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>From http://www.nytimes.com/2002/06/13/national/13CHUR.html?todaysheadlines
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June 13, 2002
Roman Catholic Church Faces Questions About Finances
By SAM DILLON and LESLIE WAYNE
fter spending the past six months fending off accusations that it covered up
allegations of sexual abuse by priests, the American Roman Catholic church now
faces a new wave of scrutiny about how its finances are handled, particularly
because of the large and confidential settlements that dioceses have reached with
victims of that abuse.
In fact, some big donors to the church are leveling the same sorts of complaints that
abuse victims and their supporters have made: that a church run in such secrecy for
decades needs to be more open in its decision-making and more accountable for
the consequences of those decisions.
Recent reports of accounting cover-ups, most notably in Milwaukee and Palm
Beach, Fla., have only drawn more attention to the inability � or refusal � of many
dioceses to disclose where their money comes from or where it has gone.
Those concerns were evident last weekend in Los Angeles during the annual
meeting of Foundations and Donors Interested in Catholic Activities, an umbrella
organization representing 47 foundations that give the American Catholic church
$200 million a year. Philanthropists and their lawyers and administrators called on
the church to issue an audited report on how much money it has spent settling
sexual abuse cases in the past two decades.
"The church should open up its books," said Erica P. John, an heir to the Miller
brewing fortune and president of a family foundation that contributes up to $5
million a year to Catholic causes in Milwaukee.
"The church should not be a secret society," Ms. John said. "We're the people of
God, and we want transparency."
During Saturday's gathering of Foundations and Donors, several foundation
presidents expressed disappointment in the United States Conference of Catholic
Bishops � the policy-setting body for the Roman Catholic Church in America � for
not putting financial accountability on the bishops' formal agenda at their meeting
that started yesterday in Dallas concerning the sexual abuse crisis.
Francis J. Butler, president of Foundations and Donors, said the group wrote to
Bishop Wilton D. Gregory, the president of the bishops' conference, warning that
"the crisis of clergy sexual abuse will have profoundly negative repercussions for
Catholic giving in the absence of clear and transparent financial reporting."
Some experts said that if the church ever opened its books completely, people
would be shocked at at how little oversight or control there was over the finances.
A big part of the confusion is that there is no such thing as "the church," financially
speaking. The leaders of the 194 dioceses are independent operators as far as
money is concerned and have no obligation to make their financial statements
public or follow the general rules of accounting.
"I'm constantly amazed by how little information some dioceses have on their
finances," said Pat Schiltz, dean of the University of St. Thomas Law School in St.
Paul and a lawyer who has represented the church against sexual abuse claims.
"They are run like mom-and-pop operations."
The demands for greater financial accountability and openness come as lawsuits
against the dioceses are multiplying.
Since the sexual abuse crisis erupted in January, more than 200 priests across the
nation have been removed from ministerial duties. In that time, too, at least 300
civil lawsuits contending sexual abuse by clergy have been filed against the church,
according to a recent Associated Press survey.
Plaintiffs' lawyers say scores more are in the pipeline. Last month, the Boston
Archdiocese backed out of a proposed settlement with 86 victims of one priest,
estimated to cost up to $29.8 million, saying it would have crippled its ability to pay
plaintiffs filing new complaints. In Los Angeles, a lawyer who won $5.2 million from
the church last year for a single victim said she had signed up 100 new clients in six
weeks.
Payments to successful plaintiffs are only one expense the church faces. There are
also spiraling lawyers' fees, insurance bills and, since many court-approved
settlements call for the church to finance psychological treatment, the costs of
treating hundreds of victims. In addition, an increasing number of insurers have
balked at paying settlements for "intentional acts" of sexual abuse by priests,
leaving the dioceses with sole responsibility for paying.
As dioceses exhaust their insurance coverage, they may face the prospect of
cutting back on ministerial programs, borrowing from one another, asking
parishioners to give more and selling or mortgaging church property � options
faced in the late 1990's by the dioceses in Dallas, Santa Fe, N.M., and Santa Rosa,
Calif.
Church officials said that Sunday collection-plate giving in the nation's parishes
remains strong. But it is unclear how contributions to bishops' appeals and other
fundraising drives have been affected by the scandal, because most dioceses do
not release their financial information.
"Some of us feel very embarrassed and stupid for having supported the church for
such a long time and never insisted on getting any meaningful data back," said
James Post, a professor of management at Boston University and an organizer of a
Boston lay group seeking such information.
"We found our trust has been betrayed, and not just a little bit, but in such a
catastrophic way that we would not come out of this without an insistence on greater
public reporting on the financial side of the church."
