The financial information presented here is summarized from the audited financial statements of the Administrative Office of the Archdiocese of Los Angeles. To view a complete set of the financial statements with accompanying notes, please visit the Archdiocesan website at www.la-archdiocese.org. [Click here to view the complete financial statement.]

What is the Administrative Office of the Archdiocese of Los Angeles?

The Administrative Office consists of the departments that provide pastoral, educational and administrative support to parishes, schools, seminaries and other institutions in the Archdiocese. The supporting departments and programs are fiscally responsible to His Eminence Cardinal Roger M. Mahony, Archbishop of Los Angeles. Cardinal Mahony maintains direct operational control of these departments and programs. The financial statements of the Administrative Office include the operations of the Catholic Cemeteries.

In the past three years, how much has the Archdiocese budgeted for investment returns?

The Administrative Office budgeted approximately $7.2 million, $6.2 million, and $5.3 million in investment returns for the fiscal years ended June 30, 2002, 2001 and 2000 respectively. Investment returns are used to fund a variety of pastoral and administrative programs that serve the Catholic community. During the past two fiscal years investment returns were significantly below budget. This shortfall in revenue directly impacted the budget causing a projected deficit of $4.3 million in May of 2002. Actual funding for budgeted programs declined and the Administrative Office used investment pool reserves when necessary to fund shortfalls. As a result, reserves have declined over the past three years approximately $15.8 million primarily due to continued funding of operating deficits caused by negative investment returns.

What steps are being taken to resolve the current deficit?

As a steward of the church's financial resources, the Administrative Office determined that operational changes needed to be implemented in order to minimize the projected operating loss for fiscal year 2003. Early in 2002 the Administrative Office estimated the fiscal year 2003 operating deficit at approximately $4.3 million. Cutbacks were made in 19 departments resulting in a work-force reduction of 60 employees at the Administrative Office during the second quarter of fiscal year 2003. Furthermore, reductions in controllable operating costs were made in an effort to reduce the deficit. These reductions are expected to save the Archdiocese approximately $4.4 million annually.

What is the forecast for 2003?

We now project the operating deficit for the fiscal year ending June 30, 2003 at approximately $5.7 million. The increase from the original estimate of $4.3 million is due to the timing of the implementation of the cost reduction plan. The original projection assumed implementation at the beginning of the fiscal year. However, the actual cost reductions were implemented over a three month period in the second quarter of fiscal year 2003. In addition, the Administrative Office projects additional costs of approximately $7.7 million for nonrecurring items for the year ended June 30, 2003, including costs related to settlements, professional fees, severance and bad debt related to amounts due to the Administrative Office. Various options are being considered to address the projected deficit, such as the use of reserves. The impact of any action is contingent, in part, on the outcome of the current litigation facing the Archdiocese.

The Archdiocese has made the decision to scale back the operations of St. John's Seminary College, the fully accredited undergraduate college that is currently operating together with the Seminary. The scale back of college operations will reduce the projected operating deficit by approximately $2.0 million on an annual basis. Additionally, the endowment funding that is currently directed at the college can be shifted to St. John's Seminary, reducing the need to borrow from the Administrative Office.

In addition, the Administrative Office is evaluating further reductions in administrative costs. Similar to other non-profit organizations, the Archdiocese is experiencing a severe increase in fixed expenses such as insurance premiums, healthcare costs and workers compensation premiums. At the same time, the Archdiocese has a negative return on investments. Like all other non-profit organizations, the Archdiocese uses investment returns to help support programs and ministries.

How much has been paid in settlements related to clergy sexual abuse in fiscal year 2002?

In fiscal year 2002, the Archdiocese paid $1.5 million in settlements related to sexual abuse by clergy.

Where will funds come from to settle future claims related to clergy sexual abuse?

Though there are many uncertainties surrounding the potential financial impact to the Archdiocese from future settlements related to clergy sexual abuse, the Archdiocese is insured against such claims.

How did building the new Cathedral complex impact church finances?

