In God We Bust
The plight of debt-ridden Great Hills Baptist in Austin shows that the financial health of Texas’ superchurches isn’t always so super.
THIS SUMMER, shortly before the Fourth of July, Austin’s Great Hills Baptist Church put on the kind of religious extravaganza that has become commonplace for the huge congregations known as superchurches, where the line between worship service and theatrical performance sometimes disappears. For the special “Celebration of America 1996,” the church choir was decked out patriotically, the men sporting stars-and-stripes vests, the women adorned with red-white-and-blue scarves. At the climax of a tribute to the military, as the audience gasped in astonishment and cheered, a drill sergeant barked out an inspirational message in march cadence and two Marines in full camouflage rappelled down a rope from the ceiling. When diminutive, lion-maned pastor Harold O’Chester finally approached the podium, it was almost a letdown.
In the twelve years since Great Hills relocated to a prominent location on a hilltop on the northwest edge of the city, the church has set itself apart “as a moral voice for Austin,” in the words of O’Chester. “Because of our size,” he says, “we can play that role in the Capital City.” Indeed, Sunday attendance hovers above 2,500, well past the threshold of 2,000 worshipers that lofts a congregation into the superchurch realm. But the exalted status has come at a steep price. During the past decade, when the bulk of its expansion occurred, Great Hills fell deeper and deeper into debt; for the first six months of 1996, the church held services while in bankruptcy. The congregation was reminded of this fact on the day of the patriotic celebration, when the 69-year-old O’Chester announced that the bondholders who had been threatening foreclosure had finally accepted an agreement for payment. The news was greeted with polite applause, but there was little joy in the settlement for either the bondholders, who’ll receive considerably less than they are owed, or the churchgoers themselves, since Baptists believe that paying one’s debts is a Christian duty. “You shouldn’t borrow money unless you can handle what you’ve taken on,” says Bill Holman, the chairman of the bondholders committee and a former chairman of the First National Bank of Henrietta. “The Bible teaches that you’ve got to lay a firm foundation for what you build.”
The eighties, Jerry Falwell once proclaimed, marked the era of the superchurch, and Texas soil proved particularly fertile: Both the First Baptist Church of Dallas and the Second Baptist Church of Houston boast congregations as big as small towns. Second Baptist, in fact, plans to build a second church in Katy. Evangelical churches by definition are dedicated to spreading the gospel to as many souls as possible (the Greek word “euangelos” means “bringing the good news”), and a number of evangelical church leaders embrace a “grow or die” philosophy. Yet if Great Hills’s transformation from a midsize neighborhood church into an ambitious multi-ministry operation with a 3,600-seat sanctuary and a twelve-grade Christian school is fairly common, so is its passage into bankruptcy. Great Hills is the last major church to reach a final settlement out of dozens of churches in Texas that defaulted on loan payments after the economic downturn of the late eighties. A week after the Great Hills announcement, the Church on the Rock held its last service in its cavernous 5,000-seat sanctuary in Rockwall, east of Dallas, before moving to the much more modest sanctuary of Lake Pointe Baptist Church in Rowlett, with which it had swapped property. In that settlement, Church on the Rock bondholders received only about 50 percent of what they were owed.
“Church finance is not for those who don’t want their faith challenged,” says Bruce Bowles, a longtime member of the Baptist Church Loan Board in Dallas, whose lending policies have been copied by the nonprofit loan departments of a number of banks around the state. “Our own default rate is minimal,” he says, noting the board’s rigid guidelines: A loan is restricted to no more than 75 percent of the church’s market value and loan payments to no more than 30 percent of its monthly income. While only two of the hundreds of churches that have received loans from the board have declared bankruptcy, churches that have financed their building programs from banks or bonds (such as Great Hills) have often gotten into trouble. The reality is that churches are just as vulnerable as banks or other businesses to boom and bust—to the perils of overexpansion, to the ups and downs of the marketplace, to the consequences of risky decisions.
