part 2 of 2
Where does the money go? More than two years' worth of board minutes obtained by Westword, covering a period starting in January 1992, paint a picture of a nonprofit Christian ministry flooded by funds yet facing big bills. Daily cash flow pulsated into six figures. On the other hand, the ministry faced multimillion-dollar long-term debt to complete its purchase of the Beau Monde mall and more immediately pressing bills for millions of dollars a year to buy TV time.
The key for the ministry is what its officials call "undesignated" money. As a nonprofit organization, it raises money for specific purposes and has to spend it on them. That's "designated" money. "Undesignated" money, however, can be spent on just about anything that can be linked to the organization's purpose--such as buying TV time to spread the gospel.
Outpouring, the ministry magazine, puts this disclaimer in tiny type on its inside front cover: "Your donation to Marilyn Hickey Ministries is deductible to the extent provided by law and is received with the understanding that in the event Marilyn Hickey Ministries receives more funds for a particular project than are required to complete the project, any excess will be expended for tax-exempt ministry purposes at the discretion of the Board of Directors."
And there is excess. The "Statement of Receipts and Expenses" for Marilyn Hickey Ministries (doing business as Happy Church Inc.) paints the overall picture of the Hickeys' operation. For the first nine months of 1994, the company's total revenue was $12.7 million. Operating expenses for the first nine months totaled $11.4 million. Net receipts (after other additions and subtractions) totaled $1.042 million.
(Not bad for a nonprofit organization. Extrapolated to a full year, that puts annual revenue at $17 million, expenses at $15.2 million and net receipts at $1.39 million.)
The corporation's internal documents separate operations into two main categories: the church and the ministry. The "church" includes the Breadstore (an aptly named retail outlet for books, tapes and videos), the cafeteria, the K-through-12 Riverview Christian Academy and various pastoral and education groups. The "ministry" includes Marilyn Hickey's telemarketing, TV, magazine and direct-mail operations, overseas tours, special events and product sales departments, and the Marilyn Hickey Bible College. That segment produces about three quarters of the revenue.
During the first nine months of 1994, one quarter of the company's total operating expenses went to television advertising. That amount, $2.8 million, far outstripped TV revenue of $1.6 million. But the Hickeys more than covered the gap with direct-mail revenue.
In fact, direct-mail revenue was higher than the entire revenue of the church segment of the company. Not that the church was ailing. Its tithes and offerings during the same nine-month period were $1.8 million, a 19 percent increase over the same period in 1993.
Where did the church segment's money go? During the first nine months of 1994, nearly $1 million went to "Church Administrative Expense." (Another $1 million from the ministry segment went to Church Administrative Expense, too.) But the church stayed in the black even in the operations of its separate Couples Ministry, Men's Ministry and Women's Ministry. Its two youth ministries, Fresh Fire and Youth, also took in more than they spent. In fact, the company spent more on the church's Fine Arts and Sound department than it spent on either its Couples Ministry or Women's Ministry.
It's the ministry segment, however, where the real money was made--and spent. In addition to the excess revenues produced by direct-mail and Outpouring, the ministry took in $751,435 at special events--mostly Marilyn's speaking engagements--and spent only $308,423.
And, despite the numerous appeals made by the Hickey organization on behalf of desperate people overseas, the ministry listed only $27,077 in revenue under World Missions and $1.6 million in revenue under the Undesignated category.
Religious organizations can opt out of Social Security and are exempt from income tax and property taxes, among other levies that regular corporations must contend with. And they don't have to disclose as much about their operations as even other nonprofits do. Although local IRS officials won't discuss the status of any investigations into religious organizations, they don't lean too heavily on churches, because they can't. It takes an order from a regional commissioner to even open an investigation of a ministry. Under the current laws, there's no action or penalty the agency can levy except the radical step of trying to yank a misbehaving organization's tax-exempt status. And even starting an investigation is difficult because of the First Amendment's protection of religious practices, notes Denver-based examiner/ auditor Scott Walk. "There are abuses out there," says IRS official Janet Hughes. "The depth, we don't know."
That puts any government entity at a disadvantage when trying to extract money from churches. So it was no surprise that the year 1992 started well for the Happy Church with what its board minutes termed a "very successful" negotiation to reduce the Arapahoe County property-tax bill from $494,000 to $14,000. (Government officials had claimed that Beau Monde, which started life as a $30 million ritzy mall, still was a commercial building. The Colorado attorney general's office later determined that none of the property should be taxed because it was owned by a religious nonprofit organization, and the mall currently is listed on tax rolls as "fully exempt." Recent changes in the law, however, may mean that Hickey's company will have to start paying property taxes on the part of the mall it rents to commercial tenants.)
