Correcting the Record: Economist Article Errs on Boston Archdiocese

Boston Catholic Insider
September 6, 2012

http://bostoncatholicinsider.wordpress.com/2012/09/06/correcting-the-record-economist-article-errs-on-boston-archdiocese/

On August 18, The Economist published an article entitled, “The Catholic Church in America: Earthly concerns” which somewhat accurately portrays the financial state of many dioceses in the U.S. but which also made some inaccurate statements or implications about Boston. A number of readers have asked us to comment on this, and today we take a few moments to belatedly do so.

This excerpt gives the gist of the article:

The sexual-abuse scandals of the past 20 years have brought shame to the church around the world. In America they have also brought financial strains…The church’s finances look poorly co-ordinated considering (or perhaps because of) their complexity. The management of money is often sloppy. And some parts of the church have indulged in ungainly financial contortions in some cases—it is alleged—both to divert funds away from uses intended by donors and to frustrate creditors with legitimate claims, including its own nuns and priests. The dioceses that have filed for bankruptcy may not be typical of the church as a whole. But given the overall lack of openness there is no way of knowing to what extent they are outliers. Thousands of claims for damages following sexual-abuse cases, which typically cost the church over $1m per victim, according to lawyers involved, have led to a liquidity crisis.

That much is accurate. But later, the article said the following:

Some dioceses have, in effect, raided priests’ pension funds to cover settlements and other losses. The church regularly collects money in the name of priests’ retirement. But in the dioceses that have gone bust lawyers and judges confirm that those funds are commingled with other investments, which makes them easily diverted to other uses. Under Cardinal Bernard Law, the archdiocese of Boston contributed nothing to its clergy retirement fund between 1986 and 2002, despite receiving an estimated $70m-90m in Easter and Christmas offerings that many parishioners believed would benefit retired priests.

Church officials denied the money it had collected was improperly diverted. By 2008 the unfunded liability had reached $114m. Joseph D’Arrigo, a benefits specialist, was brought in to turn things round. In 2010 the retirement fund was turned into an independent trust to ensure it could not be used for other purposes—a first for an American diocese, reckons Mr D’Arrigo.

The combining of two totally different issues into one in the first paragraph above creates a rather egregious misrepresentation and error. This was propagated in a number of other reports such as this one, “Report: Archdiocese of Boston Misused Donations.” The reality is that the issue of the financial state of the Boston Clergy Funds is a totally different one from how sexual abuse settlements were financed.

Funding of sexual abuse settlements and victim therapy in Boston is a matter of the public record. Funds came from real estate property sales, including the sale of the Brighton archdiocesan property and St. Johns Seminary property to Boston College; insurance coverage; donations to fund therapy; and money reserved from the insurance fund of the Archdiocese. More specifically, money for the abuse settlements was first borrowed from the Knights of Columbus, with Saint John’s Seminary as collateral, and later the K of C loan was repaid from the sale of St. John’s seminary + diocesan property, with the cash balance set aside for future claims. (BCI has already reported our criticism of the diocese taking away the seminary’s property and failing to repay the debt, but that is a different topic). The key point here is that the implication in The Economist article that the Clergy Funds were raided to fund sexual abuse settlements does not have any basis in fact BCI can find. BCI usually finds we disagree with diocesan spokesman, Terry Donilon, but on this one occasion, we agree with the main concept of his response to The Economist article, where Donilon said, “There was no money used from the parish closings for sex abuse settlements which is what that article was implying which was completely erroneous.” (Well, actually, the article implied that money from the Clergy Funds was used to fund settlements, but at least conceptually, Terry was correct).

Then we get to the matter of the Clergy Funds. The Clergy Funds are under-funded. That is an objective statement of fact. Our priests have given their lives for God and need to be provided for in their retirement. Most sources assess the amount of underfunding in the range of $100M to $200M. The archdiocese has “stabilized” the fund so that annual cash out = annual cash in. They are trying to raise about $20M over the next five years to more effectively stabilize the fund. But there is no plan publicly articulated to make up for the $100M+ in under-funding. How we got to this point is a longer post than time permits today. But, this portrayal by The Economist is also deceptive:

“Under Cardinal Bernard Law, the archdiocese of Boston contributed nothing to its clergy retirement fund between 1986 and 2002, despite receiving an estimated $70m-90m in Easter and Christmas offerings that many parishioners believed would benefit retired priests. Church officials denied the money it had collected was improperly diverted.By 2008 the unfunded liability had reached $114m.”

The question of exactly what happened to the Easter and Christmas offerings between 1986-2002 is about as clearly documented in the public record to BCI as is the location of Amelia Earhart’s airplane. In 2005, the Towers Perrin report supposedly found that the priests’ pension fund was strained in part because the archdiocese made no contributions to it from 1986 to 2002. We have not seen the report itself, but from everything BCI can determine, the interpretations of this assertion are not as black-and-white as they may appear. The donations were intended for the care and benefit of sick and elderly priests, as positioned during that time period. The point where clarification is needed seems to be–did the money go into the assets of the fund or into paying annual expenses for clergy care? As BCI understands it, the Boston Archdiocese used some substantial amount of the current income to the Clergy Funds during those years to pay current expenses. We are told that this was referred to in some circles as “the battle of the bulge,” because a large number of priests were retired and required substantial amounts of medical care as well as nursing home care. So the idea was to not put the money into the assets of the pension and benefits fund, but rather let that fund continue to grow, and to pay the then-current expenses for medical care of priests out of then-current income. Was that an improper diversion of contributions or misuse of donations? Assuming the funds went to pay current expenses for medically sick or elderly priests, BCI thinks that would have been OK.

In 2009, the Archdiocese released a 52-page report by accounting firm, Alexander, Aronson and Finning that found no evidence of theft or mismanagement in the 37-year history of the funds. The study did raise concerns that accounting controls were not tight enough to prevent theft and said there were not enough records to determine how much money was used before 2000 to support priests accused of abuse. But the accounting firm did say there was no indication that money is missing. The firm also said that the archdiocese retained all the records it was required to retain and that all evidence indicated that money contributed at Christmas and Easter was used to benefit priests as promised.

Now, how did we get to the $114M unfunded pension liability. Here is some of the explanation for what was reported as a $114M unfunded liability:

The archdiocese says the main reasons for the funds’ woes are not only the rising average age of priests and the increased costs of healthcare, but also the fact that the benefits were dramatically expanded in 2001 and that annual fund-raising has remained flat.

The study found that, between 2000 and 2008, the archdiocese spent $15.8 million from clergy benefits funds to support priests accused of sexually abusing minors. It was unable to determine how much was spent for that purpose previously.

The dramatic expansion of benefits under Cardinal Law in 2001 did make an impact in the Clergy Funds shortfall by 2008. The stock market tanked. Maybe a failure to contribute to assets prior to 2002 also contributed to the problem. BCI believes that despite the spin that the funds are stable today, there is still reason for great concern about the stability of the Clergy Funds and future ability to provide for our clergy. And the Alexander, Aronson and Finning study was a “study,” not an audit. It is well beyond the scope of BCI and this post to analyze this issue more deeply.

Our objective in this post is not to compliment or criticize the Boston Archdiocese for their financial management. (The pathetically slow action on addressing the problem of millions of dollars paid annually in excessive six-figure salaries is the topic for an upcoming post). Rather, our point is that The Economist article conveyed an inaccurate message regarding both the funding for sexual abuse settlements in Boston and the reasons behind the shortfall in the Clergy Funds. In that specific area, BCI believes the record should be set straight and The Economist should issue a correction.