Small churches are not immune to financial problems either, says Bowles. He recently counseled a thirty-member church whose future was in jeopardy after losing eight members—more than a quarter of the congregation. In fact, with greater numbers, churches have more places to turn for contributions and can provide more services to attract new members. But larger churches are harder to convert to other uses should the buildings have to be put up for sale. Bowles recalls one big church that was transformed into a recording studio, but such conversions are rare. The real problem with some larger churches, he says, is the outsize ambitions of the preacher or the congregation. “Churches are made of individuals,” he observes, “and people sometimes want more than they can afford. They’ll say, ‘We want this for the Lord’s work,’ when the reality might be that it’s more of the basic human desire to have something bigger or better than your brother down the street or across the country. It’s hard to tell someone he’s doing this because of an ego problem.”
In the case of Great Hills, expansion seemed as inevitable as a child’s outgrowing his overalls. Harold O’Chester arrived in Austin in 1969 after serving a number of churches in Mississippi, all of which grew rapidly under his leadership. As the congregations increased in size, the churches built new sanctuaries, and he found a succession of pulpits elsewhere. “I was told by an old-timey preacher that when you build a building, you should move on,” he says. He stirred up controversy in Mississippi by speaking out against the Ku Klux Klan and has never hesitated to say his piece on controversial issues. When he first came to Austin, he was something of a hard-liner and a firebrand, inserting himself into local political frays and even refusing to perform weddings for worshipers who were divorced. Yet O’Chester, who was raised Catholic and converted to Baptist while in the Navy, has mellowed since those days and is now far from a stereotypical fundamentalist thunderer. “I think I’m a good communicator, but I’m not a great preacher,” he insists. True enough, he’s not flamboyant, though when the spirit moves him, he can kick up a leg or pump a fist for emphasis.
O’Chester’s style and commitment to growth suited the congregation of Great Hills, which was then located in the quiet West Austin neighborhood of Allandale. From the time he took over the church, its membership increased so fast—by more than 15 percent a year—that the church building was bursting at the seams. After Great Hills bought up nearly two dozen houses as part of its expansion plans, area residents filed suit. “They didn’t want a megachurch in their neighborhood,” says O’Chester. Church members began scouting for another location, and soon they settled on a newly cleared hilltop parcel on the fast-growing northwest outskirts of Austin. They raised $1.6 million in contributions to pay for the land, hired an architect from Dallas to design a new sanctuary and educational complex, and put their old property in Allandale up for sale, along with another twelve acres owned by the church. By 1984, when they began construction on the new land, they had found buyers for the old church and property and lined up a loan guarantee for $6 million from First Federal Savings and Loan, an Austin institution considered one of the most solid in the state.
What happened next was a disaster that only Jeremiah could have foreseen. “First Federal was part of a billion-dollar corporation, as secure as the Rock of Gibraltar,” says O’Chester. “But when the downturn came to Austin, it was unbelievably fast. In the fall of 1985, the ground fell out of the real estate market, and during a single week, it seemed as if almost every bank went under.” The Federal Deposit Insurance Corporation recalled the notes on the Allandale church property and the twelve acres of land just as the buyers were also going under. “We weren’t worried until we learned that First Federal was going under too,” O’Chester says. No longer able to sell the old church and the parcel of land and suddenly forced to pay back the money still owed on those properties, the church’s financial health severely worsened. “We lost six million dollars almost overnight, and we just couldn’t pay it. We saw the handwriting on the wall. The construction company threatened to sue, and the renegotiation of the construction contracts cost us another million dollars.”
That’s where the bondholders came to the rescue. During the bust, money for church loans from banks and savings and loans had dried up completely, and the only place to turn was bond compa-nies that specialize in loans to nonprofit groups—in Great Hills’s case, A. B. Culbertson and Company of Fort Worth. Culbertson marketed the Great Hills bonds primarily to individuals who tended to be churchgoers. A number were retirees who were living on fixed incomes and looking for a good cause to invest in as well as a rate of interest (above 10 percent) that was higher than that offered by most savings accounts. In retrospect, the bond issue appears to have been risky, more appropriate for speculators than elderly investors looking for rock-solid ventures. But as Bill Jackson of A. B. Culbertson observes, “The loan looked good on the day it was made. They never had experienced loan-payment problems before—they had a successful history of previous bond issues, and the ratio of collateral and debt service were in line with past loans.” The first bond offering, in 1986, was for $7.5 million, most of which went to repay the church’s debt. The next year, a second offering raised $8.85 million to retire the 1986 bonds and pay for the church’s plans.
