Archdiocese Outlines Financial Recovery Strategy, by Ellie Hidalgo, The Tidings, March 14, 2008

Archdiocese Outlines Financial Recovery Strategy

By Ellie Hidalgo
The Tidings
March 14, 2008

http://www.the-tidings.com/2008/031408/finance.htm

A financial recovery strategy in response to the formidable financial challenge faced by Archdiocese of Los Angeles, following its settlement of hundreds of lawsuits stemming from the sexual abuse crisis, was outlined recently at a series of meetings throughout the Archdiocese.

The recovery plan increases parish assessments by two percent; continues to reduce costs at the archdiocesan Administrative Office by 10 percent; and request grants, pledges and loans from parishes.

Cardinal Roger Mahony, auxiliary bishops, several members of the Archdiocesan Finance Council, archdiocesan leaders and parish staffs conducted 19 presentations in deaneries throughout the five regions to detail the plan. (Deaneries 1 and 2 held a combined meeting.) The meetings, held from late January to early March, were attended by more than 3,000 parishioners who serve as members of parish councils, parish finance councils and parish staffs.

PRESENTATION --- Cardinal Roger Mahony speaks to parish finance council, parish council and parish staff members at St. Denis Church, Diamond Bar, during the Deanery 12 presentation on the archdiocesan financial status. Flanking the cardinal (from left) are Fr. Lorenzo Miranda, dean of Deanery 11 and pastor of St. Louis of France Church, La Puente; Randy Steiner, chief financial officer for the archdiocese; William Wardlaw, Archdiocesan Finance Council member; Msgr. James Loughnane, dean of Deanery 12 and St. Denis pastor; and Marge Graf, archdiocesan legal counsel.
Photo by Ellie Hidalgo

Msgr. James Loughnane, pastor of St. Denis Church where a meeting for Deanery 12 was held in mid-February, thanked parishioners for their "steadfast faith" in the face of the crisis which, he said, "has been a great test of our understanding of the body of Christ."

The July 16, 2007 announcement of a $660 million "global settlement" of 508 civil cases alleging sexual abuse of minors by clergy and other church personnel, combined with the December 2006 settlement of 45 cases at $60 million, brought the total settlement to $720 million.

Of this amount, the archdiocese is funding $292 million and its insurance companies are funding $236 million. Of the $192 million balance, approximately 40 religious orders and other participating defendants have paid or have committed to paying a total of $118 million.

The remainder will be funded by one religious order that did not participate in the global settlement, and any outstanding amount is guaranteed by the archdiocese. Archdiocesan officials estimate that the archdiocese will likely have to pay up to an additional $50 million to close this gap.

"There were several religious orders who had significant liabilities and virtually no assets," William Wardlaw, a member of the Archdiocesan Finance Council, said during his Deanery 12 presentation at St. Denis Church.

At the deanery presentations, archdiocesan officials reviewed the financial issues of settling hundreds of cases, while also emphasizing the need to continue to extend compassion and healing to those victimized by the abuse.

"While there is a great emphasis on past figures, timelines, years, etc., we really must maintain our focus upon the victims," said Cardinal Mahony, who to date has met personally with more than 80 victims. "It is very important for us as a church to listen to their stories, to be able to offer them a personal apology."

Unexpected amount

In a 40-minute presentation Cardinal Mahony acknowledged that the final settlement costs proved to be much larger than he had ever anticipated. The scope of the abuse was unknown to the archdiocese until hundreds of plaintiffs came forward in 2003 when the California legislature lifted the statute of limitations for one year.

Insurance companies had been targeted for larger participation, and then the Orange Diocese in 2005 agreed to pay up to 50 percent of its settlement costs. "They acted as they saw was the best course at the time. I don't fault them for that," said the cardinal. "But their arrangement whereby the diocese paid 50 percent and the insurance companies paid 50 percent also became a new level."

The cardinal said he had remained confident that insurance companies would participate more fully in the overall settlement with the Archdiocese of Los Angeles. "We told you that and we relied upon that assumption, which turned out to be wrong. And I apologize to you for misleading you in any way," said Cardinal Mahony.

Of the lawsuits, 462 cases name as defendants parishes and schools of the Archdiocese of Los Angeles. Cardinal Mahony pointed out that by settling all the cases through a global settlement, these parishes and schools were spared years of depositions, chaotic trials, and drastic financial burdens.

