(Non-PCUSAers, run for your lives! Presbyterian family squabbles ahead. *grin* )
Who has authority to interpret restrictions on designated and restricted funds held by the Presbyterian Foundation for the Presbyterian Church USA?
This question is coming before the General Assembly next week in the form of report from the Advisory Committee on the Constitution to Committee 8 (Item 21). Since April, I’ve been a member of a small group of General Assembly Council folks meeting with Presbyterian Foundation folks, sorting through our differing understanding of our respective roles. The following are my reflections on what I understand to be the substantive issues. They are my personal perceptions and do not represent the GAC or any other group.
The Central Issue
At the heart of the matter is final authority in interpreting restrictions with regard to designated and restricted funds held by the Presbyterian Foundation for the Presbyterian Church USA. Integral to this are understandings about how various entities relate to the General Assembly.
The General Assembly and its Entities
I understand the General Assembly to be the final authority regarding interpretation of designations and restrictions. (I’ll substantiate that shortly.) But the General Assembly is only in session for a week once every two years. Therefore, the General Assembly established a mission entity (the General Assembly Council) to oversee the ongoing mission of the church between assemblies. Five other entities exist to carry out specific functions for the General Assembly. Altogether there are:
- General Assembly Council
- Office of the General Assembly
- Presbyterian Board of Pensions
- Presbyterian Foundation
- Presbyterian Investment and Loan Program
- Presbyterian Publishing Corporation
The Presbyterian Foundation is (by General Assembly mandate) the fiduciary repository and financial manager for medium and long-term investments of the General Assembly Council. The Presbyterian Foundation and the General Assembly Council have a joint fiduciary responsibility to expend these funds only for the purposes for which they were given.
Types of Funds
There are two types of funds at issue in this discussion.
Designated funds are unrestricted funds that the General Assembly or one of its entities (past or present) has designated for a particular purpose. Designated funds may be re-designated by the entity that designated them or by the body to whom the entity ultimately answers (i.e the General Assembly).
Restricted funds are funds donors have restricted for a particular purpose. Restricted funds may not be altered by anyone except the donor or by a legal process called a cy pres where a court determines the appropriateness of any changes to a next best use.
Resolving Differing Interpretations of Designations and Restrictions
On occasion, the Presbyterian Foundation and the General Assembly Council differ on interpretation of designated or restricted fund limitations. Usually it is only a handful of funds without urgent financial impact. Sometimes negotiations resolve these issues. Other times a cy pres judgment is sought. An appeal can be also be made to the General Assembly to resolve disagreements.
A key catalyst in raising fiduciary issues was a recent decision of the Presbyterian Foundation to freeze millions of dollars of designated and restricted funds, pending a review for compliance with restrictions on these accounts. In one case, the Presbyterian Foundation determined (among other things) that certain funds restricted for church construction must be used in the form of grants (versus loans) despite silence on this matter in the donors’ restrictions and despite the fact that the General Assembly had instructed the General Assembly Council to use such funds as loans. Meanwhile, several ministries around the country that have been receiving disbursements from these funds under the direction of the General Assembly Council were left in the lurch. This precipitated enquiries about the interpretive role of the two institutions by the General Assembly Council executive director. Those enquiries precipitated the recommendations from the Advisory Committee on the Constitution (ACC) to this General Assembly. (See below.)
The Corporate Relationships and Responsibilities
Upon reunion of the two Presbyterian denominations in 1983, work began on combining the operations from the predecessor bodies. Two corporations were delineated in 1986 by a document called a “deliverance." This document separated out a new corporation from the Presbyterian corporation that traced its roots back to 1799. The new corporation has come to be called the “A Corporation” (The General Assembly Council) and the older corporation is now the Presbyterian Foundation.
The 1986 Deliverance makes clear that for both the General Assembly Council and the Presbyterian Foundation, all business shall be “… subject to the direction of the General Assembly or of any officer or agency thereof thereunto duly authorized…” as long it is in accordance with the denominational constitution and secular law. The critical point of the document for this discussion is the last two sentences under Section 5:
“The General Assembly Council may interpret with binding effect any provision of this deliverance except Section 3(d)(2) and (d)3. Any interpretation under the preceding sentence shall be subject to appeal to the General Assembly.”
