PARSONAGE OR HOUSING ALLOWANCE?

The itinerant system remains today as central to Methodism as it was in the days of the circuit riders. Nowadays, alongside itinerancy, the Church also expects clergy to become resident pastors and active members of the community in which they serve. With the practice of itinerancy and the expectation of residency, United Methodist congregations are expected to provide flexible and appropriate housing for appointed clergy and their families. In order to meet these needs, to care for clergy and their families, and to call men and women to a dedicated ministry, congregations must provide reasonable living conditions either through a parsonage or a housing allowance. It is the privilege and responsibility of the members of the congregation to make every effort to provide the physical setting which will give the pastor and his or her family sufficient comfort and convenience so that the energies of the pastor may be more concentrated on their task and willing service in the Church of God.

In the last several years, a number of churches have expressed an interest in offering their appointed pastor a housing allowance instead of a parsonage. While the Cabinet is not encouraging this trend, we recognize that for some congregations and pastors this appears to be an attractive alternative to the traditional parsonage system. In some situations a parsonage may be more appropriate and in others a housing allowance may be best. Because this is a significant decision for congregations and for clergy, the Cabinet provides this information to assist in making the best decision.

Background Information

● Congregations with a full-time pastor must provide housing for their pastor in addition to salary and benefits. Housing may be in the form of a parsonage with paid utilities or a housing allowance. If a clergy family has an appropriate parsonage available to them and chooses instead to live in a different place, the congregation is not obligated to offer a housing allowance.

● The 2003 Annual Conference adopted a comprehensive set of parsonage guidelines that include both “required standards” and “recommended standards.” (See attached guidelines.) The District Clergy Housing Committee is charged with reviewing each parsonage every four years to insure compliance with the guidelines.

● The District Clergy Housing Committee establishes a “minimum housing allowance” that should enable a pastor to obtain a home that meets the Conference standards within 20 miles of the church. The housing allowance should cover the fair market rental cost of a home that meets the Conference standards. Congregations must have their housing allowance approved by the District Clergy Housing Committee before the congregation’s final church conference vote.

● The sale of a parsonage, like the sale of any church real estate, is subject to the procedures outlined in the Discipline. Funds received from the sale of a parsonage may not be used to meet routine operational expenses. They may be used to pay down a mortgage, to help finance another facility, or to fund other capital improvements. These funds may also be invested and the earnings used in anyway the Church Council decides. The congregation must present to the District Committee on Church Location their rationale for selling the parsonage and their plans for handling the proceeds. The District Committee must approve this plan before the congregation’s final church vote.

● Since changing from a parsonage to a housing allowance requires changing the pastor’s salary package, the final decision must be made by a Church or Charge Conference with the District Superintendent present.

● When providing either a parsonage or housing allowance there are specific IRS requirements for authorization and reporting which must be followed. Failure to precisely abide by IRS requirements in this matter can have negative financial consequences for both the church and the pastor.

Congregational Steps for Consideration of a Housing Allowance

• The Pastor speaks with the District Superintendent regarding desire for the church to consider a housing allowance.
• The Administrative Council forms a study team of 5-7 persons including the Lay Leader, and representatives from the Staff Parish Relations Committee, the Board of Trustees, and the Finance Committee.
• The housing allowance study team should consider the following:
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    o The pros and cons for their congregation to move from a parsonage to a housing allowance taking into consideration missional and financial issues.
    o The monthly cost of renting a home that meets Annual Conference Standards within 20 miles of the church. The team should identify at least three examples of appropriate homes for rent.
    o The cost to the budget (annually and over time) if the church adopts a housing allowance instead of owning and maintaining a parsonage.
    o The pros and cons of renting versus selling the parsonage, including a discussion on how the funds would be used in keeping with the Discipline.

 

• Based on this research, the study team would propose an annual housing allowance.
• The study team shares the proposal with the Church/Administrative Council for discussion and questions.
• If the response of the Church/Administrative Council agrees with the proposal to provide the pastor with a housing allowance, the proposed allowance must be approved by the District Committee on Clergy Housing.
• If the study team recommends selling the parsonage and the Church/Administrative Council agrees, the plan must be approved by the District Committee on Church Location.
• A copy of the proposal should be available for members of the congregation to review. There should also be a church-wide meeting where the congregation can have a chance to ask questions.
• The final step is to contact the District Superintendent to set up a Church Conference to vote on the housing allowance and related issues.
  

