The following comments elaborate on the financial statements of the Archdiocese of Saint Paul and Minneapolis Chancery Corporation for the fiscal year ended June 30, 2014. Condensed financial statements are included in the November 20, 2014 issue of The Catholic Spirit. The audited financial statements with footnotes and independent auditors’ report are posted here.
When I offered analysis at the time of the 2013 financial report release, I was able to say that at June 30, 2013, the financial condition of the archdiocesan Chancery Corporation was solid. Unfortunately, since that time, our financial condition has become more uncertain due to significant expenses that are not anticipated to be ongoing in the long-term and the growing potential liability surrounding litigation stemming from the lifting of the civil statute of limitations for sexual abuse of minors until May 2016 under the Minnesota Child Victims Act.
In order to resolve the number of claims we are facing due to the lifting of the statute of limitations, we must have all options on the table. Our first concern is fairness: fairness for victims of clergy sexual abuse and fairness for the faithful whose stewardship has made archdiocesan ministry possible. For this reason, as we have stated previously, all options, including reorganization under the bankruptcy code, are being considered for fairly addressing the numerous sexual abuse lawsuits filed or soon to be filed against the archdiocese. As a part of determining the best way to move forward, archdiocesan leaders have consulted with various representative clergy and lay leadership groups and outside professionals to obtain their insights. At this point, no decision has been made to reorganize.
Importantly, the archdiocese would not use reorganization as a tool to avoid compensating victims/survivors. It would be a way to respond to all victims/survivors by allowing the available funds to be equitably distributed to all who have made claims, not just those who have the earliest trial dates or settlements. The archdiocesan Chancery Corporation’s current financial condition is not the fault of victims/survivors.
Readers of these financial statements should understand that the archdiocesan Chancery Corporation, a not-for-profit entity, is a separate legal entity from parishes, Catholic schools and other local Catholic entities. Action by the Chancery Corporation does not necessarily mean that the same or similar action would be taken by other local Catholic entities.
The archdiocesan financial report covers the activities of the archdiocesan Chancery Corporation. Parishes and other Catholic entities, as separate corporations, independently report financial information to their stakeholders.
Earlier this year, the archdiocesan Chancery Corporation released its full audited financial report (for the year ended June 30, 2013) for the first time. In order for us to be accountable to our many stakeholders among the Catholic faithful, and to act as responsible stewards of the resources entrusted to us, we are committed to releasing the full financial report each year. Archbishop John Nienstedt, the Archdiocesan Finance Council and I remain in full agreement on this point. We are releasing the report three months earlier than our past practice of February because we have improved processes, policies and controls, allowing for more timely reporting. Archdiocesan leaders have made a firm commitment to create a culture of transparency and continue to make strides in this regard.
In the November 20, 2014 issue of The Catholic Spirit, you will again find the condensed financial statements and notes, and I encourage you to see the full audited financial report.
This year, for the first time, we did not receive an unqualified opinion from our auditors. Our financial statements were audited by the independent certified public accounting firm of CliftonLarsonAllen LLP, which issued a disclaimer of opinion and a going concern qualification. This is solely because we were not able to provide the auditors with an estimate of our liability related to ongoing litigation and claims under the Minnesota Child Victims Act and the potential impact of the liability on our future financial stability. The inability to form an estimate is due to numerous factors. In addition to the pending lawsuits, the Chancery Corporation has received a significant number of notices of claim under that Act. Also, there is the potential for an unknown number of additional suits or notices of claim, which could be filed against the Chancery Corporation prior to the end of the statutorily permitted period. Each of these lawsuits, claims or potential claims is unique and requires factual development to determine what, if any, liability exists. Thus, we have not been able to estimate the financial exposure.
Other than with regard to the inability to estimate liability associated with the ongoing claims, we have prepared our financial statements consistent with past practice. Indeed, the auditors performed all field work and testing necessary to provide a traditional opinion and had complete access, consistent with prior audits, to management and our books and records.