But at that same board meeting, corporate secretary Karen Cutler reported a cloud on the horizon: The ministry was in the midst of a three-year "Together We Build" fundraising program to renovate the mall into a church. Cutler noted that "there has been a pattern by which some persons have simply shifted their tithing dollars into TWB, thereby reducing the overall tithes received and affecting our ability to pay bills." Hopefully, the board noted, "our financial situation should improve in 1992 so that we can help utilize TWB funds for construction once again." Boardmember Dorlan DeWitt, also a faithful churchgoer, suggested that "TWB funds currently in escrow be made available for emergency financial needs and replaced as additional funds become available." The board "suggested that the congregation be informed in a low-key, but appropriate way about this change so there is no misunderstanding of our policy."
(During early '92, the board also finalized an interest-free $200,000 loan from the Bethesda Foundation in Colorado Springs to build a gym in the Happy Church mall. That would help free up TWB funds for other purposes. In return for the loan, the ministry would agree to raise funds for Bethesda's own Mission of Mercy to Calcutta.)
Then the board moved on to another nagging problem: housing allowances for pastors. Under Section 107 of the federal tax code, religious organizations can subsidize pastors for living expenses. Marilyn Hickey Ministries issues ministerial licenses to its corporate officers and administrators so they can share in this. Those receiving such allowances wind up with a significant portion of their income being tax exempt, and their salaries from the ministry are adjusted downward. The employee winds up in a lower tax bracket because his gross salary is reduced, but because a chunk of his income is tax-exempt, his take-home pay is unaffected or even a little higher. The company benefits because it can offer a lower total salary. The public, in effect, subsidizes this tax break. According to the minutes, DeWitt was the only boardmember to continually voice concern that administrators who didn't function in pastoral roles were getting such subsidies.
Mary U. Smith, Hickey's longtime right-hand woman and the organization's official second in command, spearheaded the effort to make sure all the paperwork was in order. The first step, of course, was to grant ministerial licenses to those deemed worthy of pastor's housing allowances. During the January 1992 meeting, the board voted to grant a license to corporate vice president Smith herself.
At the next board meeting, in March, the board noted that ministry income was up $1 million in 1991, compared with 1990, and that combined ministry and church revenues collected so far in 1992 were 22 percent ahead of the same period in 1991.
Despite that good financial news, the board decided not to help the parents of students at the ministry's Riverview Christian Academy, also housed in the mall, raise $135,000 to build classrooms: "In discussion, the Board was supportive of the idea of the parents conducting fundraisers for the extra classrooms, as long as it is understood that the church cannot agree to this extra burden at this time." In a similar move, the board decided to use money collected from students going on a ministry tour to Oral Roberts University to help buy a tour bus.
To further save money, the board dropped collision coverage on all vehicles except the Hickeys'. During this period, the board also was no longer making contributions to its employee pension program because of "finances."
But May's meeting brought more good news. Two of the four remaining problematic housing allowances had been okayed by the company's auditors. A relative of associate pastor Barry Palser, a Barry Manilow lookalike who's a rising star among the church's pastors, arranged contact with a company that submitted a low bid on sprinklers. Boardmember Morris Ruddick, a communications consultant in private life, suggested that the ministry make a video for the congregation to communicate the "wonderful developments" taking place.
Most thrilling was the news that receipts were up 13.5 percent compared with the previous year and that net receipts had risen 66 percent; church tithes, offerings and program income went up 23 percent, and ministry revenue climbed 20 percent. The board agreed to sell stock from its portfolio in order to fund the purchase and installation of a new computer system for accounting and, among other things, improvements for the ministry's mailing list. According to the minutes, Marilyn Hickey noted that "our much improved financial status was due to God providing increased income, as well as staff working together to cut back on expenses and to be very creative in finding ways to improve efficiency."
The January layoff of 7 percent of the company's staff probably didn't hurt, either. And when fellow boardmember Doug McDonald, owner of Monarch Mazda in Littleton, suggested that the directors "forfeit their payment for meeting attendance" to pay for a corporate malpractice insurance premium, he was voted down.
