How Your Money is Spent

February 15, 2012

We move back to the topic of finances in the Boston Archdiocese today and for the next few posts.  You will see today how administrative expenses have grown as a percent of the total budget over the last 6 years.

Last week, in “Balanced Budget” or Unbalanced Budget?, we raised the question of how the archdiocese managed to publicly claim that the 2011 budget was “balanced” when the financial statements actually show a $4.2M loss.  BCI emailed Jack McCarthy (Finance Council Co-chair), outgoing Chancellor Jim McDonough, and Interim Chancellor John Straub to ask them about this, and while we wait for their response, we thought we would show you how your money is expected to be spent in the 2012 fiscal year currently in process.

To the credit of the archdiocese, the 2012 budget document is quite comprehensive–probably moreso in a published form than any other diocese issues. You can find it here.

Below is a pie chart taken from the document showing where the $27.8M Central Ministries budget is being spent.

As you can see, in the 2012 fiscal year, 36% of the budget ($9.95M out of $27.8M) is consumed by Administrative Services. By means of comparison, in 2010, Administrative Services expenses were 30% of the total budget (see “Easy Come, Easy Go”  from a year ago).  As a further comparison, if you look at the 2005 operating results in the annual report here, you will see that Management and General expenses (equivalent to Administrative Services, as best as we can tell) in 2005 were $10.1M out of total expenses of $37.9M, or 26% of the total.  Click on the graphic on the right to see the numbers from 2005.  Some line items may not be perfectly matched between the annual report and operating budget, but this is the best comparison possible without having access to more detailed information.

Below you will find the detailed breakdown of expenses for 2012.

(You will notice in the footnote that the $2.5-2.6M spent annually on the Office for Child Advocacy and Victim Assistance has been moved off the main Central Ministries operating budget and is now accounted for under Risk Management and self-insurance for Corporation Sole. We are still trying to fully determine the ramifications of that move).

There is much to be said about the overall budget, including spending priorities, fund-raising costs relative to funds raised, and more.

For today, BCI mainly wishes to focus on the apparent growth in administrative expenses in recent years as a percent of the total budget. While Jim McDonough is still wrapping things up in his final weeks as Chancellor, BCI suggests that perhaps the Priest Budget Advisory Committee and Vicar General Msgr. Deeley might take a closer look at why administrative expenses have grown from 26% of the expenses to 36% of expenses over the past 6 years. Perhaps they may not want such a high percentage of donor funds and total budget going to pay administrative overhead expenses including excessive six-figure salaries.  What would it take to cut $1M to $2M in administrative expenses, so that category of spending would be much more in proportion to past levels? Instead of spending so much on administrative overhead and excessive salaries, they may want to think about how some of those limited funds could be better used to support ministry programs, such as evangelization, adult faith formation, college campus ministry, the deaf apostolate, vocations, and other programs that support priests and parishes and help advance the saving mission and ministry of the Catholic Church in Boston.

What do you think?


Superintendent’s Salary Explained: Part 2

May 10, 2011

We had some WordPress technical issues with display of our most recent post, so before reading today, be sure to check out our previous post, Schools Superintendent Salary Explained: Part 1.

In our last post, we shared the response to an Ethicpoint whistleblower complaint about the $325K/year compensation of Mary Grassa O’Neill.  The person who filed the report got a response back via Ethicspoint saying i) the Cardinal was within his authority to appoint her and pay commensurate with her experience in order to lure her from Harvard to the Archdiocese, and ii) A Compensation Committee was forming and planned to hire a consultant to help them sort through the situation and issue a report with the next fiscal year annual report a year from now.

The comments from readers were so insightful that you really need to read them all.  We will re-post selected ones separately, but for today we bring you Part 2 of the saga–the follow-up report submitted by the person who filed the first one and was “livid” over the indifferent response.

ETHICSPOINT REPORT #2

4/13/2011

Issue Type

Donor Stewardship

Please identify the person(s) engaged in this behavior:

Jim McDonough –  Chancellor
Cardinal O’Malley – Archbishop
George Massaro – Chair, Audit Committee

Do you suspect or know that a supervisor or management is involved?

