"When a dangerous storm is approaching, you should seek shelter," Kicanas wrote, not knowing that his longtime friend Portland Archbishop John Vlazny was headed to bankruptcy court. "In its own way, Chapter 11 reorganization represents an option for shelter for our diocese."

By taking the drastic step of declaring bankruptcy July 6, Vlazny forever changed how dioceses conduct the business of religion. As dioceses pay settlements for decades of child abuse by priests, bankruptcy is now an option.

While up to a dozen U.S. dioceses have been considered bankruptcy candidates, Tucson's diocese is widely considered the most likely to follow in Portland's footsteps. Kicanas is expected to announce whether the diocese will file before a sex-abuse trial begins in September.

Tucson's approach to bankruptcy preparation has been more public than Portland's. Kicanas had turned the deliberations into a public dialogue.

"Portland's bankruptcy provided almost a sense of relief, because we know we're headed in that direction," said Monsignor Robert Fuller of the St. Frances Cabrini parish in Tucson. "Nobody wants to be the first to go bankrupt. Portland doing it, in a sense, makes it easier for us."

Fuller predicts there will be a nationwide domino effect following Portland's bankruptcy.

"This is clearly one of those stones in the pond that will get a lot of ripple effects," said James Post, president of Voice of the Faithful, an organization of more than 35,000 Catholic lay people.

Bankruptcy is particularly stigmatic for churches, which strive to meet all financial and moral obligations. But some leaders say bankruptcy may be the only way to deal with claims that total millions of dollars.

Attorneys for the plaintiffs, however, say bankruptcy is unnecessary.

"I think they're hoping the victims will go away and be frightened off by the fact of the bankruptcy," said Lynne Cadigan, an attorney for 14 plaintiffs in Tucson.

Process turns public

Tucson's decision-making has been an excruciatingly public process.

While Portland's Vlazny had mentioned the possibility of bankruptcy, Tucson's Kicanas and his leadership team can't stop talking about the possibility. They hold open meetings. They take the unusual step of publicly releasing their financial statements. Kicanas provides updates on the diocesean Web site.

"I like to look at the diocese as a family, and when there is a family crisis, you talk about it, try to hear everyone's perspective, try to understand what the alternatives are," Kicanas said in an interview in Washington, D.C., on Thursday.

Perhaps no parish in the Tucson diocese is struggling to recover from the crisis more than Our Mother of Sorrows.

The church blends in with the surrounding modest brick ranch houses, car dealerships and strip malls. But inside lurk the decades-old ghosts of abuse of at least eight children.

Of the 28 priests the diocese says have "credible allegations" of sexual misconduct with children, six had served at Our Mother of Sorrows. Four of those priests were alleged to have abused children while at that parish.

Shepherding the parish's recovery has been Monsignor Thomas Cahalane. The native of Ireland has taken the ongoing negative financial news and shameful stories of abuse and taught lessons from them.

He held a healing service in early 2002, bringing together more than 500 people. He formed a healing and reconciliation committee. Despite some questions, he refuses to remove the plaques and photos that commemorate abusive priests from his church's gallery.

"Why sanitize?" Cahalane asked. "It's part of our history. Healing is an ongoing process."

The litigation and potential bankruptcy also are learning experiences, Cahalane said.

"It keeps us in a very humble place," Cahalane said. "It's a constant reminder that all behavior has consequences, sometimes very long-term consequences."

Last month, Cahalane brought the diocese's lawyers to his church and held a question-and-answer session with about 130 parishioners.

"If there's a good way to prepare for bankruptcy, it's happened here," Cahalane said. "It won't be a surprise to anyone."

But the victims, however, say regardless of whether financial settlements are struck inside or outside of bankruptcy, openness won't heal the wounds of abuse nationwide.

"Thousands of children's lives were shattered because people took the bishops' word at face value when they said there wasn't a problem," said Jim Parker, founder of the Tucson chapter of Survivors Network of Those Abused by Priests.

Cadigan said bankruptcy is a public relations move and not a prudent financial decision given the costs of bankruptcy cases.

"Financially, I think it will cost them far more to file bankruptcy," Cadigan said. "But what they care about is the public perception that they're the victim."