Trickle-Up Financing
Unlike unhappy shareholders suing an Enron Corporation or a Global
Crossing, people with a grievance against church officials find there is no American
Catholic Inc. While the Vatican may rule on theological matters, financially the
American church is anything but a top-down operation. Its 194 dioceses operate
independent of the Vatican, getting no money from Rome. In fact, the cash goes the
other way: American Catholics are collectively the largest financial supporters of the
Vatican.
The annual revenues of the nation's 18,500 local parishes total about $7.5 billion,
according to Joseph Harris, the financial officer of a Seattle-based charity who
studies church finances and has conducted a survey of 3,000 parishes nationwide.
Parishes use most of this money to finance local church operations and parish
schools, Mr. Harris said.
In addition, the parishes generally give 5 percent to 15 percent of their annual
revenues to their diocese. At the diocese level, the money helps pay for its own
social programs, schools and operations. Those revenues are augmented by fund-
raising appeals, earnings on endowments and investments, and bequests that can
bring in millions of dollars more. The dioceses send part of their money to Rome,
but only the bishops know how much.
Under the church's legal structure, most assets of a diocese are in its bishop's name
and control. "Each diocese is dramatically different in its financial condition," Mr.
Schiltz, the law school dean, said. "Some are extremely wealthy, with big savings
and stock accounts. Others are very poor. Some dioceses issue financial
statements. Others couldn't tell you what their financial system was if you asked."
The only oversight bishops face is an obligation to make a financial report to Rome
every five years. Dioceses are required to have a financial oversight board, but the
bishop appoints it. While some dioceses have audited statements and even make
them public, they are not required to do either. Nor must churches file financial
statements with the Internal Revenue Service, as other nonprofit groups must.
Bishops also have no obligation to keep their dioceses running in the black. For
years, the Archdioceses of New York, Boston and Chicago, among others, reported
operating deficits running into the millions of dollars, and many still do.
Some dioceses release audited statements, while others provide only shards of data
in church newsletters. The Archdiocese of Chicago, for instance, which had a
budget of $996 million last year, prints only parts of its financial information in a
newsletter, leaving out crucial information like the existence of a $58 million reserve
endowment. Some data from Chicago show that parishes there ran a $23.3 million
deficit in 2001, while other data show the archdiocese ran an $36 million surplus
over all.
Though the bishops' conference declined to include financial accountability on the
bishops' agenda this week in Dallas, it said it was taking steps that some donors
seek.
By November, Kenneth Korotky, chief financial officer for the conference, said, it
expected to issue a new manual with standardized accounting rules to all bishops.
While use of the manual will be voluntary, Mr. Korotky said, "Donors have a right to
expect this."
The Unease of Philanthropists
Mr. Butler, president of Foundations and Donors, the network of
foundations that give to Catholic causes, believes that church officials did not give
donors the respect they deserved. "Major donors are depressed, shocked,
demoralized, and it's reducing their giving," he said.
The bishops could prevent this, he said, if they hired an auditor to provide a public
summary of all money paid to sexual abuse victims in the last three decades. This,
Mr. Butler said, would be a first step toward preventing bishops from "using money
to silence people."
Ms. John, the president of the Milwaukee foundation, said she was "devastated" to
learn last month that the archdiocese there hid a $450,000 payment in 1998 to a
man who had accused Archbishop Rembert G. Weakland of sexually abusing him
more than two decades ago.
The archdiocese's financial statement for that year, though it was audited and
included details of relatively minor expenses, made no mention of the payment.
In Palm Beach, when the second of two bishops there resigned after being accused
of abusing teenage boys, the diocese appointed a lay panel to review its handling of
the scandal. Last week, the diocese acknowledged having paid $923,000 to settle
several sexual misconduct and harassment cases and having kept secret the
embezzlement of $400,000 by its former chief financial officer.
Outraged by such disclosures, a few prominent Catholics in Palm Beach,
Milwaukee, Boston and elsewhere have threatened to organize financial boycotts of
the church, while others are calling for the disclosure of more financial data.
Most, however, have sought to distinguish between giving to local parishes � which
most Catholics seem to want to continue � and to the bishops, who have their own
appeals and special collections.
"They're saying, `I'm going to give generously to my parish, but I'm concerned about
giving money to the diocese, which could be sued and the money spent on lawyers,'
" said George Ruotolo, a New Jersey businessman who leads several Catholic fund-
raising drives.
Even so, bishops have many ways of controlling the parishes within their diocese,
and there is no way to guarantee that the money given to parishes will not flow
upward to the dioceses.
Selling Assets for Settlements
Just how the different dioceses will get the money to pay for current
and future settlements remains unclear, partly because it is hard to know what
assets the dioceses have in the first place. Plaintiffs' lawyers have repeatedly
accused the dioceses of hiding and greatly understating their wealth.