"You were assured that all our efforts would be directed to protect your parish and school properties, you parish accounts, and your parish savings. Our global settlement was able to accomplish that goal," said the cardinal.

The global settlement included participation and consultation by all defendants, the archdiocese and the insurance companies. The major consultative bodies of the archdiocese --- the Archdiocesan Finance Council, the Council of Priests, the 20 deans, and the College of Consultors (which includes the cardinal, auxiliary bishops, vicar general and two priests) --- were consulted at each important decision making point, said the cardinal.

"Everyone agreed we had to get this scandal behind us for the good of the church and of our archdiocese," said the cardinal.

The plaintiffs' attorneys had originally sought $3 million per claim; through mediation the plaintiffs settled for $1.3 million per claim.

"The settlement talks were a roller coaster of enormous pressure, with constant changes, shifts and reversals. Several times the talks broke down and it looked as if we would have to go to trial with these cases," said the cardinal. "I never intended to deceive or mislead any of you throughout the course of these events. I tried to explain our status correctly, but in hindsight, I would have portrayed that status with far more caution, probably even far more gloomy."

Financial impact

To finance its $292 million portion of the global settlement, the archdiocese arranged a bank loan of $175 million and liquidated investments worth $117 million.

The $175 million bank loan is expected to be partially repaid with proceeds from the sale of up to 51 archdiocesan properties (estimated at $107 million). The balance remaining at the end of the loan term in 2011 is estimated at $50 million; this amount may need to be refinanced.

Officials noted that the Administrative Office, also known as the Archdiocesan Catholic Center, provides essential services to parishes and schools which are most effectively administered at the archdiocesan level at a cost of $33 million a year. These include Catholic Cemeteries, and the Offices of Construction, Financial Services, Insurance, Human Resources, Catholic Schools, Religious Education, Worship, Safeguard the Children, Vocations, among others.

Officials said that income from investment assets had provided more than half the revenue needed to run the Administrative Office. The sale of those assets has resulted in a significant revenue loss to the office of approximately $6 million a year. The loss of this income, as well as the interest on the bank loan and the interest on the settlement guarantee, means the Administrative Office will incur a budget deficit of approximately $12 million a year.

The recovery plan calls for this budget deficit to be largely financed by a combination of administrative cost reductions ($3.2 million); improved collections of parish receivables for insurance premiums and employee benefits ($3-5 million); and cemetery sales ($3 million).

Wardlaw said that some staff reductions at the Administrative Office "will occur even through the staff has almost been cut in have over the last five years from 440 to 233."

The cardinal said that "the archdiocesan share of the global settlement is far greater than what we had anticipated. The impact on regular operating revenue for the archdiocese was not fully known until these last several months."

Recommendations

In order to facilitate financial recovery for the archdiocese and to pay the bank loan and the settlement guarantee, a special task force met for more than two months to make recommendations, which were approved by the major consultative bodies.

The recommendations are as follows:

1) Increase parish assessments on July 1 by two percent for 5 years at which time the increase will expire. Any future continuation of the increase will require full discussion and vote by the consultative bodies and the approval of the archbishop.

2) Reduce costs at the archdiocesan Administrative Office by 10 percent beginning July 1.

3) Request parishes to consider offering parish grants, pledges, no-interest or low-interest loans.

4) As a last resort, sell additional real estate beyond the 51 properties already being sold.

The third recommendation asks all parishes to consider making outright gifts and interest free loans to the archdiocese, said archdiocesan finance council members who gave the presentations.

The task force and Cardinal Mahony asked for assistance from parishes and said they are hopeful that up to $50 million can be raised.

"Without your help, we will face further reductions to the essential and core services of the archdiocese to you and to your schools," said the cardinal. "Without your help in some way, the length of time needed to retire and to settle the debt extends out to 15 years or more."

At the meetings parish leaders were given forms to take back to their parishes to consider if their parish can participate in efforts to lessen the overall financial impact of the settlement by offering a grant or a loan.

"Now is the time for all of us, as co-disciples of Jesus Christ, to move into the future," said Cardinal Mahony, with renewed optimism. "We are on this journey together. And I am hopeful that we can move forward accompanied by Jesus Christ and the Holy Spirit."