April 1, 2020
The following is offered as a resource to explain whether and how churches can use designated funds to pay for operating expenses in times of crisis, such as the current COVID-19 pandemic.
Borrowing from designated funds
There are three main types of designated funds in any church or non-profit: Board (Temporary) Designated – Donor Designated – Legally Designated and Restricted (Permanent Corpus) (see below summary descriptions). In most cases, churches may “borrow” from designated funds to cover operating expenses during the year.
Board (Temporary) Designated funds must be used before restricted funds (i.e., Donor Designated & Legally Designated funds).
Legally designated funds should never be used without consulting the District Superintendent.
Legally Restricted Permanent Corpus funds cannot be used
Any borrowing should be short-term only and the church should make every effort to pay back the funds to the designated fund(s) within the same calendar year.
Summary Description of the Three Main Designated Funds
Board designated funds are designated funds which the Administrative Council, Finance Committee, Trustees or other church leadership function has designated for a purpose. An example would be a fund that the Admin Council has created for a mission trip from budget giving. In most cases, the leadership function can “undesignate” the fund and move the money back to unrestricted.
Note: Church leaders should ensure full and transparent communication among all leadership groups and other church leaders (and perhaps the church at large).
Donor designated funds are designated funds derived from a donation made to the church by a specific donor. In making the donation, the donor specified how the funds can be used and under what circumstances. An example would be a gift of funds to build a new building. The donor gave those funds specifically for the new building campaign and the church accepted those funds as restricted for that purpose. These funds are restricted for the purpose given, unless the church asks the donor to lift the restriction and the donor agrees to do so (the church should get this agreement in writing). At that point, the funds become unrestricted and can be used for any legitimate church purpose.
What happens if the original donor of a restricted amount is no longer available to discuss lifting the restriction? The church should make every attempt to reach the original donor. If the donor is no longer alive or is otherwise incapacitated, the church should attempt to contact close family to discuss lifting the restriction. The guiding principle is to contact the donor (or family) to lift the restriction.
If the church has made attempts to contact the donor and/or the donor’s family and has not been successful in these efforts, the church may be able to lift the restriction by vote of a properly called Charge or Church Conference. The church must contact the District Superintendent and may need to engage legal counsel before holding the Charge or Church Conference.
Legally designated funds are designated funds that have been created to comply with the law or the Book of Discipline. An example would be funds from a parsonage sale that, by Discipline, must be set aside for a future parsonage. Legally designated funds may be able to be accessed, but there are specific legal or Disciplinary rules which must be followed.
Legally Restricted (Permanent Corpus) funds are designated funds that have been created by a donor and cannot be used, only the interest earned or gains in the Fund can be used for the intended purpose, and frequently controlled by limits