Many causes for archdiocese's deficit

The staggering financial deficits revealed Wednesday by the Archdiocese of Philadelphia are not rooted primarily in the priest sex-abuse scandal, a church official said.

"It's not so simple to say our problems are related to the sexual-abuse crisis," said Timothy O'Shaughnessy, chief financial officer for the archdiocese. "That is a serious issue, a very serious issue. . . . We've also had serious financial problems independent of the abuse crisis."

A massive $39.2 million loss for the year ended June 30, 2012, included $4.65 million in expenses for investigations of abuse allegations against priests and $6.69 million in miscellaneous legal and professional fees, including costs for Msgr. William J. Lynn's criminal trial.

But even after stripping away those and millions more in unusual expenses, the archdiocese said its cash outlays in fiscal 2012 still exceeded revenue by $17.4 million.

Unknowable in any detail is what portion of the church's financial woes stem from parishioners' cutting back on donations to protest priest abuse.

A major uncertainty for the archdiocese is the financial impact of 19 pending lawsuits alleging sexual abuse by clergy.

If the archdiocese were to lose any of those cases, or if legislators change the statute of limitations to open the window for a flood of new cases, any losses could exceed "the amounts insured or accrued," the financial report said.

The archdiocese declined to disclose "reserves or insurance for any specific matters."

Somewhat more positive financial news is on the horizon for the nation's sixth-largest diocese, which covers the five counties in Southeastern Pennsylvania and is home to nearly 1.5 million Catholics.

Without going into detail, O'Shaughnessy said the loss for the fiscal year just ended Sunday was expected to be in the range of $6 million, after cuts that included eliminating 45 jobs at archdiocesan headquarters, or 18 percent of the staff.

Even with those cuts, archdiocesan operations had to be bailed out by $14 million in proceeds from the sale of a retreat for retired priests in Ventnor, N.J., and the cardinal's mansion near City Avenue.

"We unfortunately needed those proceeds just for liquidity because we were still in the throes of experiencing a large operating deficit," compounded by severance payments and accrued legal fees that needed to be paid in cash, O'Shaughnessy said.

The fiscal year that began Monday should indicate continued progress, he said, estimating that the loss for fiscal 2014 would be less than $5 million.

"We've got to, as time goes by, take bigger steps to get that to zero, but I think we've done quite a bit to moderate it and get it so it's not too far out of control," said O'Shaughnessy, a graduate of Northeast Catholic High School.

The report marked the beginning of a new financial-reporting era for the archdiocese. For the first time, it published an audited financial statement for its central administrative office, the Office of Financial Services.

Business leaders who advise the archdiocese had urged Archbishop Charles J. Chaput to publish audited statements to help garner support from donors demanding transparency.

For O'Shaughnessy and his staff, preparing the financial statements for audit was a gargantuan task, which included the restatement of some figures that had been reported for the year ended June 30, 2011.

Adjustments included the addition of certain assets that previously had not been accounted for properly. That included $22 million raised by the Catholic Life 2000 Capital Campaign, which ran from 1991 to 1997. "It just wasn't on any balance sheet," O'Shaughnessy said.

Among the other adjustments was a $26 million increase in the reserve for past-due bills that parishes were unlikely to pay.

Combined with others, those adjustments resulted in a reduction of unrestricted net assets as of June 30, 2011, to negative $35.8 million from the previously reported positive balance of $29.35 million.

The fiscal 2012 loss drove the balance sheet further into the red. Unrestricted net assets fell to negative $72.52 million.

O'Shaughnessy zeroed in on four major financial gaps as top concerns. These deficits create about $350 million in ongoing financial distress.

First, the Office for Financial Services says it owes $82 million to the archdiocesan trust-and-loan fund, which was designed to collect deposits from parishes and either invest the money on their behalf or use it to make loans to other parishes.

From fiscal 2004 into early fiscal 2012, when Chaput arrived to replace Cardinal Justin Rigali, some of those parish deposits were "borrowed" to make up for deficit spending at the headquarters and to pay bills for parishes and schools that were falling behind.

"It looks like Rigali ran deficits while he was archbishop. It's one of those things where you can run a deficit once or twice, but if he kept running these deficits and borrowing from these funds, that's really problematic for a diocese," said the Rev. Thomas Reese, a senior analyst for the National Catholic Reporter.

Through his secretary in Knoxville, Tenn., where he now lives, Rigali said all comment should come from current officials at the Archdiocese of Philadelphia.

The $82 million gap also includes investment losses and reserves for bad loans to some parishes.

The plan to pay that money back by selling real estate was formalized last year in a promissory note, essentially an IOU, to the trust-and-loan fund.

"We're treating that fund very differently now, and we're going to satisfy the shortfall," O'Shaughnessy said.

Three additional gaps O'Shaughnessy is focused on are: $30.4 million for a self-insurance reserve, $89.9 million for the priests' retirement fund, and $151.7 million for the archdiocesan lay employees' retirement plan.

"We have serious balance-sheet issues," O'Shaughnessy said. "We've got to take serious action - and we believe we are - to get them fixed."

$39.2 million

Total operating deficit for fiscal 2012.

$17.4 million

Fiscal 2012 operating deficit minus non-recurring expenses, including legal and professional services related to the priest-abuse scandal and other issues.

$6 million

Estimated fiscal 2013 deficit.

Less than $5 million

Estimated fiscal 2014 deficit.

Selected costs for fiscal 2012

$6.7 million

Fees associated with legal and financial assistance and reviews, external debt retirement, and Msgr. Lynn's criminal trial.

$4.6 million

Investigations related to priests accused of sexual abuse.

$534,000

Investigation into actions of former chief financial officer Anita Guzzardi, who pleaded guilty to embezzling $906,000.

$354 million

Total of long-term financial gaps identified by the archdiocese, which include:

$82.0 million

Shortfall from the trust-and- loan fund, which invests or makes loans from money collected from parishes.

$89.9 million

Shortfall from the priests' pension fund.

$151.7 million

Shortfall from the lay employees' retirement plan.

$30.4 million

Shortfall from a self-insurance reserve.

SOURCE: Archdiocese of Philadelphia
John Duchneskie / The Inquirer