Five Dangers of Church Designated Funds

If there is a topic that reaches me with frequency, it is the topic of church members designating funds. And the common theme is one of regret. The pastor or other church leader wishes the door of designated funds had never been opened.

For clarity, I am not speaking of designated funds approved by the church body as a whole. Many churches have excellent stewardship approaches that encourage members to give to a building fund or a mission fund, as two examples.

Instead, I am referring to those designated funds given to the church by a single or few members with guidelines not approved by the church as a whole. For example, one pastor shared with me about funds the church received with the strict stipulation that the church had to use them to buy stained-glass windows. The only problem is the church did not want to purchase stained-glass windows.

In another example, a pastor shared with me about a member who would only give designated funds to the youth ministry. The problem is that the youth ministry already had funds in the church budget, but these designated funds gave the youth ministry disproportionate funding compared to the other ministries. To make matters worse, the youth ministry was encouraging the donor to make the designated contribution.

So designated funds are not an intrinsic problem themselves. But they can become a dangerous precedent for several reasons. Here are five of them:

  1. They circumvent the will and the plan of the church as a whole. Designated givers are basically saying they don’t like the unified budget of the church, so they are going rogue and dictating their preferences over the church as a whole. A church with numerous designated funds can find it has a budget with no teeth.
  2. They create division in the church. Each designated giver is doing things his way or her way. Others tend to resent the imposition of will the person demands. Disunity is thus a natural consequence.
  3. They create an environment where advocates of a particular ministry or need of the church solicit designated funds. The youth minister in the example above spent an incredible amount of time and energy currying the favor of designated giving to the youth fund. Instead of ministering to the students, he was spending as much time becoming a fundraiser.
  4. They often come with stipulations that are difficult or impossible to comply. I recently heard from a pastor whose church had a designated endowment fund. The donor to that fund, however, established investment guidelines many years ago that required certain investment instruments that no longer exist.
  5. They often hurt the budget giving of the church. The person who designates to the youth fund is likely taking dollars that would have normally gone to the budget as a whole. In many cases, each designated dollar is thus a dollar deducted from the overall budget.

I encourage church leaders to develop clear guidelines for dealing with designated funds. It will make saying no to a potential donor much easier. And it will also send a clear message that the church seeks to move forward in stewardship unity, rather than different members deciding what their own financial preferences and whims are.

Posted on February 19, 2018

With nearly 40 years of ministry experience, Thom Rainer has spent a lifetime committed to the growth and health of local churches across North America.
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  • A lot depends upon how the Church Administration is set up. If your church has a mission board, and a congregant wants to support missions in ___________ , I think the Church would accept and see that the money went to help that entity. Also, if a member dies and he / she designates that part of their estate is to add something in memory of a relative or beloved staff person, to the church building, grounds, worship service, choir, sponsor a staff member where you had no one before, I think the Church would accept the designation. Any system can get out of order by frivillous designations. The Church should have a designated Policy in Place.

  • David Rutledge says on

    We give training to every group in the church, but we usually forget about the Finance
    Team training. (depending on church governance) A deductible charitable contribution (unless the money is solicited for a particular project) is given with out strings attached attached to it. The leadership will try to comply with the donors desires as much as possible.

    If the finance team sets up categories, they should be broad categories to cover a lot of items if more money is given than what is needed. Designated money should be spent first, before any budgeted money is spent.

    If a church solicited money for a particular project, how to spend that money comes under a different set of guidelines. There are court cases – church lost

    A good book to read is “The Guide to Charitable Giving” – Dan Busby

  • Patrick Lonergan says on

    I agree that the topic of designating funds can be troublesome, especially when it is done because the “giver” does not agree with one or more line items of the approved budget. Designating their “offering” to only the budget items they agree with can effectively sink the ship of ministry that the congregation has approved. I’ve been thinking of recommending that designated giving be given a cap, which once exceeded, would result in the excess flowing back to the general operating fund.

  • Good discussion. I think this topic needs greater analysis when it occurs. We need to be careful to avoid quick (and negative) inferences. It may be an occasional incident due to a unique call of generosity to a need. On the other hand…. a pattern may signal something serious.
    What we find is that ministry and church staff do not ask the hard analytical question, “what is going on here?” Nor do they hold a mirror up. A couple commentators above have mentioned that a growth in designated giving, e.g., to missions, may be symptomatic of growing distrust and a growing gap between leaders and congregation. That is a very dangerous sign, and a pastor’s or leaders’ reaction is frequently to engage in denial & conniving to manipulate the congregation back into compliance, which simply makes things worse, and a downward spiral begins. If the root cause is early growing distrust, (also seen in budget votes, etc.), a self examination of leadership conduct should be in order.