The Chancery Corporation will continue serving the spiritual needs of our community. The Chancery Corporation exists to help fulfill the mission of the Church in our community through supporting the archbishop in bringing together the faithful, ensuring true teaching of the faith, and reaching out to share the Gospel message of Jesus Christ. In practical terms, the Chancery Corporation carries out chancery functions such as clergy formation and assignment, hospital and prison chaplaincy, support for parish evangelization and catechesis efforts, Latino ministry and other specialized ministry, as well as other centralized functions within the Archdiocese of Saint Paul and Minneapolis.
The financial outcome of operating activities in 2014 resulted in a deficit of $9,120,676. The deficit can be attributed to significant expenses that are not anticipated to be ongoing in the long-term, including special issues expense, the transition of the Catholic Services Appeal (CSA) to a separate nonprofit, and the write-off of software.
The special issues expense of $4,180,228 incurred by the Chancery Corporation during the year ended June 30, 2014, related to addressing issues arising primarily from the lifting of the civil statute of limitations on sexual abuse. Outside professionals provided expertise in the areas of legal, investigative, communications, insurance and financial matters. The majority of these expenses were related to review of priest files, investigation of insurance coverage and analysis of financial options.
In addition to the special issues expense, the CSA transition to a separate non-profit organization resulted in a net negative impact to our operating activities of approximately $3.7 million because CSA fundraising was no longer part of the Chancery Corporation as of Jan. 1, 2014. The loss as a result of this transition is a one-time item. In the long-term, we expect a reduction in Chancery Corporation administrative costs, improving our financial condition.
During the past year we made the decision to write off $993,642 of software because it was deemed inadequate to meet specifications identified in the Report and Recommendations of the Safe Environment and Ministerial Standards Task Force. We are now investing in the development of software to meet those requirements.
Total Operating Revenue for 2014 was $25,525,732 as compared to $32,737,473 in 2013. The reason for this decline is a decrease in $7,741,187 of revenue from the CSA, because 2014 contributions were collected and held by the independent Catholic Services Appeal Foundation (CSAF). The CSAF was established on Jan. 1, 2014, to collect and distribute contributions for the benefit of designated ministries of the CSAF, honoring donor intent.
The primary sources of revenue, Parish Assessments and Fees and Program Revenues, were down 2.2 percent and up 8.1 percent, respectively, in 2014. The slight decrease in assessments is the result of lower contributions to parishes and lower parish school income during the year ended June 30, 2012, as compared to the year ended June 30, 2011. Assessments are calculated on a two-year lag. This means parish financial results for the year ended June 30, 2012 formed the basis upon which 2014 assessments were calculated.
An additional factor in Operating Revenue in 2014 was an increase in net investment income of $1,070,096 due to strong performance in the bond market.
Please see the chart in this section depicting sources of operating revenue.
Operating Expense totaled $34,646,408 in 2014 as compared to $36,606,314 in 2013. Program Services costs decreased $2,220,931 and Support Services costs increased $261,025, year over year. The decrease in Program Services costs includes a decrease in Catholic Education, Community Services and seminarian support under the Clergy Services category. Beginning in January 2014, direct support for these essential ministries was provided from the CSAF.
The slight increase in Support Services costs year over year is due to maintaining the 2013 level in litigation reserves, resulting in a decrease of $3,950,000 of Litigation Reserve Expense, which was more than offset by special issues expense of $4,180,228.
Supporting the mission of the Church
The following narrative explains what the archdiocesan Chancery Corporation does to assist the archbishop in serving Catholics and our larger community in support of our mission. Accompanying the narrative is a chart depicting the expenditures by program.
Catholic Education – $4,753,327
The Office of Catholic Schools supports the education and formation of children at Catholic schools within the Archdiocese of Saint Paul and Minneapolis. This support includes: Catholic identity review and support, leadership development and assistance in implementing academic programs. The Office of Catholic Schools also provides programmatic oversight to promote innovation and excellence in local urban Catholic schools.
Central Services – $7,419,381
The Department of Central Services provides support and services to the Chancery Corporation staff and the parishes. The department includes the offices of the chancellors for civil and canonical affairs, computer services, the Metropolitan Tribunal, human resources and benefits, the Parish Accounting Service Center and maintenance. Also covered in this category are administrative services to the General Insurance Program, the lay and priest pension plans, and the Archdiocese Medical Benefit Plan Trust, as well as dues to the Minnesota Catholic Conference and the United States Conference of Catholic Bishops.