Financial Implications for the Church and Pastor

1. How does providing a parsonage affect apportionments?

The biggest cost of housing is the initial capital investment at the time of the purchase and the long term investment in maintaining the property in good condition. Capital expenses (the cost of purchasing a parsonage) and capital upkeep expenses (repairs or improvements to the parsonage) are not included in the calculation of apportionments. However, routine maintenance, utilities, insurance, lawn care, etc. are in included in the calculation of apportionments.

2. How does a housing allowance affect apportionments?

A housing allowance is considered part of the pastor’s paid compensation and, as such, is included in the calculation of apportionments along with all other staff compensation. Therefore, a housing allowance will increase the apportionments that the church pays to the Conference. Housing allowances also increase the apportionments that the Florida Conference owes to the denomination.

Unfortunately, there is no quick and easy formula to calculate how much difference a housing allowance will make on a church’s apportionments because the impact is cumulative over time. In any one year the impact is not particularly large. However, churches providing a housing allowance instead of a parsonage will pay higher apportionments year after year. In addition, Conferences that have more churches with housing allowances than parsonages will pay a larger share of denominational apportionments every year.

3. Other than apportionments, is it financially better for the church to provide a parsonage or a housing allowance?

The church will own and maintain a parsonage for 20, 40 or 60 years, or the church will pay a housing allowance to a succession of pastors for a similar period of time. Over the long term, from the church’s perspective, it is generally less expensive to provide a parsonage than to pay a succession of pastors to rent or buy their own homes.

It might be helpful to think of this in terms of renting vs. owning a home. In any single year, the difference between renting and owning may be small; but over a lifetime, the cumulative difference is staggering. Continuing with that analogy, there are many times when renting is a wiser decision than owning (length of time a person plans to live in that area, amount of reserves for repairs, etc.) Generally, if the decision is about long term planning (looking out 20, 40 or 60 years) it is financially prudent to be an owner rather than a renter. Long term ownership is simply a better financial investment than renting.

4. Is it better for the pastor to receive a housing allowance or to live in a parsonage provided by the church?

From a financial perspective, it can be better for the pastor to own a home and begin accumulating equity in that home. However, since it usually takes several years for a home to accumulate significant equity, if the pastor moves every 2-4 years and has to buy and resell a home each time, any equity would likely be consumed by the costs associated with buying and selling (real estate commissions, title fees, closing costs, etc.).

It may be financially beneficial to the pastor to receive a housing allowance instead of a parsonage if the pastor: Uses the housing allowance to assist in purchasing a home, retains ownership of that home longer than 2-4 years, makes wise real estate decisions, is not forced to sell the home quickly or in a down market.

There are non-financial benefits to pastors owning and occupying their own home rather than living in a parsonage. For the pastor, these benefits may or may not outweigh any financial loss or gain. Although finances are an important consideration for both pastor and church, whether to provide a parsonage or a housing allowance should be decided on more than just the financial ramifications.

5. When can we get other information about a housing allowance?

For assistant in calculating a housing allowance or for additional information, please go to the following link: www.gcfa.org/HAllowanceQAs.pdf.. You can also visit the Conference Web site at www.flumc.org, click on the Administration tab from the home page and follow the links.

Advantages/Disadvantage in Consideration of a Housing Allowance:

● Providing a parsonage ties up a considerable amount of capital for the church.
● Purchasing a home can consume a considerable amount of savings from the pastor.
● Locating a home to purchase or rent can be a challenge at the time of moving, particularly in some markets. This might press a pastor into making a temporary decision when moving and then continue to struggle with this decision over time.
● The time and expense of maintaining a parsonage over time are considerable and can be a disruption to the other missional, ministry and outreach efforts of the church.
● The time and expense of repairing and maintaining a home (either owned or rented) can be a distraction for the pastor.
● While depreciation and repair expenses of real property can create tax advantages in some situations, for a church it does not. Likewise, the interest paid on a mortgage may be tax deductible for an individual or a business, but it is not for a church.
● Some churches spend significant sums remodeling for each new pastor − expenses that may exceed what a home-owner would spend over a similar time frame.
● Some churches seldom remodel, or make changes that are not sensitive to the parsonage family, or make changes appropriate for one parsonage family but ill-suited for the next.
● There can be a tendency for congregations to “over manage” parsonages and thus create friction with the parsonage family.
● The expectations by the parsonage family of prompt repair and appropriate de´cor can create frictions with the congregation.
● As a parsonage ages, the church will be faced with a significant investment of time and money to repair and remodel the parsonage or to sell an existing parsonage and purchase a better one. These decisions may arise at a difficult time in the life of a congregation.
● The energy invested by members of the congregation to inspect, maintain and care for a parsonage might be better invested in other ways. And, it may be difficult to find people in the congregation who have the interest, skills, and commitment to do this well.
● If a church chooses to rent the parsonage instead of selling it (when providing a housing allowance), there will be time, energy and expense needed to tend to the issues of rental property. And it may be difficult to find people in the congregation who have the interest, skills, and commitment to do this well.
● A housing allowance may encourage pastors to stay in one location longer as the clergy family may think of the home as “their home,” rather than thinking of themselves as guests in the church’s home.
● A pastor may not recoup the financial investment in a home that she or he has purchased if pressed to sell in a down market or within a short time frame.
● A housing allowance makes it possible for a pastor and his or her family to select a home that is appropriate for the size of their family and consistent with other values such as school preferences.
● A housing allowance can enable clergy to start building equity for the future.
● Sometimes clergy prefer a housing allowance so that they can purchase a home, but in some markets and in some situations, renting may make more sense.
● Despite trends that may last for a number of years, buying and selling a house for investment purposes is a risky enterprise that may result in financial loss.

