Salaries at issue as bank seeks megachurch receivership
By JUDY L. THOMAS - Kansas City Star - 3/1/2011
First Family Church
The bank that filed a foreclosure petition against First Family Church earlier this year now wants a receiver to take over church operations immediately.
In a rare move, Regions Bank has asked a Johnson County District Court judge to appoint a receiver pending completion of the mortgage foreclosure proceeding, giving that person “all necessary powers to manage the property.”
Among the reasons the bank cites for putting the church under a receiver, according to court documents put into the public record on Monday, are the salaries of the Rev. Jerry Johnston — the church’s senior pastor — and several of his family members.
The document puts Johnston’s annual salary as of August 2010 at $400,000; his son, Jeremy, at $210,000; and son-in-law, Christian Newsome, at $180,000. Johnston’s wife, Christie, made $60,000, the document says, and his daughters, Danielle Newsome and Jenilee Johnston, earned $40,000 and $25,000.
The Overland Park megachurch, once described as among the fastest-growing in the country, said in its own motion that a receivership would devastate the church.
And through its attorney, the church said the salary figures were inaccurate.
“There are only three members of the Johnston family on the church payroll — Jerry, Jeremy and Danielle Newsome,” Dan Murphy wrote in an e-mail to The Kansas City Star. “The annual gross salaries for those three employees total $316,800.”
A motion filed by the church last week said that salaries “have been cut drastically in recent months,” but Murphy did not respond when asked whether the higher salaries were accurate last August, the date the bank referred to in its filing.
The bank said it obtained the salary information from a consultant hired by the church.
Robert Ulrich, chairman of the board of First Family Church, confirmed salaries had been reduced.
When asked whether Johnston was earning $400,000 last year, he said, “I can’t speak specifically to the figures right now. I don’t have the figures in front of me.”
Ulrich denied the bank’s allegations that the salaries were “excessive.”
“I can simply tell you that in determining what the salaries would be in the past at the church, there was an effort to ensure they were not excessive,” he said. “We considered recommendations from entities whose responsibility was to have the appropriate figures.”
Ulrich said the church is “experiencing what a lot of churches are experiencing right now because of the economic times.” Because of that, he said, “The pastors agreed to take a reduction in their salaries.”
According to the bank’s motion, the $915,000 combined salaries of the Johnston family members comprised 76 percent of the church’s total payroll.
The bank’s filing says the receiver, if appointed by the court, would take possession of all church property, including “all keys, combinations for locks or other access codes, books, records, accounts, operating statements, reserve accounts and the like pertaining to the operation of the property.”
The bank’s application for a receiver, filed Feb. 17, said the action was necessary in part because the bank believed “that FFC has been and continues to pay other creditors on an accelerated basis and pays excessive salaries to FFC employees while in default under the loan documents.”
The bank also said that a receiver was needed “to protect the property, the interests of creditors and to prevent FFC from removing valuable personal property.”
The receiver would not interfere with church services or affect their content, the bank said.
But First Family Church said in its response that the receiver “will cause catastrophic and irreparable injury to the church.”
“It is clear that Regions Bank efforts are a thinly veiled attempt at short-circuiting the litigation process to liquidate their collateral,” the church said.
The appointment of a receiver, the church argued, “makes any workout or reorganization impossible and effectively grants judgment to Regions Bank on its underlying claim, as it would severely disrupt and hijack First Family Church’s operations.”
First Family said the bank’s primary purpose in requesting a receiver was not “to prevent waste to the real property but to take control of all the church’s cash and other personal property.”
“There has been no fraud, no waste, and no other conduct that would justify appointment of a receiver,” the church document said.
The receiver’s role in the church and the security of church personnel was unclear in the bank’s proposal, the First Family Church motion said.
“As First Family Church’s income is derived from donations and offerings from the congregation and others, the impact of the receiver motion will be significant and very prejudicial to First Family Church,” it said.
Church administration experts said they were surprised to hear that a bank wanted to place a church’s operations under a receiver.
“I’ve never heard of a bank asking the court to come in and take over,” said Phill Martin, deputy chief executive of the National Association of Church Business Administration, a nonprofit based in Texas with more than 3,000 members.
Such an action could have a huge impact on the church, Martin said. It can’t help but affect “people’s participation and their willingness to give.”
But Martin said he also could understand why the bank was concerned.
“If he was making $400,000, it is definitely on the high end of compensation,” he said of Johnston.
Martin said a 2010 survey conducted by the National Association of Church Business Administration showed that of participating churches with budgets of $6 million and above, the average senior pastor’s salary, including housing, was $191,524.
(First Family’s income averaged $6.8 million a year for the past five years, according to the bank.)
“Based on our survey, this (Jerry Johnston’s salary) appears to be one of the highest compensations of pastors for a church this size,” Martin said.
Regions Bank filed a petition in Johnson County District Court on Jan. 25 asking that the property be foreclosed and if payment is not made that it be sold, with the proceeds applied to the debt.
According to the bank’s filings, the church owes about $14.4 million on two loans, and an additional $82,000 of interest has been accruing monthly.
The church’s board of elders issued a statement in January in response to questions about the foreclosure petition, saying that Regions Bank had “unexpectedly” called the church’s mortgage last year, demanding full payment within 30 days. Such terms, the church board said, “were financially impossible for the church to comply with.”
In its court filing, First Family said the church, like other institutions, had suffered as a result of the economic downtown.
“As part of a proactive approach to helping ensure the church’s continued financial health, the church has slashed expenses and cut payroll,” the document said.
Evelyn Mitchell, a spokeswoman for Alabama-based Regions Bank, said Monday that she could not comment on the case.
The church, at U.S. 69 and 143rd Street, was founded by Johnston in 1996. It came under scrutiny in 2007 after The Star reported that hundreds of members had left the congregation over concerns about financial accountability.
The church’s motion says that First Family currently has a membership of more than 4,000.
The judge has not yet ruled on the receiver request.
To reach Judy L. Thomas, call 816-234-4334 or send e-mail to jthomas@kcstar.com.
