Archdiocese reports $9.1M deficit, mulls bankruptcy

Updated: 11:20 a.m. | Posted: 10:38 a.m.

The Archdiocese of St. Paul and Minneapolis reported a $9.1 million operating deficit for fiscal year 2014 and reiterated Thursday that it is considering filing for bankruptcy as its financial condition has become more uncertain due to the growing potential for more lawsuits by victims of clergy sexual abuse.

• Archdiocesan Chancery Corporation: Annual report

The archdiocese released its financial information in its newspaper, The Catholic Spirit, more than a week after it announced it was cutting its budget by 20 percent and making unspecified staff cuts. Archbishop John Nienstedt called the situation "disheartening," but assured the faithful that the finances won't directly affect parishes or other Catholic institutions.

"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," he wrote.

However, the outside accounting firm for the archdiocese, CliftonLarsonAllen, raised serious questions about the chancery's long-term financial health.

Given the uncertainty of the costs of future clergy sex abuse claims, "there is substantial doubt regarding the Chancery Corporation's being able to continue as a going concern," the accountants wrote in the financial notes accompanying the books.

It was the first time CliftonLarsonAllen issued such an opinion on the financial health of the archdiocese, Thomas Mertens, chief financial officer of the archdiocese, wrote in his report published Thursday.

Clergy abuse, cover-up and crisis in the Twin Cities Catholic church

The archdiocese said the operating deficit can be partly attributed to $4.1 million spent to address allegations of clergy sexual abuse since May 2013, when a three-year window opened up for abuse victims to file claims that were otherwise barred under the statute of limitations.

Mertens said outside professionals were brought in to provide legal, investigative and financial expertise, and the majority of expenses were related to a review of priest files, investigation of insurance coverage and analyzing financial options.

Nienstedt said that since the statute of limitations was lifted, the archdiocese has settled two cases and 20 more trials are scheduled. Victims of past abuse still have about a year and a half to pursue litigation.

"We have no idea how many more legal claims may be made against us in the time that is left," Nienstedt said. Mertens added that the chancery has received a "significant number" of notices that claims will be filed.

The archdiocese has said previously that bankruptcy may be an option, and Mertens noted Thursday that officials haven't decided yet if they will seek reorganization. But, he wrote, it is being considered with fairness to victims in mind.

"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," Mertens wrote.

• Related: Archdiocese plans budget cuts, layoffs

The archdiocese also explained how a potential reorganization would affect operations.

The Chancery Corp. would expect to be allowed to function as usual, and separately incorporated parishes and schools would not be part of a reorganization. The archdiocese said it's premature to speculate on whether a bankruptcy filing would impact pensions, medical or other employee or priest benefits, but it would seek court approval to keep such plans going during the process.

Total operating revenue for the year ending June 30, 2014, was $25.5 million, compared with $32.7 million in 2013.

In March, the bishop of the nearby Winona diocese described a plan to file for bankruptcy in a letter to the Vatican. Bishop John Quinn also cited the Minnesota Child Victims Act in his letter.

Diocese spokesman Joel Hennessy said in October that the diocese hadn't decided whether to file for bankruptcy, because it's unclear how many people may sue in the remaining months the law allows.

• Related: Winona bishop says abuse suits will push diocese into bankruptcy | Bankruptcy could help Winona diocese avoid sex abuse lawsuits

Timeline: U.S. Catholic dioceses and bankruptcy