Clergy Services – $5,513,753
The role of this office is to provide support and formation for priests and deacons in all aspects of ministry and pastoral care. Services provided by this office include the following.
- Seminarian Formation: There are currently 57 men in formation for the priesthood in service of our archdiocese. While this number changes throughout the discernment process, our archdiocese has one of the largest enrollments of seminarians of any diocese in the country. Expenses include a portion of the cost of tuition, room and board for men at The Saint Paul Seminary School of Divinity and St. John Vianney College Seminary.
- Center of Clergy Formation: Institute of Ongoing Formation for Clergy and the Institute of Diaconate Formation comprise the Center of Clergy Formation. Each entity of the center provides an integrated approach to priestly and diaconate formation, including gatherings and support for newly ordained priests, programs to assist new pastors in their role and ongoing formation opportunities for priests and deacons throughout the archdiocese.
- Continuing Education: This includes continuing education opportunities, a sabbatical program, international enculturation, and a biennial presbyteral assembly.
- Ministerial Standards and Safe Environment: The mission of the Office of Ministerial Standards and Safe Environment is to work with our community to address the devastating societal problem of the sexual abuse of minors and vulnerable adults by implementing abuse prevention programs, immediately reporting allegations of abuse to law enforcement and/or child/adult protection officials, and cooperating fully with their investigations, and helping those affected by abuse in their healing journey.
- Priest Support: This includes support for priests who are not in ministry due to personal health issues or a disciplinary leave of absence and those who have been permanently removed from ministry.
- Chaplaincies: There are nine priests and one deacon in full or part time ministry at hospitals and correctional facilities throughout the archdiocese who are supported by the Chancery Corporation. There are many other priests and deacons throughout the archdiocese who provide pastoral care at healthcare or correctional facilities, either as a ministry of their parish or through volunteer work. They offer the sacraments and spiritual support during some of the most difficult times in peoples’ lives. Last year, thousands of people throughout our community were served by chaplains.
- Specialized Ministries: This includes the Office of Vocations, support for international clergy, and retired clergy.
Communications – $3,004,937
The Office of Communications helps convey the teachings of the Church and fosters communication between the archdiocesan Chancery Corporation and the faithful, parish and school leaders and staff, and others in our community. It does this through The Catholic Spirit, multiple websites, social media, video, radio, e-newsletters and other communications vehicles.
Also in this category is the new Office of Evangelization and Catechesis, formed in early 2014. Among the programs of the Office of Evangelization and Catechesis is Rediscover: pre-evangelization, evangelization, and catechesis initiative that supports outreach to all Catholics and provides formation opportunities to deepen their faith by complementing the good outreach and formation work already being done by parishes, Catholic schools and ministry organizations throughout the archdiocese.
Community Services – $1,534,072
The Chancery Corporation helps men, women, and children most in need within our local community, including the poor, hungry, and homeless, primarily through cash support to Catholic Charities.
Marriage, Family and Life – $1,054,818
This department assists the laity and parishes through programs supporting marriage preparation, family education programming, respect life, pro-life groups, biomedical ethics, and outreach for people with disabilities.
The Office of Marriage, Family and Life also sponsors the annual Archdiocesan Youth Day that brings together hundreds of local high school aged teens to praise God, grow in the faith and find fellowship. In addition, this office helps coordinate local representatives attending World Youth Day, the National Catholic Youth Conference and other youth events.
Parish Services and Outreach – $2,337,966
The Office of Parish Services provides consultation, planning, and leadership development opportunities to parishes throughout the archdiocese. One example of this is the GROW initiative, which encourages parishes to develop and implement robust pastoral and strategic plans.
The Chancery Corporation supports outreach ministry to various groups and members of the archdiocesan community, including Latino ministry, Indian ministry, the Commission on Black Catholics, the Venezuelan mission, the Archdiocesan Council of Catholic Women, deaf ministry, and other groups and coalitions.
