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YEAREND-FINANCE Dec-15-2006 (1,130 words) With logo posted Dec. 11 and photo posted Dec. 12. xxxn

U.S. church faced more financial troubles in 2006

By Jerry Filteau
Catholic News Service

WASHINGTON (CNS) -- Last April Cardinal Sean P. O'Malley of Boston called his archdiocese's financial condition "dire."

In October the Diocese of Davenport, Iowa, filed for bankruptcy protection because of clergy sexual abuse lawsuits.

In November the nation's bishops, concerned about rising costs in their own dioceses, voted to cut their diocesan assessments for their national conference by 16 percent.

In December the Los Angeles Archdiocese reached a $60 million settlement with 45 clergy sex abuse victims and a federal judge in Oregon mediated a settlement between the Portland Archdiocese and 150 victims that was expected to be well in excess of $50 million.

For the U.S. Catholic Church 2006 has been, at best, a mixed year financially.

The stock market regained strength during the year, with most indexes up 11 to 15 percent since December 2005. But poor market performance in previous years, coupled with burgeoning health insurance costs and other expenses, had caused many dioceses to cut into their investment reserves even as they trimmed back diocesan staff, parish subsidies and other expenses.

The "three-legged stool" of income in a typical diocese is parish assessments, investment income and an annual diocesan appeal, said Dennis F. Atwood, recently retired diocesan financial officer of Charleston, S.C., now executive director of the national Diocesan Fiscal Management Conference.

Charles Zech, an economist at Villanova University in Pennsylvania and director of its Center for the Study of Church Management, told Catholic News Service in mid-December that in a recent nationwide survey of diocesan financial officers he found that dioceses overall operated at a deficit an average of 1.65 years in the last five years -- or one year out of three.

Among large dioceses, he said, the average number of deficit years rose to 2.8 in the last five years -- or more than half.

Of the financial officers of 177 Latin-rite U.S. dioceses, 78 responded to the Villanova survey.

Zech and Atwood said they believed a significant number of dioceses were forced in the last few years to dip into reserves to pay sex abuse settlements or to meet rapidly growing expenses from things such as double-digit health insurance increases or other insurance increases.

"Dioceses are exposed like any other organization would be" to hikes in health and other insurance costs, Atwood said.

In some dioceses in financial difficulty, expensive settlements with clergy sex abuse victims have been a major factor.

Figures released from nationwide audits last March, coupled with previously released figures, indicated that clergy sex abuse cost dioceses more than $1.5 billion since 1950. Most of those costs were incurred since 2002.

Boston is a case in point. In audited reports released April 19, the archdiocese showed a $46 million deficit between Jan. 1, 2004, and June 30, 2005.

The archdiocese reported that abuse-related expenses up to mid-2005 totaled $150.8 million. Insurance and earmarked donations for victim therapy covered more than $45 million of that, but about $20 million was drawn from self-insurance reserves and more than $85 million from real estate sales.

The yearly archdiocesan appeal, which brought in $15.6 million in 2001, the year before the sex abuse scandal broke, had dropped by half in 2002 and was slowly recovering, back up to $11.6 million in 2005.

But several years of depressed earnings on investments also hit Boston hard, as it did other dioceses across the country. Boston's clergy pension plan showed an unfunded liability of $135 million -- largely because of problems of the stock market and low interest rates that had nothing to do with sex abuse.

The $60 million settlement in Los Angeles this December was just the tip of the iceberg for that archdiocese, since the 45 victims in that group were less than 10 percent of the 500-plus claimants still seeking compensation.

When the Portland agreement was announced Dec. 11, U.S. District Judge Michael Hogan, one of the mediators, said insurance companies would be contributing $50 million. He did not say how much the archdiocese would have to put up, but legal fees alone for the bankruptcy proceedings have already cost the archdiocese $15 million.

Before it entered bankruptcy proceedings the Portland Archdiocese had paid out $53 million to settle claims of 140 people.

The Davenport Diocese had reached settlements totaling $10.5 million with about 40 plaintiffs in the previous two years, but it went into bankruptcy proceedings this October after a jury awarded a single plaintiff $1.5 million. Saying it could not meet the $7 million demand of 25 remaining claims, the diocese said the only way to treat all claimants fairly was through the bankruptcy process.

The other diocese currently in bankruptcy proceedings is Spokane, Wash.

In the past year the diocese has reached agreements with its insurers that they would cover up to $20 million of a settlement with victims, but in May the bankruptcy judge rejected a $45.7 million diocesan settlement offer, saying it did not cover some potential claimants. In October the diocesan center was sold for $2 million to help fund an eventual settlement. The bishop's residence is also slated to go on the market.

In January a Kentucky court gave final approval to an $85 million settlement between the Covington Diocese and 382 plaintiffs.

Other large diocesan settlements reached in 2006 were $28 million in Oakland, Calif.; $16.6 million in Milwaukee; and $5.1 million in Jackson, Miss.

Dioceses without huge sex abuse liabilities have also been hurting, however.

At a national meeting on church financial management and fundraising last summer, Francis J. Butler, president of Foundations and Donors Interested in Catholic Activities, said Catholic dioceses across the country "appear to be running through their reserves at an alarming rate."

Butler said he interviewed financial officers of three large archdioceses "generally considered healthy and well managed," and each cited major budget problems -- none caused by major sex abuse settlements.

"In the past eight years one archdiocese experienced a 47 percent decline in unrestricted net assets, whose value is probably the best barometer of financial health," he said.

He said the officer of another archdiocese told him most of its deficit could be attributed to subsidies for parishes with schools. The archdiocese has made "impressive efforts to establish scholarship foundations" and has run archdiocesan campaigns to fund its inner-city schools, but the red ink keeps flowing, he said.

"To keep parish-run schools afloat, the archdiocese is still forced to channel millions of dollars away from other essential ministries," he said.

He said a third archdiocesan financial officer said rising costs were simply outpacing whatever increased income the archdiocese was seeing from annual parish assessments.

"The time has come to engage the wider community of faith in an urgent discussion of the church's financial plight," Butler said.


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