Diocese Working to Resolve Financial Challenges
 

The Diocese of Scranton is facing serious financial challenges, according to the latest report prepared by an independent auditor.

The audited Financial Report of the Diocesan Administrative Offices shows that for the fiscal year that ended June 30, 2006, expenses exceeded revenues by $1,348,789.

The report by the McGrail Merkel Quinn & Associates auditing firm appears in the Jan. 11 issue of The Catholic Light. It is also posted on the Diocesan website at www.dioceseofscranton.org.

James M. Quinn, Diocesan Secretary for Financial Services and Chief Financial Officer (no relation to Joseph Quinn from the auditing firm), said there are several principal reasons for the deficit:

• Recent changes in accounting regulations mandate that the Diocese fund the future post-retirement medical benefits for its priests now, not after they retire. In other words, even for a newly ordained priest in his 20s, the Diocese must set aside money now for benefits that most likely won’t be used for another 40 years. The annual cost for satisfying this requirement is $1.2 million. The Diocese is currently able to fund $420,000 of this annual expense, leaving approximately $780,000 unfunded each year.
  
  

• Like many other corporations and institutions, including the Commonwealth of Pennsylvania, there is a lack of adequate funding for the defined benefit pension plans for Diocesan clergy and lay employees. While the benefits owed are defined, the money to pay those benefits depends on the fluctuations of investments in the stock market and other variables.
  
  

• In a typical year, the Diocese receives bequests and donations beyond what is given through the Diocesan Annual Appeal. Because of a particularly large bequest, the Diocese received $1,856,111 in such gifts in 2004-05. But last year, the Diocese received $237,386.

“This is obviously a serious situation,” said Mr. Quinn. “These deficits jeopardize our ability to borrow money and to participate in self-insurance programs for health, property, liability and workers’ compensation coverage. If we continue to operate under these conditions, we risk being declared insolvent.”

Mr. Quinn praised the people of the Diocese for their support of the Appeal and their individual parishes through offertory gifts, but he added that many parishes are still experiencing financial difficulties.

He cited the fact that as of Dec. 31 there was $5,513,590 owed to the Diocese by parishes that have fallen behind in their assessments (the “tax” that all dioceses levy on their parishes to support the operation of the diocese) as well as money they owe for clergy health care and pension and insurance.

Mr. Quinn also pointed to a troubling trend that is becoming more common: parishes and schools seeking loans from the Diocese, not for building and renovation projects as they traditionally did in the past, but to fund day-to-day operating expenses such as payroll, utilities and school subsidies.

The total outstanding loans due from parishes and schools as of Dec. 31 was $28,584,866. Of this total, $12,936,290 is owed by financially troubled parishes and schools.

These loans are made from the Deposit and Loan Fund, which in effect operates as a Diocesan bank. The monies come from parishes and institutions that deposit any funds not needed for operating expenses. Last year the Diocese paid more than $3.6 million in interest on these deposits.

“Some people have suggested that we can provide relief to troubled parishes and schools by simply writing off their debt to the Deposit and Loan Fund,” Mr. Quinn said. “But this money belongs to all of the parishes and the people who have contributed to the parishes. It is essential that we collect the money owed on these loans.”

In this connection, Monsignor Joseph C. Bambera, an Episcopal Vicar and canon lawyer, noted that a parish’s savings and property are held by the Diocesan Bishop in trust for the parish.

The effect of this is that all decisions made by the Bishop relative to a parish’s goods must be governed by the fact that his holding of these goods is in trust for a particular parish. Thus, the Bishop cannot take the savings or property of one parish and dispose of it in order to pay debts owed by another parish, school or institution.

Mr. Quinn said the Diocese is proceeding with an action plan to resolve its financial difficulties.

A major component of this endeavor is the reorganization of Catholic schools based on a strategic plan being developed by Meitler Consultants, Inc. Among the goals of the reorganization is to stabilize the finances of both schools and the parishes that support their operation. In some cases, parishes are using up to 50% of their annual income to fund a school, leaving fewer and possibly no resources left for other pastoral initiatives.

“While our Catholic schools are certainly important to the evangelizing mission of the Church, there are other parish ministries that are just as important,” Monsignor Bambera said. “And you have to consider that only about 25 percent of our Catholic children are enrolled in a Catholic school, so the great majority must be accommodated in parish-based religious education programs.”

Monsignor Bambera added that even though a school can appear to be operating “in the black,” it may be doing so by draining the resources of its supporting parish(es).

Mr. Quinn said the Diocese is auditing troubled parishes, meeting with their pastors and Finance Councils, and helping them to develop a sound financial plan. Once such a plan is developed, the Diocese hopes to offer financial incentives to further encourage its implementation.

In this regard, the Diocese plans to establish a debt reduction fund with monies from the Diocesan Annual Appeal and other potential sources of revenue.

An assessment of the situation regarding funding for the post-retirement medical benefits for clergy is underway, and the Diocese is exploring changes to the pension plan for lay employees that could take effect as soon as July 1.

“I believe that we can turn our financial status around, but it’s going to take hard work, innovative planning and the cooperation of everyone in the Diocese,” Mr. Quinn said.