Diocese of Scranton’s financial future uncertain

By Frank Wilkes Lesnefsky
Citizens Voice
May 31, 2020

https://m.citizensvoice.com/news/diocese-of-scranton-s-financial-future-uncertain-1.2633469

Due to coronavirus outbreak the Most Rev. Joseph C. Bambera presides over Holy Thursday Mass in an empty St. Peters Cathedral in Scranton, Pa., on Thursday, March 9, 2020. The service is live streamed onto TV, websites and social media platforms but parishioners are not allowed in for services. Photo by Jake Danna Stevens

The sanctuary of St. Peter’s Cathedral in Scranton on Monday, March 16, 2020. Bishop Joseph Bambera indefinitely suspended the celebration of masses open to the public and public gatherings in diocese-owned buildings on Monday due to the ongoing battle against COVID-19. Photo by Christopher Dolan

In the wake of the 2018 grand jury sex abuse report, the Diocese of Scranton faced a staggering deficit of $27.6 million and the lowest donations in 15 years when it ended its fiscal year on June 30.

Less than a year later, the diocese sold $27 million in property, covering its deficit. Donations began to rebound. The Scranton diocese appeared to be on solid ground — unlike 27 dioceses across the country forced to file for bankruptcy amid sex abuse scandals requiring compensation to victims over the past 16 years.

Then, COVID-19 hit Northeast Pennsylvania.

The coronavirus pandemic forced the Most Rev. Joseph C. Bambera, bishop of the diocese, to close all 118 parishes across the 11-county diocese on March 16, leaving churches with empty pews and shallow collection plates.

While diocesan officials are confident they will weather the pandemic, financial uncertainty looms.

Times-Shamrock newspapers analyzed 15 years of audits and financial statements for the Diocese of Scranton’s administrative offices from 2004 through 2019,. Diocesan fiscal years are July 1 through June 30. The financial documents detail the ups and downs of the diocese’s finances and can help predict its financial security.

Audits do not include individual parishes, which act as separate diocesan entities, and diocesan organizations, such as Catholic Social Services and the Catholic School System, which are maintained separately from the administrative offices.

Dioceses often operate under a hierarchic, centuries-old Canon Law system that long predates modern corporate law, said Marie T. Reilly, J.D., a professor of law and bankruptcy attorney at Penn State University. Bishops will hire and fire priests, sit as members of parish boards and control financial decisions, but parishes and the like do not fall under diocesan assets — a notion courts have always upheld, she said.

Annual appeal may drop

Following the release of the grand jury report, the Diocese of Scranton saw its worst annual appeal in recent history in 2018.

The Diocesan Annual Appeal, the diocese’s major fundraiser and one of its largest sources of funding, dropped by 22% from $4.75 million in 2017-18 to $3.71 million for the 2018-19 fiscal year, leading to decreased funding for programs across the board. It was the lowest appeal since at least 2004 — the earliest financial statement obtained by Times-Shamrock newspapers.

The diocese uses its appeal proceeds for direct aid to schools, religious education grants, communication and evangelization, social services, parish ministries, campaign costs and clergy formation, education and retirement, according to diocesan audits. Because it fell 26% short of its $5 million goal, the diocese was only able to provide 74% of the funding it budgeted for each of the programs.

The launch of the appeal nearly coincided with the Aug. 14, 2018 release of the grand jury report, so the diocese expected a decrease in donations, diocese spokesman Eric Deabill said.

The 2019 appeal, however, already surpassed the previous year, raising $4.1 million, but diocesan officials don’t expect contributions to increase significantly this year amid the pandemic, he said.

During the recession more than a decade ago, the appeal initially remained strong, dropping from $5.66 million in 2006 to $5 million in 2007 when the recession began. The 2008 appeal declined to $4.7 million, and the 2009 appeal raised only $4.3 million before surging to $5.1 million in 2010. It remained above $5 million until 2014, when it was just $9,246 shy at $4.99 million.

If the appeal remains lower than the $5 million goal, allocated funding will again be reduced accordingly, Deabill said.

“Fortunately, there have not been any negative impacts on diocesan services. In preparing the 2019-2020 budget, leadership worked diligently to reduce discretionary spending, and other revenue streams not typically earmarked for operations were redirected to support operations,” he said in an email.

