“Balanced Budget” or Unbalanced Budget?

When the Boston Archdiocese recently released the 2011 Annual Report and announced financial results for the year, it seems that few people actually looked closely at the report. So in the next few posts, BCI will analyze and report on a number of concerns. A close look at the annual report reveals several significant issues which Cardinal O’Malley and Vicar General Msgr. Deeley may want to pay closer attention to for the future of the archdiocese.  Today we focus just on the budget balancing act, specifically i) whether the budget was in fact balanced or not, and ii) the mix of spending.  We will share more issues in the next few posts.

Here is the gist of the questions over the “balanced budget.”  As we said in this April 2011 post when the annual report budget balancing games were last played, in a balanced budget, revenues equal expenditures. Simple. But, for the Archdiocese of Boston, the report shows that revenues did NOT equal expenditures in 2011, or in 2010 for that matter.  So, if revenues did not equal expenses, how can the budget be “balanced”?   It all depends on how you define “balanced.” We cannot find anyone who defines a “balanced budget” the same way the Boston Archdiocese does, but if we are missing something, please let us know and we will correct ourselves.

If you look at page 74 in the pdf of the 2011 Annual Report, you will see the following for Central Operations Total Operating Revenue and Expense:

Yet, despite operating results which rather clearly show a loss, the report says on p.7, “During fiscal 2011, the goal of a balanced operating budget was once again achieved. The budget was approved in June 2010 as balanced with gross operating revenue and expense of $33.9 million.”

How can the outgoing Chancellor and new Interim Chancellor report that the budget is “balanced” when the operating results show a $4.2M loss?  We do not know.

Here is an additional level of detail in the results:

BCI and the finance people we have consulted can find no explanation for how this budget is “balanced.”  Can you?

Secondly, note the mix of expenditures. $16.9M was spent on ministry-related Program expenses (which included a special $1.2M expenditure for the Catholics Come Home initiative), while Management and General expenses were $19.1M.  In other words, the costs of managing and administering the bureaucracy at 66 Brooks Drive were greater than the expenditures on the programs that actually accomplish the saving mission of the Catholic Church in Boston.  This skewed prioritization of expenditures and investments also merits serious scrutiny by the Vicar General. In our next post, we will show you the trend year by year from 2005 to the present in these numbers.  What you see will be eye-opening.

That is just one part of the iceberg. We will also need to look separately at the draining of assets of the self-insurance fund to near zero. Along the way, we will also look at the lack of transparency in the report around excessive six-figure salaries and the delayed action by the Compensation Committee that was supposed to be addressing this problem.

Hopefully, the successors to the outgoing Chancellor might have a chance to better wrap their hands around these areas during his remaining few weeks on the job.  Of course, since John Straub, Interim Chancellor, played a key role in helping prepare the reports in collaboration with the outgoing Chancellor and since Mr. Straub is reported to be in line for the permanent Chancellor job within six months, he also will have some explaining to do about the numbers.

The report opens by saying it seeks “to provide, in as complete a manner as possible, the financial position and changes in net assets, maintaining our commitment to financial transparency since fiscal year 2005.”  Despite claims the budget is “balanced,” the financial position in fact, appears to be one in which the budget is not balanced. We hope someone from the archdiocese will clarify this contradiction and apparent deception in the communications.

In view of the commitment to financial transparency and in view of the significant efforts underway to develop and implement a new Pastoral Plan to strengthen our outreach and evangelization for years to come, BCI hopes and prays that the additional transparency and accountability brought by our analysis of the public reports will help the archdiocese better address underlying problems and become stronger and more able to accomplish her saving mission in the future.

What do you think?

8 Responses to “Balanced Budget” or Unbalanced Budget?

  1. I cannot believe nobody at the chancery knows simple business math. I’m not a businessman, but a 5-year-old and I can figure out that r > x = surplus; and r < x = deficit.

  2. Time for a Change says:

    If they really want to be transparent, they could issue the full Central Fund statements and not just the consolidating numbers,this is a pracitice that the outgoing Chancellor discountinued in his first annual report. Absent full Central fund statements, it would be usefule for the Chancellor to release the 2011 budget and the 2011 actuals along with a list of those things that are exc;uded from the budget.

  3. Mack says:

    Thank you, BCI, for your reporting on this. It would be interesting to see exactly what is included in the 19.1 million management and general expenses, and what the figure would have been if exorbitant salaries were not being paid to a few people.

  4. Carolyn says:

    The ratio of fundraising expense to appeal revenue tends to indicate too much payroll/overhead for too little result. $11,490,000.00 (which includes money RCAB is not supposed to deposit but counts toward its total to bulk up the reported amount) should not cost $1,996,000.00 to raise. 20% is too much for an organization whose donors are sitting ducks and are assigned the amount they are expected to give. 20% would be understandable if this fundraising were the result of largely “cold calling,” or if the constituents were disproportionately of low income.

    So is it that they spent too much or should they have raised a whole lot more?

  5. ForensicMan says:

    I agree that there is no way, given the finances in this budget, that one can declare it balanced. It’s more than 10% unbalanced. Even the non-operating numbers don’t achieve a balanced budget.

    Furthermore the numbers presented in the audited financials are different from the budget reports published every year.

    2011 budget report:

    Click to access fiscal2011budget.pdf

    2012 budget report:

    Click to access fiscalyear2012-budget.pdf

    I applaud the archdiocese for continuing to be transparent, but obviously high salaries don’t bring great math skills – just good spin skills apparently.

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