April 19, 2006 - Letter from the Chancellor of the Archdiocese of Boston

To the Catholics of the Archdiocese of Boston:

Last fall Cardinal Seán O'Malley committed to full financial transparency. In his letter of October 21, 2005 to the faithful he promised that we would release the financial statements of the Roman Catholic Archbishop of Boston, a Corporation Sole (Corporation Sole).

This report has been created to fulfill that promise and to provide you, the Catholics of the Archdiocese of Boston, an understanding of the Archdiocese's financial position. Within these pages, we will describe the organizational structure of the Archdiocese from both a civil and Canon Law perspective. We will present audited financial statements and an analysis of the financial statements using “Key Questions” to focus on what has happened and where we stand. The last of those key questions is, “What has been and is being done to deal with the financial challenges we face?”

The Process

Assembling the Team

To determine the scope of this report and to help us prepare it, the Cardinal called upon members of the Archdiocesan Finance Council and communications specialists, who enlisted the help of Jack McCarthy. Jack is a CPA recently retired from PricewaterhouseCoopers, where he led the U.S. Nonprofit Practice, and is now a Principal at Harvard University's Hauser Center for Nonprofit Organizations. He helped us assemble a volunteer team of experts that included academics, accounting professionals, business leaders and pastors. Most of these volunteers had little previous knowledge of the Archdiocese other than the knowledge of their own parishes. With these resources in place, along with our outside auditors, Grant Thornton LLP, we were confident we had a professional team that would produce a document to fulfill the Cardinal's promise.

Auditing of the Financial Statements

The first task addressed was the release of the financial statements of Corporation Sole. Corporation Sole is the separate legal entity created under Massachusetts law. It essentially owns and operates four divisions: Parishes, Central Fund, Insurance Fund and Endowment Fund.

As of June 30, 2005, there were 303 parishes within the Archdiocese. In addition to parishes, Catholics are probably most familiar with the Central Fund aspect of Corporation Sole, which operates many of the Archdiocese's ministries. The assets and liabilities of the Central Fund also include those of parishes that have been closed. The Insurance Fund provides risk management, insurance and loss protection. The Endowment Fund is regulated in all instances by restrictions determined by donors at the time a gift is made. The financial statements of Corporation Sole include the separate divisions, all of which were subjected to audit by Grant Thornton LLP. The auditors have expressed their opinion on the financial statements included in this annual report.

Compiling Reports for Other Catholic Organizations, Entities Directly or Indirectly Connected to the Archdiocese (referred to throughout this report as “Related Organizations”)

The Cardinal wanted all of the faithful to have the opportunity to develop an in-depth understanding of the work of the Church here in Boston. As a result, in addition to the audited Corporation Sole financial statements, we have separately compiled the audited financial statements of the Related Organizations.

Some of the Related Organizations are quite small and do not have audited financial statements. The financial reports, and the additional data that those Related Organizations provided, are the responsibility of the respective Related Organization, and are included in a compendium on our website (www.rcab.org) for your review. We will continue to update the information on the website as more current information becomes available. An overall description of the Archdiocese, including Corporation Sole as well as the Related Organizations categorized by mission, is included within this report. Catholics will recognize names such as Catholic Charities, Caritas Christi and St. John's Seminary.

What this Report Shows

This report is focused on the financial condition and operations of Corporation Sole, combining its four divisions. Much has been speculated about the difficult financial condition of the Corporation, and the audited information presented here confirms that. Consistent with the Cardinal’s commitment, we are providing consolidated financial information on parishes as a part of this report. Taken as a whole, one might conclude that parishes are vibrant. Many are; many are not. As previously reported, many parishes have also been selling assets. The aggregate cash balance of parishes, at first glance, seems high, but what you don’t see from these statements is where that cash is concentrated, how much of it came from property sales or what the capital needs of the parishes are. For example, taken collectively, all parish cash couldn’t meet the deferred maintenance needs of the inner-city parishes.

You will see that the Central Administration of the Archdiocese is not sustainable in its current form. While we do have liquidity, we have little left to sell, and we are faced with substantial obligations. In spite of reductions in force of nineteen percent since the beginning of the abuse crisis, our Central Administration, in an effort to maintain services at pre crisis levels, has operated with deficits in each year. As you will see, those deficits were funded with borrowings, property sales and, in the last two years, with parish reconfiguration assets. The increased debt has only served to raise our debt service costs and put further strain on the budget. You will also see that we have a small endowment for an institution of our size, which provides some but not much support for our operations.

A New Standard

The release of these audited financial statements sets a new standard for Archdiocesan financial disclosure. For the first time, the specific financial details of where we stand and what it takes to operate Corporation Sole have been presented in a comprehensive manner.

The Cardinal wants all Catholics to understand, not only about the Central Administration, but also about their own parishes. For that reason he is mandating in-depth financial disclosure at each parish starting in the fall of this year. At that time you will get a better look at how your own parish is doing.

The report has few positive financial highlights. We are, however, encouraged by the work of many volunteers who are serving on several committees focused on improving the situation in the Archdiocese, with our central operations, our schools and our fundraising endeavors. The Discussion & Analysis of the Financial Statements section of this report closes with a summary of what has been and is being done to deal with the many financial challenges we face.

We hope this report will provide the faithful with a more thorough understanding of the Archdiocese's finances and that it will serve to create the foundation for the way forward.

David W. Smith