The year proceeded well. The telemarketing department set daily records for phone calls in August 1992--just over 2,000. That same month, Cutler reported that "while attendance has been down over the summer, our income has stayed up." Boardmember Ruddick had spearheaded a survey of the Happy Church congregation (449 people filled out questionnaires); Cutler concluded "that there are many new people who are as yet uncommitted to our fellowship in a deep way." The survey specifically pinpointed ways to help members become "more generous" to the church. Marilyn Hickey told the board that "our attendance challenge" must be prayed upon: "She added that she feels we need to do more with the telephone as this tends to bring great benefits," the minutes noted. "We may have people who want to `feel better' but not commit, and God can show us how to handle this." She urged the board to read Richard Dortsch's book Integrity: How I Lost It and Regained It. (Dortsch is a former ally of Jim Bakker's who got caught up in the PTL scandal.)
In October Mary Smith noted that the organization had half a million dollars in escrow "for a variety of purposes." Nevertheless, it was decided to launch another TWB pledge campaign in April 1993: Phase III, which would help pay for construction of a permanent sanctuary in the mall's former courtyard. "This would give time to finish Phase II projects and lessen the pressure before asking for another significant pledge." The minutes also noted that $53,000 had been paid back on the Bethesda loan: "This money has been raised primarily by Marilyn but also through the Telemarketing Department."
Money was coming in from all over. A "special offering" during the ministry's Singles Jubilee raised $58,241 for the cafeteria. A Riverview parent donated stock to pay for teacher bonuses. Smith reported more wonderful news: Net receipts showed the church and ministry each more than $200,000 ahead of last year's pace, and revenue in the Breadstore was up by 20 percent. Overall, the minutes noted, "we are $1 million ahead of last year for net receipts, and this does not count in excess of $530,000 in the escrow account."
Mary Smith announced that the company would begin to reinstate its pension match at 2 percent: "This will cost $32,000. While this is not at the level we were previously providing, it does show our employees that we are concerned."
At the first meeting of 1993, on January 13, the board discussed the new one-year TWB pledge campaign to build the permanent sanctuary. Corporate secretary Cutler announced plans for "several advance dinners with key supporters, as well as an appeal to the congregation on a Sunday morning." She gave details of the current three-year TWB campaign, noting that there were still $600,000 in unfinished pledges by present congregational members. Later the company decided to ask for $1 million in pledges for Phase III, expecting to receive $750,000.
Things were really rolling. Smith said "all church programs are covering their expenses, other than a few, such as Fine Arts and the children's area which have no way of generating significant income." In "special events," the department that handles Marilyn Hickey's speaking appearances at revivals and camp meetings and conferences, the company was showing net receipts of $700,000 through November 1992. It was agreed that the ministry would provide company vehicles to each of the Hickeys--plus gasoline.
Not everything was sunny, however: Smith reported that the company would have to shell out $14,000 in back pay to some workers for overtime. "It was noted that generally the Department of Labor does not investigate church organizations," the minutes said. "However, because we are incorporated as Marilyn Hickey Ministries and they concluded that a significant portion of income is from `commercial enterprises' (books, tapes, etc.) they had authority to investigate us."
During their next meeting, the directors gave Smith permission to buy a paper shredder: "Due to some recent information we have received about groups who are seeking to undermine Christian organizations, we feel that we should purchase a shredder for disposing of paper," the minutes noted. That meeting took place on March 31, two days after a federal appeals court in Texas lifted an injunction against a consumer-fraud probe of Tilton, whose widely publicized problems were exacerbated when ABC reporters found prayer requests in the dumpster behind Tilton's bank. (Today the Hickeys' workers regularly shred financial documents and other paperwork. Bags of such material can be spotted on their loading dock and in the dumpsters at Beau Monde.)
During that March meeting, the board also discussed the looming problem of a state Senate bill that would have imposed financial-reporting requirements on religious organizations and other nonprofits (churches were later removed from the bill). According to the minutes, "the main impact of this bill would be that it would be to require submission of financial statements and possible other documentation which could lead to further government interference." The board claimed that state senator Dick Mutzebaugh "incorrectly" used the Happy Church as an example of property-tax avoidance. "McDonald suggested that we should clean up the taxes-owed situation as soon as possible," the minutes noted, "in view of the Senate bill discussion that involves us."
And perhaps also in view of that discussion, the board voted to give $1,000 to Christian political lobbyists Jeanne Bignall and Katherine Anderson.
