November 20, 2014 • The Catholic Spirit

Archdiocesan Chancery Corporation Annual Financial Report • 201426

Financial officer report

Reorganization: One option being considered

At this point no decision has been made for or against reorganization. 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. If the archdiocesan Chancery Corporation files for reorganization:

• The archdiocesan Chancery Corporation would expect the court’s permission to continue to function in the ordinary course while pursuing a reorganization, similar to other dioceses which have sought bankruptcy reorganization in recent years.

• Parishes are separately incorporated and would not be part of a Chancery Corporation filing for reorganization. Parishes in the archdiocese have been separately incorporated under a religious corporation statute dating back to the 1800s.

• Catholic schools are either ministries of a parish/parishes or are separately incorporated and would not be part of a Chancery Corporation filing for reorganization.

• Parish and Catholic school employees are employees of the parish/Catholic school where they work.

• It is premature to speculate on potential impact of reorganization on 403(b), pension, medical or other employee or priest benefits were the archdiocesan Chancery Corporation to undergo reorganization. If reorganization is pursued, we would seek court approval to maintain such plans during the course of the reorganization. Such relief has been granted in other diocesan reorganizations.

Regardless of whether the archdiocesan Chancery Corporation determines to seek bankruptcy reorganization, it has already taken significant expense reduction steps, outlined in the discussion contained in the adjacent articles, to balance its budget and make resources available to meet its obligations.

The following comments elaborate on the financial statements of the Archdiocese of Saint Paul and Minneapolis Chancery Corporation for the fiscal year ended June 30, 2014. Condensed financial statements are included in this issue of The Catholic Spirit. The audited financial statements with footnotes and independent auditors’ report are posted at archspm.org on the Administration and Finance page.

By the Most Reverend John C. Nienstedt

“Therefore, do not be anxious about tomorrow, for tomorrow will be anxious for itself. Let the day’s own trouble be

sufficient for the day” (Matthew 6:34).

These words of Jesus come to mind as I sit down to pen this column. Our local Church and our Chancery Corporation, in particular, have known significant “trouble” during the past year. That “trouble” continues today with the

disheartening financial information published in this issue of The Catholic Spirit.

Unfortunately, we have taken a series of financial hits that have resulted in a serious deficit to our bottom line. Additionally, in better financial times, our staffing and other expenses grew substantially in support of our Church’s mission..As a result, we needed to cut

back on expenses. Most distressing is the evident need for reducing the size of our workforce and the loss of valued staff members. My entire staff works with great dedication and for modest salaries in order to serve Christ and His Church. Following years of hard work to promote the mission of this Archdiocese, these layoffs sadden me greatly. I ask our readers to keep these good people in their prayers.

I have spent countless hours and several sleepless nights trying to analyze the current situation and find the best resolution available to us. I am grateful to the dedicated advisors I have on our staff as well as the professional and highly competent members of the Archdiocesan Finance Council who have worked closely with me. I truly regret and I apologize for the pain that this has caused others. I wish there had been a less hurtful way to resolve the situation.

As you know, the work of the Church is primarily carried out in the parishes, parish schools and other Catholic institutions by priests, religious and other ministers. All of these organizations are separate legal entities

with their own budgets. Please be assured that the Archdiocesan Chancery Corporation’s financial condition does not directly affect the parishes or other Catholic institutions. Thus, it should in no way diminish the many good works which I mention in my regular column today.

I am determined to see that the ministries and essential services provided by the Chancery Corporation will continue and that we will strive to minimize the impact of cutbacks on our Catholic people and the larger community.

I must also admit that the road ahead offers “trouble” of its own. We have settled only two of the legal cases involving clerical sexual abuse of minors. There are 20 more trials that are scheduled. There is still another year and a half for the window created in May 2013, lifting the Statutes of Limitations. We have no idea how many more legal claims may be made against us in the time that is left.

We have adopted a policy of “victims/survivors first,” which means we make decisions with fairness to them in mind. We do not want to have

all our resources spent on litigation, which could easily happen. We need to make sure that all victims/survivors are adequately compensated.

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.

We read in the Second Chapter of Sirach:

“My son, when you come to serve the Lord, prepare yourself for trials. Be sincere of heart and steadfast, undisturbed in time of adversity. Cling to him, forsake him not; thus will your future be great. Accept whatever befalls you, in crushing misfortune be patient. For in fire gold is tested, and worthy men in the crucible of humiliation. Trust God and he will help you, make straight your ways and hope in him.”

