Charity to chancery: Following the archdiocese money

The Archdiocese of St. Paul and Minneapolis said it is considering bankruptcy after releasing financial reports showing a roughly $9.1 million operating deficit for fiscal year 2014. The archdiocese blamed its uncertain financial situation on the costs of clergy sex abuse litigation and the growing potential for more lawsuits by victims.

Archbishop John Nienstedt called the situation "disheartening," but assured parishioners that the finances won't directly affect parishes or other Catholic institutions.

Since the bulk of the money that sustains the archdiocese and its programs is housed in legally separate entities, it can attempt to protect its assets and fundraising.

How common is it for dioceses to file for bankruptcy?

At least 11 dioceses in the U.S. have filed for bankruptcy in the past ten years. It's becoming more common, especially as dioceses are hit with a large number of clergy sex abuse lawsuits at once.

Not every bankruptcy is the same, however. In Milwaukee, for instance, the process has been slow, and victims haven't seen any compensation. The process in Portland, Ore., lasted 33 months. But in other places, such as San Diego, the process has been much faster.

Again, it's important to keep in mind that in most of those bankruptcies, parishes and schools are treated as separate entities. If the Archdiocese of St. Paul and Minneapolis were to file for bankruptcy, chances are good, based on what we know from most other cases, that the doors of its churches and schools would remain open.

What would bankruptcy look like?

A Chapter 11 filing is designed to reorganize. It puts a hold on assets, but allows a business to continue operating as normal. The goal is to allow the organization to emerge from the process as a functional business.

During a reorganization, assets are scrutinized, claims are made and the court decides who gets what.

What we won't know until a claim goes before a bankruptcy judge is whether entities like the new Catholic Services Appeal Foundation will be treated separately.

What is most striking about the archdiocese's 2014 financial statement?

This statement brings the strongest indication yet from the archdiocese that it might file for bankruptcy.

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In a statement accompanying the 2014 financial report, Thomas Mertens, chief financial officer of the archdiocese, said that bankruptcy "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."

He added that the archdiocese still hasn't decided whether it will file for bankruptcy or not. Instead of general statements, the church is shifting to specific explanations about why bankruptcy might make sense and how it would work.

What is the archdiocese's financial status?

On the face of it, things are worse for the archdiocese than they were last year.

The latest report shows an operating deficit of about $9.1 million for the 2014 fiscal year. It reported net assets of about $32.5 million — a drop of about $9 million from the previous year.

It's important to note that this report is just on the finances of the archdiocese's administration. It doesn't include parishes, Catholic schools and nonprofits like Catholic Charities. Those are separate legal entities, not considered part of the archdiocese.

What's the reason for the change from the year before?

One reason: The archdiocese cites about $5 million in costs directly related to the clergy sex abuse scandal. In May 2013, a new state law opened up the statute of limitations for bringing lawsuits for older claims of abuse. Victims have three years — until 2016 — to bring their suits.

Of that $5 million, the archdiocese said it lost about $1 million on software that didn't meet the standards of a clergy abuse task force. The rest was spent on reviewing priest files, investigating the archdiocese's insurance coverage for lawsuits and analyzing its financial options.

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Another reason: The archdiocese has changed how it take it in donations. Last year, the archdiocese created a legally separate foundation to handle the donations it receives from parishes.

In doing so, the church moved the money that would have shown up in earlier financial reports off its books and into a legally separate entity. That shift shows up on the archdiocese's statement of activities as a loss of about $3.7 million.

That money isn't gone; it's just in a different place.

It's important to keep in mind that this latest report reflects the fiscal year that ended on June 30, 2014. That means it presumably wouldn't include any payments the church made in two clergy sex abuse lawsuits that were settled in October.

The Associated Press contributed to this report

Editor's note: An earlier version of this story incorrectly referred to an $8 million drop in total assets. The archdiocese's financial statement shows a $9 million drop in net assets.