Florida Conference Parsonage Requirements
(Excerpted from the 2003 Annual Conference Journal)

The parsonage system is a unique living situation. Those who either own their own homes or rent have a choice of where they will live and the quality of the dwelling in which they live. In the parsonage system the minister and family have no choice on where they will or the quality of the home. The parsonage is both a private dwelling place for the pastor and family, as well as an extension of the church’s ministry. The parsonage makes a strong statement about the church to the community. The parsonage has a very important influence on the happiness of a pastor and family serving a particular church. It also has a very important influence on the quality of family life.

It is a major concern that recent studies have shown that the parsonage has the lowest priority in many congregations in terms of maintenance or investment. Following are two sets of recommendations for parsonages located within the boundaries of the Florida Annual Conference.

There are required standards and recommended standards. The required standards are a minimum requirement that all current parsonages must have by June 1, 2007 and that any new parsonages purchased must have. The suggested standards give the Bishop and the Cabinet more flexibility when assigning a pastor.

Required Parsonage Standards:

● Electrical wiring that meets code and is sufficient for today’s electrical needs
● Climate control: both heating and air conditioning
● Rooms:
o Living room or great room
o Dining room or eating area large enough for at least 8 people
o Kitchen
o 3 bedrooms
o 2 bath
o indoor laundry area
o shelter for 2 vehicles
o secure storage area
● Equipment (good quality, dependable appliances)
o Stove
o Microwave
o Dishwasher
o Refrigerator with freezer compartment
o Washer and dryer
o Hot water heater of at least 40 gallons
o Wired for basic cable or satellite dish service
o Maintained smoke alarms
o Current fire extinguishers for kitchen and other required areas
o Monitored security system that insures the security of the entire house
o Vacuum, if there are carpets
o If there is no lawn service and the pastor is expected to maintain the lawn, the follow are minimum requirements: gas mower, trimmer, weed eater, rake, shovel, electrical or gas hedge trimmer, if needed
● Furnishings:
o Quality window coverings in neutral colors that insure privacy
o Quality floor coverings in neutral colors that are durable and easily maintained
● Maintenance:
o Regular pest control inspection and treatment
o Annual termite inspection and treatment
o Annual inspection and cleaning of ductwork as need
o Landscaping should be representative of the neighborhood
o Regular schedule for both inside and outside painting, as needed
o Timely repairs as needed
o Annual carpet cleaning
o Regular maintenance and cleaning of chimneys, if they exist
● Location (for all new or replacement parsonages):
o Should not be on the main church property, but at a distance that insures privacy for the pastor and family
o Within a good school system
o Within a “safe” community
o Where children are permitted

Recommended Parsonage Standards:
● 4 Bedrooms
● Family room
● Study
● 2 Car enclosed garage
● Garbage disposal
● Freezer
● At least one walk-in shower and one tub
● Physically disabled accessibility throughout the house
● Permanent equipped hurricane shutters for all exposed exterior glass areas within 10 miles of the coastal shoreline
● Safe storage areas for paints, gasoline, or other flammables
● Irrigation system for the yard

Excerpts on Parsonages from 2004 Book of Discipline Of the United Methodist Church

¶ 259. Local Church, Administrative Committees, Committee on Pastor-Parish Relations
(16) To consult on matters pertaining to pulpit supply, proposals for compensation, travel expense, vacation, health and life insurance, pension, housing (which may be a church-owned parsonage or housing allowance in lieu of parsonage if in compliance with the policy of the annual conference), and other practical matters affecting the work and families of the pastor and staff, and to make annual recommendations regarding such matters to the church council, reporting budget items to the committee on finance. The parsonage is to be mutually respected by the pastor's family as the property of the church and by the church as a place of privacy for the pastor's family. The chairperson of the committee on pastor-parish relations, the chairperson of the board of trustees, and the pastor shall make an annual review of the church-owned parsonage to assure proper maintenance.