Indeed, there is much comfort in such advice. Let us take these words to heart, knowing that the Lord will always be present to help us.

God bless you!

The Lord is always present to help us

Archbishop JOHN C.

NIENSTEDT

By Thomas Mertens, CFO, Archdiocese of Saint Paul and Minneapolis Chancery Corporation

Introduction

When I offered analysis at the time of the 2013 financial report release, I was able to say that at June 30, 2013, the financial condition of the archdiocesan Chancery Corporation was solid. Unfortunately, since that time, our financial condition has become more uncertain due to significant expenses that are not anticipated to be ongoing in the long-term 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 order to resolve the number of claims we are facing due to the lifting of the statute of limitations, we must have all options on the table. Our first concern is fairness: fairness for victims of clergy sexual abuse and fairness for the faithful whose stewardship has made archdiocesan ministry possible. For this reason, as we have stated previously, all options, including reorganization under the bankruptcy code, are being considered for fairly addressing the numerous sexual abuse lawsuits filed or soon to be filed against the archdiocese. As a part of determining the best way to move forward, archdiocesan leaders have consulted with various representative clergy and lay leadership groups and outside professionals to obtain their insights. At this point, no decision has been made to reorganize.

Importantly, the archdiocese would not use reorganization as a tool to avoid compensating victims/survivors. It would be a way to respond to all victims/survivors by allowing the available funds to be equitably distributed to all who have made claims, not just those

who have the earliest trial dates or settlements. The archdiocesan Chancery Corporation’s current financial condition is not the fault of victims/survivors.

Readers of these financial statements should understand that the archdiocesan Chancery Corporation, a not-for-profit entity, is a separate legal entity from parishes, Catholic schools and other local Catholic entities. Action by the Chancery Corporation does not necessarily mean that the same or similar action would be taken by other local Catholic entities. (side bar at right.)

The archdiocesan financial report covers the activities of the archdiocesan Chancery Corporation. Parishes and other Catholic entities, as separate corporations, independently report financial information to their stakeholders.

Earlier this year, the archdiocesan Chancery Corporation released its full audited financial report (for the year ended June 30, 2013) for the first time. In order for us to be accountable to our many stakeholders among the Catholic faithful, and to act as responsible stewards of the resources entrusted to us, we are committed to releasing the full financial report each year. Archbishop John Nienstedt, the Archdiocesan Finance Council and I remain in full agreement on this point. We are releasing the report three months earlier than our past practice of February because we have improved processes, policies and controls, allowing for more timely reporting. Archdiocesan leaders have made a firm commitment to create a culture of transparency and continue to make strides in this regard.

In this issue of The Catholic Spirit, you will again find the condensed financial statements and notes, and I encourage you to go online to archspm.org to see the full audited financial report.

Report continued on next page

Archdiocesan Chancery Corporation Annual Financial Report • 201428

November 20, 2014 • The Catholic Spirit

Report continued from page 27

and benefits, the Parish Accounting Service Center and maintenance. Also covered in this category are administrative services to the General Insurance Program, the lay and priest pension plans, and the Archdiocese Medical Benefit Plan Trust, as well as dues to the Minnesota Catholic Conference and the United States Conference of Catholic Bishops.

Clergy Services - $5,513,753

The role of this office is to provide support and formation for priests and deacons in all aspects of ministry and pastoral care. Services provided by this office include the following.

Seminarian Formation: There are currently 57 men in formation for the priesthood in service of our archdiocese. While this number changes throughout the discernment process, our archdiocese has one of the largest enrollments of seminarians of any diocese in the country. Expenses include a portion of the cost of tuition, room and board for men at The Saint Paul Seminary School of Divinity and St. John Vianney College Seminary.

Center of Clergy Formation: Institute of Ongoing Formation for Clergy and the Institute of Diaconate Formation comprise the Center of Clergy Formation. Each entity of the center provides an integrated approach to priestly and diaconate formation, including gatherings and support for newly ordained priests,

programs to assist new pastors in their role and ongoing formation opportunities for priests and deacons throughout the archdiocese.

Continuing Education: This includes continuing education opportunities, a sabbatical program, international enculturation, and a biennial presbyteral assembly.

Ministerial Standards and Safe Environment: The mission of the Office of Ministerial Standards and Safe Environment is to work with our community to address the devastating societal problem of the sexual abuse of minors and vulnerable adults by implementing abuse prevention programs, immediately reporting allegations of abuse to law enforcement and/or child/adult protection officials, and cooperating fully with their investigations, and helping those affected by abuse in their healing journey.