Great Hills built the educational complex first and waited six years to build their dream supersanctuary, worshiping in the meantime in the atrium between two smaller buildings. “We had a foundation and a steel frame that sat out there bare as a skeleton for all of Austin to see,” says O’Chester. At one point Great Hills fell behind on its bond payments of $87,000 per month and construction on the sanctuary was halted, but O’Chester insisted that a thirty-foot-tall cross and additional lights be hoisted on top to make it a symbol of future victory that would be visible to the rest of the city. He and other church officials managed to convince nervous bondholders that only by continuing to build could they grow and increase their income sufficiently to repay their debt.
In 1993 work was completed on the new supersanctuary, complete with a sweeping Hill Country backdrop painted by a Tony award—winning set designer. O’Chester’s idol, W. A. Criswell of First Baptist Church of Dallas, was present at the opening gala. But over the next two years, Great Hills fell further and further behind in its bond payments, and negotiations with increasingly impatient bondholders began to falter. “They wanted to just keep growing and building, and we thought they should cut back and honor their debt,” says bondholders committee chair Bill Holman.
On January 1, 1996, counting accumulated interest, Great Hills owed its bondholders $15 million. The next day, just as bondholders were set to foreclose, the church declared bankruptcy. Within the religious community, the reaction was mixed. Although, as O’Chester puts it, “Baptist churches are very individualistic, and they’re not known for helping each other,” Great Hills received more than $120,000 in donations from other Baptist churches and another $15,000 from churches of other denominations. Yet there were bargain hunters in the air along with the angels. At least two Central Texas churches were interested in the Great Hills property: Cornerstone, a nondenominational superchurch in San Antonio, and Riverbend, a large Austin church with Baptist roots whose growth had also been financed through A. B. Culbertson, using many of the same bondholders. During the bust, Riverbend too had some troubles making its payments. “But they paid back every penny they owed,” Culbertson’s Bill Jackson confirms, “and they even paid interest on the interest they owed. They addressed the situation in an honorable fashion.” And as Great Hills continued to sink lower into debt, Riverbend began to boom.
Eventually, a Riverbend member inquired about buying the Great Hills property. This angered O’Chester, especially since he and Riverbend’s pastor, Gerald Mann, had been rivals for many years. “I think it was a way of getting rid of us as a competitor,” says O’Chester, who has taken Mann to task for “lite” theology (“They take ’em any way they can get ’em, and we believe in maintaining strong biblical standards”). Mann denies any involvement in the inquiry—and anyway, nothing ever came of it.
Although the bondholders considered letting the church property go up for auction by the bankruptcy court, they finally settled on an agreement that would return 84 percent of their principal and no interest. The total payment would be $7.5 million, or about what appraisers had set as the market value for the church. Great Hills agreed to pay $1.5 million by the end of 1996 and another $5.5 million by March of 1998. O’Chester says the church has already raised the first payment, but he is not sure where the second will come from.
For now, the news is good for Great Hills. “This thing ought to crush us, squish the air out of us,” says O’Chester, “but my people have gone through so much. We have an upbeat congregation.” The bondholders, however, are less upbeat. “We’ve been so patient all these years and then to have it end like this—it hurts,” says one. “It was the best deal we could get,” sighs Bill Holman. “I guess they’re all happy down there in Austin. I don’t know how someone could face their congregation knowing they took the legal rather than the moral way out.” Holman says the bondholders have learned their lesson, and he doesn’t imagine they’ll be buying any more church bonds.
Of course, thanks to good economic times, there is once again plenty of money out there for church loans from banks. O’Chester says that one bank has even approached him about a $5 million loan to pay off the rest of the church’s debt to the bondholders. Yet there are some indications that the seemingly unending mega-church trend may be winding down. “I think the era of the megachurch is on the decline,” says Bruce Bowles. “I find a lot of people moving from megachurches to smaller ones because they want to be involved in things directly rather than be a spectator. You have lots of folks now in the thirty-to-fifty-year-old range who want to participate more in the church ministries and be more involved in the decision making. They want to invest their lives more fully in the church.” And that kind of investment, although it’s immeasurable by financial standards, may prove more secure in the long run than any bonds, bank, or line of credit.