In other bad news, head of purchasing and custodial services Art Ulibarri's housing allowance--which DeWitt had questioned at the January meeting, "with his no longer being involved heavily in ministry areas"--was rejected by the company's auditor. And Gregg Schipper, head of shipping and receiving, also was not approved for the pastoral allowance. "As Art had previously had housing [allowance]," the minutes noted, "an adjustment will be made in his wages to compensate for this change." But later in the year, Deb Wittmier received a ministerial license despite the fact that, according to the minutes, she "recently changed roles from that of pastor to administration." Her December 1993 housing allowance "as a minister of the Gospel" totaled $18,050.
That paled beside Wally Hickey's housing allowance, which totaled $31,300, according to a December 1993 statement, although the Hickeys' home is paid off. Included in Hickey's stipend were $10,000 for "furnishings" and $11,000 for "other expenditures."
The company's young interns got no such subsidies. In March 1993 the board okayed setting up something called the Timothy Institute as an intern program: "The concept is for young people to provide their own support for a one- or two-year internship at Happy Church and Marilyn Hickey Ministries. We currently have four interns in the first group. We need to approve the Timothy Institute so that it will qualify as one of our `doing business as' entities as well as for tax-exempt purposes."
At that March meeting, Smith reported that she had huddled with attorney Kirk Boersma of Tulsa. "In the current environment," the minutes noted, "it is important that we now have an ongoing relationship with an attorney to ensure that our organization is in compliance with the law in various areas as well as to prevent possible lawsuits."
Among the problems that wouldn't go away was the specter of property taxes. The board noted this potential tax liability of $10,000 a year on the commercial tenants, such as Le Peep, that still inhabited part of the mall: "We should expect to pay these taxes sooner or later."
Le Peep wasn't the only for-profit eatery on the premises. In June 1993 the board heard plans "to gear up our dining area" to include expanded activities such as a five-day-a-week hot-lunch program for the school, breakfast and lunch opportunities several times a week for staff, and meals for bible college dormitory residents. "It appears that the kitchen/cafeteria can be a profitable enterprise for the church which can provide revenue for individual departments, as well as undesignated funds for the church general fund, which is very much needed," the minutes noted.
The company had other ways of raising undesignated funds. It regularly approved "direct-mail budgets" for various foreign countries, and any excess money raised over the amount of the "budget" could be spent elsewhere. In August 1993, direct-mail budgets were approved for a "Christmas in October" $30,000 campaign for Calcutta and a "Christmas Emergency" campaign of $5,000 each for Bangladesh, Cambodia, Laos, Vietnam and Haiti--a total of $25,000. Ironically, just about the same amount--$24,999.78--was submitted that December by Pat Rosales, chief of the ministry's in-house TV agency, as her tax-exempt housing allowance as a "minister of the Gospel."
Among the direct-mail appeals approved by the Hickeys' company in 1994 were two campaigns at the scheduled March meeting: $60,000 for China and $10,000 for Bosnia-Serbia.
Real emergencies, however, could be dealt with more quickly. On September 26, 1994, the board conducted a special meeting by phone to approve a request by Marilyn Hickey, chair of the board of regents of Oral Roberts University, that the company send $20,000 to the Tulsa school, which was "in crisis need of cash on an immediate basis." It was to be considered a loan, the minutes noted, but "with the understanding that if repayment is ultimately not feasible, that this loan be forgiven and considered a gift."
At its previous meeting, in August 1994, the board had apparently deemed the Rwanda crisis worth half that much; it authorized $10,000 in "humanitarian aid" to the African country. At the same meeting, the boardmembers learned they now had more than $1 million of "undesignated" money in escrow, ready to spend.
There apparently are some folks at the Happy Church who could use some "humanitarian aid" themselves. In the lowest level of the church mall is a prayer room. Before services, the room fills up with people, mostly youngsters, pacing back and forth, praying loudly, speaking in tongues, working themselves into ecstasy.
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During services, however, the room is empty. The adults are upstairs in the interim sanctuary, listening to music and the Hickeys' sermons. The kids are in another room, chanting "F-A-I-T-H" under the spell of a heavy rap beat.
A bin in the prayer room is supposed to hold prayer requests submitted by congregants. On a recent Sunday, only one request rests in the box. It's laboriously written in purple ink.
"Almost everyone around me has committed or attempted suicide," it reads. "Dealing with my husband's affair. His guilt has caused him to point a loaded gun at himself and me. I saw a demon during this near death experience. My own feeling of worthlessness, shame, hurt and extreme depression. Lastly, a boss that is mentally abusive."
end of part 2