Donations were provided as direct gifts and pledges and construction amounted to $189.7 million. The construction of the entire Cathedral complex was funded through a combination of donations and a bank loan. Additional pledges for the Cathedral have been made and the pledges have been recorded as a restricted asset on the financial statements of the Administrative Office. The bank loan will be repaid from the collection of pledges. Cathedral expenses of $4.6 million contributed to the decrease in net assets during fiscal year 2002. These expenses are composed of pre-dedication costs and operational expenses incurred prior to the opening of the Cathedral complex. Subsequent to fiscal year end the Cathedral has repaid these advances to the Administrative Office. As of dedication, the Cathedral is a new parish and is now a separate accounting and operating organization independent of the Administrative Office.

How have "Together in Mission" funds been used?

Despite current economic conditions, our Catholic faithful continue to open their hearts to those in need through their generous donations to our "Together in Mission" appeal. The funds donated by the parishioners during the annual Together in Mission campaign totaled $13.4 million in fiscal year 2002 and $13.1 million in fiscal year 2001. The donations are used to provide subsidies to under-funded parishes and schools in the most economically disadvantaged areas of the Archdiocese and to administer the program. This appeal differs from every other diocese in the United States in that it has always been a restricted appeal and the funds cannot be used for any other purpose. As part of our responsibility as fiscal stewards, an independent audit has been scheduled for the "Together in Mission" appeal.

What does the change in net assets mean?

A change in net assets occurs when transactions over the year cause the assets and liabilities of an organization to change. The change is generally a result of either accounting transfers between affiliated organizations or when there is a difference in revenues and expenses for the fiscal year. In 2002, net assets for the Administrative Office decreased $63.5 million. The primary cause for this decrease was due to $17.3 million in changes before transfers, and the net accounting transfer out of the Administrative Office of $46.2 million.

Why was there a decrease in net assets this past fiscal year?

The decrease in net assets before transfers to affiliates amounted to $17.3 million this year. Revenue was down due to a negative return on investments, and an increase in expenses of approximately $14.0 million. In previous years, investment returns were favorable providing an additional source of support for church activities. The majority of this cost increase is related to nonrecurring issues and does not impact parishes or schools. The Administrative Office increased its subsidy to parishes and schools by $2.6 million. Additionally, $50.6 million in earthquake related construction costs were transferred to parishes and schools for accounting purposes, because the construction was completed in the last fiscal year. These costs were incurred to repair damaged parishes and schools after the 1994 Northridge earthquake.

What are "restricted" and "unrestricted" funds?

These descriptions are specific accounting terms for not-for-profit organizations and are a requirement for presenting financial statements in accordance with generally accepted accounting principles. Restricted funds include gifts, pledges and other donations that are securely set aside for the purpose stated by the donor. Both civil and church law stipulate that restricted funds cannot be used other than for the purpose intended by the donor. Restricted funds fall into two categories, temporarily restricted and permanently restricted. Temporarily restricted funds are held until the donor's restriction has been fulfilled. Permanently restricted funds are held in perpetuity and only the earnings are available for use in accordance with the donor's wishes. Unrestricted funds are net assets not subject to donor-imposed restrictions and may be used in other areas of need.

Are parish finances included in the Administrative Office financial statements?

No. Parishes are independently operated as separate accounting entities. Each parish has a finance council and maintains its own accounting records. Highlights of parish finances are included in the summary on page A-4. Additionally there are other independent operating and accounting entities that are not included, such as Schools, Seminaries, Catholic Charities, The Tidings / Vida Nueva, and the Education Foundation. The parishes of the Archdiocese of Los Angeles are organized into five pastoral regions. For the past fifteen years, the practice in the Archdiocese has been to present the financial results substantiated by the audited financial statements to the Pastors and the Parish Finance Council members in each of the five pastoral regions of the Archdiocese. Individual invitations to these meetings are extended by letter from Cardinal Roger Mahony to each Pastor and to each Parish Finance Council member. The first of the financial presentations for the year ended June 30, 2002 will take place on January 23, 2003.

Are donations from parishioners up or down?

Contributions and donations increased from the Catholic faithful $5.3 million or 3.8% during fiscal year 2002. The majority of the increase came from envelope collections which increased $4.0 million, and plate collections which increased $1.3 million.