Economist article discusses Catholic Church finances in the US

August 21, 2012 | By: .(JavaScript must be enabled to view this email address) Mark Blumberg
Topics: News, Ethics and Canadian Charities

In the US, unlike Canada, churches are not required to file the annual Form 990.  The Economist just published an article ““The Catholic Church in America: Earthly concerns - The Catholic church is as big as any company in America. Bankruptcy cases have shed some light on its finances and their mismanagement”  The article paints an unflattering picture of the Catholic church based on various bankruptcy filings.  In Canada all churches file, along with other charities, the T3010 Registered Charity Information Return and you can read about the finances of individuals churches at the CRA website or charityfocus.ca While the T3010 is not nearly as detailed as the Form 990 filed by US charities, at least it provides some basic information on every Canadian charity.  We have 4,144 Catholic parishes and chapels listed.  1,059 of them in Ontario.  I have been arguing for years that we need to look to the US and UK for ideas to improve our transparency.  Unfortunately, US transparency when it comes to churches is lacking.

Some interesting points noted:

“The sexual-abuse scandals of the past 20 years have brought shame to the church around the world. In America they have also brought financial strains. By studying court documents in bankruptcy cases, examining public records, requesting documents from local, state and federal governments, as well as talking to priests and bishops confidentially, The Economist has sought to quantify the damage.

The picture that emerges is not flattering. The church’s finances look poorly co-ordinated considering (or perhaps because of) their complexity. The management of money is often sloppy. And some parts of the church have indulged in ungainly financial contortions in some cases—it is alleged—both to divert funds away from uses intended by donors and to frustrate creditors with legitimate claims, including its own nuns and priests. The dioceses that have filed for bankruptcy may not be typical of the church as a whole. But given the overall lack of openness there is no way of knowing to what extent they are outliers.

Thousands of claims for damages following sexual-abuse cases, which typically cost the church over $1m per victim, according to lawyers involved, have led to a liquidity crisis. This seems to have encouraged a pre-existing trend towards replacing dollars from the faithful with publicly raised debt as a way of financing church business. The church is also increasingly keen to defend its access to public health-care subsidies while claiming a right not to provide certain medical services to which it objects, such as contraception. This increased reliance on taxpayers has not been matched by increased openness and accountability. The church, like other religious groups in America, is not subject to the same disclosure requirements as other non-profits or private entities.”

...

“Various sources say that Cardinal Dolan and other New York bishops are spending a substantial amount—estimates range from $100,000 a year to well over $1m—on lobbying the state assembly to keep the current statute of limitations in place. His office will not comment on these estimates. This is in addition to the soft lobbying of lawmakers by those with pulpits at their disposal. The USCCB, the highest Catholic body in America, also lobbies the federal government on the issue. In April the California Catholic Conference, an organisation that brings the state’s bishops together, sent a letter to California’s Assembly opposing a bill that would extend the statute and require more rigorous background checks on church workers.

Some dioceses have, in effect, raided priests’ pension funds to cover settlements and other losses. The church regularly collects money in the name of priests’ retirement. But in the dioceses that have gone bust lawyers and judges confirm that those funds are commingled with other investments, which makes them easily diverted to other uses. Under Cardinal Bernard Law, the archdiocese of Boston contributed nothing to its clergy retirement fund between 1986 and 2002, despite receiving an estimated $70m-90m in Easter and Christmas offerings that many parishioners believed would benefit retired priests.”

...

“The principle of separation between church and state in America means that religious groups are not required to file tax returns, list their assets or disclose basic facts about their finances. Some dioceses do publish accounts, but these tend to provide an incomplete picture. Though lawyers for dioceses facing bankruptcy have fought to keep most financially sensitive documents sealed, the process has forced the church to let in unaccustomed light.

The documents that have been disclosed reveal that some bishops in the bankrupt dioceses presented the diocesan funds of parishes, schools, hospitals and retirement accounts as separate when they were really simply book-keeping entries in the same pooled investment account. The diocese of San Diego, for instance, reported to the bankruptcy court that it had over 500 accounts. But these were merely entries in a “Parish, School Diocese Loan Trust Account”, maintained in a single bank account at Union Bank of California.

Such pooling saves on administrative costs and allows dioceses to use a surplus in one area to cover shortfalls in another, often a legitimate course of action. But it has presented problems when it comes to working out which assets belong to whom in bankruptcy proceedings.

The vast majority of parishes that commingled their funds with those dioceses now in bankruptcy lost all their investments. In some cases they were misled into believing that the money would be kept separate from the main diocesan funds, and thus safe in the event of bankruptcy. The judge in the Wilmington bankruptcy, Christopher Sontchi, said parishes that had suffered this fate had grounds to sue the diocese for breach of fiduciary duty. None has—but that is hardly surprising, given that the bishop and the chancellor of the diocese sit on the five-member board of trustees of each parish.”

...

“it is quite possible that church finances are, taken as a whole, not as bad as the details coming out in bankruptcy cases suggest. Dioceses and religious orders that go bankrupt cannot be assumed to be representative. If so, then showing better management in the rest of the church would do a lot to allay concern. And increased openness might have the added benefit of bringing in the acumen of a knowledgeable and concerned laity.

Some influential Catholics are keen to see better management and more openness and accountability. Leon Panetta, America’s defence secretary, called for outside oversight of church finances when he was a director of the National Leadership Roundtable on Church Management, a position he relinquished in 2009 to become director of the CIA. Faced with competition from other churches and disgrace from the behaviour of some of its priests, there has never been a more important time to listen to such calls, and to invite in the help and scrutiny that the church’s finances seem so clearly to need.”


http://www.economist.com/node/21560536

One US blogger, John D. Colombo, a professor at the Univ. of Illinois College of Law noted at http://lawprofessors.typepad.com/nonprofit/:

“One paragraph sort of sums it up:

The picture that emerges is not flattering. The church’s finances look poorly co-ordinated considering (or perhaps because of) their complexity. The management of money is often sloppy. And some parts of the church have indulged in ungainly financial contortions in some cases—it is alleged—both to divert funds away from uses intended by donors and to frustrate creditors with legitimate claims, including its own nuns and priests. The dioceses that have filed for bankruptcy may not be typical of the church as a whole. But given the overall lack of openness there is no way of knowing to what extent they are outliers.

The last sentence is, I think, particularly important.  Churches do not have to file a Form 990 or an application for exemption on Form 1023.  We know virtually nothing about how they manage their money, yet we grant tax exemption virtually automatically to any entity calling itself a church. 

Others have questioned whether churches should receive tax exemption at all (I happen to be in the camp that says “no,” provided they get an unlimited deduction for what I would classify as charitable expenditures, which would not include building expenses/maintenance/pastor and staff salaries, etc. - but I realize this is an issue on which reasonable people can and should disagree).  But I view this story as less about the merits of exemption than the merits of financial disclosure by exempt charities.  Churches need to file a 990 like everyone else.  We need disinfecting sunlight on their financial operations, particularly when folks starting hiding behind God as the rationale for their actions, many of which end up being very un-god-like.  And for those of you who might claim that subjecting churches to information filing on a 990 is a violation of the free exercise clause . . . well, I’d like to see that case litigated.”

 

 

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