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	Rebuilding Finances and Faith a Year after a Devastating Sex and Finance Scandal Broke, the Santa Rosa Diocese Is Clearly on the Road to Recovery By Bob Klose Press Democrat July 23, 2000 A year after it all came undone in sexual scandal and financial ruin, the Catholic Diocese of Santa Rosa is ready to begin building again. Last July, parishioners in Sonoma County and throughout the diocese stood confident and poised to complete construction of schools and churches, with the blessing of their bishop, totally unsuspecting they were about to be swamped by forces larger than themselves. "Everything came together at the same time," recalled the Rev. Gary Lombardi, pastor of St. Vincent de Paul Church in Petaluma. "It was almost like 'The Perfect Storm."' The hit movie about a sudden and devastating collision of killer Atlantic storms is an apt metaphor. The multimillion-dollar building projects and programs of the largest and smallest parishes of the diocese suddenly became afterthoughts with the shocking resignation of Bishop G. Patrick Ziemann followed by revelations that he had had a sexual affair and spent millions of dollars, sending the diocese into financial crisis. Their programs adrift, 140,000 North Coast Catholics turned their energies to salvaging their church, re-establishing trust in their leaders, and building a fail-safe administration to head off future disasters. Today, Catholics are gathering in parishes from Petaluma to Oregon with their personal religious faiths intact and with the knowledge that their church, despite the sequence of events that began a year ago, is moving forward. There is reason for optimism. After a year of crisis administration, the diocese is now under the control of Bishop Daniel Walsh, sent to Santa Rosa from the Diocese of Las Vegas by Pope John Paul II. Walsh has pledged to establish fire walls in the diocese headquarters to prevent similar disasters. On the local level, grass-roots parish programs halted by the financial crisis are being rekindled. Through parishioner pledges, bank loans and private donations -- including large contributions announced by the Sebastiani Foundation of Sonoma and ongoing support by Chalk Hill vintner Fred Furth -- work is expected to resume on school projects in Petaluma and Santa Rosa and a new parish hall in Windsor. The grants give hope that St. Elizabeth Ann Seton parish in Rohnert Park can resume work on its $4.1 million church project. Even the tiny parish of St. Mary Immaculate in Lakeport is rich with enthusiasm to reopen the religious education program closed in the wake of the diocese disaster, this time as an ecumenical campus shared with three other Christian denominations. And Walsh is beginning his first fiscal year on the job with a chancery budget that is nearly in balance, a lay and cleric Finance Council to guide his fiscal policies, and a cache of operating funds cobbled together from $11 million in loans and donations and $8 million raised in diocesan property sales that are pending or completed. Distrust, calls for changes Nevertheless, the bishop's new diocese remains badly wounded, and feelings of distrust are pervasive in church pews. Calls for changes in church operations continue to be heard, and even committed church supporters think it is unrealistic to expect a return to normalcy soon, given the damage suffered under Ziemann's watch. "Bishop Walsh has a healing problem and a financial problem," said St. Eugene parishioner Frank Siroky in Santa Rosa. "I think he can solve the financial problem with a couple million dollars. But the other may take more time." Siroky is a retired Sonoma State University psychology professor. He compared the diocese situation with the conflict at SSU over former SSU President Peter Diamandopolous, who was ousted in 1983. "We lived through that for some horrendous number of years. In the end, he got canned, but to this day there is still a negative residual feeling on campus," he said. "It may take the diocese a generation to get over this." Questions about the conduct of Ziemann, who took over the diocese in 1992, had been rumbling out of Mendocino County for months during the first half of 1999, when it was disclosed that Ziemann had covered up theft charges and sexual misconduct allegations involving the Rev. Jorge Hume Salas. The full extent of the relationship of Ziemann and Salas exploded into the open last July, and for months would batter the North Coast church with one shocking revelation after another. St. Vincent pastor Lombardi remembers