” when expenditures should occur.

With that information, “You set up a savings plan, so that the targeted replacement dates are pretty accurate,” says Horton, “and then, about the time it is necessary to make a big replacement/repair expenditure, you’ve got the money saved to do it.”

Important considerations

Replacement intervals and facility use are two important considerations in a formal reserves study, according to Scrivens.

Different components of a facility—roof shingles, sidewalks, or HVAC systems—have their own unique “useful live and replacement interval” that indicate when they are likely to need funding for replacement or major repair, says Scrivens.

Planning for when funds will be needed for a roof replacement, for example, is a very straightforward process. A standard shingle roof has a manufacturer's warranty of, say, 20 years, making it reasonable to assume that (barring adverse environmental and other on-site factors) it should last around 18-22 years before requiring replacement.

While planning for replacement/repair of many facility components is predictable and straightforward, in some cases it is not, according to Scrivens. Concrete sidewalks typically never require total replacement, he says, “but rather, portions may require replacement on an as-needed basis, which makes the intervals a bit more complicated to estimate. But they are generally still very predictable when the experience of similar facilities is utilized.”

Worship style and individual use patterns also need to be accounted for in a reserve study, notes Scrivens. “A reserve study for facilities that utilize traditional items such as stained-glass windows and a sanctuary organ to create their worship experience will be very different from those churches where state of the art video and audio production equipment are used to create a more evangelical style of worship.”

Enacting a plan

The Rev. Mary Selerud, canon for Deployment and Vocational Ministry for the Episcopal Diocese of Washington in Washington, D.C., headed efforts to encourage individual parishes in the diocese to develop and fund capital reserve plans.

“The first thing I told them is that the process starts with doing a basic building audit,” says Selerud. These audits include a listing of all existing building assets and systems, along with documenting their installation dates, repair needs, projected life expectancy, and likely replacement costs. “They take an enormous amount of work,” she adds, “but it is hard to do any sort of planning until you have that kind of inventory done.”

Other components of the process are described in depth on the diocese’s website at http://www.edow.org/parish/administration/wardens/finance.html#majorexp). The end result is a spreadsheet comprised of existing and planned-for-purchase building assets (i.e., “Capital Reserve Items”) listed in the far-left column; information on each item’s original and estimated replacement costs in the next two columns; and a time line for replacement, refurbishment or purchase of each item running across the top, one column for each of the next several years.

Dividing the estimated replacement/refurbishment cost by the number of years before scheduled replacement/refurbishment shows how much needs to be saved annually in order to pay for the replacement/refurbishment for each particular item in the year it is due. Totaling each year’s column gives the total amount needed each year that needs to be paid for all replacement/refurbishment slated for that year, or saved toward a future year's expense.

Martin Sinderman is an Atlanta-based freelance writer and a regular contributor to Worship Facilities Magazine.