Provision (d)(2) deals with investment decisions and (d)3 deals with proper distribution of restricted funds. The General Assembly Council was not given the authority to make binding interpretations with regard to these two issues. The General Assembly Council and Presbyterian Foundation may appeal interpretations at the next General Assembly since all the actions of both bodies are subject to the direction of the General Assembly.
Ten years later, in 1996, an agreement was reached between the General Assembly Council and the Presbyterian Foundation. That report contains a provision for resolving disputes about restricted fund expenditures. It provides a fact finding process after which the executives for the two entities work to find a resolution. Item C. (39.0019 in the minutes of the 208th GA Minutes) of this provision ends by noting that:
“…If this process does not result in a joint determination, the Foundation board will make the final decision.”
The Stated Clerk’s July 2007, Opinion
In July of 2007, the Stated Clerk’s office was asked by the General Counsel’s Offices of the Presbyterian Foundation and the General Assembly Council to render an opinion on whether or not the General Assembly Council has the authority to alter restrictions placed on a fund created by the now defunct Board of National Missions. The Clerk’s opinion hinged a couple of key issues.
First, the Stated Clerk holds that “the GAC remains the omnibus recipient of GA authority…” We saw that clearly evidenced in the 1986 Deliverance as the General Assembly Council was given binding interpretive authority over all but two issues.
Second, while the Presbyterian Foundation has expertise on investment and financial management, it is the General Assembly Council who has expertise on best practices for mission and what mission would best achieve the wishes of the General Assembly.
Therefore, according to the Clerk’s opinion, the General Assembly Council is effectively the General Assembly’s designee for decisions relating to designated funds (not donor restricted funds) of the General Assembly or its entities. He concludes his remarks with:
“The Foundation has responsibility regarding the compliance of the use of restricted funds with donor imposed restrictions. The GAC has the corresponding responsibility for GA entity or GA restricted funds.”
The Advisory Committee on the Constitution’s Advice
In February of 2008, the executive director of the General Assembly Council, seeking greater clarification made in inquiry to the Advisory Committee on the Constitution regarding interpretation of restrictions on A) donor restricted funds, B) General Assembly designated funds, and C) funds designated by entities of the General Assembly. (Click here for pdf) She wanted to know if the ACC affirmed the Stated Clerk’s opinion (above) and if they could offer any further guidance on general principles. Their opinion has become the focal point of controversy.
The opinion affirms the Stated Clerk’s opinion but then goes on to recommend an alteration to the 1996 agreement. The ACC wants to change the sentence presented above that reads:
“…If this process does not result in a joint determination, the Foundation board will make the final decision.”
“…If this process does not result in a joint determination, the
Foundation boardGeneral Assembly or its designee will make the final decision.”
Then they recommend that the General Assembly Council be designated with the authority to make final determinations between General Assemblies. Why?
The Advisory Committee on the Constitution points first and foremost to the fact the General Assembly, not the Presbyterian Foundation or the General Assembly Council, has final binding authority on the interpretation of restrictions placed on funds either by the General Assembly and its entities, or by donors. The question is what to do with this matter when issues arise in between assemblies. The General Assembly has the power to delegate its authority in these matters as it sees fit.
The General Assembly has established the Presbyterian Foundation (in its present form) as its agent for receiving and managing medium and long-term investments. The General Assembly Council has as part of its charge to administer these funds according to their restrictions. The Advisory Committee on the Constitution makes the analogy of a session with a board of trustees (a characterization the Presbyterian Foundation adamantly objects to.) Who has final authority over interpreting the restrictions of funds held by board of trustees? The ACC uses the same logic here.
