Bankrupt Buffalo Diocese cuts spending on schools as its legal bills rise

Buffalo News [Buffalo NY]

March 29, 2021

By Jay Tokasz

The Buffalo Diocese dramatically cut spending after filing for bankruptcy, eliminating most of its funding of Catholic elementary schools while paying lawyers millions of dollars over the past year.

Court records show the diocese spent $3.8 million on lawyer fees and other bankruptcy-related expenses in the first year of bankruptcy – an amount nearly equal to the subsidies it used to provide to 34 Catholic elementary schools.

Most of the schools ended up being able to absorb the loss of the diocese aid in large part because of the Covid-19 pandemic, which led to an enrollment boom and a windfall of taxpayer-funded Paycheck Protection Program loans and grants for parishes and schools.

“It’s the irony of the Covid,” said the Rev. Paul W. Steller, pastor of St. Mary of the Assumption Church in Lancaster. “We actually kind of came out all right this past year. You hate to say that a pandemic has helped you, but in that regard, it has.”

Operational diocese spending between March 1, 2020, and Feb. 28, 2021, was down by 113% when compared with the diocese’s most recently published financial statement, according to a Buffalo News analysis of court records and financial statements.

Spending on regular operations, such as pastoral costs, central support ministry and religious personnel development for the 12 months of bankruptcy was $8.5 million. It was $18.2 million in the diocese’s 2019 fiscal year, which ended Aug. 31, 2019.

Such steep operating cuts were “out of necessity” to get through a bankruptcy, which comes with additional nonoperational costs that the diocese must pay, primarily legal and other professional fees, said Charles Mendolera, executive director of financial administration for the diocese.

“What we’ve obviously had to do is go to what I call an austerity budget,” Mendolera said.

School aid cuts

The biggest reduction was in elementary school support. The diocese used to provide more than $4 million to 34 Catholic schools by taking school assessment fees from parishes without schools and redistributing the money to subsidize the schools.

The diocese continued to charge parishes a school assessment fee from March through the end of August, taking in $1.9 million during that time. However, it provided just $460,138 to schools since the bankruptcy filing on Feb. 28, 2020, and almost all of that was doled out last March.

Mendolera said the diocese made large cuts in its Catholic education and youth ministry funding only after determining that parishes would be able to continue supporting those ministries on their own.

The blow was cushioned for most parishes and schools with emergency governmental aid for employers impacted by the pandemic, such as the Paycheck Protection Program and unemployment tax credit program, Mendolera said.

While the diocese did not qualify because of its bankruptcy status, more than 100 area Catholic parishes and schools were approved for PPP loans that collectively amounted to millions of dollars.

“That certainly has been a lifeline for some of the schools, and we’re certainly doing our best to utilize those resources to help fund school operations,” said Mendolera.

St. Mary of the Assumption Church, for example, received $289,000 last April. The parish was approved in January for another low-interest loan of $257,550, according to a database of Small Business Administration data compiled by ProPublica, a nonprofit investigative newsgathering organization. The loans are forgivable if they were used primarily to keep employees on the payroll during government-imposed shutdowns to prevent the spread of Covid-19.

In addition, enrollment at St. Mary school jumped to 230 this year from 183 in 2019-2020, an increase of 26%. The bump largely was due to Catholic schools doing in-person instruction five days per week, while most public schools were limited to offering in-person classes two days per week and remote learning the other days.

Steller said he and other pastors remain concerned about how the diocese’s elimination of the $4 million in subsidies will impact schools and parishes going forward.

The diocese announced earlier this month that two Buffalo schools were being merged into one, but interim Catholic Schools Superintendent Joan Thomas said at the time that most schools were doing well and the merger was not the beginning of another round of parish school closures in Western New York.

“We certainly are not looking to try and close or have to close schools,” Mendolera said. “We’re going to try and do our best to keep as many of those schools open as we can.”

Facing sex abuse lawsuits

Diocese officials last October said in court papers that they reduced the diocesan workforce to 160 employees from 283 employees and eliminated financial support for 19 programs and ministries, including outreach to youth and migrants, evangelization efforts and lifelong faith formation. In another cost-cutting move, the Western New York Catholic newspaper ended its print edition and moved to online only in September.

Bankruptcy law requires the diocese to submit monthly balance sheets and income statements to the court. In addition to regular operational expenses, the diocese spent $3.8 million in the first year of bankruptcy on nonoperational costs, mostly legal fees, according to the court filings.

Court records don’t yet provide insight into how exactly the diocese will settle what are expected to be several hundred creditors’ claims by survivors of childhood sex abuse by clergy or other employees of the diocese and area Catholic parishes and schools.

The bankruptcy put on hold 260 Child Victims Act lawsuits against the Buffalo Diocese, and diocese officials have long maintained that a bankruptcy reorganization was the fairest way to settle all abuse claims equitably. Sex abuse claimants have until Aug. 14 to submit a proof of claim with the bankruptcy court.

Attorneys for the diocese have said in court proceedings that they anticipate insurance will be a main source of settlement monies.

In the black, for now

One financial bright spot for the diocese: It’s no longer operating at a deficit, as it did in fiscal years 2019 and 2018. In the 12 months of bankruptcy, the diocese was in the black by nearly $2.7 million on its balance sheet.

But Mendolera cautioned that it was hard to get a true read on whether the diocese will end up with a surplus, because it is only halfway through its current fiscal year. He noted, for example, that legal bills submitted to the court for approval are often months behind.

Nine law firms and three professional services firms have billed the diocese for work connected to the bankruptcy. That includes the Jones Day firm, which the diocese recently retained to defend itself against a lawsuit brought in November by New York State Attorney General Letitia James alleging the diocese covered up for priests accused of child sexual abuse.

Jones Day, a multinational firm with partners that charge up to $1,250 per hour, last week submitted its first bill of $253,308 for work done between Dec. 1, 2020, and Feb. 28. That amount is not reflected in $3.8 million in legal fees paid by the diocese in the first year of bankruptcy.

Donations fell 

Donations from worshippers to parishes continued to fall in the bankruptcy months, court records show. But the timing coincided with the Covid-19 pandemic, during which church attendance has been restricted or limited.

The diocese’s main source of revenue comes in the form of assessments, essentially a tax on all parishes’ weekly collections. The diocese’s three assessments combined – a general assessment, as well as one for schools and one for priest retirement and medical benefits – amounted to $9.8 million in the 12 months of bankruptcy, down from $10.2 million in fiscal year 2019 and $13.5 million in fiscal year 2018.

“We experienced maybe a 10% to 15% reduction during the pandemic,” said Mendolera. “I think it’s leveled off.”

Mendolera credited parishes with adjusting to online giving and parishioners for stepping up under very difficult circumstances.

He said he does not expect a second wave of cost-cutting measures.

“I don’t see that happening,” he said. “In fact, I start to see, even for the next budget, which would be 2021-22, maybe a repositioning or trying to filter back in some of the resources that the parishes have now said that they need to support their operations.”