A church endowment funds a ministry through income-earning assets held in perpetuity. Churches build the principal component of an endowment through bequests, grants, and donations. They may appoint personnel to manage it or could contract this out to an experienced investment manager. Congregations may expect accountability in the form of periodic reports on the state of the endowment and how it is being used, to be assured that the funds are responsibly handled.
In a traditional church endowment, anything that enters the principal cannot be touched, which allows the size of the fund to grow over time. Any withdrawals come from investment earnings, and thus don’t deplete the capital or assets available for investment activity. The fund may be restricted for specific purposes, particularly in the case of a large bequest which may be given to finance activities like church repairs. In other cases, church officials can decide how to use the money, and may have a mission statement and set of principles to use in making decisions.
Several management issues can arise with a church endowment unique to this type of organization. The first can be a pressure to invest in a socially responsible way. Churches may not want to invest in sectors of the economy they feel are harmful, such as weapons manufacturers or companies known for polluting. Concerns about the longevity of the church can also be an issue, as people may debate how the endowment should be handled if the church breaks up.
Appropriate uses of funds may also a topic of debate. Money from a church endowment may pay personnel, replace instruments and vestments, and fund activities like building repairs and buying supplies. Some churches use their money to engage in community activities and could offer scholarships, food assistance, and other benefits to members of the congregation or larger community. Uses of the church endowment may depend on the size of the fund, as churches want to be sure they have income available when they need it for emergencies.
Under tax laws, churches may receive special treatment because of their nonprofit and religious missions. To avoid running afoul of regulations, the church may work with an accountant and attorney to set up a church endowment and manage it appropriately. For example, churches may be barred from making political contributions, and thus need to be sure to document expenditures to show that income from an endowment wasn’t used for campaign financing.