Priest Support: This includes support for priests who are not in ministry due to personal health issues or a disciplinary leave of absence and those who have been permanently removed from ministry.

Chaplaincies: There are nine priests and one deacon in full or part time ministry at hospitals and correctional facilities throughout the archdiocese who are supported by the Chancery Corporation. There are many other priests and deacons throughout the archdiocese who provide pastoral care at healthcare or correctional facilities, either as a ministry of their parish or through volunteer work. They offer the sacraments and spiritual support

during some of the most difficult times in peoples’ lives. Last year, thousands of people throughout our community were served by chaplains.

Specialized Ministries: This includes the Office of Vocations, support for international clergy, and retired clergy.

Communications - $3,004,937

The Office of Communications helps convey the teachings of the Church and fosters communication between the archdiocesan Chancery Corporation and the faithful, parish and school leaders and staff, and others in our community. It does this through The Catholic Spirit, multiple websites, social media, video, radio, e-newsletters and other communications vehicles.

Also in this category is the new Office of Evangelization and Catechesis, formed in early 2014. Among the programs of the Office of Evangelization and Catechesis is Rediscover: pre-evangelization, evangelization, and catechesis initiative that supports outreach to all Catholics and provides formation opportunities to deepen their faith by complementing the good outreach and formation work already being done by parishes, Catholic schools and ministry organizations throughout the archdiocese.

Community Services - $1,534,072

The Chancery corporation helps men, women, and children most in need within our local community, including the poor, hungry, and homeless, primarily through cash support to Catholic Charities.

Marriage, Family and Life - $1,054,818

This department assists the laity and parishes through programs supporting marriage preparation, family education programming, respect life, pro-life groups, biomedical ethics, and outreach for people with disabilities.

The Office of Marriage, Family and Life also sponsors the annual Archdiocesan Youth Day that brings together hundreds of local high school aged teens to praise God, grow in the faith and find fellowship. In addition, this office helps coordinate local representatives attending World Youth Day, the National Catholic Youth Conference and other youth events.

Parish Services and Outreach - $2,337,966

The Office of Parish Services provides consultation, planning, and leadership development opportunities to parishes throughout the archdiocese. One example of this is the GROW initiative, which encourages parishes to develop and implement robust pastoral and strategic plans.

The Chancery Corporation supports outreach ministry to various groups and members of the archdiocesan community, including Latino ministry, Indian ministry, the Commission on Black Catholics, the Venezuelan mission, the Archdiocesan Council of Catholic Women, deaf ministry, and other groups and coalitions.

As one example, there are more than 20 Latino Ministry parishes throughout the archdiocese which receive support

from the Office of Latino Ministry. These Latino Ministry parishes offer the sacraments, catechesis, and spiritual support to tens of thousands of Spanish speaking people throughout the local Church. The Office of Latino Ministry also oversees special days of celebration of the faith and family throughout the year. In addition, biblical, catechetical, and pastoral leadership formation institutes are provided for members of the Latino community to assist them in growing in the faith.

Support ServicesSpecial Issues – $4,180,228

The majority of these expenses were related to review of priest files, investigation of insurance coverage and analysis of financial options.

General and Administrative - $3,183,337

The offices of the archbishop, bishops, vicar general, accounting services, finance, and general administration are included in the General and Administrative category.

Development and Stewardship - $1,664,589

This office works with parishes and Catholic schools to help grow a culture of stewardship in local communities and to support parish and school development efforts. The office also engages in outreach to benefactors who wish to support specific ministries or programs of the Chancery Corporation.

Non-operating activityGeneral Insurance Program

The General Insurance Program trust of the Archdiocese of Saint Paul and Minneapolis provides comprehensive, uniform coverage of all of the parishes, Catholic schools and certain other Catholic entities within the archdiocese, as well as the Chancery Corporation. The coverage provided by the General Insurance Program includes commercial general liability and workers’ compensation. The Chancery Corporation has characterized the General Insurance Program as a trust, with the net assets of the program held by the Chancery Corporation for the benefit of the participants who have contributed those funds in exchange for obtaining insurance coverage. The General Insurance Program had reserves in excess of historical loss experience as a result of positive financial results over the past few years. For this reason, premiums charged for the General Insurance Program were reduced by 30 percent from January 1, 2014 through June 30, 2015. The premiums charged will continue to be analyzed and adjusted on an annual basis.

The General Insurance Program had a decrease in net assets of $131,124 in 2014 and an increase in net assets of $2,427,953 in 2013. The year over year decrease was due to the 30 percent reduction in premiums charged to participants that went into effect January 1, 2014.

