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Wednesday, May 24, 2006

Beware of Too Much Church Debt

Debt2 Here's an important reminder about having too much debt...  This from the Star Telegram...

WATAUGA -- Harvest Church, one of the city's largest employers, is facing foreclosure on the church property after experiencing slower-than-expected membership growth, the aftermath of a late-1990s church scandal, church officials said.

Harvest has defaulted on $7.5 million in bonds that were part of $8.69 million in bonds sold between 1994 and 1997 to expand and upgrade the Baptist church. Work included the 3,000-seat worship center.

"We can't meet our obligation," said Kevin Chessher, Harvest's administrative pastor. "The bond holders have a lien on the property, and they can foreclose on the church property. However, that seems very unlikely at this time."

Foreclosure would mean the church, its school, Harvest Christian Academy, and a day-care center would close, Chessher said. In addition, 165 people would lose their jobs.

"Everything on the campus would be no more," he said.

The church's April payment totaled $384,025, including interest and penalty fees, Chessher said. The church could not pay it.

"We're somewhat concerned with the amount of time it's taking to repay the bonds but have no doubt the bonds will be repaid," said bond holder Lynn Sale, who has been a Harvest member for 24 years. "The confidence comes from the church's ability to survive very devastating circumstances. We're also located in a very high-growth area."

Chessher said the church, at Denton Highway and Hightower Drive, will survive. Church leaders hope to renegotiate their payments with Reliance Trust or find a lender so they can borrow the necessary money.

Harvest has not recovered from a dramatic loss in membership after Harvest's pastor of 20 years, Ollin Collins, was accused of misconduct in 1998, Chessher said.

Five women sued the church, saying they were pressured to have sex with Collins in his church office, in parked cars and in hotel rooms where he stayed during pastor conventions, according to court documents.

The church settled out of court with the women almost a year later after the church's insurance company decided it would be cheaper than to litigate, Chessher said.

"It takes time to recover when a scandal occurs in a church involving one of its key leaders," said Bill Langley, who has served as Harvest's senior pastor for the past six years. "I don't think we realized for three or four years the ramifications of that."

The church had 3,798 members in 1998. Last year, it had 2,368 members, church officials said.

Harvest had some breathing room after changing its repayment schedule in May 2002, Chessher said.

"At that time, we had to make some assumptions about how we were going to grow," Chessher said. "We assumed we would grow at a 12 percent rate, and that's actually healthy for a church."

But Harvest's membership grew between 6 percent and 7 percent annually, he said. Without a robust membership increase, the church could not keep up with its obligations.

"I'm extremely optimistic, and I believe the church will rebound," Langley said. "The church is healthy and strong, but you have to take into consideration what we've been through. I want our people to remain in a positive outlook in this test of our faith."

You can read the entire article here.

FOR DISCUSSION:  How much debt is too much debt for a church?

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May 24, 2006 in Church Finances | Permalink

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Any debt is too much debt. There is a fine line between that of faith and stewardship and that of blind stupidity. Neither are recommended. This congregation projected growth at a variable rate but didn't take into account that other variables (Scandals etc) attack and when Growth happens ... Satan is to attack. We are in a spiritual battle.

Posted by: Gman | May 24, 2006 10:20:14 AM

Used reasonably and appropriately, debt can be a very good way to accomplish things that otherwise couldn't be done. Generally, I would say that real estate and buildings are appropriate uses of debt because for the most part, they will appreciate over time. As to the amount of debt, I would be wary of a church carrying more than it's annual budget; in fact, I would be more comfortable with the debt ceiling at 1/3 to 1/2 of the annual budget. Debt should "never" be used for general operating expenses.

Finally, planning must be based on sound reasoning. For the church in this article, the 12% annual growth projection may have been reasonable at the time the bonds were sold, but I'm guessing that the debt level ($8.69 million) was way out of line with their budget.

(By the way, if they actually experienced 12% annual growth from '94-'98, then their attendance in '94 when they started selling bonds was closer to 2,500. I'm guessing their annual budget was between $2 and $4 million.)

Posted by: Randy Ehle | May 24, 2006 12:15:30 PM

The borrower is always the slave to the lender. Dept is never a goods thing, not even if we think it's an investment.

I know of a church that has been meeting in a school for 7 years. They are planning a large building project, but only after they have raised the funds needed in full. To date they have paid for the property at around 2 mil. They have a 2 year pledge of 3 mil.

If we could wait, I think we would be better off.


Posted by: Ed Mooneyhan | May 24, 2006 1:20:59 PM

The end of Deuteronomy 28:12 says, “…You will lend to many nations but will borrow from none.”

The Bible is very clear in this. Why do we think we have to borrow from man when our God owns the cattle on a thousand hills?

When we do build, we need to do it his way. He has all we NEED. When we bind ourselves to a contract to borrow it enslaves us, the church, to a man and it shows that we can’t trust God and His timing.

My church has been debt-free since 1975. In that time, we’ve built a Worship Center and an 11 million dollar Children’s building. We did it the old-fashioned way. We prayed about it then we saved it and didn’t build until we had the money in the bank.

You wouldn’t believe the freedom in being debt-free!

Posted by: Mark Triplett | May 24, 2006 6:50:41 PM

Ed writes "If we could wait, I think we would be better off." However... with the rising cost of land in many sectors and the rising costs of building materials everywhere... You have to look closely at your options. It might be more expensive to wait!

Posted by: Peter Hamm | May 25, 2006 8:03:24 AM

I understand your point Peter, but that doesn't justify going in to debt. There are alot of things I would love to do with my home, but I can't. I wait and I save.

The advancing of the kingdom is not dependant on whether we have facilities or not. It is advanced through relationships one by one.

Debt is simply not a biblical principle.


Posted by: Ed Mooneyhan | May 25, 2006 9:09:11 AM

Ed, I agree...no debt, period.

Our church will complete a new building this fall. Leadership decided to finance the portion of building costs not covered by our fundraising campaign (about half of the overall cost) rather than waiting a couple of more years until all funding could be internally generated. Church doesn't even cover the operating budget right now, so it will be a God-thing if we can also cover a huge monthly mortgage payment. The Sr. Pastor is already starting to turn up the heat on his stewardship comments -- some type of giving-comments in 2/3rds of ALL his weekly sermons. IMO, that generally drives people further away from giving.

Posted by: Guest | May 25, 2006 11:37:08 AM

I agree Guest. Need doesn't motivate giving. If it did we would have an abundance of givers, because we have an abundance of needs. Vision motivates giving. Preaching more about giving, IMO, motivates guilt and I don't think guilt is from God. Conviction is, not guilt.

Our church has been in a building program for 4 years and they are teaching a course on financial freedom. The problem is that the church is in debt and can't make budget half of the time. I am not motivated to give to the cause, because I am not convinced it's what we need to do.

I wish I had the answers, but I don't. Just some thoughts I guess.


Posted by: Ed Mooneyhan | May 25, 2006 12:32:13 PM

Ed writes [I understand your point Peter, but that doesn't justify going in to debt. There are alot of things I would love to do with my home, but I can't. I wait and I save.]

However, I bet most of us here have a mortgage! And part of the reason debt is "not a biblical principle", especially in the Old Testament, is that people actually SOLD THEMSELVES into indentured servitude. (Kinda like a contract today...)

We do all agree that too much debt can cripple a church. I'm certainly not arguing with you there!

Posted by: Peter Hamm | May 26, 2006 6:48:30 AM

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