Scandal Could Prompt Church to Sell Propert
With $4 Billion in Real Estate and More Priest Abuse Payouts Looming, Who Controls Parish Holdings Is a Key Issue
By Paul Pringle and Ted Rohrlich
Los Angeles Times [Los Angeles CA]
December 3, 2006
Hit with an initial $40-million bill for its share of 45 clergy sexual abuse settlements announced Friday, the Archdiocese of Los Angeles warned that it will have to make cutbacks. And the 485 remaining molestation lawsuits could cost hundreds of millions more.
The payouts will certainly hurt, but the archdiocese has vast wealth, most of it in land. A Times analysis has found that the archdiocese is the recorded owner of one of the biggest real estate portfolios in Southern California — at least 1,600 properties with an estimated value of about $4 billion.
What the nation's most-populous Catholic jurisdiction might be willing to sell, however, is likely to feed an ongoing debate within the church over who controls parish property — the prelates governing the institution or the parishioners.
Most of the archdiocese's property is devoted to religious purposes, such as churches and schools. But there are also oil wells, farm parcels, commercial parking lots, a fashion district building and the land under an Alhambra car dealership.
If recent settlements are a guide, the archdiocese and its insurers could have to pay $500 million or more to dispense with the rest of the molestation suits. That would be far and away the costliest resolution in the U.S. Catholic Church's marathon run of sex scandals.
The archdiocese says it expects insurers to pay almost all of the remaining settlements, but the liability companies insist that the church should bear most of the burden.
At the same time, Cardinal Roger M. Mahony has staked out a position on internal ownership rules that seeks to restrict the plaintiffs' access to billions in church and school property. He has asserted that churches and schools belong to individual parishes and that the archdiocese doesn't have the authority to liquidate parish property to settle lawsuits.
Mahony's stance appears rife with possible church-state conflicts, pitting canon against civil law. Plaintiffs say he is merely trying to avoid fairly compensating abuse victims.
The finances of the archdiocese are difficult to decipher, in part because it does not include the assets of parishes and other church organizations in its public balance sheets. On its website, the archdiocese reported gross assets in the last fiscal year of just $510 million, all of it in property and funds controlled by the central administration.
Looking at property records
A Times examination of property records and other documents suggests that about $175 million of the archdiocese's real estate portfolio is in properties not classified by the tax assessor as used for religious purposes or cemeteries — and thus more likely to be available for settlements.
In addition, the archdiocese has investment funds of about $660 million, although it says most of that money belongs to affiliated organizations and parishes, according to the church's newspaper, the Tidings.
Mahony said the archdiocese set aside $40 million last year toward Friday's settlements. He has not said how the church would pay for its share of settlements in the remaining lawsuits.
"Our goal is to have no impact to our parishes or ministries that would imperil our ministry," the cardinal said. "There are ways to combine services, maybe to accomplish the goals with fewer personnel, down the road."
But many parishioners fear that the settlements will cut into the archdiocese's network of churches, schools and ministries, which serve 4.3 million people in Los Angeles, Ventura and Santa Barbara counties.
The archdiocese's contention that its insurers are obligated to pay for the rest of the claims has been disputed by liability companies, which contend that California law renders coverage void because church superiors had reason to expect that the abuse would occur. The two sides have also differed on the dollar and time limits of the coverage.
Church and legal experts predict a compromise.
In 2004, the Diocese of Orange split the cost of a $100-million settlement with its insurers. The diocese paid the $50 million with a bank loan and by tapping investments.
The archdiocese's attorney, J. Michael Hennigan, said his client could not begin to pay half of a bill that could exceed $500 million without "great pain."
He said the archdiocese is weighing which nonreligious property it could sell and will explore bank loans. If more cash is needed, Hennigan and others said, a fundraising appeal might be launched.
But few doubt that archdiocesan programs will suffer in the end. Many note that, when confronted with a $4.3-million budget shortfall in 2002, the archdiocese closed ministries for students, the disabled, minorities, and gays and lesbians.
Tom Honore, a Los Angeles parishioner who sits on the national board of Call to Action, which pushes for reforms in the church, said the archdiocese should sell nonessential property to settle the claims. "Before schools, parking lots should go," he said. "I am very concerned. Families and communities are built around parishes."
Hennigan said schools and churches are "not vulnerable" to closure and sale, but he hedged a bit. "You can never say never on anything," he said.
The archdiocese will not declare bankruptcy to protect its assets from the litigants, Hennigan said. Four other dioceses have taken that step because of molestation lawsuits.