Priest Benefits

The Chancery Corporation coordinates a self-insured health and dental benefit

fund for active and retired priests and seminarians within the archdiocese. The Chancery Corporation invoices parishes, Catholic schools and other Catholic entities based on clergy assignments and pays benefit providers directly for any claims. Priest Benefits generated income of $302,713 in 2014 and had a loss of $3,047 in 2013.

Financial positionNet Assets of the archdiocesan

Chancery Corporation were $32,540,508 at June 30, 2014, or $8,949,087 less than a year earlier. As noted previously, this decrease was due mainly to previously noted Special Issues expense, the CSA transition and the write-off of software.

Operating Activities in 2014 used cash of $6,998,757. In addition, $1,968,460 of cash was used to pay parishes that requested funds from their parish demand deposit accounts. These accounts allow parishes with excess funds to deposit such funds with the archdiocese for their administrative ease, if they so choose. The archdiocese pays interest to parishes on these funds and allows parishes to withdraw such funds on demand. The Chancery Corporation also received proceeds from sales of investments during the year of $3,425,810 to fund the operating losses and withdrawals from the parish demand deposit accounts.

Net decrease in cash from operating activities, investing activities and financing activities was $5,648,807.

Looking forwardChancery Corporation leadership

has determined that significant budget reductions are currently necessary because reserves have decreased. Last week, the Chancery Corporation announced a 20 percent cut to the FY 2015 operating budget, resulting in reductions in operating expenses and Chancery Corporation staff layoffs (see page 4).

Leadership is determined to achieve a balanced budget beyond 2015 and will evaluate our budget going forward as needed, while maintaining essential programs and services. Our goal is to ensure that parishioners, Catholic school families and others we serve are not negatively affected by Chancery Corporation budget reductions.

In conclusion, please know that Chancery Corporation leadership is taking the necessary steps to ensure that our current financial situation is resolved fairly for victims/survivors while honoring the gift of stewardship of past and present faithful in pursuit of the mission of the Church. I want to thank all the honorable clergy and lay leaders, staff, volunteers, parishioners and others throughout our local Church who work to strengthen sustainability in support of our shared mission.

Thomas Mertens was appointed chief financial officer of the Archdiocese of Saint Paul and Minneapolis in December 2012.

November 20, 2014 • The Catholic Spirit

The audited financial statements with footnotes and independent auditors’ report are posted at archspm.org on the Administration and Finance page.

The Archdiocese of Saint Paul and Minneapolis (the Archdiocese) was first established as a diocese by the Holy See in 1850 (originally Minnesota and the Dakotas) and elevated to an arch-diocese 38 years later. Now comprising a 12 county area, there are 187 parishes and 90 Catholic schools (including elementary and high schools) within the Archdiocese. The Archdiocese is home to roughly 825,000 Catholics, hundreds of clergy and religious men and women, and thousands of lay leaders, employees and volunteers who serve in parishes, Catholic schools, and many other ministries. The mission of the Archdiocese is to make the name of Jesus Christ known and loved by promoting and proclaiming the Gospel in word and deed through vibrant parish communities, quality Catholic education, and ready outreach to the poor and marginal-ized.

Nature of OrganizationThe financial statements include all administrative and program offices and departments of

the Chancery Corporation. Parishes, Catholic schools, and other separately incorporated and operated Catholic entities within the 12-county area of the Archdiocese are not under the fiscal or operating control of the Chancery Corporation and therefore, in accordance with generally accepted accounting principles (GAAP), are not included in the Chancery Corporation’s finan-cial statements. Certain members of the Chancery Corporation are on the board of trustees of some other Catholic entities.

Basis of PresentationThe financial statements of the Chancery Corporation have been prepared on the accrual

basis of accounting and in accordance with GAAP. The Chancery Corporation reports informa-tion regarding its financial position and activities according to three classes of net assets: unre-stricted net assets; temporarily restricted net assets; and permanently restricted net assets, based on the existence or absence of donor-imposed restrictions.

Financial StatementsThe financial statements of the Chancery Corporation for FY 2013 and FY 2014 were audited

by independent certified public accountants who issued a disclaimer of opinion and a going concern qualification on the sole basis of the uncertainty of the financial impact due to sexual abuse litigation and our resulting inability to provide sufficient evidence to form a basis for an audit opinion on litigation matters.

