By Tom Tracy
(CNS) U.S. dioceses are crying foul over an investigative report on coronavirus relief funding they say grossly mischaracterized the Catholic Church’s finances and unrestricted cash flows, leaving the crass impression the church used the 2020 CARES Act to hoard cash.
Officials of the Diocese of Charlotte, North Carolina, said their diocese was among several first contacted by The Associated Press last December in advance of an investigative-style report headlined, “Sitting on billions, Catholic dioceses amass taxpayer aid,” and the Charlotte Diocese provided the AP with detailed written responses and financial data related to the Paycheck Protection Program, or PPP.
The CARES Act, passed in March 2020, initially authorized some $350 billion in loans to small businesses through PPP, a program intended to allow them to continue to pay their employees.
In late April, statistics compiled by the Diocesan Fiscal Management Conference showed 8,000 parishes, 1,400 elementary schools, 700 high schools, 104 chanceries, 185 Catholic Charities agencies and 200 other diocesan organizations in 160 dioceses had applied for assistance at that point.
But not all dioceses, parishes and Catholic schools applied for the PPP funding and some later returned the funds once their fiscal status was clarified in spite of the pandemic and economic downturn, according to Patrick Markey, executive director of the conference.
But the recent AP story alleges that “scores of Catholic dioceses across the U.S. received aid through the Paycheck Protection Program while sitting on well over $10 billion in cash, short-term investments or other available funds,” and that “even with that financial safety net, the 112 dioceses that shared their financial statements, along with the churches and schools they oversee, collected at least $1.5 billion in taxpayer-backed aid.
“A majority of these dioceses reported enough money on hand to cover at least six months of operating expenses, even without any new income,” the AP report states, noting at the top of the report that the Charlotte Diocese received some $8 million in Small Business Administration emergency federal funding despite sitting on “$100 million of their own cash and short-term investments available last spring.”
It continued, “When the cash catastrophe church leaders feared didn’t materialize, those assets topped $110 million by summer.”
William Weldon, a certified public accountant, who is chief financial officer and chief administrative officer for the Diocese of Charlotte, told Catholic News Service Feb. 7 the AP story mischaracterizes the financial reality in Charlotte, incorrectly conflating its finances with assets owned and controlled by more than 100 separate Catholic parish and other entities within the diocese.
The report, Weldon said, also grossly overstates available assets, ignores financial liabilities, and erroneously suggests that restricted donations and funds designated for specific purposes could have been diverted to cover payroll, rent and utilities for other entities.
“That would be like shifting money parents pay in fees for school construction to cover salaries at the central office of the diocese, or taking a parish’s hard-earned savings that are set aside for a new parish hall or youth program to pay for another ministry’s rent and utilities,” Weldon said.
“This would be unethical. Our parishioners and donors rightfully expect that we will honor the purpose for which funds are given to our parishes, schools and ministries.”
When the pandemic hit last spring, the PPP was a lifeline for many parishes, and without that assistance, parishes, schools and ministries would have had to consider layoffs, furloughs and pay cuts: the very impacts the PPP was designed to help employers avoid, he added.
The recent AP report and a previous AP report on churches and PPP funding published in July implied the Catholic entities’ success in procuring the emergency pandemic funds may have come at the expense of other community needs, faith groups and charitable agencies.
All applicants were subject to the same criteria, application process and forgiveness process, Charlotte’s Weldon pointed out. Applicants were required to provide supporting documentation to substantiate that they spent the loan funds on qualifying expenditures.
To date, all of those loans have qualified for forgiveness following compliance reviews by the entities’ financial institution and the SBA, he said of the Charlotte Diocese.
“The AP story also erroneously claims the Charlotte Diocese ‘had roughly $100 million of their own cash and short-term investments available last spring,’” Weldon said.
“This is simply not true,” he explained. “In fact, audited financial statements posted on our website for the year ending June 30, 2020, lay out our finances in detail: The report shows that, excluding parishes (which as separate entities have their own finances and report separately to their parishioners), the diocese had financial assets available for general expenditures — after subtracting current liabilities — of about $9 million, which equates to only six weeks of operations.”
Regarding future pandemic assistance loans from the government, it is too early to determine whether Charlotte parishes will qualify and choose to apply for a second round of PPP funding.
“As separate employers, parishes and schools in Charlotte are still evaluating their financial needs in consultation with their finance councils,” Weldon told CNS.
In Kentucky, the Archdiocese of Louisville, singled out in the AP report, noted last year salaries were frozen for all employees of the archdiocese, parishes, and schools until Jan. 1, 2021, and there likely would have been layoffs and furloughs throughout the system without the PPP loans.
According to an archdiocesan statement Feb. 5, Louisville Archbishop Joseph E. Kurtz strongly recommended parishes apply for the funding, and all but two of our parishes applied.
Each parish applied individually and has its own unique financial strengths and weaknesses. Parish loans ranged from relatively small amounts of under $10,000 up to about $850,000. The archdiocesan loan was $1.2 million, and Catholic Charities was $800,000, according to the statement.
“We disagree with the analysis of the audited financials of the archdiocese and note that a June 30 report reflects the situation only a few months into the pandemic,” the Louisville statement said.