As one example, there are more than 20 Latino Ministry parishes throughout the archdiocese which receive support from the Office of Latino Ministry. These Latino Ministry parishes offer the sacraments, catechesis, and spiritual support to tens of thousands of Spanish speaking people throughout the local Church. The Office of Latino Ministry also oversees special days of celebration of the faith and family throughout the year. In addition, biblical, catechetical, and pastoral leadership formation institutes are provided for members of the Latino community to assist them in growing in the faith.
Special Issues – $4,180,228
The majority of these expenses were related to review of priest files, investigation of insurance coverage and analysis of financial options.
General and Administrative – $3,183,337
The offices of the archbishop, bishops, vicar general, accounting services, finance, and general administration are included in the General and Administrative category.
Development and Stewardship – $1,664,589
This office works with parishes and Catholic schools to help grow a culture of stewardship in local communities and to support parish and school development efforts. The office also engages in outreach to benefactors who wish to support specific ministries or programs of the Chancery Corporation.
General Insurance Program
The General Insurance Program trust of the Archdiocese of Saint Paul and Minneapolis provides comprehensive, uniform coverage of 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 general liability and workers’ compensation. The Chancery Corporation has characterized the General Insurance Program as a trust, with the net assets of the program held by the Chancery Corporation for the benefit of the participants who have contributed those funds in exchange for obtaining insurance coverage. The General Insurance Program had reserves in excess of historical loss experience as a result of positive financial results over the past few years. For this reason, premiums charged for the General Insurance Program were reduced by 30 percent from January 1, 2014 through June 30, 2015. The premiums charged will continue to be analyzed and adjusted on an annual basis.
The General Insurance Program had a decrease in net assets of $131,124 in 2014 and an increase in net assets of $2,427,953 in 2013. The year over year decrease was due to the 30 percent reduction in premiums charged to participants that went into effect January 1, 2014.
The Chancery Corporation coordinates a self-insured health and dental benefit fund for active and retired priests and seminarians within the archdiocese. The Chancery Corporation invoices parishes, Catholic schools and other Catholic entities based on clergy assignments and pays benefit providers directly for any claims. Priest Benefits generated income of $302,713 in 2014 and had a loss of $3,047 in 2013.
Net assets of the archdiocesan Chancery Corporation were $32,540,508 at June 30, 2014, or $8,949,087 less than a year earlier. As noted previously, this decrease was due mainly to previously noted Special Issues expense, the CSA transition and the write-off of software.
Operating activities in 2014 used cash of $6,998,757. In addition, $1,968,460 of cash was used to pay parishes that requested funds from their parish demand deposit accounts. These accounts allow parishes with excess funds to deposit such funds with the archdiocese for their administrative ease, if they so choose. The archdiocese pays interest to parishes on these funds and allows parishes to withdraw such funds on demand. The Chancery Corporation also received proceeds from sales of investments during the year of $3,425,810 to fund the operating losses and withdrawals from the parish demand deposit accounts.
Net decrease in cash from operating activities, investing activities and financing activities was $5,648,807.
Chancery Corporation leadership has determined that significant budget reductions are currently necessary because reserves have decreased. Last week, the Chancery Corporation announced a 20 percent cut to the FY 2015 operating budget, resulting in reductions in operating expenses and Chancery Corporation staff layoffs. (Read: Staff reduction part of archdiocese’s budget cuts)
Leadership is determined to achieve a balanced budget beyond 2015 and will evaluate our budget going forward as needed, while maintaining essential programs and services. Our goal is to ensure that parishioners, Catholic school families and others we serve are not negatively affected by Chancery Corporation budget reductions.
In conclusion, please know that Chancery Corporation leadership is taking the necessary steps to ensure that our current financial situation is resolved fairly for victims/survivors while honoring the gift of stewardship of past and present faithful in pursuit of the mission of the Church. I want to thank all the honorable clergy and lay leaders, staff, volunteers, parishioners and others throughout our local Church who work to strengthen sustainability in support of our shared mission.
Thomas Mertens was appointed chief financial officer of the Archdiocese of Saint Paul and Minneapolis in December 2012.