CRUX on Church Bankruptcy in Santa Fe

CRUX has recently run a couple of articles on the bankruptcy filing of the diocese of Santa Fe. The first, “Santa Fe archdiocese to file for bankruptcy,” was written by the Catholic News Agency (CNA). About a week later, they ran a report by the Associated Press, “Bankruptcy filing provides rare window into church finances.” The comparison is of interest. But both reports fail to ask seemingly obvious questions.

The basic story is familiar. The Church was sued for crimes of child abuse, and lost. Rather than pay the penalties, they filed for bankruptcy. This has become commonplace. But little has been written about the assumptions underlying such filings.

The most notable statement by CNA came in the second sentence: “Archbishop John Wester said that filing for bankruptcy is an equitable way to meet its responsibility to sexual abuse victims.” According to the archbishop, the equitable way to treat abuse victims is to refuse to pay the penalties they have won in court. The Church believes the equitable thing to do is to keep as much of its assets and equity as possible, and give the victims only prayers and condolences. CNA failed to comment on the archbishop’s view of equity.

CNA also failed to provide the most basic data, such as how much money the archdiocese had already been penalized, what its potential liabilities are, and what its assets are. The article featured Church claims that it was fully cooperating with the legal authorities, and contained few facts. CRUX realized this, and to its credit, was open to more substantive reports.

The Associated Press (AP) was far more factual. The lead sentence is more telling than the entire CNA article: “New Mexico’s largest Catholic diocese has spent hundreds of thousands of dollars in recent months on lawyers to fight claims of clergy sex abuse and to prepare for a potentially lengthy battle in U.S. Bankruptcy Court.” It fails to report current and potential legal penalties, but include other financial matters, including data from prior cases. While CNA only talked to Church spokesmen, the AP covered both sides of the story.

While the AP headline declared that the bankruptcy filing provided a window into church finances, they failed to give us the picture. Nothing was mentioned about assets and liabilities of the diocese’s balance sheet, nor anything remotely resembling an income statement. However, the AP did suggest that the diocese was using the same kinds of fraudulent tactics previous dioceses used when filing for bankruptcy”

“About 20 dioceses and other religious orders around the U.S. have filed for bankruptcy protection as a result of clergy sex abuse claims, and victims’ advocates say there are trends. That includes the shifting of assets to other funds or parishes, a tactic that has been used elsewhere, including dioceses in Minnesota, Wisconsin, Tennessee and Southern California.”

Shifting assets like this is fraudulent conveyance. The article states that Santa Fe had transferred over $30 million out of the diocese. After talking about the Church doing this in Pennsylvania, they discuss an even more flagrant case:

“In one of the most publicized cases, lawyers for abuse victims accused Cardinal Timothy M. Dolan of New York of creating a trust fund to hide money from their clients when he was archbishop of Milwaukee. Dolan wrote to the Vatican in 2007 that transferring more than $50 million in assets would provide ‘improved protection of these funds from any legal claim and liability.’”

While Cardinal Dolan didn’t get away with this crime, neither he nor the Church was punished for it.

The AP says more about valuing Church assets, citing an expert: “The Catholic Church is real estate wealthy beyond our wildest dreams. And it’s a bit of a conundrum - how much is the diocese worth? How do you value ecclesiastic property?”

The Church itself puts a value on its property. For example, the Vatican declared that St. Peter’s was valued at one Euro (see Jason Berry’s Render Unto Rome). I suspect American dioceses usually provide more realistic estimates, but still far below market value.

If the diocese defends its estimates, the judge should take them at their word, and transfer those assets to a court-appointed trustee at the stated value. I have little doubt that a competent trustee will be able to derive far more from the properties via sales and leases. While this kind of thing is done all the time, I have never heard of it being done in cases against the Church.

The article also discusses legal arrangements between parishes and dioceses, and the Church’s attempt to play shell games between them. But nothing is said about the Church’s claim that these dioceses and parishes are independent of the Vatican. It is quite obvious that the Pope can issue orders to bishops and priests that are obeyed without question. Witness the recent command prohibiting bishops from voting on zero tolerance for child abuse, or the commands given to every single priest in the Ahiara diocese of Nigeria. A branch office of a multinational company is not considered legally independent of its parent. Why are archdioceses considered independent of the Vatican? Why is the Vatican and Holy See never held accountable?

 

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