Author’s note: The following comments elaborate on the financial statements of the archdiocese of St. Paul and Minneapolis Chancery Corporation (“archdiocese”) that ended June 30, 2018. View condensed financial statements below, as well as the Management Discussion and Analysis and Financial Statements.
Introduction
The Fiscal Year 2018 of the Archdiocese of St. Paul and Minneapolis began July 1, 2017, and ended June 30, 2018. For the first time since filing for Reorganization in U.S. Bankruptcy Court in January 2015, the archdiocese has some financial certainty as we approach the New Year.
The most significant financial development occurred June 28, 2018, shortly before the end of our Fiscal Year 2018, when the archdiocese and the Unsecured Creditors Committee, representing more than 400 sexual abuse claimants, filed a $210 million Joint Plan of Reorganization that provides remuneration to those harmed and allows the archdiocese to continue the mission of the Church.
In the 2017 Financial Report, I noted that the second Amended Plan of Reorganization was filed in December 2016 and proposed a settlement of $156 million. Thanks to mediation involving all parties, that number reached $210 million in late spring. The $210 million Joint Plan was approved by the judge overseeing the case Sept. 25, 2018, and we were discharged from our debts Oct. 11, 2018. We are emerging from Bankruptcy and expect the case to be closed in December of this year.
As was our intention from the Plan’s filing in January 2015, the consensual Plan consisted primarily of insurance settlements with carriers that issued policies for coverage over the past 70 years. The other significant sources were insurance settlements from parishes in the archdiocese; proceeds from the sale of archdiocesan properties; unrestricted cash; the sale of our land to three Catholic high schools; and contributions from parishes, the General Insurance Program, Archdiocesan Medical Benefit Plan and priests.
In addition, the archdiocese signed a non-interest bearing promissory note payable to the Bankruptcy Trust that requires an annual payment of $1 million over the next five years. All proceeds have been or will be transferred to the Bankruptcy Trust, which is overseen by a trustee selected by attorneys for the survivors. Most of the funds should be distributed to claimants before the end of this calendar year.
Legal and professional expenses incurred since filing for Reorganization in 2015 totaled approximately
$20 million. The archdiocese paid nearly $8 million of those expenses during the bankruptcy, and the Plan calls for the remaining amount to be paid from the Bankruptcy Trust. A significant amount of these legal and professional fees were incurred to maximize insurance proceeds from archdiocese and parish insurance policies for those harmed for events dating back as far as the 1940s. Payments from insurance carriers into the Bankruptcy Trust accounted for $175 million of the $210 million Plan.
While we provide administrative and pastoral support to parishes, Catholic schools and other Catholic entities in the 12 counties that make up the archdiocese, this annual fiscal report does not contain their financial information. That is because, under Minnesota law, they are all independent corporations with completely separate finances, and they are required to prepare and publish their own financial reports.
In our commitment to accountability and transparency to the Catholic faithful and the public, the archdiocese has released its full audited financial reports annually since June 30, 2013. This is important to Archbishop Bernard Hebda, the Archdiocesan Finance Council and staff because approximately 70 percent of the archdiocese’s funding comes from parish assessments, which is predominately the result of plate and envelope collections from parishioners. People who give so generously to this local Church deserve a full accounting of their resources.
For the fourth year, because of the bankruptcy reorganization, the archdiocese asked our CPA firm to perform Agreed Upon Procedures on our financial statements for the fiscal year ending June 30, 2018. These procedures do not represent an audit, and, as a result, you will not see an Independent Auditor’s Report attached to our financial statements. The Agreed Upon Procedures were developed by management and the Archdiocesan Finance Council in consultation with our CPA firm, and they will assist us in governance of the archdiocese by requiring attestation procedures on key balance sheet accounts and review of the income statement and internal controls. The Agreed Upon Procedures are significantly less expensive than an audit. When we emerge from Reorganization later this calendar year, we will return to the standard practice of annual independent audits next fiscal year and will continue our practice of releasing the information promptly after completion of our financial statements and auditor’s report.
Financial condition
For the year ended June 30, 2018, we generated a surplus from operations before Special Issues Expense of nearly $1 million as compared to a surplus before Special Issues Expense of $2.3 million in Fiscal Year 2017.
Our loss from operations in Fiscal Year 2018 was $20 million because of Special Issues Expense of $21 million related to the bankruptcy settlement. Our loss from operations in Fiscal Year 2017 was $2.6 million, which included approximately $4.8 million of Special Issues Expense.
The Special Issues Expense of nearly $21 million in Fiscal Year 2018 reflects the obligations of the archdiocese agreed to in the Plan that became effective Oct. 11, 2018. Those obligations include a cash payment of $23,475,000; a promissory note of $5 million; sale of land to three Catholic high schools for $4 million in aggregate; assignment of rights to an estate and workers compensation refund; and mediator and bankruptcy filing fees. These expenses were offset by legal and professional fees previously recorded that were determined to be the obligation of the Bankruptcy Trust under the Plan. The $23,475,000 noted above was transferred to the Bankruptcy Trust in October 2018, and the sale of the high school land also took place in October 2018. Proceeds from the sales were transferred directly to the Bankruptcy Trust by the purchasers.
