Pope can’t make ends meet with a ‘no firing’ policy

Crux [Denver CO]

February 24, 2021

By John L. Allen Jr.

From the beginning, Pope Francis has been committed to financial reform of the Vatican. It was the first study commission he created, it was the first major appointment he made, and it’s been a constant of his papacy over what’s now almost eight years.

Yet after all this time, Francis faces the same fundamental dilemma he did at the beginning: There’s no way to cut expenses and increase income, thereby reducing the incentives for suspect maneuvers, without trimming payroll, i.e., firing people – a step this pontiff (like all of his predecessors) has proven extraordinarily reluctant to take.

During a recent meeting of the Council for the Economy, a mixed body of cardinals and lay financial experts created by Pope Francis to oversee the Vatican’s money management, the numbers for 2020 and projected numbers for 2021 came up for consideration.

The results were sobering: For 2020, the Vatican ran a deficit of $60 million (the data is reported in Euro, so that’s 49.7 million Euro). The total income for the year was $315 million and expenses came to $375 million, hence the deficit.

In terms of annual income, the Roman Curia – as opposed to the Vatican City State, which draws on earnings from the Vatican Museums, the Vatican Post Office, and so on – relies on three principal revenue streams:

  • Investments and financial activity, which are partly composed of earnings on a lump-sum payment made by Italy in 1922 to compensate the Vatican for the loss of the Papal States. (Annual investment earnings are generally estimated at somewhere between $90 and $100 million.)
  • Earnings from real estate holdings, including rental income from apartments and buildings owned by the Vatican in Rome and other parts of Italy.
  • Contributions from dioceses, Catholic organizations, and individuals.

All three sources of income were down in 2020, primarily due to the impact of the COVID-19 pandemic. Amid the crisis, Francis actually cut the rental charges for Vatican-owned properties, further compounding the income shortfall.

In all honesty, the situation is even worse. This year for the first time, income and expenses from “Peter’s Pence,” an annual collection around the world to support the activities of the pope, were included in the Vatican’s annual financial accounting. In the past, “Peter’s Pence” was considered an entirely separate operation.

In 2020, “Peter’s Pence” brought in $57.5 million and outlays, mostly to support charitable activities, came to $20.7 million. That amounts to a surplus of $36.8 million. In other words, without “Peter’s Pence,” as the Vatican’s financial performance has been calculated in the past, the total deficit would be close to $100 million.

That would mean the Vatican’s debt is more than one-quarter of its total income, which might be considered the Vatican’s economic output. For a frame of reference, consider that Italy is considered to have one of the most worrisome levels of public debt in the Eurozone, but its deficit of $3.12 trillion is only about 7.5 percent of the country’s Gross Domestic Product.

In other words, it’s a really bad situation.

What’s especially remarkable about it all is that the Vatican reported a 14 percent decrease in spending for 2020, which represents the impact of an across-the-board effort to cut costs and achieve economies of scale, in a year in which expenses for major events and travel were obviously significantly reduced because of the pandemic – and which, presumably, will go back up once the pandemic has passed.

The reason that 14 percent reduction in outlays didn’t have a bigger impact on the deficit, according to Vatican officials, is because Pope Francis had held to a rigid “no firing” policy amid the coronavirus crisis, on the basis that people are already suffering and a job loss could be catastrophic.

“Maintaining jobs continues to be a priority for the Holy Father in these difficult times,” a Vatican statement said.

Further adding to the economic woes is the Vatican’s unfunded pension obligation. Under the terms of a 2009 decree by Pope Benedict XVI, the retirement age for lay employees in the Vatican is 65, while it’s 70 for clergy and religious. According to a 2018 estimate, some 1,500 lay employees will hit that age of 65 within the next decade, roughly a third of the Vatican’s current workforce, and will expect to begin drawing pension checks.

The problem is that the Vatican’s pension system is seriously underfunded, and it’s not clear exactly how it will meet those obligations. Its annual deficits in recent years have made it impossible to set aside additional funds for future pension expenditures.

Given all that, there’s really no way around the conclusion that if the Vatican is to remain economically viable, it will have to cut payroll.

It’s not that the Vatican is overstaffed relative to other institutions – its ratio of bureaucrats to citizens compares highly favorably, for instance, with the U.S. federal payroll, a primary reason management guru Peter Drucker once called the Vatican one of the three most efficient institutions in human history.

It’s rather that the Vatican is overstaffed relative to its means, and probably needs to shrink by about a third in order to stay afloat long-term.

The question is whether Francis, a legendary advocate of labor and the working poor, will be the pope to face that reality head-on and to authorize the elimination of non-productive and non-essential personnel.

If not, then his financial legacy could be the ironic one of saving money, as the Vatican did last year, while also going broke. Every pope bequeaths some unfinished business to his successor – we’ll see if balancing the checkbook is one of the tasks this pope leaves behind.

Follow John Allen on Twitter at @JohnLAllenJr.