Funds from the appeal are not used for legal expenses or settlements, according to the diocese.

Donations and bequests also fell following the grand jury report, decreasing 79.3% from nearly $2.8 million in 2017-18 to $575,571 last year.

Deabill attributed the decrease to a reduction in bequests and an increase in donations during the 2017-18 fiscal year for renovations at St. Peter’s Cathedral.

Still, donations and bequests last year were only 27.4% of the diocese’s five-year average from 2014 to 2018, and only 43.3% of its 10-year average from 2009 to 2018.

Parishes in Bradford, Lycoming, Sullivan, and Tioga counties were allowed to reopen May 18 in limited capacities after Gov. Tom Wolf lifted restrictions on counties with low rates of COVID-19. Those reopened parishes could lead to an increase in funding, Deabill said. Parishes can reopen Monday for in-person Masses in Luzerne, Monroe, Pike, Susquehanna, Wayne and Wyoming countiesand on June 8 in Lackawanna County.

Jack Ruhl, Ph.D., a longtime accounting professor at Western Michigan University who studies diocesan finances, called it an “open question” as to how parishioners will continue to support their dioceses and parishes across the country.

“I find it hard to believe that many parishioners watch Sunday Mass on their computers and then put their regular contributions into an envelope and mail them in,” he said in an email. “I also find it hard to believe that these parishioners will ‘catch up’ their donations when they are finally able to congregate on Sundays at Mass.”

Revenue dips

Caused in part by the extraordinarily low annual appeal last year, the Diocese of Scranton saw its lowest revenue since the Great Recession.

At $31.6 million in revenue in 2019, the diocese brought in the least amount of funding since 2009’s $27.5 million.

For much of the past decade, diocesan revenue generally ranged from about $33 million to nearly $35 million spread across nearly 20 revenue streams. The diocese’s largest revenue source comes from its self-insurance premiums, where it brought in an average of $12.6 million over the past five years. Fiscal 2019 was above average at $8.8 million for medical premiums and $4 million for general insurance premiums.

The diocese also brings in about $4.4 million each year from diocesan parish assessments, which are payments individual parishes make to the diocese. Now, the diocese is faced with parishes forced to seek business loans and reduce staffing as they face an uncertain future amid the pandemic.

Other revenue sources include scholarship foundation contributions, unemployment, investment income, realized gains on the sale of investments and property sales.

Diocese deficit grows

Compounding the lower-than-average annual revenue, the diocese faced its largest deficit in recent history at the conclusion of fiscal 2019 when expenses nearly doubled to $59.2 million.

It marked the first time the diocese ended a fiscal year with a deficit since June 2010, when it finished the year $739,912 in the red.

Fiscal 2019 vastly overshadowed its previous worst deficit a decade prior; the $27.6 million deficit was nearly nine times larger than 2009’s $3.1 million.

A staggering increase in administrative costs stemming from the grand jury report accounted for the $27.1 million increase in expenses from fiscal 2018 to 2019.

The diocese saved nearly $3.1 million in operating expenses in 2019, with reductions in pastoral care and community and social services, but the cost savings were overshadowed by a $30.4 million increase in administrative costs in the aftermath of the grand jury report, according to diocesan audits.

Over the last 10 years, administrative costs ranged from about $11 million to $15 million.

Last year’s extraordinarily high administrative costs — $45.5 million — largely stemmed from $1.2 million in legal fees and $25 million for the compensation fund.

Launched in January 2019, the fund aimed to compensate survivors of sexual abuse, including those who had not previously reported abuse to the diocese. The window to submit a claim closed Aug. 1.

The diocese has publicly identified 81 individuals, mostly former priests but also members of religious communities and lay people, who were credibly accused of sexually abusing minors. To date, there have been about 140 settlements totaling $18 million in payouts, Deabill said in an email. Should the diocese exhaust the $25 million, it would look to any available insurance reserves, he said.

Surviving economic challenges

Although the diocese ended fiscal 2019 with a $27.6 million deficit, it quickly paid off its debt by selling three long-term care facilities to survive the financial impact of the grand jury report.

The diocese paid for its compensation fund when it sold St. Luke’s Villa, St. Therese Residence and Little Flower Manor to Allied Services last year. The sale of the facilities in Luzerne County netted the diocese $27 million, Deabill said.