the day the scandal began. "Bishop Ziemann called me and I said: 'Hi Pat, how are you?"' Lombardi said, recalling the phone call that marked the dramatic change for the diocese. "Not well," was the bishop's reply, Lombardi said from his office at St. Vincent's. "I've been under a lot of tension the past 10 months. I've submitted my resignation. "And tomorrow," Ziemann continued, speaking over Lombardi's expression of shock, "there is going to be a story in The Press Democrat that I am being accused of sexual battery." "That's when it started," Lombardi said. Ziemann admits to sex with priest The next day, Ziemann's lawyers reported that the bishop had admitted having sex with Salas, although Ziemann said it was consensual. A month later, Ziemann's personal crisis turned diocesanwide with disclosures that the North Coast church budget was badly out of balance and building programs would have to be shut down. Then, within weeks, the extent of the disaster was announced to 90 diocesan priests at a meeting in Ukiah. Under Ziemann's leadership, some $16 million in parish and school savings and other money had been squandered in the internal banking system, the consolidated account into which the diocese encouraged church entities to deposit their funds. Priest pension funds were diverted. Risky investments were lost. More than $1 million in bills was unpaid. With its leader gone, the diocese headquarters nearly broke, and parishes and schools with empty bank accounts, the diocese faced a long road of financial recovery and challenges to the faith of Catholics from Petaluma to the Oregon border. The journey became well-traveled territory, heavily covered by mainstream and religious media, as San Francisco Archbishop William Levada, appointed by Pope John Paul II, took control of the diocese. Finance officer Keys removed The financial revelations led to the removal of Monsignor Thomas Keys as vicar general and finance officer under Ziemann and two previous bishops. Keys remains pastor of Star of the Valley Church in Oakmont. An audit and investigation showed Ziemann had operated for seven years without a budget and raided the consolidated account to pay for programs the diocese could not afford. A review of Ziemann's discretionary fund -- normally an annual account of about $25,000 and available to bishops for incidental and emergency expenses -- revealed unbridled spending. Records showed that from 1995 to 1999, Ziemann spent $2 million from this checkbook, including $561,000 to victims of priest sexual misconduct. $3.8 million loss A few months before his resignation, Ziemann, with Keys, embarked on desperate money-making schemes, losing $3.8 million of more than $10 million they poured into two investments, one of which was under federal investigation. Ziemann's personal indiscretions revived festering wounds over a string of sexual misconduct cases involving priests. Victims suffered years of emotional scars, parishioners paid millions in settlements and lawyers' fees, including $600,000 to settle the Ziemann-Salas case, and Catholics questioned their leaders' commitment to dealing with pedophile priests. Those were the damaged goods Bishop Walsh inherited when he accepted Pope John Paul II's call and agreed to leave the Las Vegas Diocese for Northern California. He was appointed to the Santa Rosa post in April and installed in May. Financially, he faces a task not unlike the job assumed by Bishop Mark Hurley in 1969, when Hurley took over for Bishop Leo Maher and discovered $12 million in debts, including $7 million owed parishioners. In addition, Walsh faces the crisis in faith in church leadership caused by Ziemann's sexual affair, continuing revelations of priest misconduct, and distrust in diocese policies for dealing with such cases. On the financial front, Walsh is appealing to parishioners for $600,000 to balance his budget. He is arranging new terms under which more than 20 parishes and schools are being asked to pay off $10.8 million in debts to the diocese. And he must begin to meet his commitment to eventually pay back the $16 million in parish and school funds Ziemann misspent. On sexual misconduct issues, he's created a panel of five people to deal with claims, the first of which could involve recent allegations of two men from Santa Clara County who say they were molested by a Santa Rosa priest years ago. Laity wants greater say Walsh also faces growing pressure to give lay Catholics a greater say in diocesan policy. The call for such input was first sounded late last year at St. Leo the Great Church in Sonoma