DECEMBER 19, 2019
THE CATHOLIC SPIRIT • 17
ARCHDIOCESAN CHANCERY CORPORATION ANNUAL FINANCIAL REPORT • 2019 Grateful for funds, time and expertise
Financial Officer Report
Published this year in the middle of Advent, the 2019 Annual Archdiocesan Financial Report is infused with the hope of the season. It serves as a reminder of the many ways in which Jesus continues to provide for this local Church through the extraordinary generosity of her faithful. I am deeply ARCHBISHOP thankful to all who BERNARD HEBDA have supported the Archdiocese this year. While Archdiocesan staffing and programming remain at the low level once necessitated by our bankruptcy, I am grateful that the good work of the Church nevertheless continues. This year’s report clearly reflects our awareness of the five-year commitment we made to provide $1 million annually to survivors of abuse. We take seriously our commitment to them and will continue to look for ways to set aside resources to ensure that the obligation will be met in each of the next four years. I continue to be grateful for the generous collaboration of those who share their professional expertise and assist the Archdiocese in charting a course forward. I have been assisted not only by a competent professional staff at the Archdiocese, but also by the extraordinarily well prepared laity and clerics who serve on the Archdiocesan Finance Council and Corporate Board. Working in tandem with the priests serving on the College of Consultors and Presbyteral Council, they have been valued collaborators in restoring stability to the Archdiocese. When I had arrived here as Diocesan Administrator in 2015, I asked the Archdiocesan Finance Council (required by canon law) and Corporate Board (required by Minnesota civil law) to meet jointly until we would emerge from bankruptcy, with the hope of making sure that key leaders would all be on the same page. I also asked them to stay on beyond the conclusion of their terms so that there would be continuity in decision-making, and they graciously agreed. I believe that the greater stability reflected in the 2019 Report reflects the generosity of those board members and their careful review of our financial data, as well as their invaluable input into the other decisions that fall to me as archbishop, matters that often have financial consequences. I will always be grateful to them, not only for their collaboration in navigating through particularly rough waters but also for their creativity in both institutionalizing the closest of collaborations between the Finance Council and the Corporate Board and identifying worthy successors to ensure that this good work continues. As you review this report, I hope that you share my assessment that the Archdiocese has indeed been blessed.
The fiscal year 2019 of the Archdiocese of St. Paul and Minneapolis began July 1, 2018, and ended June 30, 2019. The Archdiocese’s bankruptcy case officially closed during this fiscal year on Dec. 21, 2018. Starting that day, the more than 400 victim-survivors who filed abuse claims against the Archdiocese began receiving compensation from the bankruptcy trust established by the Archdiocese. The majority of the $210 million settlement reached in June of 2018 was distributed to claimants by the court appointed trustee as part of the bankruptcy process. The trustee determined the amount received by each claimant. In this report, you will see distributions from our cash account to the trust and a reduction in our Bankruptcy Settlement Liability for the payment of our obligations reached in the bankruptcy settlement. The first of five $1 million annual payments to the trust was made this October and will be reflected in the fiscal year 2020 report as a reduction to the Note Payable – Bankruptcy Settlement. You have heard previously from Archbishop Hebda and others regarding the new day for abuse survivors and the Church, enabled by the bankruptcy resolution. The resolution of the bankruptcy also affects the Archdiocese financially in a number of ways. First and foremost, those who were harmed over the past 70 years have been compensated and their cases settled. Second, our Special Issues Expense, which reflected the expenses associated with the bankruptcy, is behind us, which is significant. In fiscal year 2018, our Special Issues Expense totaled nearly $21 million. Third, the resolution of the bankruptcy allows for the Archdiocese and its parishes to move forward with some financial certainty. Many parishes and priests contributed generously to the settlement fund. Fourth and final, the resolution allows the Archdiocese to resume having an audit of our financials completed and published, something not possible during bankruptcy. For the past four years, the Archdiocese had asked our CPA firm to perform Agreed Upon Procedures on our financial statements. The Agreed Upon Procedures were developed by Archdiocesan staff and the Archdiocesan Finance Council in consultation with our CPA firm, and they assisted us in governance of the Archdiocese and stewardship of its resources by requiring attestation procedures on key balance sheet accounts and review of the statement of activities and internal controls. Accounting best practices dictate that our fiscal year 2019 audit consist of an audit of our balance sheet, dated June 30, 2019. Because our balance sheet as of June 30, 2018, was not audited, an audit cannot be performed on our Statement of Activities for the fiscal year ending June 30, 2019. We will return to the standard practice of annual independent audits for the fiscal year ending 2020 and will continue our practice of releasing the information promptly after completion of our financial statements and auditor’s report. While we provide administrative and pastoral support to parishes, Catholic schools, and other Catholic entities within the 12 counties that make up the Archdiocese, this annual fiscal report does not contain their financial information. That is because, under Minnesota law, they are all separate corporations with completely separate finances, and they are required to prepare and publish their own financial reports. We owe financial transparency and accountability to you, the Catholic faithful, because nearly 75% of our operating revenue comes from what you give at your parish each Sunday. Solidifying trust as we move forward is vital. Next year’s full audit will assist with that.
The archdiocese’s fiscal year 2019 Financial Statements along with the Independent Auditor’s Report will be posted at archspm.org at the Finance and Accounting page prior to Dec. 31.
