Archdiocese of Louisville Report of the Finance Council
Financial Implications of Sex Abuse Settlement

August 19, 2003

On July 10, 2003, the Archdiocese of Louisville paid $25.7 million to 243 plaintiffs to settle sex abuse claims. This payment has generated many questions from the Catholic community, specifically about the source of the funds and the impact of the settlement on the ongoing financial health of the Archdiocese. In this document, we will address the more frequently asked questions about the financial issues surrounding the settlement.

1. Where did the money come from for the settlement?

Funds used for the $25.7 million payment represented the majority of monies legally available to be spent by the Archdiocese. Even though archdiocesan investments totaled $60.7 million on June 30, 2003, $31.1 million could not legally be spent according to civil/canon law as detailed below:

Archdiocesan Investments @ June 30, 2003

(Dollars in Millions)

Endowed $ 7.3

Restricted $ 9.8

Deposits Payable to Parishes $14.0

Investments Not Available for Settlement $31.1

Archbishop Designated $ 3.4

Unrestricted $26.2

Total Investments @ 6/30/03 $60.7

Investments Not Available For Settlement

Endowed investments represent monies given by donors or willed by estates for specific purposes. Only the interest may be spent for the donor-specified purpose. The original amount given remains invested permanently and cannot legally be spent by the Archdiocese. For example, a donor wills $50,000 to the Archdiocese to be endowed for mission churches. This amount must legally remain permanently invested and only the interest earned on the investment can be used for mission churches.

Restricted investments also represent monies given by donors or willed by estates for specific purposes.

However, the entire amount of the restricted investment must be spent per the donor"s instructions. For example, a donor leaves by will $50,000 for mission churches. The entire $50,000 must be spent for mission churches and cannot legally be used for any other purpose.

Monies owed to parishes represent funds put on deposit by parishes in the Archdiocesan Deposit & Loan Fund (the Chancery "bank"). This money belongs to the parishes and cannot be spent by the Archdiocese.

Investments Available For Settlement

Archbishop designated funds represent monies set aside by the Archbishop to fund specific expenditures.

Monies for priest retirement and funds remaining after certain parishes closed ($1.0 million) make up the majority of this fund. Although set aside as "designated," this money is not legally restricted and can be used to fund operational deficits, if necessary.

Unrestricted funds represent all remaining investments that were available to pay the sex abuse settlement.

The sex abuse settlement payment of $25.7 million was paid from the closed parish investments ($1.0 million) and unrestricted investments ($24.7 million). As stated above, investments in the Archbishop designated and the unrestricted funds were the only monies legally available for use. After making the $25.7

Million payment, remaining unrestricted investments available to fund archdiocesan programs and services dropped to $1.5 million.

2. How will the sex abuse payment affect future operations of the Archdiocese?

Historically, archdiocesan programs and services were funded mainly by parish assessments, the Catholic Services Appeal and investment income. However, during the 1990"s, increases in investment income and stock market gains were used to fund growth in archdiocesan programs and services. As the market grew, stock portfolio gains were cashed to provide funds to pay for new programs and services. The downturn in the economy and in the stock market eliminated these gains, while the programs and services remained.

In recent years, unrestricted investments were available to cover cash shortfalls when expenses exceeded income. However, with the sex abuse settlement payment, the safety net of unrestricted investments to cover cash shortfalls has basically been eliminated. Therefore, in order to return to financial health, the Archdiocese must operate on a balanced budget.

3. What is the plan to restore financial stability to the Archdiocese?

The return to financial health will require sacrifices from parishes, archdiocesan agencies, priests and other organizations supported by the Archdiocese. A five-year plan has been developed that incorporates changes which, when implemented, will return the Archdiocese to a balanced budget and financial stability. This plan has been approved by all of us as members of the Archdiocesan Finance Council. On our recommendation, it has also been accepted by the Archbishop. Some of the major changes include:

Spending reductions of $900,000 for archdiocesan agencies/Catholic Charities. These reductions are in addition to $1.5 million cut in the spring of the fiscal year 2002/2003 in anticipation of the settlement.

This results in total agency/Charities expense reductions of $2.4 million for the fiscal year 2003/2004.

The reductions include staff cuts, spending efficiencies, and reductions in certain programs and services.

Increases in amounts that parishes must pay to support the Archdiocese (parish assessments).

A reduction in the interest rate paid to parishes and other organizations that have money on deposit in the Archdiocesan Deposit & Loan Fund.

The sale of the only two non-essential properties owned by the Archdiocese as well as the consolidation of Archdiocesan office facilities.

Cancellation of multi-year grants where possible. This includes cancellation of the final $1.7 million in installments of a grant/investment in archdiocesan owned Trinity High School for facilities expansion.

The transfer of almost $1.0 million in expenses to be paid from donor restricted and endowed funds. For example, expenses paid from unrestricted funds in the past for the Southern Kentucky Missions will now be paid from a fund restricted by the donor to mission promotion.

Salary and housing reductions for all priests removed from ministry as a result of sex abuse accusations.

A copy of the detailed Five-Year Financial Plan will be available at the Archdiocese by September 1, 2003.

To receive a copy, call 502-585-3291 or e-mail The plan also will be published in The Record.

4. Why was the settlement not covered by insurance?

Most of the sex abuse cases dated to the 50"s, 60"s and 70"s before archdiocesan insurance was packaged under one carrier. In many cases, the parish insurance company for the affected years was unknown and no policies dating to that time could be found. Even when insurance companies could be identified and policies located, sex abuse coverage was not included in the policy.

Although no insurance coverage was available to pay the settlements, insurance companies did agree to pay collectively $3.3 million to the Archdiocese for legal expenses incurred for the just completed litigation and ongoing future sex abuse related legal defense costs.

As a group, we believe that the implementation of this plan, along with the continued support of our Catholic community, will restore the Archdiocese to financial health over the long-term. As the plan progresses, we will continue to update you either by mail or through The Record. We are optimistic about the future of the Archdiocese in spite of the difficult times we are currently experiencing. If you have any questions about the settlement or the plan, please feel free to contact any of us.

The Archdiocesan Finance Council:

Lee Davis John Ford

Melissa Hartung Carl Heger

John Hoeck Al Horton


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