Diocese Defaults on Debt

By now, you all know how the archdiocese has reneged on previous commitments to fund the lay pension plan, including $5 million owed by closed parishes to the plan (some of which was redirected to Jack Connors’ pet school project in Brockton instead of where it was promised to go).

But perhaps you did not know that as of January 1, 2011 the Archdiocese and Chancellor Jim McDonough are also technically in default on about $5 million owed to St. Johns Seminary as the first part of repaying about $40 million due for the 2007 sale of seminary property.

BCI first alerted readers to this $4.8M note due last October as part of our “Seminary Squeezola” series.  Here is what we said then:

As most people know, back in 2007 the Archdiocese sold off the huge majority of the land and buildings owned by St. John Seminary to Boston College when the archdiocese needed to raise cash.  We will go into the details of the transaction at another time.  The archdiocese took the cash and according to St. John’s Annual report, the archdiocese owes St. Johns  $4.8 million (plus interest) as of January 2011 from the 2004 sale of seminary land, and another $36 million in 2017.

How the cash-poor archdiocese will pay back those debts from the land they forced the seminary to sell is a story for another time.  So is the question of why Chancellor Jim McDonough is on the board of the seminary, when his main business is consuming money for the archdiocese–which presents a humongous conflict of interest vs advancing the formation of seminarians.

Well, the time has arrived. Much to our surprise, it turns out that the cash-poor archdiocese did not have the cash to pay off the $5M due January 1.  So, sources tell BCI the first thing Chancellor tried to do was just write-off the debt, kind of like he is doing with the pension fund.  Apparently that did not work with the seminary, so now negotiations are underway for repayment of this first obligation to St. Johns Seminary by giving the seminary some other Brighton real estate instead.

Anyone see a pattern with the Chancellor and the current administrative leadership of the archdiocese?  Make a promise–verbally or in writing–that people or organizations rely upon, then reneg and try to get off scott free.  Here is the exact passage from the St. Johns Seminary annual report that details the financial obligation:

Besides defaulting on this payment, we still have the problem of the inherent conflict of interest of the Chancellor serving on the Board of St. Johns Seminary. We know we have BCI readers who are supportive of the seminary remaining in Brighton and some who are not so supportive of that, and opinions on that topic are not relevant for this discussion.  As we wrote in St. Johns Seminary Squeezola: Chancellor Conflict of Interest and Money Grab, the conflicts of interest start at the top.

We give the Cardinal due respect and credit to serve as the chairman of the board of the diocesan seminary, but it should be noted that the seminary is not Corporation Sole.  It predates Corp Sole by 15 years, and was chartered by an act of the Legislature, as was Corp Sole.  They are distinct in every way (seminary is a university technically, Corp Sole is a religion) with the exception of interlocking boards with profound conflicts of interest.  The Cardinal, McDonough and Fr. Erikson have voted according to documents online, in direct conflict with the best interest of the seminary, in order to benefit Corp Sole.  By coincidence, archdiocesan Beirne Lovely attends some of the seminar board meetings, where he states that he is not the seminary’s lawyer.  So one might ask, why is he even there?

Why are these conflicts of interest tolerated?  How do we get these people with inherent conflicts of interest off the board of the seminary?  Are any priests safe and secure enough in their role and relationship with the Cardinal that they are willing to stand up and tell the Cardinal he needs to start making some governance changes? Why do people–even those supportive of the seminary and posting to this blog supportive of the seminary–allow themselves to conclude that the final takeover of St. John’s Hall by BC is a foregone conclusion, when the seminary is prospering?  Should not the first move be to remove people from the Board of Trustees who have clear conflicts of interest with agendas other than the prosperity of the seminary and the formation of priests for the future of the Catholic Church?

The Chancellor  simply cannot uphold a fiduciary responsibility to the seminary to collect $40 million owed by the archdiocese at the same time he writes the checks for the archdiocese and has an interest in writing off the entire debt.  Period.

In a week or two, the archdiocese will announce with great fanfare how they balanced the 2010 budget.  Conveniently missing will be the mention of all of the debts the Chancellor defaulted on in order to create the illusion of a balanced budget. The defaulting on those debts affects low-paid former employees who relied on pensions for their retirement, seminarians, priests and religious who also need their retirement funds after a lifetime of service to God and the Church.

The Chancellor knows how to pay himself, a retired multi-millionaire banker, the general counsel (retired lawyer), and the superintendent of schools (a retired school administrator with a $75K+/year pension) more than $5 million over 5 years in salaries and benefits, he knows how to pay himself and his new #2 guy a total of $500+K/year in salary and benefits for a role usually filled by one person in other dioceses at half that cost or less,  and he knows how to direct $2.5M to Archbishop Jack Connors’ pet schools project in Brockton, but he does not know how to fund pensions for former employees or pay off debts he himself committed to pay.

For the good of rebuilding trust in the archdiocese, if the Chancellor does not voluntarily resign soon, we urge all Catholics to request of their pastors that they ask the Cardinal to replace him.

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9 Responses to Diocese Defaults on Debt

  1. Objective Observer says:

    So I decided to do some research, and learn the facts by looking at the filings by Corporation Sole and the seminary with the Commonwealth (all a matter of public record). My conclusion is that this is a gravely serious matter.

    The cardinal archbishop as the only officer of Corporation Sole of the Archdiocese of Boston is accountable for the breaches of fiduciary duty of his chancellor, as of course is the chancellor. On the canonical side this is worrisome only to the extent that an entity with canonical standing chooses to pursue the remedy (that would include the lay faithful, by the way, as well as the entities of corporation sole — think parishes). Canon law moves at a glacial rate even in matters non-adversarial. So back to civil law.

