Diocese's financial picture brightens
Funding up, loan paid, but no balanced budget
BRAINTREE - The Roman Catholic Archdiocese of Boston, still reeling from the financial effects of the sexual abuse scandal, is two years from balancing its budget but is making steady progress addressing a raft of complex administrative problems, senior church officials said yesterday.
In its annual financial report, the archdiocese disclosed several important positive developments, particularly the fact that the amount of money local Catholics have placed in collection baskets rose 5 percent from 2006 to 2007, even as the number of parishes was being reduced by nearly 20 percent. The archdiocese's annual fund-raising appeal for its central administration, although still down from the levels raised before the abuse scandal, has also increased every year. Several prominent businessmen are raising tens of millions of dollars to shore up the struggling Catholic schools, and archdiocesan officials say they are hopeful that new leadership for the Catholic hospital system, Caritas Christi, will improve its finances.
"We think people are feeling better about the church, and have a greater confidence in our improved stewardship," said James P. McDonough, chancellor of the archdiocese. "We feel optimistic about the future, but we still are faced with a number of challenges."
Church officials have taken several tough steps to improve the archdiocese's financial state, including selling its Brighton headquarters to Boston College, closing parishes and schools, and reducing staff at the church's central office by 10 percent, to 225. The staff reductions were accomplished through a combination of voluntary buyouts, layoffs, and attrition, following a pro bono study of the archdiocesan administration by the management consulting firm McKinsey & Co., officials said.
The archdiocese was able to pay off a $26 million line of credit from the Knights of Columbus with proceeds from the sale of its headquarters. The archdiocese moved its headquarters to a modern office building in Braintree given to the church by developer Thomas Flatley; proceeds from the Brighton sale were also used to renovate the building. And the pension fund for retired lay church employees, which covers about 6,600 people, is now fully funded, six years ahead of schedule, thanks to funds taken from closed parishes and to a strong investment performance.
But the archdiocese continues to face huge financial challenges, particularly in its pension fund for retired and disabled clergy, which covers about 800 active and retired priests and is underfunded by $110 million. Several years ago the archdiocese was forced to withdraw a proposal to cut benefits for retired priests after a public outcry over the church's handling of the funds. The archdiocese said it will meet with priests this fall to discuss new ways of solving the problem, but declined to release any details yesterday.
As part of its annual report, the archdiocese disclosed that it is paying $250,000 each to two top officials: McDonough, the chancellor, and Scot Landry, who oversees church fund-raising. O'Malley is paid the salary of a priest, $23,771, but because he has taken a vow of poverty, the money is sent to his religious order, the Capuchin Franciscan friars.
The archdiocese also reported that its highest-paid vendors are construction companies and insurance brokers, but it also spent $1.4 million on Ropes & Gray, the law firm that handles its abuse cases; $693,083 on the Rogers Law Firm, which was until recently the archdiocese's general counsel; $397,561 to its accounting firm, Grant Thornton, and $266,415 to its public relations consultants, Rasky Baerlein Strategic Communications.
Finances are improving at a slower pace than desired by Cardinal Sean P. O'Malley, who won considerable praise for his 2005 decision to add unprecedented detail and scope to the annual financial disclosures by the archdiocese and several dozen related Catholic organizations.
O'Malley wanted to balance the archdiocese's central administration budget by fiscal 2008, which ended last week, but the archdiocese said yesterday that it will not achieve that goal until 2010, a delay the church attributes to a decision to allocate to the central office budget costs that were previously allocated elsewhere.
The archdiocese said it cut the operating loss of its central administration to $2 million in fiscal 2007, narrower than the $9 million loss in fiscal 2006. But the archdiocese said it expects to lose $4 million in 2008 and $2 million in fiscal 2009, before balancing its budget in 2010.
O'Malley had also wanted every parish to disclose its finances, which are accounted for separately from the central administration, by November 2006, but that has proven so difficult that the archdiocese no longer is predicting when that goal might be achieved.
Some parishes are currently reporting their finances annually, but the reports are not published centrally by the archdiocese. The archdiocese said it is hoping to hold workshops this fall to help more parishes learn how to do annual reports.
The total assets of the archdiocese, including the property and the investments of the central administration and the parishes, came to $456 million at the close of fiscal 2007, up 17 percent over the previous year.
"The bottom line is that the financial health of the archdiocese is improving," said the Rev. Richard M. Erikson, vicar general of the archdiocese. Erikson said the archdiocese, as symbolized by renaming its headquarters a pastoral center, rather than the more bureaucratic sounding chancery, is trying to ensure that its administration is focused on serving parishes, schools, and other Catholic agencies.
"The improved health is an indication of us becoming more mission-focused," he said.
The archdiocese's financial troubles began in large part with the clergy sexual abuse scandal that erupted in 2002. According to the church's annual reports, the archdiocese had spent $136 million by last summer to settle claims by 1,015 people who said they were abused by Boston priests.
Archdiocesan spokeswoman Kelly Lynch said the archdiocese now faces about 70 remaining claims from people who say they were abused by priests, down from about 130 outstanding claims a year ago.
The abuse settlements have been paid through property sales, particularly of the Brighton headquarters, and insurance payments.
But the scandal also had an impact on the overall health of the archdiocese by diminishing its fund-raising capacity, and by leading to increased public scrutiny of archdiocesan management.
The archdiocese said that it is seeking to increase the role of laypeople in overseeing church finances. It said that a group of laypeople will now oversee the church's investments and that the archdiocesan finance council will have a strengthened role under a new charter for that panel.
Michael Paulson can be reached at mpaulson@globe.com. The audited financial statements of the archdiocese and related Catholic organizations are at rcab.org. 