By DAVID HEINZMANN, CHICAGO TRIBUNE, JUL 25, 2019
Chicago Archdiocese pledged $150 million for a scholarship trust. Six years later, it holds less than a third of the money.
As Cardinal Francis George faced a growing financial crisis in 2013, he asked Chicago Catholics for hundreds of millions of dollars for parishes and education, with $150 million set aside for a scholarship trust to save struggling schools.
In its pitch to the faithful, the Archdiocese of Chicago said schools and parishes were “challenged on many fronts — shifting demographics, a struggling economy, rising costs, a secularized society and aging facilities, to name a few.”
Catholics heeded the call ― the “To Teach Who Christ Is” campaign became the largest in the church’s history. Church leadership set a goal of $350 million, and when the pledges were added up, surpassed it by $77 million.
“The main purpose of the capital campaign was to raise money for scholarships to help parishes and schools to make them stable over the long term,” said Betsy Bohlen, the archdiocese’s chief operating officer.
Six years later, however, stability has proved elusive for one of the nation’s largest archdioceses, where dozens of schools have been shuttered and parishes merged since the fundraising drive began.
The financial pressures are myriad: the tab for priest misconduct settlements remains mammoth and the cost of retired priest pensions is rising, even as school enrollments shrink and Sunday collection plates remain flat.
All told, Catholic leaders acknowledged the archdiocese recorded a $92 million loss in 2018 — the biggest since 2012, according to church financial records.
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Meanwhile, the scholarship trust holds less than a third of the money that was advertised, and a short-term tuition scholarship program designed to more quickly inject cash into struggling Catholic schools will run out of money next year.
Much of the uncertainty around funding the education trust, archdiocese officials say, stems from pledges that came in the form of money included in the wills of donors. Such bequests make up half of the $150 million earmarked for the education trust.
“It depends on when a few people die. But they are elderly people,” Bohlen said. “… More than we would have liked came to us in bequests.”
Some of the numbers are stark. Chicago Archdiocese officials estimate that they will have to pay out an additional $156 million to settle priest sexual abuse cases in the coming years, in addition to the approximately $210 million already paid to victims. The long-term financial impact of the scandal also remains difficult to predict because new allegations may arise at any time.
Ed Wehmer, chairman of the archdiocese’s finance council, said despite the drop-off in contemporary claims of abuse, claims of behavior from decades ago come forward “every time you turn around.”
“A lot of good strides are being made, but we’ve just got to get this monkey off our backs from perverts from 30 years ago,” said Wehmer, who also is president and CEO of Wintrust Bank.
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Church officials have been careful to promise they won’t use the collection plate or other parishioner donations to pay off abuse claims. Instead, they have repaid the debts from the legal settlements mostly by selling some of the church’s valuable real estate holdings, including the former Holy Name Cathedral parking lot that’s now the One Chicago Square development.
“There’s no doubt there are some negative dynamics,” Bohlen said. “Absolutely, from an archdiocesan perspective, you do see deficits, and you do see them continuing because of misconduct.
“We do run this well, and as well as we can wherever we can control it, and have very strict standards about break-even, wherever we can control it. There is absolutely a financial cost of misconduct that does threaten the financial health of the archdiocese. Absolutely.”
To examine the archdiocese’s finances, the Tribune reviewed internal financial reports provided by church officials, including reports prepared by the Deloitte consulting firm, as well as multiple years of the education trust’s state tax filings. Additional information came from interviews with church officials. A complete picture of the archdiocese’s finances is difficult to establish, however, because religious institutions are exempt from most public disclosures required of nonprofit organizations.
Experts on Catholic Church finances reviewed the archdiocese financial documents for the Tribune and concluded that the misconduct scandal is not the only financial concern in Chicago. The church has a much bigger problem with costly, aging infrastructure and dwindling revenue, they said. That means closing many more parishes and schools in the coming decades, which would reduce the footprint and influence of a faith that was once nearly synonymous with the identity of Chicago.
Change of plans for the trust
As church officials rolled out the fundraising campaign, the main selling point to donors was that $150 million would be placed into a separate fund called the Catholic Education Scholarship Trust.
It was a long-term approach: The trust was set up as an endowment, a charitable fund where a substantial amount of money is raised and then invested. The income generated by those investments then may be spent, allowing the archdiocese to give out scholarships to Catholic schools for decades to come.
Short-term concerns, however, led church officials early on to focus on plugging holes. Officials said a handful of wealthy donors put $18.8 million of their gifts into a short-term fund called Caritas that would allow the church to give more money away immediately instead of waiting for the endowment cash to accumulate.