    On the civil side, the breaches of both the head of Corporation Sole and the archbishop as the sole officer of the corporation makes Cardinal O’Malley especially vulnerable. To persist with McDonough as chancellor and the seminary board as constituted raises three very serious issues for the cardinal:

    This is a continuing breach so long as the blatant conflicts of interest persist. In other words, every day the seminary corporation is controlled by the three votes of O’Malley, McDonough and Erikson, the conflict persists.

    The using of other corporations and their assets to glue together RCAB’s own financials is against the law, and the people who are initiating this action are in gross violation of the law. So the cardinal is (1)personally accountable as Corporation Sole, and (2)as ordinary with total internal control, and (3)as Chairman of the seminary.

    The seminary has breached its own duty if it does not have its own independent lawyer and competent finance officer. If the seminary allows its funds to be controlled by another corporation, it is complicit in the conflict. The seminary is not Corporation Sole, never has been, and has to stop letting people pretend it is. Can the seminary demonstrate any attempt to retain its own counsel or independent auditor? Does it keep its own books? Does it pay its own bills? Does it deposit all its own revenue?

    The seminary’s assets are not legally at the disposal of Corporation Sole, except there is a strange amendment from the abuse crisis era allowing it to “assist” RCAB. That could have justified letting the seminary real estate stand as collateral for the K of C loan, but that little amendment does not have the legs to make the seminary the chancellor’s change purse.

    While the conflicts include having the cardinal, McDonough and the VG as officers of the corporation able to make a majority vote, the President of the seminary is required by any corporate standard to retain independent counsel and independent financial control and accountability. “Related organization” means nothing as an excuse for this failure. So from a civil perspective, he cannot be excused from this duty. He owes this duty to the seminary entity, as does the board. So both the members of the corporation (board voters) and the president of the seminary are on the hook, as I see it, unless the president of the seminary can demonstrate that the seminary has truly independent counsel and unalloyed financial control.

    Donors, pension beneficiaries (whether lay or ordained, collecting yet or not) and the civil officers of the seminary have the right (I would argue the duty) and standing to insist upon compliance with civil law on conflicts of interest and commingling of funds, the honoring of donor intent, and the sustaining of pension cash.

    This is hard to get one’s head around, I realize. But to fail to understand the gravity of the breach of fiduciary duty, primarily by the cardinal, the chancellor and vicar general, but also by the president of the seminary, is to fail to understand why the chancellor, for a start, must go. He must go because it appears that he, along with RCAB counsel, are the source of the actions in conflict, not merely the appearance of conflict. One would be hard pressed to argue that the cardinal, the VG and the president of the seminary understand much about conventions of finance and corporate independence, but McDonough is the public face of these competencies, backed up by the Corp Sole counsel (Mr. Lovely), and are accountable as the advisors to the cardinal in these matters.

    In blunt terms, Beirne Lovely and Jim McDonough cannot have any role, apparent or clandestine, in any matter concerning the seminary, and the cardinal cannot without breach of his fiduciary duty, appoint them to do so. This would go for Saint John’s and Blessed John XXIII, and any other organization that is not Corporation Sole. Beirne knows better — if he’s forgotten his DRs and ECs, I am sure a first-year law student would be happy to give him a refresher.

    The AG cannot be expected to make her mentor (Jack Connors) unhappy by pursuing these matters, though that is her duty. I am afraid that it falls to the lay faithful to press the case (literally), absent the cardinal and the seminary discharging their duty to right this wrong immediately.

    Start with prayer, folks. These men are worthy and needful of our prayers. The tempter is betting we’ll start with confusion and chaos as we so often do, and he’ll have an easy time of taking our eyes off the prize of building up the Church, and of seeking our own salvation.

    All in all, as I said, a gravely serious matter.

  2. "Just Wondering" says:

    Again I’m “Just Wondering”….is BCI wrong or is “objective observer” wrong? Are they only “half wrong”???? I dont care if they are only half wrong. This mess must be resolved, and resolved fast. It’s at a point where I’m “Just Wondering” if my faith is strong enough for more of this! Did I serve all these years for naught??? Please, St. Patrick, will you prayerfully intercede?

    • DHO says:

      Oh, boy! ‘Just Wondering’, I’m with you. I cannot imagine the need for all these ‘big shots’ to make boodles of money on top of their retirements. As a matter of fact, I do believe the Supt. has another retirement package from Harvard, where that person ran the Principal’s Program for many years. What REALLY got me going was the GLOBE article on the Sisters of St. Paul. Good for them for taking this crew on. Really: who sticks it to nuns? I too ask God to help me hang on to my Church; they’ll NEVER take my faith.

  3. Suzanne says:

    They’re going to give the seminary Presentation in Oak Square. Done deal.

    • Carolyn says:

      When I went to a Mass there in 2004, the church had leaks galore, and my close friend who was a lifelong Presentation parishioner said the rectory was much worse than the church. And with the neighbors filing lawsuits at the drop of a hat, I can see why the Archdiocese would want to be done with it, but I cannot for the life of me think why the seminary would want it — the hassle and expense are not worth it, are they?

  4. Quality Guy says:

    sounds like a convenient real estate transfer worth $5 Mill could be just what youneed to ‘cook’ [oops ! ] fix the default pretty quickly. of course what does the Sem need with a leaky church and a decrepit rectory ???

    lot so prayer needed here

  5. Pere Fatique says:

    Seems to me you are asking the wrong person (s) to resign !

  6. [...] $5M owed to St. John’s Seminary in January of 2011, and another $36M owed in 2017 [...]

  7. [...] of $5M debt to St. Johns Seminary. 101 days have passed since the January 1, 2011 due date for repayment of about $5 million owed to St. Johns Seminary as the first part of repaying approximately $40 million due for the 2007 sale of seminary [...]

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