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Commitment to Transparency

January 10, 2013

Commitment to Transparency
 
One of the things we bishops hear most often from faithful Catholics is a request for transparency, a desire to know how the Church is meeting its various obligations, and how it responds to problems that might arise. It really took hold, I think, during the sex abuse crisis a decade ago. People asked—naturally, properly—that we tell them how we were going to deal with priests who had been accused of abuse, what procedures we were going to follow in the future, and how we were going to make certain that we were living up to our promises. The Charter for the Protection of Children and Young People, developed by the bishops in Dallas in 2002 and subsequently approved by the Holy See so that it became part of Church law for this country, spelled out the standards that we bishops were setting for ourselves in responding to allegations of sexual abuse. The annual audits—which are conducted by an independent agency and examine how each diocese has handled any claims or cases of the sexual abuse of minors over the past year—make certain that we are, in fact, doing what we said we would do. Yes, we’re constantly trying to do even better, but all agree we’ve come a long way.
 
Now there is another area in which we hear increasing calls for transparency: Church finances. Part of it grows out of the deep concern people feel whenever they hear reports of theft or misuse of Church funds. Sadly, we have had some cases here in the Archdiocese of New York. Just this past fall, for instance, a former archdiocesan employee was sentenced to prison after having pleaded guilty to stealing more than $ 1 million from our education department. There have also been cases of priests taking parish funds and using them for their personal expenses, including the paying off of debts brought on by an addiction to gambling. While it seems like there has been an increase in such misbehavior, I’m not sure that is the case; part of the apparent rise in the number of incidents stems from the fact that we now go public with such cases, rather than simply trying to deal with them internally. We have learned—the hard way, perhaps—that people want and deserve to know the truth about such matters. And, ultimately, while being transparent in these matters might mean a temporary black eye for the Church, it is certainly better than having these cases come to light through whispers and rumors, accompanied by charges of “cover-up.” When there’s bad news in the Church, you tell us pastors you’d rather hear it from us.
 
As part of our commitment to financial transparency, the Archdiocese of New York has, in recent years, published in Catholic New York an annual report on our services along with a condensed balance sheet and statement of activities, audited and reviewed by KPMG, so that people could see our assets and expenses for the previous year. I am grateful to my two closest collaborators on financial matters, the Chancellor, Monsignor Greg Mustaciuolo, and the Chief Financial Officer, Mr. William Whiston, for their hard work and dedication—they’re the finance experts, not me—and, in particular, for their efforts in producing the annual report. A tremendous debt is also owed to the members of our Finance Council—wisely appointed by my predecessor, Cardinal Edward Egan, and enthusiastically reappointed by me—for reviewing and approving the report on services and condensed balance sheet and statement of activities, and their ever-vigilant oversight of our financial affairs, as well as their always sage advice.
 
At the urging of our Finance Council, we recently had an outside firm review our financial operations—basically, how we handle the money, how we keep track of it, what safeguards are in place to make sure that the finances are secure. This special audit, which was in addition to the usual annual audits that result in the condensed balance sheet and statement of activities, gave us consistently high marks for our operations and procedures; it did make a few suggestions about how we could do things better, and we have taken steps to implement this advice. For example, the firm suggested incorporating enhanced monitoring reports for significant general ledger processes, and expanded communications emphasizing the need for increased awareness for responsibly managing the fiscal resources entrusted to the archdiocese. This is now being done. I believe that it is good practice to periodically have someone, independent of the archdiocese, review our operations to make sure we are utilizing all the best practices, so that we don’t allow ourselves to become complacent about our operations.
 
Because we are in the midst of two crucially important strategic planning initiatives for the archdiocese—Pathways to Excellence, for our schools, and Making All Things New, for our parishes—I thought it would be a good idea to go a little deeper into our current financial situation, to help explain, or at least put into some context, why these two strategic plans are so vital to our continued stability and, please God, our ability to grow and adapt as we meet the needs of the Catholic faithful in the 21st century.
 
