Saturday, February 2, 2019

Grace Episcopal: More on the HVAC Project

One of the earliest lessons I learned was the benefit of saving. By digently putting money aside, I was able to comfortably retire more than a decade before most people, with more than enough to meet any conceivable future financial need. How did I do it? By minimizing expenses, living beneath my means, avoiding luxuries like vacations and fancy clothes, by doing without, and by working two jobs for most of my career. Yes, it was tough, especially those first few years post-law school, but very much worth it.

Today, Grace Episcopal confronts a different reality, which is that for years it has refused to save. As a result, the church plans to borrow $540,000 to pay for its half of the replacement cost of the HVAC systems in the building. The other $135,000 will come from reserves. 

The first issue, of course, is that most of the money goes to subsidize the school, which far and away uses the lion’s share of the building. At a time when the church is rapidly shedding pledging units, and the average age of church members is much older that of the surrounding population, taking on this expense is foolish, and doubly so when most of the money is borrowed.

The second issue, previously discussed on this blog, is that this day has been coming since 1994. Did the church make any meaningful effort to save? No, it didn’t, and indeed in 2014 gave Bob Malm $100,000 of church resources as a bonus, as a reward for staying too long.

Third, the church remains perilously short of reserves, even without this expenditure. To be safe, it should have 3-6 months operating expenses in reserves, or roughly $500,000. This leaves the church perilously short of cash in the event of a major expense or decline in giving. And as discussed previously, restricted funds don’t count, as repurposing them without donor permission is illegal.

Fourth, this expense is being treated from a purely reactive, tactical perspective. There is easily an additional $500K in work that needs to be done, ranging from replacing the parking lot, to replacing the new narthex roof, to dealing with rotting wood trim and the need to refurbish both elevators. (Replacing the original elevator would, however, be stupid. A metal box is a metal box.  No need to buy it twice.) To date, the church has no meaningful game plan to address these issues, and lacks the financial means to address anything beyond minor needs.

Fifth, there is the issue of this being an old building. Old buildings, regardless of architectural style or age, share one thing in common: They throw you curve balls. As a result, costs inevitably go up, and it is a safe bet that the church will discover surprises along the way. (Just wait until folks discover the leak inside one of the exterior walls of Merrow Hall. It’s plumbing-related, has been there for years, is slowly causing extensive damage, and is going to be a bear to fix. $100 says there’s not a person in the parish who knows what I am talking about.)

Sixth, assuming a five-year amortization, the church will be paying on the loan when Dysfunctional Bob retires, which he must do by age 72 by canon. Retirements can throw a monkey wrench into even the healthiest churches, and Grace is far from healthy. Just ask Holy Comforter in Vienna what happened to the numbers when Rick Lord retired. (He at least had the common sense to know when it was time to go.) Thus, I can safely say there are shoals in the waters ahead, and a real risk that the church will be unable to repay the loan.

Seventh, the observant will notice that costs already have escalated. Not that long ago, vestry members were predicting that the total project cost would come down once the project was bid out, the cost of which was then forecast at $1.2 million. Today, that forecast is $1.35 million, and knowing the extent to which existing systems are cobbled together, and the vagaries of the building, it’s a safe bet things won’t come in under budget. And this isn’t like the 1994 building project—you can’t downgrade the ceiling panels or go for cheaper light fixtures to reduce costs. Nor is it wise to cheap out on hardware—less expensive compressors, for example, typically operate less efficiently, meaning that what you save upfront, you lose over time as the utility bills come in.

Eighth, if this is anything like the 1994 project, folks will conclude nothing more needs to be done for the next 10 years, and preventive maintenance will be ignored. That both increases total costs, and leads to debacles like the mold problems in the parish office record closet, which were ignored for many years and was a hell of a mess to resolve. Ditto for the HVAC-related mold in the vesting rooms, the bird filth in the attic over the sacristy, and more.



Ninth, Bob Malm, true to form, will try to wash his hands of these issues, but he appoints the executive committee, and nowhere do we see the sort of full-court press that occurred when Bob wanted the church to buy him a house. In short, Bob talks out both sides of his mouth on these issues, but it is the church that pays the price.

In short, it’s time for Grace Church to quit following the Bob Malm live-life-large model, and start taking a prudent approach to it’s long-term financial health. Yes, the trust fund is a start, but there is much, much more to it than that.

It’s time for Grace to get its financial and governance acts together.