Valley, where a parishioner poll showed strong support for a diocesewide lay congress of parish councils. That idea was initially rejected by Walsh, who said on the day his appointment was announced that the church is not a democracy. But in his installation homily May 22, Walsh indicated a willingness to consider increasing lay participation. "There have emerged committed laity who wish to take up their proper role in participating in the life of the Church both on a diocesan and parish level," Walsh said. Since then, the bishop has been pressed to discuss further the "proper" lay role. Two days before his installation, about 38 representatives of mostly Sonoma County parishes met at St. Eugene's to discuss creating a Catholic laity council. Siroky, spokesman for the council, said the group has grown to about 100 people from Napa, Sonoma and Mendocino counties. He said the group wants to meet with Walsh after a formal organizational meeting next month in Santa Rosa. Through greater involvement, they hope to repair trust damaged by Ziemann. "We trusted Ziemann up and down the line, and look what happened," he said. Similar appeals are coming from Humboldt County, where Eureka attorney John A. Gromala wrote Walsh last month on behalf of a group of lawyers and retired judges from Santa Rosa to Crescent City who are offering the bishop help. Gromala requested a meeting to discuss the crisis, steps to prevent problems, and consideration of criminal or civil action against people responsible for the diocese's problems. Failure to have such a dialogue "will feed the cancer that has infected our diocese," he said. Walsh initially declined, saying he had enough lawyers. On Thursday, however, he said he misunderstood the group's intent and has agreed to meet when time permits. Spending details sought Other parishioners, meanwhile, continue to await responses to their call for more diocesan disclosure of Ziemann's spending, including the identification of specific recipients of the $2 million Ziemann paid out of his discretionary fund. Those expenditures included payments to priests, sexual abuse victims, staff, lawyers and others. In response to a question at a meeting at St. Eugene's last month, Monsignor John Brenkle, the St. Helena priest who succeeded Keys as finance officer, said he hasn't had time to discuss the fund with Ziemann, and as of Friday details remain undisclosed. No parish, school or other diocese entity escaped Ziemann's excesses with the consolidated account. Misappropriated savings and operational funds range from $2,022.44 from St. Sebastian Church in Sebastopol to more than $2 million each from St. Rose parish and school in Santa Rosa and St. Vincent's in Petaluma. Walsh has promised the money will be repaid, but it won't be soon. Still, rank-and-file priests are encouraging parishes to look ahead. "One of these days we have to get over what happened in the past and get on with it," said the Rev. Ted Oswald, pastor of St. Mary Immaculate Church in Lakeport. Oswald's parish of about 400 families lost $12,752. But the Ziemann crisis fell hardest when the diocese could no longer make payments on the $485,000 loan for the school site and modular buildings. Oswald resisted pressure to close Holy Family Elementary midyear but had to shut down the school at the end of the spring semester. Now he has a plan to revive religious education in his parish despite money shortages. With pastors of three other Lakeport churches -- Galilee Lutheran, United Christian and St. John's Episcopal -- he hopes to enroll young Catholics in a multidenominational program called Good Shepherd Ecumenical Academy, located in a former preschool. "We're starting over from scratch, but we're doing something," he said. "If you don't, it just gets your stomach all in knots. It's for the kids. That's what counts. We'll do it with fund-raisers, tuition and donations." The optimism of the diocese clergy is in stark contrast with the pervasive gloom of recent months. "Now after so much bad news, there's a whole lot of good news," said Lombardi, who remembered how the events of Ziemann's fall touched him and other clergy. 'Like a death' "This was like a death," he said. "We were scrambling. 