In a message accompanying the most recent audit, the bishop said the diocese had discussed selling the properties since 2015, and the precipitating factor was the “current and ever-changing state of the health care industry.”

The facilities were always separate entities from the diocese and net operating income was never used to support diocesan services, so the diocese does not project any loss in revenue from the sale, Deabill said.

The diocese was lucky to have $27 million in properties to sell off, said the Rev. Thomas J. Reese, Ph.D., a Jesuit priest and senior analyst with the Religion News Service. For other dioceses, it could mean bankruptcy.

Whether a diocese sees an resurgence in donations following reports of sex abuse depends on the bishop, Reese said.

If bishops are appointed after the abuse occurred and are not blamed, they can win back the public’s favor.

If the new bishop apologizes and shows the public they are trying to fix the situation, “people will say, ‘We can’t blame you,’ ” Reese said. “ ‘We’re madder than hell at your predecessor … you seem to be taking this seriously and trying to do the right thing.’ ”

Once a bishop loses credibility, it is difficult to get it back, he said.

Ordained as bishop in April 2010, Bambera is the second bishop to lead the diocese since Bishop Emeritus James C. Timlin retired in August 2002. Bambera barred Timlin from representing the diocese in 2018 after the grand jury report showed he mishandled sexual abuse cases. Prior to Bambera, Bishop Joseph F. Martino served from 2003 until he retired in 2009.

A decade prior, the diocese survived plummeting investments brought on by the Great Recession.

In the 2007-08 fiscal year, the value of diocesan investments dropped by $4.8 million, contributing to a $7 million loss in net assets. The following year, the diocese faced $1.5 million in unrealized losses as part of a $15.4 million overall loss in net assets from 2008-09.

The diocese did not panic sell, and it plans to “stay the course” if faced with another recession, Deabill said.

The diocese has held onto its investments since 2008, and the investments have increased in value until recently, he said.

“The diocese typically holds investments and does not react to market downturns by liquidating securities,” Deabill said.

As of June 30, the diocese had $88.1 million in assets, including $55.9 million in investments and $10 million in cash and other liquid funds. It profited $2.5 million from the sale of its investments in fiscal 2019, up $1.2 million from 2018. Annually, the diocese profits anywhere from several hundred thousand dollars to upwards of $2 million when it sells investments.

Since 2004, the diocese only lost money selling investments once — in 2009, during the recession when it reported a $3.8 million realized loss, according to the annual audit. The diocese had to liquidate investments to meet operating losses related to the diocesan schools, according to the 2009 audit.

Should the diocese have to sell off properties or investments in the current economic climate, “it’s going to be a fire sale,” Reese said.

Moving forward

The Diocese of Scranton’s administration, parishes and education system have turned to federal loans to help survive COVID-19.

Facing reduced revenue from the pandemic, the diocese took a hard look at discretionary spending and shifted revenue streams for its current budget, Deabill said.

Since the diocese suspended all public Masses, donations to individual parishes have decreased, but people are still continuing to donate, Deabill said.

“From utilizing online giving opportunities, to mailing in weekly envelopes and even dropping off contributions at parish offices, we are thankful that so many people are still willing and able to support their parish,” he said.

An emergency fund to help individual parishes, ministries and schools also raised $120,000 from 500 donors as of May 4, Deabill said.

Reese noted that not only are dioceses dealing with fewer donations and poorer parishioners because of soaring unemployment, but they are seeing increased demands on their charities by providing shelter for the homeless and food from their pantries to a new wave of people who never needed help.

Faced with the possibility of reduced funding from parishes and reduced tuition revenue, the Diocese of Scranton furloughed 21 administrative employees last month in addition to furloughing 147 part-time employees in the Diocese of Scranton Catholic School System. The school system took out a $700,000 loan to prevent a 10% pay cut for teachers. It is also closing its Monsignor McHugh School in Monroe County at the end of the school year because of an operating deficit and low enrollment.

The diocese successfully applied for assistance from the federal Small Business Administration’s Paycheck Protection Program and will bring back the 21 furloughed administrative diocese office workers for eight weeks, Deabill said.

The Catholic Schools Office also applied for a Paycheck Protection Program loan. If it receives the loan, it will use it to cover the $700,000 needed to maintain teachers’ salaries, he said.

