November 24, 2016 The Catholic Spirit • 1B
Archdiocesan Chancery Corporation Annual Financial Report • 2016
Report shows God continues to provide, even in hard times
H
ow appropriate that the 2016 Annual Financial Report of the Archdiocese of St. Paul and Minneapolis is being published as we prepare to celebrate Thanksgiving. While the figures reflect the fragility that one would expect amidst the uncertainties that accompany a declaration of bankruptcy, the 2016 Report also serves as a wonderful reminder of the many ways in which the Lord continues to provide for this local Church, even in the Archbishop most difficult of times — and for that Bernard I am most thankful. HEBDA In the course of the past fiscal year, and in spite of the precarious financial situation in which we find ourselves, the Archdiocese has nonetheless managed to continue to facilitate and support the work of our Catholic faithful who in this Jubilee Year have made the merciful face of Christ present throughout this local Church, as they proclaim the Gospel, form our youth, support our married
couples and families, and reach out to our brothers and sisters in need. While Archdiocesan staffing and programming remains at the low level necessitated by the bankruptcy, I am grateful that work of the Church has continued. Anyone in attendance at the Rite of Election and Call to Continuing Conversion last Spring, when more than 600 were welcomed into the Church, or those who celebrated the Eucharist with our Catholic school students at CHS Field, or those who witnessed the enthusiasm of our high school students and confirmation candidates at Archdiocesan Youth Day all know that the Holy Spirit continues to bring life to our Church. While a financial report speaks in terms of “expenses,” I hope that you will share my conviction that those expenditures are “investments” in a Church with a strong future. While Pope Francis has repeatedly stated that he is not looking for bishops who see themselves as corporate CEO’s or bureaucratic managers, he is equally clear in teaching that a bishop needs to be a good steward of the resources that have been entrusted to him. As he reminded a group of recently ordained bishops, that necessarily requires that bishops make good use of their Priest Council,
Consultors and Finance Council. Here in the Archdiocese, I am assisted in the area of financial administration not only by a very competent professional staff, but also by the extraordinarily well-prepared laity and clerics who serve on the Archdiocesan Finance Council and Corporate Board and who, along with the priests who serve on the College of Consultors and Presbyteral Council, have been valued collaborators as we together face the task of restoring stability to the Archdiocese. The extraordinary circumstances in which we find ourselves have been matched by the exceptional commitment of these collaborators. They have had to go the proverbial “extra mile” and have done so with distinction. I am impressed with the amount of time that they routinely dedicate to the review of not only the financial data presented in the Report but also of the decisions that I have to make that can be expected to have an impact on both our financial situation and the health of this Archdiocese. The Archdiocesan Finance Council and Corporate Board have committed themselves to increased coordination and collaboration and have met jointly throughout this past year, providing
invaluable guidance in the Ramsey County matters and in the bankruptcy litigation. They have been briefed and involved in the decisions that have resulted in the litigation costs that appear as “Special Issues Expenses” in the Financial Report. Given both the magnitude of those costs and the importance of those issues to the future of the Archdiocese, the discussions have been lively, detailed and informative. What a blessing it is to have women and men around the table who are not only able to share such broad experiences in finance, law, accounting, banking, nonprofit administration and parish leadership, but who also are intimately acquainted with the mission of the Church, our desire to be transparent and our hope to make restitution for past wrongs. I invite you to join me in giving thanks to God for their dedication. The members of those bodies, moreover, never fail to remind me that every asset on our financials can be traced to the generosity — past and present — of the faithful of this Archdiocese. The Archdiocese isn’t a producer of goods and we don’t provide for-profit services. Everything that the Please turn to ARCHBISHOP on page 4B
Financial Officer Report 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, 2016. Condensed financial statements are included in this issue of The Catholic Spirit. The Management Discussion and Analysis and Financial Statements are posted at www.archspm.org on the Administration and Finance page. By Thomas Mertens, CFO