By Thomas Mertens, CFO
Introduction
Financial condition For the year ended June 30, 2019, we generated a surplus from operations before Special Issues Expense of nearly $900,000. It is similar to the surplus from operations in FY 2018 before Special Issue Expense, which totaled nearly $1 million. Generating a surplus from operations is critical to our operation, as it will provide cash to meet our $1 million annual obligation for the remaining four years related to the bankruptcy settlement. As we have done in the past, we will continue to closely monitor and analyze our expenses. In fiscal year 2019, we generated an overall surplus of almost $1.7 million because of an operating surplus of $900,000 and a favorable non-cash adjustment to our Bankruptcy Settlement Liability of approximately $800,000. The adjustment was related to the assignment to the Bankruptcy Trust of a potential refund from the workers’ compensation investment account of excess funds not required by the Minnesota Department of Commerce for self-funded plans. The refund to the Bankruptcy Trust did not materialize. In fiscal year 2018, we had a loss from operations of $20 million due to Special Issues Expense of nearly $21 million, which represented the Archdiocesan payment of its obligations agreed to in the Plan of Reorganization that became effective in October 2018.
Revenue Total Operating Revenue in fiscal year 2019 was $20.2 million, down slightly from fiscal year 2018 of $20.6 million. The decrease was primarily due to the down market’s impact on Investment Income, a decrease in Contributions, and a decrease in Other Income as a result of lower imputed rental income required by accounting standards due to the land sale to the Catholic high schools in September of 2018 as part of the bankruptcy settlement. Parish Assessments, our primary source of revenue, increased slightly from 2018, up $40,000, while Fees and Program Revenues increased more than $300,000. Parish Assessments are generated from the 186 parishes within the Archdiocese and are calculated and billed on a two-year lag, which means the parish financial results for the years ending June 30, 2017, and 2016 formed the basis for the Parish Assessment revenue for the years ended June 30, 2019, and 2018, respectively. Under the Plan of Reorganization, the Archdiocese agreed not to change the assessment methodology or rates to the parishes for a two-year period.
Operating expense Our Operating Expense Before Special Issues Expense in 2019 totaled $19.3 million, as compared to $19.6 million in 2018, a decrease of 1.6 %. The decrease is due to an intentional and continued focus aimed at generating a surplus to meet our annual $1 million dollar obligation to the bankruptcy trust over the next four years. The Archdiocese closely monitors expenses through monthly financial meetings with each Archdiocesan department director.
Non-operating activity: Gain on sale of assets The Archdiocese sold three parcels of land in October of 2018 as agreed to under the Plan of Reorganization for an aggregate price of $4 million. The proceeds from the sale of the land went directly into the Bankruptcy Trust. Each parcel of land was part of the campus of each of three Catholic high schools; BenildeSt. Margaret, DeLaSalle, and Totino-Grace. The land was purchased by the Archdiocese decades prior and a gain on the sale of $3.4 million was recognized in the year ending June 30, 2019.
Non-operating activity: General Insurance Program The General Insurance Program of the
Archdiocese of St. Paul and Minneapolis provides comprehensive, uniform insurance coverage to 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 property, casualty, general liability, and workers’ compensation. The General Insurance Program is maintained for the benefit of the participants who have contributed funds in exchange for obtaining insurance coverage. The General Insurance Program had a surplus from operations of $1.6 million in 2019, as compared to $2.8 million in 2018, due to higher claims in the most recent fiscal year. These higher claims were the result of the extremely cold weather this past winter, higher than normal precipitation, and hail damage in the spring. In 2018, the General Insurance Program contributed $6 million to the Plan of Reorganization. The expense of this contribution is included in Special Issues Expense.
Non-operating activity: Priest Benefits The Archdiocese coordinates a self-insured health and dental benefit fund for active priests and seminarians within the Archdiocese. The Archdiocese invoices parishes, Catholic schools and other Catholic entities based on clergy assignments and pays benefit providers directly for any claims. Priest Benefits generated a loss of nearly $100,000 in 2019 and income of $487,000 in 2018. The loss in the current year was the result of higher claims per participant as compared to the prior year. The results of the Priest Benefits program fluctuates annually based on the claims and over time has historically been a break-even program.
Financial position Net Assets of the Archdiocese were approximately $17.1 million as of June 30, 2019 as compared to $10.5 million on June 30, 2018. The increase was due to the $1.7 million surplus from operations during the fiscal year, the non-cash gain on the sale of land of $3.4 million and the combined net income from the General Insurance Program and Priest Benefits of $1.7 million. The total cash balance as of June 30, 2018 was nearly $28 million and decreased to $6.6 million on June 30, 2019, due to the cash used to fund the Bankruptcy Trust. Our current cash balance consists of $4.4 million of Unrestricted Cash, $1 million of Board Designated Cash and Donor Restricted Cash of $1.2 million. The Board Designated Cash represents funds set aside for the payment of the first of five annual payments of $1 million to repay the $5 million Note Payable – Bankruptcy Settlement. Accounts Receivable – Net of Allowances decreased from $4.8 million in 2018 to $3.5 million as a result of continued efforts to collect past due assessments from parishes and offsetting Parish Demand Deposits of $495,000 (amounts owed to parishes) with Accounts Receivable. The decrease in Land, Property & Equipment is the result of the sale of the three parcels of land during the year.
Looking forward The majority of our financial obligations related to the bankruptcy are now in our rearview mirror. We all know and understand that our work is never complete as it relates to the protection of children, and we continue to do all that we can to keep all people safe in this Archdiocese, regardless of the financial cost. We are fully aware of our future financial obligations to fund the Bankruptcy Trust over the next four years, and we are committed to making the difficult decisions required to provide the resources to meet those obligations. Thank you for your on-going support as we work together towards our mission of making Jesus Christ known and loved in our local Church.