Balanced Budget?

UPDATE: This post was last updated 10pm on Tuesday evening, April 19.

With Holy Week upon us, BCI will be on a lighter than normal blogging schedule this week, and after getting a couple of posts out, we will take a break during Triduum.

We take up with the annual report released last week, and specifically on the topic of the “balanced budget” claims by the archdiocese. In short, the archdiocesan claim of a “balanced budget” reminds BCI of President Bill’s Clinton’s famous comment to the grand jury, “It depends on what the meaning of the word ‘is’ is.

The headlines in the Boston Globe read:

The Boston Pilot reported, “For the first time since Cardinal Seán P. O’Malley’s arrival in Boston seven years ago, the Archdiocese of Boston has a balanced budget.”

The only problem is that these statements are not necessarily accurate.

In a balanced budget, revenues equal expenditures. For the Archdiocese of Boston, revenues did NOT equal expenditures in 2010.  So, if revenues did not equal expenses, how can the budget be “balanced”?   It all depends on how you define “balanced,” but we cannot find anyone who defines a “balanced budget” the same way the Boston Archdiocese does. Consider the following points:

1) (Updated) The annual report says on page 21 that $3.5 million was used from cash to fund operational expenses. In other words, expenses were higher than revenue, so to pay the bills, the archdiocese had to break open the proverbial piggy-bank and dig into cash from savings.  Central Operations Cash and Cash Equivalents dropped from $31.3M to $19.4M between 2009-2010. More specifically, here is what the report says:

The $12.0 million decrease of cash from Central Operations was the result of a $4.9 million payment to a related entity for a 2007 land sale, $1.8 million in payments for clergy misconduct claim settlements and $1.8 million in retirement benefit payments to clergy who are on Administrative Leave. The balance of the decrease was from cash flow used to support operations.

If cash decreased from Central Operations by $12M, and they spent $4.9M + $1.8M + $1.8M = $8.5M on the three areas named (land sale, clergy misconduct claims and retirement benefits), then that leaves the balance of $3.5M ($12M-$8.5M = $3.5M) apparently used from cash to support operational expenses.  It seems to BCI that either the budget was not actually “balanced” as they said it was, or they did not take $3.5M from cash to fund operations, as they said they did. Can anyone explain which is it?

2) The annual report says (p.5 and p.21) that $1.4 million was taken from Insurance funds “in support to Central Operations programs.”  In other words, revenue did not actually equal expenses.  The only way for Central Operations to have paid $1.4M worth of 2010 expenses was to take cash from the insurance funds. The taking of that cash was one of the maneuvers that enabled the archdiocese to declare they had a “balanced budget.”

3) Those Insurance funds are gradually being depleted according to the 2010 report and reports from previous years. According to the annual report, the self-insurance program pools property and liability insurance for the Corporation Sole and Catholic organizations that operate within and outside of the Archdiocese of Boston. The program maintains a level of self-insurance and has re-insurance policies for coverage above established risk levels.

BCI readily admits to our critics that we are not experts in insurance.  But, it does not take an insurance expert to know that to be solvent, any insurance policy or program needs to take in more via premiums than is paid out via claims and administrative expenses. For 2010, revenue (premiums) was $5.018M and management and general expenses charged to the plan were $7.5M. That means the plan ran at a $2.48M loss, which comes from the plan’s cash assets. Keep doing that for a while and eventually the plan runs out of money.  See the table below (right column), from p. 16 of the 2010 report:

Why are the general and administrative expenses so much higher than the premiums in 2010?  And why are the general and administrative expenses nearly $3M higher in 2010 than they were just four years ago in 2006?

In 2006 (p.35)  premium revenue was $6.2M and general/administrative expenses were $4.76M, leaving an operating profit in the insurance operation of $2.5M (see right column). 

In 2006, total net assets in the Insurance fund were $15 million. In 2010, the net assets were $2.4 million. What happens when this fund is completely depleted?

To the considerable credit of the archdiocese, they disclose all of this in the reports, at a level far more comprehensive than other dioceses disclose.  But to say with a straight face there was a “balanced budget” in 2010 when revenue did not equal expenses seems like a stretch.

Furthermore, the claims that we are in better fiscal shape today several years ago merit additional consideration.  The clergy fund is taking in roughly what it pays out annually, so at least some red ink has been cleaned-up there, despite still needing more than $90M to re-fund the plan.  The $30M debt to the Knights of Columbus has been repaid, but in its place is a $40M debt to St. John’s Seminary, with the $5M payment due January 1, 2011 now being negotiated as a land/property transfer.   The employee pension fund is under-funded by $70M, and the insurance fund has been largely depleted.

Was the 2010 budget really a “balanced budget”?  Is the fiscal health of the archdiocese better than it was five years ago?  What do you think?

4 Responses to Balanced Budget?

  1. JRBreton says:

    This is what was promised: that the operating budget of the central offices of the Archdiocese would be balanced by 2010.

    The present PR is merely a somewhat belated assertion that the promise has been kept.

    You are right to question the assertion.

    For the assertion to be true each item of the operating budget of 2006 must be matched against each item of the 2010 expenditures. If, for instance, some items in the 2006 budget are not matched against similar items in the 2010 budget, the assertion is hollow. Worse it gives the appearance of deception. It looks like this indeed may be the case.

  2. Mary Reilly says:

    My read is that the archdiocese is once again deceiving us with the claim they had a balanced budget. Their own report says they took about $5 million from other sources to pay the bills. That’s not balanced–that’s running in the red. It’s absurd how they lie and keep a straight face while doing so, and then everyone just believes them.

  3. anna says:

    The deception is chilling.

    It just doesn’t make sense.

    Why would they jockey the numbers for the purposes of saying ‘the budget is balanced’?

    Is this supposed to imply they are responsible and ethical?

    Do they think we’ll forget the budget was ‘balanced’ by screwing employees and a group of nuns out of millions of dollars from their pensions?

  4. Numbers nonsense says:

    Good job Mr. Chancellor. Last ime I lost somewhere between 6 and 8 Milliom dollars my budget was not balanced. One piece of advice though, proof read the release next time. Not good to be balanced in one place and $3.5 million short in another. Just doesn’t look right.
    Who was it that said figures don’t lie??

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