Church scholars say Mahony has almost unchecked authority to sell church property. He consults with a variety of advisory councils that he appoints, but he ultimately answers only to Pope Benedict XVI, they say.
"The cardinal can sell whatever he wants," said Charles Zech, an economics professor at Villanova University in Pennsylvania. "Each bishop or each cardinal is the 'pope' of his archdiocese."
But putting churches and schools on the market could be thorny.
In a showdown that could have implications for Los Angeles, Boston parishioners have accused Cardinal Sean Patrick O'Malley of violating canon law when he decided to shut about 80 parishes — in part, church members say, to help offset millions in molestation settlements.
O'Malley has said that dwindling church attendance and a priest shortage, not the abuse suits, prompted the closures. Canon law generally prohibits a bishop or cardinal from seizing parish assets, unless he can establish that factors such as a lack of worshipers left the parish unviable.
Hennigan said Mahony interprets canon law to mean that he cannot sell parish property to pay settlements, a position likely to be challenged in court only if the church seeks bankruptcy protection.
Plaintiffs' attorneys say civil statutes trump canon law. They also note that the archdiocese is incorporated in California as a single entity, parishes included.
Bankruptcy courts have grappled with the church-state clash over ownership. In Portland, Ore., and Spokane, Wash., where dioceses filed for bankruptcy protection because of molestation lawsuits, judges found that parishes belonged to the bishop and could be sold to pay claims.
Since a U.S. District Court reversed the Spokane decision, that case is in mediation.
Still, in nearly all circumstances, bishops who wanted to sell parish holdings had little trouble doing so.
"The bishops say, 'No we don't own the parishes,' when it comes to fending off a bankruptcy, but, 'Yes, we do own them,' when they want to close them down," said Charles Wilson, executive director of the St. Joseph Foundation, a conservative parishioners' rights group that has fought, largely unsuccessfully, 89 parish closures since the 1980s.
The L.A. Archdiocese seems to have some cushion against selling churches and schools.
Its nonreligious properties run the gamut of real estate investments: as varied as undeveloped desert parcels, six dozen single-family homes, the land beneath Goudy Honda in Alhambra and a Mission Hills self-storage business, county assessor records show. One property in the fashion district is home to a number of stores, including the Berry Sexy Too clothing boutique.
Altogether, the records list about 1,500 properties in Los Angeles County and about 100 in Ventura and Santa Barbara counties. The archdiocese also owns land elsewhere in California, and in Minnesota, Illinois and Arizona.
The tally might be incomplete, because the properties are recorded in different names for the church, as well as variations of those names. Hennigan said the archdiocese could have title to 1,800 properties.
"Even our lists are not certain," he said. "This is not a well-oiled Fortune 500 company."
Most of the properties have been in the archdiocese's hands for many years, and county assessments of their value are out of date. The Times broadly estimated their current worth with a formula that applied regional increases in median home prices to archdiocesan properties.
Land records and most experts consulted by the newspaper suggested that, at least since the early 1990s, commercial, industrial and church properties have increased in value at a similar rate to that for single-family homes, although some studies suggest that commercial and industrial prices have risen at a lower rate.
Experts in church sales also cautioned that, even in the area's vibrant used-church market, Catholic churches might sell for less because of their design.
Some more marketable
Some of the lower-profile properties are more marketable than others. Legal, zoning and parishioner hurdles aside, selling churches and schools could involve daunting demolition costs if they were not bought by other religious or educational groups.
"The churches are kind of white elephants," said Allan Kotin, a real estate consultant.
And church scholars say land can be a misleading indicator of the archdiocese's true wealth.
Like other dioceses, the Los Angeles church often faces red ink because revenues for its central operations are relatively low — $107.6 million in the last fiscal year.
The three major sources for that money were cemetery revenues, $39 million; rents, fees and "other" income, $22 million; and its 8% share — about $20 million — of Sunday collection baskets' take, plus other donations.
"There's a lot of mythology about the so-called wealth of the Catholic Church," said Thomas Rausch, a theology professor at Loyola Marymount University in Westchester. "I don't think the archdiocese is especially well-off right now."
But others say it is impossible to know. As a religious organization, the archdiocese is not required to disclose as much detailed financial information as other tax-exempt entities.
Zech, the Villanova professor, said dioceses have revealed even less in recent years, as the abuse lawsuits have piled up. "They are so secretive," he said. "An archdiocese the size of Los Angeles…. They could find $1 billion tucked away somewhere."
Times researcher Maloy Moore contributed to this report.
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