John Pearce, President TN Conference CF&A Tennessee Conference United Methodist Church District Meetings January 2018 Financial Considerations of Potential Unification/Combination of Tennessee and Memphis Annual Conferences John Pearce, President TN Conference CF&A

The United Methodist Church is Changing Special Session of General Conference February 23-26, 2019 in St. Louis Missouri Pew Research Millennials 36% Religiously Unaffiliated vs. 17% of Baby Boomers GCFA 2012- 2015 Statistics: “Stable Decline” 1 of 57 conferences grew Tennessee #4, Memphis #16 Catholics, Southern Baptist, United Methodist (by size in USA)

Change Is Coming Whether We Like it or Not How does this change impact us in the Tennessee Conference? What should we be doing now to be prepared for this change? How do we lead through this Change in order to accomplish our mission?

Southeastern Jurisdiction Conferences Membership 12/31/2016 1) North Georgia - 360,771 2) Virginia - 324,931 3) West North Carolina - 279,996 4) Florida - 233,148 5) North Carolina - 226,323 6) South Carolina - 226,270 7) Mississippi - 172,292 8) Holston - 162,288 9) Kentucky - 150,656 10) Alabama-W Florida - 137,614 11) North Alabama - 129,993 12) Tennessee - 116,740 13) South Georgia - 113,229 14) Memphis - 78,320 15) Red Bird Missionary - 1,357 Tennessee/Memphis - 195,060 7 of 14

Joint Meeting of CFA Executive Committees of the Memphis and Tennessee Annual Conferences Regarding Financial Issues Associated With A Potential Unification/Combination of the Two Conferences August 25, 2017 Camden United Methodist Church Tennessee Conference: John Pearce, President Terry Hundley, Vice President Paul Purdue, Secretary Jim Allen, Treasurer Memphis Conference: Bill Milliken, President David Hayes, Vice President Ed White, Secretary Larry Davis, Treasurer (absent)

Purpose of Joint CFA Group: Understand relevant issues/opportunities and find solutions. Report back to conferences with accuracy and transparency. Ensure a potential unified/combined conference will operate financially successful for many years.

HEADLINE: While there is much Financial Due Diligence work that needs to be done before this potential unification/combination occurs, we do believe that, unlike conversations a few years ago, there are no financial issues that would prevent the potential unification/combination.

Financial Perspective/Magnitude MEMPHIS CONFERENCE 2018 Budget $6,058,671 2016 Membership 78,320 2016 # of Churches 413 2016 Average Size 190 2018 # of Districts 4 2017 Appointed Clergy 314 = 40% of Budget, appointed clergy & Membership TENNESSEE CONFERENCE 2018 Budget $8,870,698 2016 Membership 116,740 2016 # of Churches 588 2016 Average Size 198 2018 # of Districts 5 2017 Appointed Clergy 502 =60% of Budget , appointed clergy & Membership

Critical Issue #1: Memphis Conference must fund & defease their post retirement clergy health plan Plan Liability at 1/1/17 $29 million Plan terminated 7/1/16 and now only clergy over age 60 at 7/1/16 have a benefit Liability reduced to $11 million Plan to use excess pension reserves to fund this liability. (Done 9/12/17)

Critical Issue #2: The two Conferences must agree on a consistent method to pay for Clergy Health and Pension Costs Tennessee Conference Apportions Clergy Health and Pension Costs CFA agreed to report to 2018 Conference with recommendations Memphis Conference Direct Bills Clergy Health and Pension Costs Direct Billing is a recent change in Memphis and is very important to them

Average Cost Health & Pension for 1 Clergy 2017 (Tennessee Conference) Average Salary $66,205 Health Cost $8,640 Average Pension Cost $10,526 Total Cost/Clergy $19,166 464 churches Paid < $19,166 120 churches Paid > $19,166 Total Pension & Health Costs = 48% of Total Expenses Conference Ministries = 52% of Total Expenses If 48% equals $19,166 for one clergy then 100% equals $39,929 63 Churches Paid > $39,929 521 Churches Paid < $39,929

Critical Issue #3: The two Conferences must agree on a methodology used to pay for the Conference Budget. Memphis significantly reduced their budget such that they could ask local churches for a “10% tithe” of local church revenue. Tennessee apportions budget based on local church expenditures. Tennessee would need to reduce its (non-health and pension) budget by $1.3 million ( 22% of $5.9 million ) to achieve a “10% tithe”. 2018 Budget is “11.5% tithe”

Tennessee Conference United Methodist Church 2018 Budget Category: Apportioned Amount Budget Amount Other Income Use of Reserves Actual Total Cost % of Total 10% Tithe Goal Pensions: 900,000 810,000 38,000 2,790,693 3,638,693 19.56% 363,869 Clergy Health: 4,325,000 3,892,500 455,000 (5,836) 4,341,664 23.34% 434,166 General Church: 2,718,048 2,410,092 12.96% TN Conference Items: 6,514,503 5,891,986 1,752,213 568,620 8,212,819 44.15% Un-collected 865,152 Needed ADJ (1,313,745) TOTAL BUDGET 14,457,551 13,004,578 2,245,213 3,353,477 18,603,268 8,651,521

Difficult Issues: Consistent Clergy Health Plan Benefits ( Family coverage, deductible, co-pay, part time etc.) Conference camp and retreat assets and deferred maintenance Consolidation of Conference offices and personnel Realization of Cost Savings Plan for potential loss of Apportionment Revenue Ongoing use of Conference Reserves Maintain/Increase 90% collection of Apportionments Control costs and maximize revenue

Not So Hard Issues: Clergy Pension plans: Same plans, all over funded, excess reserves Accounting and record keeping Use of and management of closed church assets Equalization of District budgets and DS & Conference staff pay

CFA Plan, (So Far): Met November 28th First Mtg for 2019 Budget February 12, 2018 Due Diligence CFA Exec. Cmt with Jim Allen and Larry Davis Special task force to focus on consistent Health Plan Benefits CFA Exec. Cmt focus on direct bill of Clergy Health and Pension Costs Special task force to focus on Wesley Foundations Consolidation of: Miriam’s Promise, Martin Methodist College, Camp and Retreat Ministries, Higher Education & Campus Ministry, Congregational Development, Board of Laity & Archives&History with/into the Connectional Ministries Budget