Let me begin by laying out a few important points. The first is that the Archdiocese of New York is not rich. I know that there is a mindset among some pastors, parishioners, and the public, that if any parish, school, or other institution is running a deficit, all they need do is turn to the chancery office, and the money will be on the way. Unfortunately, that kind of mentality simply is not possible anymore. The expectation for every parish and school is that they will operate on a balanced budget, although we know in reality that this is not always possible. And, the archdiocese is not some “Daddy Warbucks” with an endless supply of money.
 
The second point is that, while the archdiocese is not rich, it does have a sustained record of supporting our parishes and schools that cannot pay their bills. Thanks to the genius of my predecessors, notably Cardinal Francis Spellman and Cardinal Terence Cooke, the archdiocese has found a way to assist needy parishes, primarily through what has been called Inter-Parish Financing (IPF), which permits financially stronger parishes to support parishes in need. Cardinal John O’Connor and Cardinal Edward Egan each adapted and strengthened IPF, and am I ever glad they did, because it allows many parishes and schools to survive which otherwise would have had to close their doors decades ago. So, I am deeply grateful to my predecessors for their vision and diligence in their support of our institutions.
 
While I know that this work of the IPF must and will continue, I also know that we have reached a breaking point, and that some fundamental changes must be made in order for the system to survive and thrive. Right now, $46 million a year goes out to struggling parishes through IPF and other sources! That’s way too much. Other needs suffer. And, the archdiocese is in debt. We give so much to help parishes and schools in debt that now the archdiocese is in the red!
 
Third, yes, the archdiocese has had an operating deficit, and two years ago I promised our Finance Council, our Priests’ Council, and our College of Consultors—and now I promise to you, the people of the archdiocese—that we must have a balanced operating budget. We are currently on course to meet that goal within the next few years upon the completion of our initiatives. Cardinal Egan worked hard to leave us a financially solvent archdiocese. I cannot and will not jeopardize that.
 
I don’t want to get too heavy with numbers, because I know how easy it is for someone to manipulate figures to make a point. However, some basics are important here.
 
The archdiocese central services has an operating budget of just about $87 million. (This figure does not include such things as the budgets for individual parishes and elementary schools, high schools, and the like, as individual parishes and their institutions are separate legal entities in New York State law. It simply encompasses the central offices of the archdiocese.) Of that, 53%, or $46 million, as I noted above, goes to parishes and schools primarily in the form of IPF grants and subsidies, but also in subsidies to parish high schools (which are not eligible for IPF), emergency repair loans, and other parish support, while $41 million—47%—goes to archdiocesan offices—which includes the Department of Education, Saint Joseph’s Seminary, Catholic Charities, the Family Life + Respect Life Office, residences for retired priests, programs, projects and other “core” activities.
 
Since the end of our financial year 2011 (which ended August 31, 2011), we have reduced our “core” costs by 10%. To achieve that goal we: downsized staff through attrition and early retirement (not through layoffs); implemented a one-year salary “freeze,” and limited increases to 1% and 2% in the following two years; restructured our medical insurance plan, and in some cases adjusted employee contributions, that helped hold the line on premium increases; and sold some unused property (in order to begin to establish endowments—more on that in a moment) that the archdiocese owned, whose maintenance was costing us $1 million per year for insurance, security, and upkeep. Overall, this has saved us in fiscal year 2012 (which ended this past August 31) $9.6 million, including $4 million in central services, which are the offices of the chancery. There were two other initiatives that we could have taken to reduce costs, but after some discussion and reflection, we decided, for pastoral reasons, to at least delay implementing those particular moves, and look for savings elsewhere. Having made the moves outlined above, our estimated “core” deficit for the current fiscal year 2013 is $3.5 million.
 
