Chancellor speaks on archdiocese’s financial troubles

Among the reasons put forth in Archbishop Seán P. O’Malley’s Nov. 13 letter reiterating the reasons for reconfiguration was the stark financial situation of the archdiocese which the archbishop described as “much worse than most people realize.”

Since the clergy abuse scandal broke in 2001, contributions to the archdiocese have declined by 50 percent, the archbishop said in his letter. This has resulted in a yearly shortfall of $10 million in the archdiocese’s central operating budget despite the archdiocese reducing its expenditures by $14 million during the same period. In addition, the archbishop said, the arch-diocesan pension plans are underfunded by $80 million and a $35 million loan taken out in Sept. of 2002 to allow the archdiocese to continue operations needs to be repaid.

According to David W. Smith, chancellor of the archdiocese, the $80 million pension plan shortfall can be attributed to two separate plans. The plan covering lay employees of the archdioceses — including parish employees — will need approximately $25 million to cover projected liabilities and $55 million will be needed to fund the clergy pension plan.

Plans covering the employees of other archdiocesan institutions, such as Catholic hospitals are not included in those figures.

According to Smith, in 2000 the pension plan covering lay employees was over 120 percent funded. However, like the rest of corporate America, the archdiocese’s plans have been adversely affected by the woes in the stock market following the Sept. 11 attacks. At the same time, peoples’ expectations of future earnings were reduced while life expectancies were expanding.

“So you didn’t make what you thought you were going to make, you no longer think you can make as much as you did, and you have to pay people for a longer period of time than you thought,” Smith said.

“That has put every defined-benefit pension plan in the United States in difficulty,” he added.

Employees were informed of the situation a year ago, Smith said. “The plan is ahead of schedule in rebuilding the equity, but we are still underfunded.”

Smith said similar circumstances have affected the clergy pension fund, though the clergy fund has a medical component, which exacerbates the issue as medical costs are rising at a double-digit compounded rate.

Smith confirmed that the pension plan troubles are not directly related to the archdiocese’s multi-million settlement with clergy abuse victims.

“We have never taken a dime back from it. What has gone into the plan has stayed into the plan. There is all of the integrity of the world to the plan,” he stressed.

Smith clarified that “when you talk about how under-funded a pension plan is, it is always somebody’s estimate.”

“The number the archbishop used is what we think a one time injection of cash would give us a reasonable probability, if everything closed down today... to pay everything,” he said.

Smith confirmed the last year in which the archdiocese had a balanced operating budget was 2001. In that year, the archdiocese’s annual appeal raised over $17 million. The following year it dropped to less than 9 million. The amount collected increased in 2003 and is expected to pass the $10 million mark this year. Adding to the archdiocese’s financial troubles, the other substantial sources of archdiocesan income, estates and bequests, are also down by 50 percent.

Even as its income is dropping, the repayment of the $35 million loan made by the Knights of the Columbus adds an extra $2.25 million yearly burden to the archdiocese. The loan was taken out over the last three years to allow the archdiocese to continue operations without slashing ministries and programs.

Smith’s assessment of the present situation is bleak. “Besides the debts that we hold and the need to pay what we already owe, we are operating at a rate that is unsustainable off of current revenue — and we have the unfunded pension liability to deal with.”

In his letter, the archbishop says he has asked the Archdiocesan Finance Council to analyze the current situation and develop a strategic financial plan for the archdiocese.

 “The archbishop asked [the council] to go to monthly meetings from quarterly meetings, “ Smith said. “A subgroup is meeting on a weekly basis to develop the strategic financial plan. We are putting everything on the table for review.”

Commenting on the current events that led to the archbishop’s letter, Smith emphasized that the reconfiguration process was never engineered to maximize cash flow but was based on the pastoral needs of the archdiocese.

“Reconfiguration was not a financial exercise, we did not sit down and say, ‘These are the 83 parishes that will generate the most amount of cash if we sell them; these are the 83 parishes that are losing the most money, let’s sell them.’”

If that had been the goal, Smith said, the selection process for parishes would have been very different.