Illustration by Jessamyn Rubio

February 17, 2009 | Shortly before Christmas last year, Stan Ledbetter returned from a weekend business trip to some stunning news: While he was away, the vestry at his Episcopal church laid off nearly the entire staff.

“They fired the youth director, the children’s ministry director, the parish manager,” said Ledbetter, vice president for finance and administration at Texas Lutheran University in Seguin, Texas. “The only paid person we have left is the organist.”

Only the vestry knew of the move. Congregants, including members of the search committee looking for a new rector, were in the dark. “How do you sell your church to somebody this way?” asked Ledbetter, who is a member of the search committee.

But whatever the problems with the process, the reasons for the vestry’s decision were no mystery: “Straight economics,” Ledbetter said.

Indeed, those economics are a grim reality that churches and religious institutions understand all too well by now, either from reading the newspapers or watching their own shrinking income. But religious leaders must deal with the inevitable anxiety the crisis engenders, talk honestly about their institution’s finances and to seek wise counsel, church management experts say. This will allow their institutions to adapt to changing conditions and pursue their mission.

How bad is it?

The impact of the recession is clear: A 2008 survey by the National Association of Church Business Administration showed that already nearly four in 10 congregations had reported a dip in income and 12 percent had resorted to layoffs. A growing number of churches have even been forced into bankruptcy.

“Certainly, this is unprecedented in our history,” said Mark G. Holbrook, president of Evangelical Christian Credit Union. In the past two years, Holbrook’s California-based credit union has foreclosed on about a half dozen churches -- the first foreclosures in the company’s 45-year history.

Moreover, the problems are not focused in one state or one region, but are spread across the nation and the denominational landscape.

For example, the Church of the Brethren lost $119 million on the value of its endowment, which dropped to $320 million. In January, Episcopal Church treasurer Kurt Barnes told church executives that the ECUSA investment fund dropped by one-third in 2008, to about $363 million. That has led to cutbacks in spending and personnel, deferral of debt repayments and a greater reliance on the endowment. The drop-off has been so swift that Barnes said the Episcopal Church will “be dealing with the 2008 result for the next five years.”

Seminaries are also showing signs of strain. Institutions that rely on endowments are feeling the pain of stock market losses as some bequests dip below their original value. A 2008 study by the Association of Theological Schools showed that even in recent, relatively flush years, about one-fifth of member schools operated in the red, so the prospects for the coming years is especially grim.

For churches, the degree of pain may depend on the nature of the congregation, said Charles Zech, an economics professor at Villanova University and director of the Center for the Study of Church Management at the Villanova School of Business. Zech noted that evangelical churches with a tradition of tithing are accustomed to self-sufficiency and thus more likely to weather the storm. Mainline churches that rely on pledges and investment income may be hit harder. Catholic and Orthodox churches and others that often subsist by passing the plate are likely to be even worse off.

Even so, Christian organizations will have to find some way to do more with less.