Revenue
Total Operating Revenue in Fiscal Year 2018 was $20.6 million, down approximately $150,000 from Fiscal Year 2017. Parish Assessments, Fees and Program Revenues, and Investment Income all were lower, while Contributions and Other Income increased slightly. The Investment Income is generated from restricted funds and is not available for general operations.
Parish Assessments, our primary source of revenue, are generated from the 187 parishes within the archdiocese, and they decreased slightly in 2018 from 2017. Assessments are calculated and billed on a two-year lag, which means the parish financial results for the years ended June 30, 2015 and 2016 formed the basis for the Parish Assessment revenue for the years ended June 30, 2017 and 2018, respectively. Under the Plan, the archdiocese agreed not to change the assessment methodology or rates to the parishes for a two-year period.
Operating expense
Our Operating Expense Before Special Issues Expense in 2018 totaled approximately $19.6 million as compared to $18.5 million in 2017, an increase of 6.1 percent. The increase is the result of increased costs to support seminary education and graduate education for priests, and costs related to ministerial standards and safe environment initiatives. In addition, the archdiocese increased its allowance for doubtful accounts by nearly $470,000 on loans it made decades ago under a program where parish deposits provided funds for those loans. Under the Plan, those parish deposits are required to be refunded to parishes through offsets against current and future assessment billings.
Non-operating activity — Gain on sale of assets
The archdiocese sold the Dayton Building, which was previously used as office space by staff, in 2017. This sale resulted in cash received of approximately $875,000 and a book gain from the sale of $779,000. There were no gains or losses on the sale of assets in 2018. The gain on the sale of land to the three Catholic high schools in October 2018 will be recorded during the Fiscal Year ending June 30, 2019.
Non-operating activity — General Insurance Program
The General Insurance Program of the Archdiocese of St. Paul and Minneapolis provides comprehensive, uniform coverage to all of the parishes, Catholic schools and certain other Catholic entities within the archdiocese, as well as the Chancery Corporation. The coverage provided by the General Insurance Program includes commercial property, casualty, general liability and workers’ compensation. The General Insurance Program is maintained for the benefit of the participants who have contributed to those funds in exchange for obtaining insurance coverage.
The General Insurance Program had a surplus from operations of $2.8 million in 2018, as compared to $2.1 million in 2017, due to lower claims in the most recent year. As stated earlier, the General Insurance Program contributed $6 million to the Plan. The expense of this contribution is included in Special Issues Expense and not General Insurance Program Expenses. In addition, the archdiocese has assigned a potential refund from the workers’ compensation investment account of excess funds not required by the Minnesota Department of Commerce for self-funded plans. We estimated this refund for purposes of the bankruptcy settlement at $800,000 and have classified it as a Special Issues Expense. It is included on the Balance Sheet under Bankruptcy Settlement Liability. This refund request was submitted to the Minnesota Department of Commerce, and the archdiocese is anticipating a response in the near term.
Non-operating activity — Priest Benefits
The archdiocese coordinates a self-insured health and dental benefit fund for active priests and seminarians within the archdiocese. The archdiocese invoices parishes, Catholic schools and other Catholic entities based on clergy assignments and pays benefit providers directly for any claims. Priest Benefits generated $487,000 of income in 2018 as compared to a slight profit in 2017 and a significant loss in 2016. The income was the result of lower claims per participant in the current year as compared to the prior year.
Financial position
Net Assets of the archdiocese were nearly $27.3 million on June 30, 2017. As of June 30, 2018, the Net Assets were approximately $10.5 million. The decrease is the result of the bankruptcy settlement recorded during the year ending June 30, 2018.
Of the total cash on June 30, 2018, of $28 million, $23,475,000 represents cash restricted for the bankruptcy settlement, cash restricted by donors of $1.9 million and unrestricted cash of $2.7 million. As of June 30, 2018, there were no Board Designated funds, as all of those funds were contributed to the bankruptcy settlement in October. We believe that the remaining balance of unrestricted cash, after payment of all bankruptcy settlement obligations, will allow the archdiocese to operate and continue its mission.
The decrease in the General Insurance Program Assets was due to the classification of cash. The $6 million contribution to the bankruptcy settlement was reflected in Cash Restricted for Bankruptcy at June 30, 2018, while in the prior year the cash was reflected in the General Insurance Program Assets. The decrease of approximately $8.3 million in Accounts Payable and Accrued Liabilities, Post-Petition, is the result of previously accrued and unpaid Special Issues Expense becoming obligations of the Bankruptcy Trust and not the archdiocese under the Plan.
Looking forward
As the Bankruptcy comes to a close and I reflect on these past four years, I am comforted knowing that our primary objective prior to and during the Bankruptcy process of obtaining the most resources possible for the survivors was achieved while continuing our mission. The work of our staff, legal counsel, Archdiocesan Finance Council and Corporate Board to pursue this objective was tremendous. Our staff endured continuous expense reductions and layoffs and were able to continue to provide support for our programs through creativity, hard work and perseverance.
We are fully aware of our future financial obligations to fund the Bankruptcy Trust over the next five years, and we are committed to making the difficult decisions required to provide the resources to meet our obligations.
We also know and understand that our work is never complete as it relates to the protection of children, and we vow to continue to do all we can to keep children safe in this archdiocese.
The past four years have been difficult, challenging and uncertain for all Catholics. I want to thank all of the clergy, lay leaders, staff, volunteers, parishioners and others within the archdiocese for their commitment to creating a stronger, more unified local Church.