Even as we bring the deficit under control, the archdiocese is not just cutting back, but also addressing some new ministries. This past year has seen some much needed new programs getting under way. We’ve established a new archives center, and hired a full-time archivist. We are expanding our outreach to youth and young adults, through the establishment of a youth office—geared to 7th through 12th graders—and expanded our young adult outreach, aimed at those who are 22-30 years old. We’ve begun the Sheen Center for New Evangelization. There has been a very much needed and overdue cost of living increase in retirement benefits for our priests.
 
By now, you’re probably wondering what the bad news is: Close to a balanced operating budget, new programs in place, expenses reduced. So, what’s the problem?
 
The primary financial concern the archdiocese now faces is the huge amount of money being spent on parishes and schools through IPF. Two years ago, in fiscal 2011, IPF gave nearly $38.2 million in grants to parishes ($9.2 million) and elementary schools ($29 million). In fiscal year 2012, we were able to bring that number down to $31.8 million—primarily as a result of the school closures that took place in June 2011. However, this year our current estimated 2013 budget for IPF is $33.7 million, an increase of $7.5 million from the 2012 budget. This takes into account the full impact of June 2011 school closures and additional schools that will be seeking IPF support for the first time in 2013. The subsidy for parishes remained at $9.6 million, with the balance of the increase going to our schools. We simply cannot sustain this level of support of our parishes and schools.
 
This brings me back to our two strategic planning processes: Pathways to Excellence and Making All Things New. Let me be clear: the primary purpose of these two critically important undertakings is to make certain that we are meeting the religious, spiritual, educational, and pastoral needs of our Catholic people in the best way possible. If the Church is to minister effectively, we must constantly examine what we are doing and how we are doing it, and see where changes need to be made. At the same time, we know that one indicator of parish stability and sustainability is the ability of a parish to pay its bills. This is certainly not the only sign, or even the most important sign, of a parish’s viability, but it is significant, and something that must be part of our ongoing evaluation of our parishes. If a parish cannot sustain itself, one must ask if it is viable any longer.
 
The Church must live in the real world. We have to budget our money and pay our bills, just like any family, any business. And, so, an integral component of both Pathways and Making All Things New is determining the financial impact of whatever decision we make. If we don’t make prudent decisions, if we are not careful and responsible stewards of the money entrusted to us, then we will not be able to continue to serve the people of the archdiocese in the way that they deserve to be served. We have too many parishes!
 
This is why we have made significant progress towards a core balanced budget—the budget for our central offices—and are well on the way to a total balanced budget when our school and parish planning initiatives are completed within the next two to three years. The archdiocese will always continue to support our parishes and schools through IPF; even if we reduce our IPF grants by one-half their current total—to, say, $15 million—we will be able to have our balanced budget, and, we will still be doing more than any other diocese in the country to support the parishes and schools that need our help to survive.
 
Let me say a few words about the changes that are coming to IPF, which has a history of giving grants. I have asked that this be changed, and so now subvention agreements (interest-free loans), not grants, will be the norm for parishes receiving money from IPF. I know that many parishes will be unable to repay the loans, at least initially, and we will work patiently with them. However, there are some benefits. First, and most obviously, if a parish’s finances should substantially change (through the sale of air rights, a major bequest, or something similar), there will be an expectation that the parish will repay its loan, so that money can then be used to help other parishes. Loans will also help parishioners have a better understanding of their parish’s true financial situation, since a loan would be listed as a debt on the parish’s financial statement. The people would then be able to have a clearer picture of how their parish is doing (and, perhaps, why they need to do more to support their parish!).
 
A second major change that is coming involves our Parish Assistance Corporation, or PAC. The PAC provides cash management and other financial support to parishes, charities, religious orders, and other Catholic entities throughout the archdiocese. PAC provides support by, among other things, making loans to entities with projects in need of financing, and receives loans from entities to provide a source of lending capital. I am now requiring that any parish with $1 million or more in a bank account must deposit that money in the PAC; it remains the parish’s money, not that of the archdiocese, and can be withdrawn whenever needed, but it will have the dual effect of making more money available for parishes looking to borrow, as well as allowing the archdiocese’s finance office to keep an eye on parish spending, to make sure that money is being spent wisely.
 