Bohlen acknowledged that officials decided to create Caritas without advertising it to the whole archdiocesan community. The short-term scholarship plan was not included in the original “To Teach Who Christ Is” marketing materials.
“It is absolutely easy to look back and say, ‘Why wasn’t it a part?’” she said. The problem, Bohlen said, was that fundraising planners launched the campaign without fully understanding the archdiocese’s needs. “After the campaign started, there was a growing recognition, based on more analytics … that ‘Boy, our schools are in real trouble.’”
The original trust agreement, signed in September 2013, stated that officials would give away 3 to 7 percent of the trust’s assets each year, starting in 2014.
Instead, the church gave out money from Caritas and distributed no scholarships from the trust for more than two years, according to archdiocesan records. Church officials rewrote the trust agreement in 2016 to accommodate the change, trust records show.
While no scholarships were given from the trust in those first years, it was paying hundreds of thousands of dollars in fees for outside investment management, administrative and audit fees, according to documents provided by the archdiocese and filings by the trust.
Between June 2013 and June 2016, the trust paid out a total of $439,000 in administrative fees, most of it back to the archdiocese, according to the tax filings and interviews. The bulk of the fees paid back to the archdiocese partly funded the salaries of staff members who help the trust manage scholarships, Bohlen said. For the 2017 fiscal year, when the trust made its first scholarship grants, it paid an additional $410,000 in administrative fees; the fees were $295,000 for the 2018 fiscal year.
The fee money was spent largely because of the work involved in separating the trust from the archdiocese, Bohlen said.
“Given the amount of time and effort it took, with lawyers, and the accounting firms, and Northern Trust to get it set up … it was important to set it up in a way that preserved it from the financials of the archdiocese,” she said. “There was feedback from donors early on, that given misconduct and others, to preserve the independence as much as possible.”
Although Bohlen said the amount spent on fees was necessary to build safeguards into the trust to keep control of the scholarship money safe from the taint of priest abuse settlements, one of the first major financial decisions church officials made in the campaign was to place $18.8 million in scholarship gifts into archdiocesan coffers instead of the trust. She said she sees no contradiction in this accounting decision because the Caritas money was going to be used up within a few years.
Raising concerns about the accounting transparency, fees and funding of the trust was a founding member of the trust board.
Sister Mary Paul McCaughey, then-superintendent of Catholic schools for the Archdiocese of Chicago, speaks in 2013 at the announcement of the “To Teach Who Christ Is” campaign to raise $350 million.
Sister Mary Paul McCaughey, then-superintendent of Catholic schools for the Archdiocese of Chicago, speaks in 2013 at the announcement of the “To Teach Who Christ Is” campaign to raise $350 million. (Jose M. Osorio / Chicago Tribune)
Sister Mary Paul McCaughey, the former superintendent of Catholic schools who handled relationships with some of the church’s wealthiest donors, was troubled by a delay when she asked church accounting officials to provide her with reports to reassure wealthy donors that their money was being used appropriately. She sent an email in August 2018 to Cardinal Blase Cupich, who succeeded George in late 2014 after the latter was diagnosed with cancer. George died in April 2015.
“If these funds are being drawn on for purposes other than direct student scholarships, it is a redirection of donor intent and a source of scandal,” she wrote in the email, which was obtained by the Tribune.
Bohlen said she believed McCaughey was influenced by a consultant who had raised similar issues “based on misunderstandings.” She said the consultant, who no longer works for the archdiocese, had stirred controversy behind the scenes. Bohlen declined to identify the consultant.
McCaughey disputed Bohlen’s take while also acknowledging she had discussed her concerns with multiple consultants who also had confronted accounting transparency issues within the archdiocese.
“My letter to the cardinal, however, was prompted by my own experience, the inability or unwillingness of the finance office to generate reports that had been repeatedly requested by me for donors, and new public guidelines for the scholarships that I felt did not reflect earlier verbal and written campaign promises to pastors and general donors,” she said.
Between the decision to create the short-term fund and the amount of money that was pledged in bequests, the education trust is nowhere near being fully funded. Church officials said it will be difficult to get there anytime soon.
Nonprofit tax filings recorded with the state show that the education trust currently has about $45 million of the $150 million that was pledged — a shortfall of about $105 million. Of that, $75 million is in the form of bequests from donors who are still living.
That still leaves the trust $25 million or so short of its goal, archdiocese officials acknowledge.
Bohlen said the shortfall is due to other donor pledges not yet collected, and the archdiocese is allocating a portion of the money still trickling in from the fundraising campaign to the trust every year. That revenue stream is tailing off, however — it dropped from $17.9 million in 2017 to $4.2 million in 2018. And the education trust only gets a portion of the new money each year.