Underlying all of this is First Amendment case law. The legal advice we’ve received is that the courts will defer to an ecclesiastical authority (GAC) rather than the entity complying with secular authority (the Presbyterian Foundation) in such matters. To do otherwise would entangle courts in making ministry decisions thus violating the separation of church and state. (See this opinion)
One argument is that the Presbyterian Foundation is the denomination’s designated authority on managing financial issues. Thus, when questions on fund restrictions emerge it is best to have final authority lie with the Presbyterian Foundation. As they advertise “with skill and experience, it's our priority to Sheppard donor intent.” But is interpretation of restrictions purely a financial fiduciary matter?
Say a fund is restricted to programs that will provide mobile health care education services. The Presbyterian Foundation has no particular expertise in this area but the General Assembly Council does. Therefore, the case can be made that the best expenditure of the funds according to best practices in a particular area of mission can best be determined by the General Assembly Council, not the Presbyterian Foundation. In the earlier mentioned case, when the Presbyterian Foundation imposed a “grant only” directive for funds that had no explicit grant restriction, they moved into mission direction and out of an investment management fiduciary responsibility.
The Presbyterian Foundation makes the case in their recent publicity campaign that the Presbyterian Foundation are the “savers” and the General Assembly Council are the “spenders.” A “firewall” must be maintained between the two. This is a peculiar way of framing the issue. Both the authority to “save” and “spend” originate from the General Assembly who has final determinative authority over both activities. When the General Assembly meets next week will they illegitimately be making final decisions about “saving” and “spending” as one body? If it is legitimate for them to do so, is not also legitimate for the General Assembly to designate one entity to carry out both functions in the years between assemblies if they so choose? That raises another claim raised by the Presbyterian Foundation.
The Presbyterian Foundation advertises that it was formed in 1799 and has continuously carried on the same fiduciary function for more than 200 years. The Advisory Committee on the Constitution’s proposed change will alter 200 years of practice. The historical record does not seem to substantiate this.
The Presbyterian Church created a corporation in 1799 to facilitate its dealings with secular entities. Part of the designated function for the corporation was the fiduciary responsibilities the Presbyterian Foundation has today. But the full story is that the corporation morphed and changed over the decades. (The word “Foundation” was not part of the corporation’s name until the 1950s.) In fact, the corporation was at times responsible not only for fiduciary responsibilities but also for the mission functions that the General Assembly Council is responsible for today. In other words, in the past, the corporation which the Presbyterian Foundation is heir too was both the “saver” and the “spender.” Furthermore, when the General Assembly Council was formed in 1986 it was divided out from the corporation that is now the Presbyterian Foundation. The idea that there is a 200 year history of dividing savers from spenders appears erroneous.
The Advisory Committee on the Constitution’s solution is to designate the General Assembly Council the authority on interpretive matters between assemblies. Is this the best solution? I don’t know. It is not a solution the General Assembly Council suggested but the General Assembly Council also finds the present arrangement unworkable. The Presbyterian Foundation objects that changes will compromise their fiduciary responsibility. Yet the General Assembly Council’s fiduciary responsibility to expeditiously use funds in accordance with the restrictions donors have made is compromised when the Presbyterian Foundation enters into mission interpretation decisions it is not qualified to make and thwarts mission work.
The General Assembly Council has neither advocated nor opposed the ACC opinion. The team of folks from the General Assembly Council who have been in conversation with the Presbyterian Foundation have felt it would be advantageous for representatives of the two bodies to collaborate with each other on a process, possibly with some mutually agreed upon outside expertise, that would address everyone’s misgivings. Conversation is going on to this day. I hope we can find a mutually agreeable resolution.
I’ve found some of the Presbyterian Foundation’s characterization of issues and of the General Assembly Council in their communications about these issues unfortunate. Some periodicals and media outlets want to frame this as a “money grab” or “the fox raiding the chicken coup.” But I’m ever the optimist. The Presbyterian Foundation is made up of folks who are committed to faithful service to Jesus Christ through their work. So is the GAC. The scandal is the past failure of these two bodies to communicate and collaborate well with each other. The larger lesson in all this is that this pattern needs to be broken. As an officer and member of the General Assembly Council, I’m committed to rectifying this.