Yes

If yes, then who?

Cardinal O’Malley
Finance Council, including Audit Commitee

Is management aware of this problem?
Yes

What is the general nature of this matter?
irresponsible  stewardship of the resources of the archdiocese

Where did this incident or violation occur?
the incident started in 2008, but I also wish to report the apparent corruption of the Ethicspoint  process, which occurred with my report filed 3/27/2011

Details

I previously submitted a report complaining about the excessive compensation for Mary Grassa O’Neill. I gave evidence of how her compensation of $325k/year is well in excess of what is paid to other public school superintendents (e.g. $50-75K more than Boston, New York, Los Angeles, Chicago). It is also at least $100K-$150k more than any other Catholic archdiocese pays for a comparable role.

Because Mary Grassa O’Neill is paid so far in excess of what other Catholic archdioceses pay for this role and public school systems pay for someone of her  qualification level, this objectively constitutes a violation of the Code of Conduct which says:

“Church Personnel will be responsible stewards of the resources, human and financial, of the Archdiocese and any Archdiocesan Affiliated Organization with  which they are associated, observing both canon and civil law, and making decisions concerning the disposition of resources that reflect Catholic social teaching.”

Your explanation and justification for her salary suggests very strongly that the Ethicspoint process in the Archdiocese of Boston is already corrupted.

The compensation package offered to Ms. O’Neill is NOT commensurate with her experience if she were employed by a major metropolitan public school system or Catholic archdiocese.

It IS in violation of the Archdiocesan policy concerning responsible stewardship of resources.

For the Compensation Commitee to now spend money engaging a private consulting firm to help assess compensation levels is in violation of the policy regarding responsible stewardship of resources. Why can’t Jim M or Carol G in HR just call 5 other dioceses and ask what they are paying for these roles, and what kinds of background the executives have?

I am most disappointed in your response. It suggests this new Ethicspoint whistleblower process is already rigged and corrupt.

ETHICSPOINT-FACILLITATED RESPONSE FROM THE ARCHDIOCESE

4/20/2011 3:07 PM – Thank you for filling your report. We take all concerns seriously and have completed a review of this issue. Unfortunately we are unable tgo  inform you of the specifics of our investigation; however, please know that your issue has been addressed.

– – – – – – – – – – – – – – – – – – – – – – – – – – –

BCI is almost speechless about what happened.  First the archdiocese responded dismissing the concern, but saying a Compensation Committee was being formed and would hire a consultant who would issue a report. (That means the 2011 annual report that would be issued a year from now).  Then the complaintant was sufficiently upset that they filed a second report reiterating that the excessive salary violates the Archdiocesan policy concerning responsible stewardship of resources and complaining that the anti-corruption whistleblower process was itself corrupt.  That resulted in a response back that said the “issue has been addressed.”

Only problem is that the complaintant tells BCI they still do not know which “issue has been addressed?” Is it Mary Grassa O’Neill’s salary and how her compensation is in conflict with responsible stewardship of resources?  Is it the spending of money on a consultant to solve the problem they should be able to solve themselves as responsible managers and stewards of resources?  Is it the corruption in the anti-corruption whistleblower process?

Beyond the question “Is Archdiocesean Anti-Corruption Effort Corrupted and Conflicted?” BCI raised last week and which this complaintant also raised, the whole approach taken with compensation in the past and going forward seems like it needs an overhaul.  As a starting point, every member of the Compensation Committee should read this common sense comment on our last post from Deacon A.J. Constantino.

If someone on the Archdicoesan Cabinet, the Compensation Committee or the Finance Council wants to do the right thing, could you send smoke signals, drop us an email, or otherwise indicate you get the message?  We are just trying to help here by airing these concerns from faithful Catholics, but it seems like no one gets it at 66 Brooks Drive.

Hello?

Anyone there?

Hello?  Hello?


Questionable Composition of Compensation Committee

May 6, 2011

We wanted to wrap-up this week with more of the myths and misconceptions about BCI, but are preempting that post to share the latest from the archdiocese regarding the new Finance Council Compensation Committee, whose membership was finally posted this week.