All told, the archdiocese has spent nearly $18 million on Catholic school scholarships since 2014, records show. About $15.2 million of that money has come from Caritas, with an additional $2.7 million from the education trust.
As the trust struggles to reach its funding goals, the scholarship program intended to bridge the gap also is running out of money.
Less than $3 million remains of the $18.8 million in Caritas money, officials said. Tim Cawley, a former Chicago Public Schools official who is the archdiocese’s chief operation officer of parishes and schools, said Caritas needs millions of dollars in new donations to get it through the next few years.
Cawley said the archdiocese will run out of Caritas money after the current fiscal year, which ends in June 2020. The archdiocese spent $3.6 million to $3.9 million on scholarships the last three years.
“If we want to hold it flat in ’21, ’22, ’23, the cumulative gap is something like $4 (million) to $5 million,” said Cawley, who then referenced the bequests issue. “And then somebody has to pass away.”
Bohlen said the church likely will turn to the same pool of roughly a half-dozen wealthy donors who provided the initial Caritas money to replenish the fund.
The Catholic Church in the U.S. has existed in a state of ongoing financial crisis. At least 16 dioceses across the country have been driven into bankruptcy by the priest abuse scandal. At the same time, changing churchgoing habits have driven Mass attendance down and whittled away Catholic school enrollment.
In Chicago, the financial pressures have been compounded by the migration of Catholics from city neighborhoods to the suburbs, leaving behind a large number of aging, underused parish buildings and schools.
Since 1990, enrollment in archdiocesan elementary schools has dropped from 115,000 to 51,000. Since January 2014, the archdiocese has closed 44 schools, while opening two new ones, for a net loss of 42 schools, according to church officials. There are now 204 Catholic schools in the archdiocese — 172 elementary schools and 32 high schools.
The dynamics in Chicago mirror what’s going on nationally, and experts believe things will only get worse. Matthew Manion, faculty director of the Center for Church Management at Villanova University, offered a bleak national assessment.
“By 2030, the church may be half as big as it was in 2010,” he said. “We either just went off the cliff or we’re going off the cliff in the next couple years.”
While the church is experiencing a growing priest shortage, the clergymen it does have are aging into retirement, driving up pension and health insurance costs, Bohlen said.
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Nearly a third of archdiocesan priests are over the age of 71, according to an annual report. Bohlen said the priest pension fund is underfunded by $30 million.
Expenses for the insurance and retirement benefits program grew from $96 million in 2017 to more than $146 million in 2018, Bohlen said. Insurance expenses include the costs of misconduct settlements and health insurance.
“If medical costs continue to rise as priests age, we’ll have to worry about that, but there’s no inherent current deficit on that,” Bohlen said. “They will rise, so that’s what we’re planning for.”
All of it, she acknowledged, means asking top donors for more money. So far, there are no plans for another major general fundraising campaign, Bohlen said.
“There are significant donors very committed to the future of the church,” she said. “So as we think about long-term major gift funding, that would be a source of it, for sure.”
The reality, experts say, is that in addition to the large tabs from sex abuse judgments, the church continues to see its assets drained caring for vast holdings of old buildings , including many that it no longer uses but still owns.
“The real issue is on the expenditures. They have a lot of old facilities that need a lot of maintenance, and they haven’t done a good job of keeping them up,” said Charles Zech, a leading expert on church finances who reviewed archdiocese financial statements for the Tribune. “Half the parishes were built before 1950, and the facilities are built where Catholics are no longer living. They have to make some hard decisions.”
“It should be a bloodbath,” Zech, a retired Villanova University professor, said of the Chicago Archdiocese. “There should be a lot of parishes closed.”
Since 2014, the number of Chicago archdiocese parishes has dropped by 40, from 356 to 316, officials said.
The archdiocese has a program, Renew My Church, which is looking at how to manage facilities and consolidate parishes where needed, given how quickly church participation is dwindling.
“There are headwinds we will have to manage very carefully over the next decade. And that is the continued cycle of what will happen with parishes and schools, given the instability there is in Mass attendance trends, and given what could happen with misconduct over time,” Bohlen said.
Catholics still involved in the church will have to brace for change, she acknowledged. More real estate holdings might go on the auction block.
“We will have to sell things that will be difficult and painful to sell, but they are our assets to sell,” Bohlen said. “And we believe there are enough of those assets to pay our liabilities, but there are difficult decisions ahead.”
This story has been updated to correct a reference to the number of schools in the archdiocese.