What do I do when the economy takes a dip?

It wasn’t gay rights, abortion rights or the need to change our foreign policy that really got Bill Clinton elected. As the sign in his Little Rock presidential campaign headquarters stated, “It’s the Economy, Stupid!” Obviously the state of the national economy as it impacted individual voters was the bedrock issue in the 1992 election campaign. As we begin 1993 with new leadership in Washington, the hopes and aspirations of many are that the new team in the Oval Office will be able to produce economic growth and create hundreds of thousands of new jobs. However, as we have recently seen in the media, the campaign promises are proving to be rather daunting in their magnitude and difficult to implement. As ministry leaders therefore, we need to balance whatever expectations we may have had for an imminent improved financial picture with the cold, hard light of reality. It would not be wise to project significant increases in revenue for our organizations based simply on the national euphoria. The campaign theme song, “Let’s start thinking about tomorrow” may make us feel good but doesn’t mean we should break open our budgets and start spending heavily again. Perhaps the best approach for those in the position of having to make financial decisions at this time would be to maintain a “go slow” attitude. Even though we would all like to see the economy rebound quickly, the operative word at this time is caution. With this principle in mind, there are certain considerations to contemplate as we enter 1993. 1. Job Growth. Over the next twelve months, don’t look for a rapid increase in the employment numbers. Unless there is dramatically more spending by consumers followed by a growth in the manufacturing sector, the recovery will continue to be slow. The rate of unemployment probably won’t go below 7% during 1993. Although many corporations are experiencing solid profits, rehiring or the creation of new jobs doesn’t seem to be taking place—yet. This means any hoped for significant increases in donations to ministries will more than likely not materialize. Unless and until this key factor shows an improvement, those who do have jobs will continue to be restrained in their giving. Based on this factor alone, for at least the first half of 1993, budget projections probably should not exceed a 5% increase. 2. Debt. The government is finally realizing the federal deficit must somehow be controlled and it has to be soon. Mathematically there are few options available to reduce the national debt. Cut spending, raise taxes—or both. For ministries, this is a time to continue paying off loans and mortgages. Jim Canning, a CPA and Vice President of Finance & Administration for World Vision International, recommends that organizations avoid taking on any new debt for a while. “Economically, we are not out of the woods yet by a long shot,” says Mr. Canning. Expansion should be very careful, slow and in sync with the overall economic recovery. 3. Government Policies. If the President and Congress decide to attack the enormous national deficit through capping or reducing certain entitlements such as Social Security, cutting subsidies or increasing the gasoline tax, the psychological effects may more than likely cause a belt tightening philosophy. While this is not all bad, particularly in light of some of the excesses of the 80’s, this could produce a carry-over mind set to our donors. Contributors would once again become more cautious. Charitable giving could be one of the casualties of the Clinton doctrine of “sacrifice.” 4. Surplus Funds Management. For those ministries fortunate enough to have surplus funds, many of the traditional reserve account investment options such as CDs, Bankers Acceptances, or Treasury Bills aren’t performing very well in light of past experiences. A 3.9% yield for a C.D. sure isn’t much! The temptation perhaps would be to jump on the Dow Jones band wagon and go for higher yields. Dan Busby, CPA and General Treasurer for the Wesleyan Church advises that if you plan to invest in the market, “Use quality corporate-bond and stock mutual funds…” Mr. Busby also suggests, “If investing in CDs, going with 2 ½ to 3 year maturities may be the best term. Longer maturities won’t yield much more.” Dale Overholt, CPA and managing partner for the accounting firm of Capin, Crouse & Company, advises managers to “remember to adhere to the Prudent Man Rule.” (A practice that is consistent with what would be considered careful and prudent when exercising fiduciary responsibilities.) “This rule should still be followed when investing ministry funds even though there are more attractive alternatives being recommended by stock brokers.” A policy of Due Diligence should also be followed when investing ministry funds with banks. That is, do not allow balances to exceed the federal insured limits of $100,000 in any one account. Mr. Overholt further recommends that “it would also be appropriate for financial managers to request a Call Report from their bank. This is an internal summary of balances, equities and delinquencies which determines the financial health of the bank holding your surplus funds.” 5. Cash Flow Management. Although the financial news may continue to follow the “good news/bad news” format, for those responsible for administering cash flow, there is a need to be alert to any stalling or reversing of the present modest economic recovery. Keeping costs fairly tight is still the order of the day. The emphasis should still be on efficiency and cost containment. There could still be areas that might be re-examined for cost reductions. “There is fat in nearly every organization. By calling them ‘ministry dollars’,” says Dan Busby, “department heads protect pet projects and excess staff.” A tendency to slack off may creep into our thinking now that many believe the worst is now behind us. 6. Maintain the Vision. Many organizations will emerge from the recession leaner, wiser and stronger as a result of the experience. In many situations, ministry leaders are re-thinking their mission statements in light of tehse economic factors. Questions are being asked such as, “What is it we do best?” or “Now that we don’t have the money to do all the things we want to do, how can we get back to the basics?” This kind of thinking is healthy and will enable many organizations to emerge from the economic downturn more vigorous ad ready to face the future. For many Christian managers, moving through 1993 will be like walking through a mine field. You need to look where you’re stepping while you are looking where you are going, and by all means, don’t run! What a shame it would be to make it through the recession only to fail to survive the recovery! AUTHOR: David Pollock, MBA. Resource Ministries, Inc. Winnetka, CA

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