Joseph Claude Harris

Bishop James Hoffman of Toledo, Ohio, recently cancelled more than $1.38 million in delinquent debts owed by 24 parishes and institutions in his diocese. The parishes had incurred these obligations by not paying assessmentsfor example, for insurance coverage secured on their behalf by the diocese. Cardinal Theodore McCarrick, in a similar gesture when he was archbishop of Newark, N.J., announced plans to forgive $10.1 million in debts to mark the jubilee year 2000. The Newark program includes 220 parishes, schools and agencies in the archdiocese. In 1996 the archdiocese forgave $10.5 million in debts owed by parishes and other agencies.

At the risk of sounding like a Republican, I would argue that there is no such fiscal concept as debt forgiveness. Writing down bad debt requires either the consumption of an existing asset or the assignment of surplus funds to replace the delinquent payments probably carried as accounts receivable on diocesan financial statements. Bishop Hoffman and Archbishop McCarrick had to use diocesan savings to pay the assessment bills on behalf of fiscally strapped parishes and programs. Now that their respective dioceses no longer recognize these unpaid bills as accounts receivable, the savings no longer exist.

The need to write down debt for church programs gives rise to two questions. What causes a parish or a program not to pay their bills? What steps should a bishop take to address the reasons why parishes need such subsidies?

Some years ago for example, in Yakima, a small diocese in the southeastern corner of Washington State, the chancellor harbored an exaggerated confidence in his ability to leverage the assets of the diocese and so accomplish a lifetime of growth in a few short years. He developed a system of counting assets twice when negotiating loans from banks in Chicago. The money the diocese loaned to a parish for the construction of a church counted as one asset; the church itself was also recorded as an additional asset. Such double counting led to a fiscal justification for large loans and a marvelous program of growth. It also led to default on loan payments when cash ran out. The ambitious chancellor lost his job. Since the bankers did not want to take over the churches and have to learn to preach homilies, they negotiated an extended repayment plan. The next bishop spent years selling assets and repaying loans. Because the management guru Peter Drucker has yet to develop an antidote for the effects of evil, stories of fiscal mismanagement like the trouble in the Diocese of Yakima will be with us for the foreseeable future.

A second cause of parishes not paying bills can be more easily quantified. Americans in general and Catholics in particular have been moving to the suburbs for decades. City parishes in Cleveland, Ohio, for example, lost 38 percent of their membership between 1950 and 1990. Parishes in suburban Cuyahoga County grew by 126 percent in the same time period. Because of this disparity in size, collection income varied from approximately $177,000 for a city parish to a suburban average of $599,000. Given such a meager income, parishes could frequently have a problem paying bills. If a choice came between having the heat or lights shut off and skipping the payment of an insurance assessment from the chancery, harried pastors sometimes took advantage of the benevolence of diocesan managers. The net result was a long list of bills that needed to be forgiven because they could never be repaid.

Finally, the changing nature of the church workforce has led some parishes to feel a fiscal pinch. In the first half of the 20th century, pastors, bishops and mothers superior used the one resource they possessed in abundancethe contributed services of young women and mento build a thriving system of parishes and schools. These sisters, brothers and priests staffed schools that once taught half the school-age population of the American church. Their compensation frequently consisted of money drawn from the Sunday collection by the pastor to pay the convent grocery bill and a modest stipend to support the motherhouse. Professed religious and ordained clergy constituted 93 percent of all church employees in 1950. In 1995 lay teachers and ministers comprised 53 percent of the Catholic workforce, and that proportion will likely grow. As a result, the fiscal staple of contributed services has given way to the need to match public school salary scales for teachers and comparable pay for lay ministers.

In this swiftly changing church environment, diocesan managers need to take three steps to develop a system of managing fiscal problems. The first step may seem obvious, but it is often overlooked. Bishops and diocesan pastoral councils must regularly collect financial data and use this information to assess the fiscal health of parishes and programs. These assessments should then lead to plans to either subsidize or reorganize entities that cannot afford to pay normal bills. The alternative to assessing financial difficulties honestly may be the need for a perpetual program of debt forgiveness.

The first step in managing a problem like deficit funding for parishes involves a systematic review of the fiscal health of all parishes. Study of available data indicates that a majority of parishes in the country generate sufficient revenue to pay normal bills. Diocesan managers have two approaches available to cope with the small portion of programs that cannot pay their own way. A chancery can either provide a subsidy for a needy program or direct/lead penniless parishes to consolidate activities with more affluent neighbors.

Between 1990 and 1994 the leadership of the Archdiocese of Chicago undertook a substantial program subsidizing inner-city parishes and schools. The Pastoral Center provided 96 grants worth $13 million to selected parishes. The number of insolvent programs remained constant, with grant allocations averaging $15.1 million per year between 1990 and 1994.

It is probably not practical, however, to maintain such a subsidy program over an extended period of time. Subsidy requires the consumption of assets unless increased diocesan fundraising covers the cost of the subsidy. Catholic leaders in Chicago paid for their grant program by increasing external borrowing and selling assets to generate cash. Debt to banks increased from $6.05 million in 1991 to $13 million for 1994. Gain on the sale of lands totaled $16.9 million for the same period. The prospect that these policies will be effective in the long run is bleak. Banks eventually expect loans to be repaid. At some point, the archdiocese will run out of saleable assets. These inherent difficulties suggest that subsidy/debt-forgiveness works only as a short-term solution to a budgetary crisis.

Parish closings and/or consolidations are an extremely unpopular but sometimes necessary solution to the fiscal woes of parishes. One of the more famous parish consolidation programs began on Jan. 9, 1989, when Cardinal Edmund Szoka of Detroit sent letters to 31 inner-city parishes directing them to cease operations by June 30 of the same year. Flight to the suburbs by ethnic Catholics had resulted in shrinking parish income for the churches they left behind. It was the largest mass closing of parishes in the history of the U.S. Catholic Church. The closure program left 81 parishes operating in the city of Detroit. Our bottom line is we want alive, vibrant parishes that really make a difference in the community, Cardinal Szoka said. To determine whether a parish was viable, diocesan officials decided that it should have a membership of 500 households and a minimum annual income of $100,000, with at least half that amount coming from parish collections. The Detroit closures represented a flawed process that probably produced a reasonable fiscal result.

The term debt forgiveness gives an unfortunately happy glow to what is in reality an inadequate fiscal planning process. The need to write off debts is only a symptom of a problem where parishes or programs may not have sufficient resources to pay ordinary bills. Diocesan managers need to review regularly the fiscal condition of all parishes to determine which programs might truly require financial help. The research should lead to decisions about help based on a realistic assessment of the ability of a parish to eventually pay its own way. Subsidy works as a temporary fix while a pastor and the congregation devise a balanced budget. Without a demonstrated ability to raise sufficient funds to pay for normal programs, diocesan leaders need to think realistically about a reasonable process to reduce the number of parishes to a workable level.

Joseph Claude Harris is the chief financial officer for the Society of St. Vincent de Paul in Seattle, Wash.