Finance report shows 'trouble' in Twin Cities

Financial records for the St. Paul-Minneapolis archdiocese released Thursday revealed a $9 million deficit in operating activities for the 2014 fiscal year in addition to uncertainty about how high the costs of its sexual abuse scandal will ultimately rise -- or where it might lead.

For its archbishop, the situation pared down to a single word: "trouble."

"Our local Church and our Chancery Corporation, in particular, have known significant 'trouble' during the past year," Archbishop John Nienstedt said in a column Thursday for the archdiocesan newspaper, one he began by quoting Jesus (Matthew 6:34), who reminds his followers to focus on today's troubles rather than to look ahead to tomorrow. "That 'trouble' continues today with the disheartening financial information published in this issue of The Catholic Spirit."

The report for the fiscal year that ended June 30 showed net assets for the Chancery Corporation -- made up of the archdiocese's administrative and program offices -- down $8.9 million from the previous year, when they totaled $41.5 million. Total cash in fiscal year 2014 was whittled by 60 percent, from $9.5 million to $3.8 million. Investments saw a net increase of $1 million.

Operating activities, which includes pastoral and administrative programs, Catholic education, and clergy services, resulted in a $9.1 million deficit; as of fiscal year 2012, it showed a $1.5 million surplus.

"The deficit can be attributed to significant expenses that are not anticipated to be ongoing in the long-term," said Thomas Mertens, the archdiocese's chief financial officer, in his report.

Among them: nearly $4.2 million in special issues expenses related to the statute of limitations window for abuse claims; an almost $1 million write-off of software related to recommendations from the Safe Environments and Ministerial Standards Task Force; and $3.7 million to transition the Catholic Services Appeal to its own, separate nonprofit organization -- a move, completed Jan. 1, believed to reduce administrative costs going forward.

Despite the more-than-yearlong abuse scandal -- primarily focused on reports that church officials mishandled suspected abusive clergy and accusations of sexual abuse of minors -- contributions saw only a decline of about 8 percent, from $3.8 million in fiscal year 2013 to $3.5 million in fiscal year 2014.

Charles Zech, director of the Center for the Study of Church Management at Villanova University, said of the financial picture, "The numbers speak for themselves."

"This is bleak," he told NCR. "There's nothing encouraging in the entire report. If I was a parishioner of St. Paul-Minneapolis, I'd find this very discouraging."

The audit, conducted by an independent Minneapolis firm, comes as the second publication of the archdiocese's full audited financial report, a practice begun last year in a move toward greater transparency. However, this year's audit also came without an unqualified opinion -- a first for the archdiocese.

"This is solely because we were not able to provide the auditors with an estimate of our liability related to ongoing litigation and claims arising under the Minnesota Child Victims Act and the potential impact of the liability on our future financial stability," said Mertens, who just last year wrote in his report that "the financial condition of the archdiocese is solid."

That has changed in a year, he said, because of the special issues expenses "and the growing potential liability surrounding litigation stemming from the lifting of the civil statute of limitations for sexual abuse of minors until May 2016 under the Minnesota Child Victims Act."

In the audit report, the firm CliftonLarsonAllen LLP stated because of those abuse-related uncertainties and the "significant decrease in net assets ... these conditions raise substantial doubt about the Chancery Corporation's ability to continue as a going concern," that is, to remain financially afloat.

In May 2013, the Minnesota Child Victim Act opened a three-year window in its statute of limitations law for adults sexually abused as children to file claims against their abuser or an institution.

Former chancellor of canonical affairs Jennifer Haselberger said while the archdiocese may blame some of its current financial situation on the law, it could have avoided by seeking mediation rather than litigation.

"I think it's important to emphasize that they got in this situation because of a particular posture. Had they dealt with these people fairly and justly from the beginning, this wouldn't be an issue," she told NCR.

So far, 20 cases are set for trial, and the archdiocese has settled only two, most recently the John Doe 1 case, which led to a partnership with attorney Jeff Anderson. Like last year, the litigation liabilities were listed at $5.3 million -- an estimate, according to the audit, given the lack of clarity for how many claims might ultimately come forward.

Referring to the unclear future costs, Nienstedt in his column wrote, "I must also admit that the road ahead offers 'trouble' of its own."

A road where bankruptcy lurks as one possible path.

"At this point no decision has been made for or against reorganization," a statement from the archdiocese read. "The archdiocese is considering all options including reorganization under the bankruptcy code in order to provide the most fair response to clergy sexual abuse claims against the archdiocese."

Should reorganization under bankruptcy occur, its 187 parishes and 90 schools -- as well as their employees -- would be exempt from the proceedings because of a Minnesota law that requires they be separately incorporated, Nienstedt noted in his column. The archdiocese said it is "premature to speculate" about how such a course would impact priests' and lay employees' benefits and pensions.

According to BishopAccountability.org, in the last decade,, 11 U.S. dioceses have filed for bankruptcy, most recently in January in both Helena, Mont., and Stockton, Calif. In Milwaukee, the Twin Cities' neighbor to the east, bankruptcy hearings have been ongoing for nearly four years.

In the Twin Cities, Zech said he saw bankruptcy as "inevitable" and said it is a course he would advise they take. He said the process would provide a way to fairly settle with all abuse claimants and offer a better option than selling property under conditions that could result in less than full value.

The release of the financial records came days after the archdiocese confirmed it would seek to reduce its budget by more than $5 million, or 20 percent, through cuts to staff and other expenses. Chancery staff were informed of the layoffs in mid-October, with 11 people laid off last week in the first round.

Nienstedt said Thursday the layoffs "sadden me greatly," noting that the entire chancery staff "works with great dedication and for modest salaries in order to serve Christ and His Church."

"I ask our readership to pray for me and my team at the Chancery Corporation, that we may have the wisdom and strength in the months ahead to resolve the serious 'trouble' that faces us so that we might be a source of hope before all that confront us," Nienstedt said.

[Brian Roewe is an NCR staff writer. His email address is broewe@ncronline.org. Follow him on Twitter: @BrianRoewe.]