Introduction Fiscal Year 2016 began July 1, 2015, and ended June 30, 2016. It was a year of continuing financial challenges for the Archdiocese of St. Paul and Minneapolis, and it was our first full year in Reorganization in U.S. Bankruptcy Court. But it was also a year of clarity, hope and positive developments. As you may remember, after much consultation, the Archdiocese filed for Reorganization Jan. 16, 2015, due to the increasing number of claims of clergy sexual abuse of minors against the Archdiocese following adoption of the Minnesota Child Victim Act in 2013. After the Aug. 3, 2015, claim filing deadline, we learned that there were more than 400 claimants, a number Archbishop Bernard Hebda called “breathtaking.” Effort began in earnest at that time, and continues to the present, to engage more than a dozen insurance companies that covered the Archdiocese since the 1940s and contribute to a proposed trust that will eventually compensate those who have been harmed. Mediation efforts involving Archbishop Hebda, Bishop Andrew Cozzens, members of our Corporate Board and Finance Council, and attorneys representing the Archdiocese, the parishes and claimants have been positive and productive. All involved agree on common goals: to ensure that all people are safe in our churches and schools, that those who have been harmed receive fair compensation, and to ensure that the Archdiocese can continue to fulfill its core missions. Our Plan of Reorganization filed Nov. 15, 2016, contains a proposed Trust with more than $130
million, with almost $100 million from Archdiocese carriers, the single highest amount provided by insurance carriers in any diocesan bankruptcy to date. This Plan includes proposed settlement offers from more than 10 different carriers. At this point, there are only two carriers that have not agreed to a settlement with the Archdiocese. The Plan provides for the appointment of an independent Bankruptcy Courtappointed trustee to determine how much compensation each claimant receives from the Trust. We believe the settlement offers incorporated in the plan are fair and reasonable. The Plan will be submitted to claimants and other creditors following Court approval of a disclosure statement, at which time these parties will have an opportunity to vote on the Plan. Settlements with most of the carriers are contingent on approval of the proposed Archdiocese Plan. If the Plan is not approved due to opposition by claimants’ counsel, the Archdiocese may have no choice but to file an amended Plan without the insurance settlements and other proceeds, which would leave a relatively small sum for the victims. Those remaining proceeds could be largely exhausted by professional fees incurred before and after Plan confirmation. In early FY 2016, the Archdiocese commenced discussions with the Ramsey County Attorney’s Office directed towards resolution of pending criminal and civil charges. County Attorney John Choi said a key goal of his was to make sure that processes, protocols and practices were put into place in the Archdiocese to ensure children were safe in our churches and schools. We wholeheartedly agreed with that goal. After lengthy discussions that included Archbishop Hebda, members of the Archdiocese’s Office of Ministerial Standards and Safe Environment, and outside legal counsel, we reached what Choi called a “landmark agreement.” That agreement gives a district court judge oversight of our safe environment practices and requires reviews in court every six months through February 2020. Choi said he believed the agreement could serve as a prototype for child protection far beyond the Church. After the civil Settlement Agreement with Ramsey County, our team continued to make changes to
promote safe environments and continued to engage the Ramsey County Attorney’s Office in dialogue to resolve the criminal case against the Archdiocese. Choi announced July 20, 2016, that he was pleased with the Archdiocese’s policies, protocols and practices to protect children and dismissed the criminal charges. The extensive legal efforts in FY 2016, described above, drove much of the Archdiocese’s spending and continue to do so into FY 2017. Legal and professional fees, referred to as “Special Issues Expense” in our Statement of Activities, totaled $7.9 million, up from $5.9 million in FY 2015, partially a result of a full year of bankruptcy expenses in FY 2016 as compared to FY 2015. It is important to note that these fees include charges from not only the Archdiocese’s legal counsel and advisors but also the fees of professionals representing parishes and abuse claimants. Significant amounts were spent opposing a motion to consolidate the assets of over 200 Catholic entities into the bankruptcy and addressing issues raised by a Plan of Reorganization proposed by counsel for abuse claimants. While our Special Issues Expense grew in 2016, our effort to continue minimizing our Operating Expense was successful. Our Operating Expense before Special Issues Expense in 2016 was $18.6 million, down from $22.9 million in 2015. In 2014, Operating Expense before Special Issues Expense was $30.5 million. In the past three years, we have cut our expenses by approximately $12 million, a decrease of 39 percent, while still offering parishes and schools valuable services and resources to better carry out the mission of this local Church. In 2016, we sold Archdiocesan real estate not directly involved with our mission. The Hayden Center, which is home to more than 100 Archdiocesan employees, was sold to the Minnesota Historical Society in February for $4.3 million. The Chancery and Archbishop’s Residence, located across the street from the Cathedral of St. Paul, were sold to a real estate group for $3.2 million in April. In addition, the Hazelwood property near Northfield, used as a weekend retreat, was sold in March for Continued on next page