It added, “More than half of the assets reflected in the archdiocese’s audited statements include funds for the Catholic Cemeteries reserve fund, parish funds on deposit (which is not archdiocesan money and by canon law, cannot be used by the archdiocese) as well as designated and restricted funds that cannot be used for the general fund or to fund payroll.”
“In short, these parish, restricted, and otherwise encumbered funds are not liquid assets that can be used by the archdiocese for purposes other than for which they are intended,” it said.
The Louisville Archdiocese said it had pointed out to the AP reporters that some four out of five parishes of the archdiocese surveyed reported their collections at 76% to 90% of normal giving, with 25% of parishes reporting more significant decreases in collections.
In addition, parishes with schools had significant extra expenses due to COVID-19 safety measures. Those school expenditures have been reimbursed only partially by CARES Act funds originally targeted for public and nonpublic schools since nonpublic school assistance was subsequently challenged by a lawsuit.
“While some parishes’ collections are beginning to stabilize at this point, many parishes lost additional income due to the inability to hold summer and fall fund-raising events, as well as reductions in program income and school tuition.
“We believe that we will not know all of the long-term negative impacts on parish, school, and archdiocesan finances for some time,” the statement said.
The Louisville Archdiocese said it is not applying again for the CARES Act PPP loans in 2021 because the purpose and requirements of the loan have changed and because its finances ended up better than expected. “However, we know that parish income is down overall, and schools have faced extraordinary expenses,” it said.
In the wake the pandemic assistance program was launched, the Catholic Church was put in the spotlight by several major newspaper stories. First, a Washington Post piece last spring said 13,000 U.S. parishes had received PPP loans, but Markey of the Diocesan Fiscal Management Conference put the number at around 6,000 in the first round and another 3,000 in a second round in 2020.
In July, AP ran a piece asserting the “U.S. Roman Catholic Church lobbied for an unprecedented exemption from federal rules to amass more than $1.4 billion in taxpayer-backed coronavirus aid, with many millions going to dioceses that have paid huge sexual abuse settlements.”
A principal complaint about the newspaper reporting has been that the journalists are presenting a nonsensical conflation of church assets and ignoring the on-going church liabilities including salaries, utility bills, property upkeep, parking lot repairs, new roofing, educational materials and technology, insurances, liturgical and office supplies just to name a few expenses.
In the Diocese of Raleigh, North Carolina, Russell Elmayan, chief financial officer and chief administrative officer, said Feb. 5 in a statement to CNS that “the recent AP article as written does not provide appropriate context, in my opinion,” he said, adding, “Parish offertory remains approximately 10% below the prior year at this time.
“Since offertory is by far the largest part of the revenue stream for any parish, the PPP loans clearly saved jobs and kept people employed, which is what they were designed to do,” Elmayan said.
The PPP was therefore an appropriate and necessary lifeline to preserve the nearly 3,000 jobs in our parishes, missions and schools to continue to provide ministry and services, he added.
Elmayan said it is unclear as to where the AP pulled its data when it referenced $170 million of “funds disclosed.” Actually, the audited financial statements on the diocesan website show $193 million in assets, he noted. But against those assets are $111 million in liabilities, leaving $82 million in net assets.
“Of those $82 million in net assets, $52 million come with a donor restriction as to their use, and $26 million are designated for specific ministry purposes, leaving a bit over $4 million in assets that are undesignated and unrestricted — this amounts to two months of operating expenses, which is below most generally accepted standards regarding the amount of reserves an organization should have to conduct day to day operations,” Elmayan said in his statement.
For the diocese to use those restricted funds for a different purpose would be a violation of a solemn promise made to a donor and it would be both legally and ethically inappropriate, Elmayan said.
In Massachusetts, the chancellor for the Archdiocese of Boston, John Straub, told CNS the archdiocese and AP reporters had several rounds of information sharing.
He said he and other archdiocesan officials went back and forth with AP about the article and their responses to questions in an effort to clarify the justification for getting the PPP funding and demonstrate that separate entities such as the statewide Catholic Schools Foundation are not an unrestricted source of funds for the archdiocese as the article implied.
“It is grossly misleading at best,” Straub said in a Feb. 8 phone call. “There is always more to the story.”
Straub said the archdiocesan financial reports available to AP at the time of its reporting only reflect the early months of the pandemic when the crisis was just emerging and when the PPP funds had been received but not yet spent — giving the erroneous picture those monies were being hoarded and that cash flow increased due to the PPP.
“It ends up being very misleading to the reader,” he said. “The overall assumption the article makes that is the Catholic Church should not have participated in the PPP program, but if folks go back to imagine what things were like at the start of the pandemic the need increased almost immediately after people started losing jobs or were not able to work full time.”
“We encouraged churches to participate in the program to avoid us putting people in the state unemployment lines. And to be fair the states were unprepared for the crush of people lining up for that aid,” Straub said, adding that a Boston-area school closure mentioned in the article had little or nothing to do with the pandemic or PPP.
Moreover, church fiscal health nationwide remains unclear as the pandemic rolls on and as churches struggle to operate weekend services at 25% capacity in structures that, in many cases, cannot accommodate safe social distancing while still reaching 25% capacity.
“Any business or institution will struggle if they continue to operate at 25% of their abilities,” Straub said. “We are in this work to help people but the implication was the church was out for a cash grab rather than do the good work that it does.”