A key goal of the committee is to review the six-figure compensation of lay cabinet executives–several of whom are multi-millionaires–and a quick glance at the first two names listed on the Compensation Committee membership list reveals that they themselves are multi-millionaire businessmen.

The first thing that came to mind after learning this was the Homer Simpson catchphrase, “”D’oh!

As most people know by now, the Archdiocese of Boston pays certain lay executives six-figure salaries that are objectively excessive for the Catholic Church to be paying.

We know they are objectively excessive because we contacted several other archdioceses and asked them how Boston lay executive salaries compared to what they were paying. We also looked at salaries for roughly comparable private sector jobs in the case of the superintendent of schools, who is paid $325,000 in the Boston Archdiocese.  With 1/3 of parishes in the red, parishes being “taxed” to pay Central Ministries expenses, the Catholic Appeal down $1.5M from the prior year, and lay and clergy pension plans underfunded by hundreds of millions of dollars, a reasonable person would think the archdiocese would work hard to contain salary expenses.

Not really.

Whether it was due to prodding by BCI or it was going to happen on its own, the Finance Council voted on November 4, 2010 to form a “Compensation Committee” to review lay executive compensation.  We did not think it was such a great idea at the time, as discussed in our December 9 post, Finance Council Top Ethical Concerns: #4: Compensation Committee.   It makes the Finance Council even more into something analogous to a corporate “Board of Directors” (which it is not) and the archdiocese should just conduct sound management and compensation practices as a matter of course, benchmarking against other dioceses as was done in the past.

In looking at the membership of the new committee and what we know of their plans, it appears that a lot of the concerns we  raised back in December in Finance Council Top Ethical Concerns: #4: Compensation Committee have been ignored, and for the sake of the success of this effort, we hope the archdiocese reconsiders and makes adjustments.

Based on an Ethicspoint response that reader, “Mary” forwarded to us suggesting the committee was getting ready to roll, we went to the publicly accessible Finance Council page and noted the membership of the Compensation Committee:

  • Paul W. Sandman, Esquire, Chair; Board of Directors, PDL BioPharma
  • Brian Concannon; President and CEO, Haemonetics Corporation
  • John H. McCarthy, CPA, Vice Chair;  Senior Vice-President for Administration and Finance, Northeastern University
  • Reverend Michael Drea, Pastor, St. Paul Parish, Cambridge
  • Reverend Jim Ronan  Pastor, St. Mary – St. Catherine of Siena Parish, Boston
  • Mary L. Ryan; CEO, Thompson Steel Company
  • Leo Sullivan; Vice President of Human Resources, Boston College

In our December post, we suggested that an effort to review compensation would be best “led by someone whose own annual compensation is closer to the level that people who work full-time for the Catholic Church are paid.”  A simple Google search on the first two names revealed that both are multi-millionaires.

  • Paul Sandman: Forbes reports that in his present role as Chair of the Board of PDL BioPharma, he is paid $166,000. In his prior role as Senior Vice President and General Counsel at Boston Scientific, the 2003 proxy (found here) reports that his 2003 salary and bonus totaled $740,000.  The 2003 proxy reports that he also held 540,060 shares of stock, whose value at the time based on the stock price of $32/share was approximately $17.5 million.  This shareholder lawsuit filed against Boston Scientific which was dismissed said that during the period covered by the class action, Sandman sold over 54% of the equity he held in Boston Scientific securities…generating more than $24 million from these transactions.”
  • Brian Concannon: Forbes reports that in his present role as President and CEO of Haemonetics, his 2010 compensation (salary, bonus, stock) was $3.2 million.