¶ 2503. Trust Clauses in Deeds
1. Except in conveyances that require that the real property so conveyed shall revert to the grantor if and when its use as a place of divine worship has been terminated, all written instruments of conveyance by which premises are held or hereafter acquired for use as a place of divine worship or other activities for members of The United Methodist Church shall contain the following trust clause:
In trust, that said premises shall be used, kept, and maintained as a place of divine worship of the United Methodist ministry and members of The United Methodist Church; subject to the Discipline, usage, and ministerial appointments of said Church as from time to time authorized and declared by the General Conference and by the annual conference within whose bounds the said premises are situated. This provision is solely for the benefit of the grantee, and the grantor reserves no right or interest in said premises.
2. All written instruments by which premises are held or hereafter acquired as a parsonage for the use and occupancy of the ministers of The United Methodist Church shall contain the following trust clause:
In trust, that such premises shall be held, kept, and maintained as a place of residence for the use and occupancy of the ordained ministers of The United Methodist Church who may from time to time be entitled to occupy the same by appointment; subject to the Discipline and usage of said Church as from time to time authorized and declared by the General Conference and by the annual conference within whose bounds the said premises are situated. This provision is solely for the benefit of the grantee, and the grantor reserves no right or interest in said premises.

¶ 2519. Duties and Responsibilities of the District Boards of Church Location and Building
1. Local Church Building Sites and Plans—The board of church location and building shall investigate all proposed local church building sites, ascertaining that such sites are properly located for the community to be served and adequate in size to provide space for future expansion and parking facilities. (See ¶¶ 260.1, 2543.2.)
2. If there is a district strategy committee for parish development or a metropolitan commission (¶ 632.5j) in the district, the board shall consider its recommendations in planning a strategy for continuing the service of The United Methodist Church in changing neighborhoods. If no parish development committee or commission is operative, the board shall study the duties assigned to each and seek ways to provide continuity of service in parishes where there is a change in the racial, ethnic, or cultural character of the residents, to the end that the resolutions of the General Conference involving such neighborhoods be given careful consideration. One member of the board shall also have membership on the strategy committee or on the commission.
3. The board of church location and building shall investigate all proposed local church or parsonage buildings to determine the best method to make the structure energy-efficient.

¶ 2520. Standards for the Approval of Building Proposals
1. The [district] board [of church location and building] shall review the plans of any church in the district which proposes to construct or purchase a new church or educational building or a parsonage, or remodeling of such a building if the cost will exceed 25 percent of the value of the building. Such proposal shall include a statement of the need for the proposed facilities, preliminary architectural plans, cost estimate of the project, and a financial plan for defraying such costs. Before finally approving the building project, the board shall determine that the preliminary architectural design and financial plans have been evaluated and approved by proper authorities. Where readily achievable and financially feasible, renovation plans shall provide for equal access to persons with disabilities.
2. When the local church has secured final architectural plans and specifications and a reliable and detailed estimate of the cost of the proposed undertaking as provided in ¶ 2543.7, the board shall require their submission for consideration and approval. The board shall study carefully the feasibility and financial soundness of the undertaking and ascertain whether the financial plan will provide funds necessary to ensure prompt payment of all proposed contractual obligations, and it shall report its conclusions to the church in writing.
3. A final decision of the board approving purchase, building, or remodeling shall automatically terminate after a period of one year where no action has been taken by the local church to carry out such decision.

¶ 2542. Restriction on Proceeds of Mortgage or Sale
1. No real property on which a church building or parsonage is located shall be mortgaged to provide for the current (or budget) expense of a local church, nor shall the principal proceeds of a sale of any such property be so used. This provision shall apply alike to unincorporated and incorporated local churches.9
2. A local church, whether or not incorporated, on complying with the provisions of the Discipline may mortgage its unencumbered real property as security for a loan to be made to a conference board of global ministries or a city or district missionary society; provided that the proceeds of such loan shall be used only for aiding in the construction of a new church.
3. Exception to this restriction may be granted in specifically designated instances to allow use of equity and/or accumulated assets from the sale of property to provide for congregational redevelopment efforts including program and staff. Such exception may be granted by the annual conference, the bishop, and the cabinet upon request of the local church in consultation with congregation development staff where applicable. A clear and detailed three-to-five-year redevelopment plan that projects a self-supporting ministry must accompany the request.