The accompanying Condensed Statement of Financial Position and Condensed Statement of Activities are prepared from the audited financial statements but, in the interest of brevity, do not contain a similar level of detail and are not accompanied by complete explanatory foot-notes. In order to see the full footnotes, please refer to the archdiocesan website at archspm.org.

Other ProgramsThe Chancery Corporation acts as a conduit for special collections in the parishes designated

by the United States Conference of Catholic Bishops or for local purposes. During 2014, $1,820,000 was contributed by parish communities for such collections and sent to the Chan-cery Corporation for remittance to the intended recipient. This amount includes $275,000 for service of debt at the Cathedral parish resulting from the building restoration.

CommitmentsThe Chancery Corporation has in the past entered into a number of contracts with lending

institutions to assist parishes and Catholic schools within the archdiocese with credit for facility additions. This includes loan guarantees that aggregate approximately $43,000,000 and $47,300,000 at June 30, 2014 and 2013, respectively.

Notes to condensed financial statements

Archdiocesan Chancery Corporation Annual Financial Report • 2014

As of June 30, 2014 and 2013 2014 2013 Assets

Cash $3,861,917 $9,510,724 Contributions Receivable, Net of Allowances 714,516 1,824,513 Accounts Receivables, Net of Allowances 5,542,489 6,918,664 Loans and Notes Receivable, Net of Allowances 1,245,775 1,387,600 Litigation Insurance Claims Receivable 700,000 700,000 Investments 15,310,699 17,380,741 Beneficial Interest in Perpetual Trusts 1,551,285 1,363,754 General Insurance Program Assets 10,220,349 9,531,198 Prepaid Expenses and Other Assets 740,954 163,003 Land, Property and Equipment, Net 8,978,417 10,521,188

Total Assets $48,866,401 $59,301,385

Liabilities and Net Assets

Liabilities Accounts Payable and Accrued Liabilities $4,387,768 $3,059,393 Litigation Claims Payable 5,300,000 5,300,000 General Insurance Program Claims Payable and Other Liabilities 5,240,134 4,567,492 Amounts Held for Others Under Agency Transactions 119,786 1,575,656 Parish Demand Deposits 1,209,075 3,177,535 Def erred Revenue 69,130 131,714

Total Liabilities 16,325,893 17,811,790

Net Assets

Unrestricted: General Insurance Program 17,651,756 17,782,881 Board Designated 5,181,047 5,181,047 Undesignated 5,038,860 13,813,768

Total Unrestricted 27,871,663 36,777,696 Temporarily Restricted 2,597,668 2,828,253 Permanently Restricted 2,071,177 1,883,646

Total Net Assets 32,540,508 41,489,595 Total Liabilities and Net Assets $48,866,401 $59,301,385

Condensed Statements of Activities

Condensed Statements of Financial Position

29

Years Ended June 30, 2014 and 2013 2014 2013OPERATING REVENUE

Contributions $3,527,942 $3,786,170 Catholic Services Appeal, Net of Parish Rebates 368,050 8,109,237 Parish Assessments 13,776,682 14,093,473 Fees and Program Revenues 4,957,004 4,587,813 Investment Income, Net 1,420,331 350,235 Change in Value of Perpetual Trust 187,531 109,564 Other Income 1,288,192 1,700,981

Operating Revenue 25,525,732 32,737,473 OPERATING EXPENSE

Program Services: Catholic Education 4,753,327 6,546,710 Central Services 7,419,381 6,155,693 Clergy Services 5,513,753 5,603,961 Communications 3,004,937 3,607,854 Community Services 1,534,072 2,437,927 Marriage, Family and Life 1,054,818 1,249,532 Parish Services and Outreach 2,337,966 2,237,508

Total Program Services 25,618,254 27,839,185 Support Services:

Litigation Reserve Expense - 3,950,000 Special Issues 4,180,228 - General and Administrative 3,183,337 3,236,200 Development and Stewardship 1,664,589 1,580,929 Total Support Services 9,028,154 8,767,129

Total Operating Expenses 34,646,408 36,606,314

Change in Net Assets from Operating Activities (9,120,676) (3,868,841)

NON-OPERATING ACTIVITY

General Insurance Program Revenues 6,700,775 8,272,436 General Insurance Program Expenses (6,831,899) (5,844,483)Priest Benefit Revenues 3,058,037 2,813,619 Priest Benefit Expenses (2,755,324) (2,816,666)

Change in Net Assets from Non-Operating Activities 171,589 2,424,906

CHANGES IN NET ASSETS $(8,949,087) $(1,443,935)

United in Faith, Hope and Love