  • Pastor here. My tongue-in-cheek response to the designated fund argument is “Do you think the church members would be comfortable if I designated my entire tithe to the Pastor’s Christmas Bonus Fund?” That usually gets some grins from people and then opens up some honest dialogue.

    • George Moger says on

      I am a member of a church (2016 to present) & I help count the money so I can’t help but see things. My pastor rarely gives anything to the tithe but will normally give a substantial amount to “special” & then he writes in “Pastor’s special project”. I have been counting money for 2 years now & I have to admit, that keeps bugging me more & more, I may be forced to leave an otherwise good church because that just doesn’t look or feel right to me. The only thing I can think of is he is laundering money through the church to give himself a tax deduction & if that is what is going on, I want no part of it!

  • this time the left hand not letting the right hand know says on

    I’m curious how many think we did wrong a couple of times:

    Once the church was in need of an AC. (Tiny rural church, low cost to purchase and so run since in the desert a swamp cooler was adequate.) We had a chance to buy one at greatly reduced cost, had the cash to do so without affecting our normal giving, checked with the church board that yes it was wanted, and bought it.

    Couple of other times we gave, above our usual giving, to children’s and youth ministries because we felt we were bringing more kids with us than the church had budgeted for. (Not our kids.) Those we left the exact spending to the board, just designated the underfunded dept. to make up what we felt we were costing “extra” above the budget.

  • David Kinnon says on

    I partly disagree with Dr Rainer on this one. Certain designated funds are for vanity projects, like a new organ or stained glass windows. Certain others are designated after prayerful consideration to meet a perceived ministry need; if the donor and church leaders cannot agree on the designation in these circumstances I agree that the gift should be withheld and given to those with a similar vision elsewhere. The third category I have encountered is where funds were to be designated to purchase a specific property or asset for ministry maintenance or extension, and the donor wished to ensure that the leadership did not simply dip into these funds to suit certain pet projects (or staff salary increases!) The issue is not therefore so black and white to me as I am not sure my experience of “leadership” is always that the leadership is fault-free in financial decision making.

  • Are you aware of any studies or statistics revolving around designated giving that dives into giving ratios, increase or decrease in overall giving, or budget impacts of designated giving?

  • David Woolverton says on

    Great article, Thom. How do you address designations that are put into estates – with stipulations in the will to use the money for specific ministries? I assume the answer is to have the church create policies for all donations – regardless of type. I have persons on my Finance Team that want to honor the heart of the person’s will. Thoughts?

    • You’re right, a blanket policy about gifts and donations is essential. A clear policy and practice is helpful too.

      Our Parish policy is gifts are received for our capital improvement account or operations. Memorials and Honoraria are always capital improvements and others are to operations. The only time we receive designated gifts is for specific things (roof and organ) with all excess going to capital improvements.

      The difficulty of receiving a gift without policy or guidance means a church is bound to use the funds as designated. If they are unable to do so they will have to petition the donor or the courts to remove the restriction.

  • I’ve seen members buy items for the church and then donate them to the church (sometimes approved, sometimes not). Often times they are donated in memory of a family or church member. The problem that I have seen occur is then no one wants to get rid of John Doe’s item. I had a friend who worked at a church with folding tables that needed to be replaced but no one wanted to because they had a small plaque on them with “Donated in memory of ________.” Even if it’s not in memory of someone, the donor often takes a sense of ownership of the item and doesn’t want it to ever be replaced. My parents have made it clear that they want a portion of their estate to go to our church. I would love for the church to use it for a “special project” that just isn’t in the budget, but above all, I know my parents would want it to be used where it it most needed. I hope others that think about designating to special funds will do the same.

  • Paul R Smith says on

    I helped to write the by-laws in some churches where I have served.
    One section always covered giving. It stated all donations given to the church may be accepted or refused at the discretion of the church. That any donation to the church became property of the church, whether cash or property and while the church would consider the intent and spirit in which the donation was made the actual use of the donation was at the discretion of the church.

  • Thom,
    Thanks for this great article. I completely agree. I might add that most of these same principles apply to churches that designate their mission giving to their denomination instead of giving to the general fund. It makes one ministry flush with cash while starving equally deserving ministries that may not be as glamorous or have a strong advocate at the table. It demonstrates a lack of trust in a denomination’s leadership team. Let’s model as church leaders what we want our church members to do. If we want our church members to tithe 10%of their income to the general fund of the church, then those churches should tithe 10% of their income to the general fund of their denomination. Or if a church is non-denominational, then tithe 10% to the general fund of some worthy mission ministry, but don’t designate how you want it spent.. Let’s lead by example.