Property sold

Even before it decides whether to file for bankruptcy, Tucson is attempting to gather as much money for legal settlements without harming church operations.

The downtown Tucson headquarters of the diocese still look like a successful law firm's office. It's prime real estate, across the street from a bright red, turquoise and purple building that houses a Gold's Gym and, coincidentally, a U.S. Bankruptcy Court.

The diocese bought the building last year at a deep discount from a donor who wanted to revitalize downtown Tucson. But since June, the diocese hasn't owned the building.

The diocese has settled some sex abuse allegations for millions of dollars.

To pay its legal bills and the victims while avoiding a trip across the street to bankruptcy court, the diocese sold the building for $1.65 million to a Catholic foundation, to which the diocese now pays rent.

The diocese also sold property for a new Catholic high school, bringing in $3 million. But the diocese, as of mid-July, still faced 15 suits from 25 plaintiffs.

The diocese says bankruptcy protection could allow it to equitably distribute payments to all victims instead of paying on a first-come, first-serve basis.

"One of the appealing things of Chapter 11 is it does seem to be a fairer or more equitable way of compensating all victims," Kicanas said.

Down the street from the headquarters is the centerpiece of the Tucson diocese's real estate holdings: St. Augustine Cathedral. It dates back to two brick towers from 1897, which remain in the building that was expanded and renovated in the 1920s and 1960s.

"What a great bed-and-breakfast it would make," diocese spokesman Fred Allison quipped outside of the cathedral as the 104-degree sun pounded the stained-glass windows that tell the story of the life of St. Augustine.

Kicanas said if the diocese files for bankruptcy protection, it would develop a plan to settle with plaintiffs using money from a variety of sources, potentially including its insurance provider, asset sales and future diocesan operating revenues. He thinks the diocese could do that while protecting religious buildings such as the cathedral.

"I don't know if you can see those as simply expendable assets," Kicanas said. "They're places where people have buried loved ones. They're places where people have been baptized. They're places where they worship and pray."

The Tucson diocese also is attempting to protect its 75 parishes. Under church law, the diocese argues, the assets of the parishes belong to the parishioners, not the diocese.

Cadigan, the plaintiffs' lawyer, said she isn't asking for the diocese to liquidate its parishes or church buildings.

"We don't want to collect on those things because we believe they have sufficient assets elsewhere," Cadigan said.

But the plaintiffs would have right to assets such as parishes and the cathedral under Arizona law, she said.

"They're obviously part of the diocesan estate," Cadigan said. "The plate collection and the parishes and the cathedral are all owned by the bishop."

That conflicts with church law, which recognizes parishes as financially separate from the diocese.

Government control

For the Tucson diocese, the scariest part about bankruptcy protection is the control government could have over its operations. Under Chapter 11, a debtor must seek court approval for financial decisions.

"There are not many situations in free societies where the church is held accountable by civil authorities," Kicanas said. "Chapter 11 does bring the church into that relationship."

But as a result of the Portland filing, bankruptcy has become "a discussible option," said Lawrence Cunningham, a professor of theology at the University of Notre Dame. Portland's filing could work to the advantage of the archdiocese -- and others on the verge of bankruptcy.

"I don't want to sound cynical, but it could be a warning shot across the bow of the most litigious attorneys," Cunningham said.

For bishops such as Kicanas, this means that religious leaders must play a second role as turnaround-expert chief executives.

Sitting in the lobby of a hotel in Washington D.C., where he traveled for a national committee meeting last month, Kicanas sounded like the lawyers and executives who also make frequent business trips to the nation's capital. He spoke of the advantages of bankruptcy, legal costs and asset sales.

"A lot of the directions for a bishop or a CEO is set by the circumstances in which he finds himself or herself," said Kicanas, who joined the Tucson diocese in 2002, just as the diocese saw floods of allegations of abuse.

"When I came into the diocese of Tucson, clearly the first priority was to restore trust and to heal. While that may not be my first preference of what I would like to be spending my time on, it is clearly what I need to be spending my time on."

Jeff Kosseff: 503-294-7605; jeff.kosseff@newhouse.com
Jim Barnett: 503-294-7604; jim.barnett@newhouse.com