'What are we going to tell the people Sunday?' "I didn't try to defend. I tried to tell people how I was handling it and it seemed to be the way to go," he said. "What I discovered was the people were concerned about me and extremely supportive." On the day Ziemann resigned, Lombardi said, the bishop expressed hope he would be remembered for the good things he did for the diocese. "It's hard to say," Lombardi said. "One benefit of his legacy is that people are looking for a different way for the church to function that will include lay people. But beyond that, it is way early to tell. "There's an awful lot that still needs to be taken care of, but it is time for us to move on. We need to let the past go. Not dwell on it but learn from it," he said. Working with immigrants Except for a letter of apology read from pulpits earlier this year, Ziemann has all but disappeared from the diocese he led for seven years. After a period of months in psychological counseling at a Catholic facility in Pennsylvania and then in Santa Clara, he has moved to a monastery in Arizona where he ministers to immigrant families. Requests through his attorneys for an interview have been declined. Salas, the former Ukiah priest whose sexual battery lawsuit triggered Ziemann's flight, also has refused requests for an interview. He is in Costa Rica and looking for a bishop to hire him as a priest. It leaves Walsh here with both the financial and human debts to pay. "I have my plate full," he said. "I can't do everything at once, and it is going to take time. This thing was not created in a day and it will take a long time to attend to it." PHOTO: 1 color, 2 b&w by Mary Gardella/Press Democrat 1 color by Mark Aronoff/Press Democrat 4 b&w mugs: Walsh, Ziemann, Salas, Keys 1. The Rev. John Griffin of St. Elizabeth Ann Seton Church in Rohnert Park does landscaping near the unfinished church, where construction was halted in May because of the diocese's financial crisis. 2. Bishop Daniel Walsh, who took over the diocese in May, has made strides toward restoring its faith and financial health. 3. Bishop Daniel Walsh gives a short sermon to parishioners during a public meeting late last month as he visited churches around the diocese to explain how he was dealing with the financial crisis. 4. Frank Coscia, center, a parishioner at St. Eugene's in Santa Rosa, listens intently during a question and answer session late last month with Bishop Daniel Walsh on the financial status of the diocese. Infobox: WHERE THEY STAND The following accounting, provided by the Archdiocese of San Francisco, reflects the long-term debts and losses of parishes, schools and other entities of the Santa Rosa Diocese shortly after the extent of the financial crisis of the North Coast church was discovered in August and September 1999. Some figures may have changed as the diocese began a financial recovery program. St. Rose Church, Santa Rosa Parish: $900,000 operational funds lost School: $1.3 million lost, including $900,000 for school multipurpose building. Impact: Building project shut down. Funds repaid: None Prospects: Hopeful. Construction seed money from Sebastiani Foundation to resume school building project. St. Vincent De Paul, Petaluma Parish: $385,000 operational funds lost. High School: $1.8 million in building and operational funds lost. Impact: Gym building project shut down. Funds repaid: All but $156,000. Operational funds: none Prospects: Good. Construction of gym expected to resume in next few weeks and financed by foundation grants, donations and bank financing. St. Elizabeth Ann Seton Church, RP Parish: $192,000 in operational funds lost. New church: $4.1 million church project caught in the middle of diocese collapse. Diocese lent $500,000 to weatherize and finish exterior of project, but building remains fenced with unfinished interior. Prospects: Hopeful. Sebastiani Foundation donation moves fund drive forward on project on hold and awaiting money since April. Our Lady of Guadalupe Church, Windsor Parish: $109,500 in parish funds lost. Parish Hall: $3.2 million construction project, a partnership of parish and diocese, continues after private donations and diocese loan prevented long-term shutdown. Prospects: Good. Building expected to be finished in fall, dedicated in December. St. Mary Immaculate Church/St. Peter's Mission Church , Lake County Parish: $12,700 raised by parishioners lost. Funds repaid: None Elementary School: Closed after diocese demanded school begin paying back $485,000 borrowed to finance site, portable buildings. Prospects: Good. Catholic parishes launching ecumenical parochial school in Lakeport with Methodist, Lutheran and Episcopalian churches. St. Bernard Church, Eureka Parish: $21,700 operational funds lost and re-imposition of $198,000 in elementary school loan. Elementary/High School: $62,000 in operational funds lost, diocese subsidy suspended, and $2.3 million debt to diocese. Impact: Facing closure, $830,000 