“While no additional furloughs are planned at this time, the diocese will continue to monitor the financial impact of the COVID-19 pandemic on its parishes, administrative offices, schools and social services and respond appropriately,” Deabill said.

If dioceses lack the funding for themselves, that means they also lack the funding to help parishes, Reese said.

“Suddenly you see all these parishes applying for (Small Business Administration) loans,” he said.

More church closings?

Several dozen parishes have applied for the paycheck protection loans, but the total amounts each parish requested were unavailable, Deabill said.

From the onset of the pandemic, the diocese encouraged parishes to scrutinize their financial situation. Since then, some churches have employed temporary staff changes, he said. Other parishes increased their efforts to promote online giving while connecting with their communities through online services, Deabill said.

Parishes also face an uncertain future when it comes to their annual summer picnics and fundraising events. Some parishes canceled their events, some postponed them and others are taking a “wait-and-see” approach while scaling back their plans, Deabill said.

“Discussions are ongoing regarding other potential fundraising opportunities that a parish could explore,” he said. “The true impact is still yet to be determined.”

The diocese could not answer whether COVID-19 could lead to a new wave of consolidations and church closures.

“Certainly, all efforts to mitigate the impacts of the coronavirus will be taken,” Deabill said.

As the diocese prepares its next budget, it is aiming to eliminate unnecessary costs without reducing its services, as well as seeking grants and additional revenue sources, he said.

“As it always does, the diocesan finance office will carefully scrutinize all operational costs when finalizing the 2020-2021 budget,” he said.

Contact the writer: flesnefsky@timesshamrock.com; 570-348-9100 x5181; @flesnefskyTT on Twitter

Nearly 14% of all Catholic dioceses filed for bankruptcy in less than 16 years after sex abuse scandals came to light.

The Diocese of Harrisburg declared bankruptcy in February, after it was unable to fund a new wave of sex abuse litigation following a Pennsylvania Superior Court decision in June.

The Diocese of Erie halted payments from its compensation fund to survivors of sexual abuse in March, after a plummeting stock market caused its lenders to reduce the line of credit the diocese used to pay victims.

So far, the Diocese of Scranton has fared better, completely funding its $25 million Independent Survivors Compensation Program.

Immediately following the Harrisburg diocese’s announcement, the Most Rev. Joseph C. Bambera, bishop of the Diocese of Scranton, issued a statement about its intent to fund all claims with the $27 million sale of three long-term care facilities.

“The Diocese of Scranton is not considering bankruptcy,” he said.

When the Diocese of Harrisburg filed for Chapter 11 bankruptcy in February, it cited the state Superior Court decision of Rice, R. v. Diocese of Altoona-Johnstown, which effectively reopened the statute of limitations for survivors of diocesan sexual abuse. The state Supreme Court is now reviewing that ruling.

The Harrisburg diocese had already paid 96% of claims in its compensation program when it received six new lawsuits, “any one of which could severely cripple the diocese,” diocesan officials said in a Feb. 19 statement.

The Scranton Diocese has ongoing lawsuits with five alleged victims of sex abuse, according to Lackawanna County legal filings, but diocesan officials and outside legal counsel expect the proceedings to be “substantially covered” by insurance, according to the diocese’s most recent audit.

“You’re going to have a whole slew of new cases that are going to come in that you were not liable for before the statute of limitations was waived,” said the Rev. Thomas J. Reese, Ph.D., a Jesuit priest and senior analyst with the Religion News Service. “You never know how many cases are out there that may come forward. This is what makes it difficult for bishops to sleep at night.”

Both Reese and Marie T. Reilly, J.D., a professor of law and bankruptcy attorney at Penn State University, pointed out that declaring bankruptcy can allow a diocese to pay out all victims and not just those who filed lawsuits first.

With 27 dioceses having filed for bankruptcy in close to 16 years, the process has become much more streamlined, she said.

Reilly believes bankruptcy could become more common among dioceses as a means of clearing out “financial underbrush” that goes beyond sex abuse claims.

“I think we might see some Catholic organizations and churches of all stripes using Chapter 11 not to deal with tort liability, but to try to restructure their debts in light of a collapse in contributions from revenue from the faithful,” she said.