A final change that I have instituted concerns parishes that get large amounts of money from unexpected sources—like air rights or bequests, as mentioned before. Any parish that plans to use such money for non-essential work, must first retain a specific amount in parish accounts—generally, enough to cover one year’s worth of parish expenses—before it can proceed with its work. Obviously, if a parish needs a new boiler for the school, or a new roof on the church, or something similar, that requirement would not apply.
 
Lastly, I promised you a word about endowments. The Archdiocese of New York is currently planning to establish various endowments, to provide ongoing support to specific projects of the archdiocese. The first endowment would be for our Catholic schools; this endowment would be used to provide partial scholarships to attract new students in financial need. After all, having full schools is the best way to ensure the future of Catholic education.
 
A second endowment is being established for our parish religious education programs. I have already told our pastors that every parish will be receiving a rebate of 1/4 of the cathedraticum (the money each parish is assessed for the support of the archdiocese) to support their religious education programs. For struggling parishes, however, this rebate will not be enough to operate a first-class religious-ed program. The endowment will provide assistance to these struggling parishes.
 
A third endowment will be used to help our parishes, particularly in the upper counties, that need to build new churches, or expand existing ones, to welcome the increased Catholic population in their parish. A fourth endowment would be targeted for the upkeep of Saint Patrick’s Cathedral, once the current restoration effort is completed. A final endowment would support many of the new programs under way, like the Sheen Center, a new university-based apostolate called FOCUS, the Gianna Center for Women’s Health (named for Saint Gianna Beretta Molla, a newly canonized saint, a doctor in Italy who died in 1962), and Generation Life, a program designed for high school students, helping them lead chaste, virtuous lives.
 
Funds for these endowments will come largely through the sales or rentals of closed parish properties and donations. Some of these properties have already been sold and some will be sold in the near future. As I mentioned earlier, the vast majority of the properties to be sold or rented are not being used, and the archdiocese has been paying to keep them sitting empty. My approach to these properties has been dubbed by some as The Dolan Doctrine: every effort will be made to ensure that the proceeds of the sales or rentals of closed parish properties will go into endowments for important charitable, educational, pastoral, and/or religious programs of the archdiocese rather than operating expenses so as to protect and maintain its patrimony consonant with the original intent of the people generations ago who gave the money for them. For instance, if we sell or rent a closed church or school building, the proceeds could be used to provide scholarships for students in Catholic schools, assist parishes with the construction of new churches, or expand our parish religious education programs. It might be that, if a parish were to rent a former school building, it will be asked, to the degree possible, to assist us with these archdiocesan efforts. In this way, we are preserving the patrimony of the archdiocese and maintaining the apostolates for which the facilities were originally built. To sell land and property should never be done frivolously, and we will not do so. Rentals, for instance, are always preferable to sales.
 
In the end, addressing the financial situation of the archdiocese is not something that can be done just by a finance council, the CFO and the Chancellor, or me. Ultimately, the Church must look to you for support and assistance. Even as we work to become more transparent about our financial situation, we hope to engender a greater sense of stewardship among the people of God of this archdiocese. Stewardship is not just a Church buzzword for giving more; it is a mindset, a way of life, in which we thank God for the gifts He has given to us, work to ensure that they are cared for and used wisely, and joyfully return to God the first fruits of what he has bestowed on us. The more we can come to embrace this way of life—and I very much include myself in that—the fewer problems, including financial problems, this archdiocese will face.
 
This has been an unusually long column, and I thank you for sticking with me. However, in that spirit of transparency, I wanted to give you a fuller view of where things stand, since in large measure the funds that keep the archdiocese going comes from you, our faithful people. There is a good deal of misunderstanding about Church finances, and I hope that this look at our situation will not only help you to better understand where things stand, but also to see why our strategic planning process is so vital for our continued financial health. It also gives me an opportunity to say thank you for your continued support—financial and otherwise—of the Archdiocese of New York. May you have a happy, healthy, and holy New Year.