"An archdiocese can have vast holdings, but the only ones who know that are the
bishop and his lieutenants," said Jeffrey R. Anderson, a St. Paul lawyer who has
represented abuse victims for more than 20 years.
Dioceses have only a handful of options for paying settlements. They can sell
assets, seek more money from parishioners, dip into reserve funds or cut social
programs.
In 1999, the Santa Rosa Diocese was faced with having to take all those steps after
Bishop G. Patrick Ziemann left it $16 million in debt, after he was accused of
making ill-fated investments, misappropriating church funds and making
undisclosed payments to settle sexual misconduct claims.
To resolve the crisis, the 43-parish diocese was forced to cut back on ministerial
programs, halt a building plan, borrow more than $6 million from other dioceses and
ask parishioners to donate more.
"The ultimate impact of the lawsuits is that the people who are not responsible for
the abuse end up paying for it," said R. Scott Appleby, director of the Cushwa
Center for Catholic Studies at the University of Notre Dame. "Programs get cut and
the poor get hurt the most. "
Of the church's assets, one of the most visible is real estate � churches, rectories,
offices and land donated by parishioners. Some dioceses have begun to move their
properties into separate corporations, putting them legally beyond the reach of
plaintiffs.
A few have sold or mortgaged property. Last month, Cardinal Francis E. George of
the Chicago Archdiocese said he might sell his $15 million mansion, adding that the
money could be used to pay abuse settlements.
In 1997, the Diocese of Dallas mortaged several vacant lots, its chancery and a
building that once housed an elementary school to raise part of a $30 million sexual
abuse settlement. The alternative was bankruptcy. "That was potentially
catastrophic," Bronson Havard, a Dallas church official, recalled.
In 1995, the Archdiocese of Santa Fe sold a retreat run by Dominican sisters and
other New Mexico properties to pay what its insurance did not cover of abuse
settlements estimated at more than $30 million.
For years, churches have relied on insurance to bail them out. But churches can no
longer assume their liabilities will be covered. Last month, the Boston Archdiocese
found that its policy would cover a third � or less � of the claims to 86 victims.
The Resistance of Insurers
Insurers are responding to the crisis largely by raising premiums and
excluding coverage of sexual abuse by priests.
"If you say the word Catholic church to an insurance company, it's a pretty big
buzzword," said Mr. Korotky of the bishops' conference. "The real challenge going
forward will be insurance premiums and the skyrocketing cost of them."
In addition, Mr. Korotky said, "We are seeing a lot of insurance underwriters
excluding sex abuse and molestation."
Insurers can, and have, refused to pay churches in sexual misconduct cases they
find are "intentional acts" � behavior considered criminal in intent � that is
continual and that church officials hid.
"There is no coverage for pedophilia," said Michael Sean Quinn, a lawyer in Austin,
Tex., who has defended churches and who teaches insurance law at the University
of Texas.
That proved to be true in a 1998 case in Stockton, Calif., where a priest was
accused of molesting two brothers. At least six insurers refused to pay claims under
the "intentional acts" exclusion because they said church leaders ignored
documentation that the priest was a possible threat. As a result, the diocese was
forced to pay the $7.65 million settlement.
Since then, the diocese, the plaintiffs' lawyers and the insurers have continued to
battle in court over further payments.
Insurers of the nation's Catholic dioceses include big carriers like Kemper and
Travelers, as well as small companies that specialize in church policies.
One is Catholic Mutual Group, based in Omaha. As the clergy scandals grew this
year, Timothy Wagner, the Nebraska insurance commissioner, asked his staff to
review the company's finances. "Catholic Mutual is pretty unique in that it writes
policies only for Catholic churches," Mr. Wagner said. "That got us to thinking."
His examiners gave the company a clean bill of health, but they found that its
liability payments rose from $1.8 million in 1998 to $6.4 million in 2001. This
represents all liability claims on its church policies, including for sexual abuse.
Another insurer, National Catholic Risk Retention Group in Lisle, Ill., has also seen
a rise in liability claims. Its financial statements show that losses in 2001 rose by
$2.2 million, largely because of higher payouts and the need to increase reserves.
At the same time, the company doubled its financing, to $1.1 million, of a program
to counter sexual misconduct. On its Web site, National Catholic said the program
was intended to give priests "a clear understanding of what constitutes an
appropriate supervisory relationship" with children and young adults.
Neither National Catholic nor Catholic Mutual would comment on their business. A
spokesman for a third large carrier of church insurance, Arthur J. Gallagher &
Company, would say only, "It's too volatile a situation now � we're too close to the
flame."
John Andre, a spokesman for A. M. Best, the insurance ratings agency, said, "With
most insurance, you can approximate what are future losses."
"But with this, there is a perceived lack of control by the church," he said. "It's
hard
for insurance companies to get their hands around their potential exposure, except
to know it could be considerable."
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