in rescue funds raised. Prospects: Better. Classes to resume this fall, but school must raise $250,000 above tuitions annually to keep doors open. Other parishes, schools and diocesan entities with losses: Assumption-Ferndale $15,811.75 Blessed Kateri-Hoopa: $15,892.05 Butler Valley Hospital: $180,902.51 Camp Saint Michael: $146,828.17 Cardinal Newman H.S.: $1,410,491.48 Catholic Youth Organization: $13,272.97 Christ the King-McKinleyville: $64,355.36 Holy Spirit-Santa Rosa: $138,599.90 Holy Family-Napa: $212,524.52 Our Lady of Good Counsel-Fort Bragg: $62,479.74 Our Lady of Guadalupe-Windsor: $109,586.29 Our Lady of Perpetual Help-Calistoga: $58,767.02 Our Lady Queen of Peace-Clearlake: $43,864.34 Resurrection-Santa Rosa: $141,049.89 Sacred Heart-Eureka: $55,593.40 St. Aloysius-Point Arena: $33,224.10 St. Anthony-Mendocino: $11,243.77 St. Anthony of Padua-Willits: $430,943.59 St. Apollinaris-Napa: $190,471.27 St. Bernard Parish-Eureka: $21,795.84 St. Bernard School-Eureka: $62,102.83 St. Elizabeth Seton-Philo: $158,890.90 St. Elizabeth Seton-Rohnert Park: $192,043.88 St. Elizabeth-Guerneville: $5,667.82 St. Eugene-Santa Rosa: $672,736.38 St. Francis Solano-Sonoma: $489,111.83 St. Helena-St. Helena: $153,672.21 St. James-Petaluma: $661,192.69 St. Joan of Arc-Yountville: $96,087.65 St. John the Baptist-Healdsburg: $327,171.39 St. John the Baptist-Napa: $274,896.80 St. Joseph-Cotati: $1,398,579.06 St. Joseph-Crescent City: $168,198.40 St. Joseph-Fortuna: $17,974.91 St. Joseph-Middletown: $30,303.94 St. Mary-Arcata: $520,424.89 St. Mary Immaculate-Lakeport: $12,752.92 St. Mary-Ukiah: $487,584.57 St. Patrick-Scotia: $15,238.83 St. Peter-Cloverdale: $275,237.79 St. Philip-Occidental: $39,831.75 St. Rose-Santa Rosa: $2,129,804.33 St. Sebastian-Sebastopol: $2,022.44 St. Thomas Aquinas-Napa: $295,128.49 St. Vincent De Paul-Petaluma: $2,028,857.44 Star of the Valley-Santa Rosa: $51,673.02 National Scrip Center: $2,151,873.59 Total: $16,105,758.50 < How crisis unfolded THE INITIAL CRISIS Within a month of the resignation of Bishop G. Patrick Ziemann, interim administrator Archbishop William Levada of San Francisco discovered that $16 million in funds deposited by parishes and schools in the diocese's internal banking system had been misappropriated and spent. Further investigation showed the Ziemann administration had diverted $2 million in pension contributions, owed about $1.5 million in unpaid bills and had spent another $3 million that belonged to various external, related organizations such as the National Scrip Center and StarCross Monastery, making this a $22.5 million crisis. THE RECOVERY EFFORT Facing debts and cash-flow problems, Levada raised emergency cash for the diocese. He obtained an immediate $5 million Wells Fargo loan and then, over ensuing months, negotiated $6.6 million in long-term loans from other Catholic dioceses. He also raised more funds through gifts, and by selling assets including real estate and recouping some risky investments, bringing to $22.8 million the amount available to rectify the crisis. DIOCESAN PROPERTY SALES Sold: $2,850,231 House of Prayer, Sebastopol, $717,000; Note on San Francisco condominium, $675,481; Warehouse, 1111 Petaluma Hill Road, Santa Rosa, $500,000; Three acres, Fountaingrove Parkway, Santa Rosa, $500,000; Two condominiums, Santa Rosa, $220,000; Home, Santa Rosa, $220,000; Lot, Covelo, $12,000; Lot, Middletown, $5,750. Sales pending/on market: $5,229,500 Orchard Property, Santa Rosa, $5,100,000; Condominium, Santa Rosa, $119,500; Lot, Shelter Cove, $10,000. Property transfers for diocese debt relief: $951,500 Priest house to St. Aloysius, Gualala, $135,000; Latino Center, Cotati, to St. Joseph's, $446,500; House, Santa Rosa, to St. Eugene's, $370,000. THE LONG-TERM NEED The diocese spent $12.6 million of its emergency cash during the first year of the crisis to pay bills, restore pension funds, cut staff, halt construction projects, and pay to settleclaims of priest sexual misconduct, among other things. It identified $21 million in other obligations including payback of the $16 million lost in the internal banking system, repaying external organizations, and setting aside reserves. That brought the recovery obligation to $33.6 million, exceeding current cash available by $10.8 million. The diocese also must repay $10.9 million to Wells Fargo and other dioceses. Parishes and schools, meanwhile, owe the diocese $10.8 million they borrowed in years past, but those are long-term loans. Total Potential Proceeds/Debt Relief $9,031,211
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