BCI does not begrudge people for their success and for earning a lot of money.  But for an effort intended to determine if lay executives making $150K-$325K/year are overpaid, having multi-millionaires assessing the compensation of other multi-millionaires gives the appearance of the “fox guarding the chicken coop.”   Is it not possible to find people for the committee who themselves are not CEOs who have been paid millions of dollars a year?  Well intentioned as they may be, how can these corporate CEOs and executives, themselves highly compensated, not have a bias towards the corporate strategy of paying whatever it takes to recruit top talent, which is very different from a public charity or Church-oriented strategy of recruiting competent, qualified people who believe strongly in the mission of the Catholic Church and will work for what the Church can afford to pay them? Why not include an HR person from another Northeast diocese such as Fall River, Hartford or New York on the committee?  Why not have one or two Catholic HR people from the private sector on the committee?  Why not include someone like Deacon A.J. Constantino, whose insightful comments here should have made him an obvious candidate for the committee?

In our December post, we also suggested that placing Jack McCarthy on the committee could create what appears to be a conflict of interest:

Jack McCarthy is already head of the Steering Committee and, coincidentally, just so happens to be the next-door neighbor in Hingham to the newly-hired Development Chief, so he has a perceived conflict of interest if her compensation is to be reviewed.  (He was also a member of the “sham search” committee that was never allowed to interview candidates).

BCI has sent a number of emails to Jack McCarthy regarding the deception and ethical corruption in the Boston Archdiocese and he has never responded.

Regarding the other members of the committee, we are not ignoring the names or saying there is anything problematic with their membership.We are not making personal judgments about the people on the committee. We are simply saying the first few names on the list caught our attention, and create a perception that the committee is likely to fail before it has even started.

We close today with an excerpt from A.J. Constantino’s comments on our December post:

Let’s get to basics, each “lay executive employee “should be clearly defined by a Job Description; Objectives, Accountabilities and Measurements.

Human Resources should be developing the Job Description with the hiring manager; while the objectives, accountabilities and measurements should be set by the manager and the employee and placed on file with HR.

The question is does the RCAB have these “Standard Operating Procedures” in place?

Next: there are countless FREE resources available to develop compensation packages =- it’s not a mystery!

I have worked in several large companies, where the Presidents/CEOS have been anxious to use outside consultants, after paying large fees, we most often learned that no one knows our business better than we did and in the end “self-determination” was best.

From the “outside looking in”, it appears that “lay executive employee” salaries are disporportionate to the overall RCAB budget…

For those who may be bit put off my analysis, it’s a business world prospective, NOT a Church world perspective. In my opinion, a $100K-$150K salary for a “lay executive employee “ for the RCAB is just–with, once again, in my opinion, one exception, “in house” Legal Counsel.

BCI recognizes the Archdiocese for taking some steps to address the compensation problem. But we think the Compensation Committee concept, though no doubt well-intentioned, is not the right way to solve this problem. Apparently, they are also now off to hire an expensive outside consultant as BCI and A.J. cautioned against.  As described above and in our December post, there are better, less expensive ways to solve this problem.

What do you think?


Balanced Budget?

April 19, 2011

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?


Archdiocese Releases 2010 Annual Report

April 14, 2011

Today the Archdiocese of Boston released the Annual Report for the 2010 fiscal year, which ended June 30, 2010. You can read the report here.  There is much to report and it will take several posts to cover everything.

First, here are highlights from the archdiocese’s press release:

  • Balanced budget was achieved in Central Ministries;
  • Parish offertory remained flat despite impacts from the global economic crisis;
  • 36% of parishes operated above breakeven, 31% at breakeven and 33% operated at a loss;
  • Improved Financial Relationship Model (IFRM) was successfully launched in 33 parishes, who subsequently saw a 17% average increase in offertory collections;
  • Investment performance and portfolio improved from the previous fiscal year;
  • Catholic schools remained a priority and the Archdiocese completed a financial analysis of each school;
  • Boston Catholic Development Services was launched to provide improved collaboration, coordination and effectiveness in our fundraising efforts;
  • A comprehensive plan to address the long-term challenges of the lay pension plan was developed and enacted, meeting the Cardinal’s commitment to our lay staff;
  • Compensation and Vendor Disclosure, modeled after the Internal Revenue Service Form 990, is now included with the release of the annual report, providing greater visibility into RCAB compensation information;

2011 Catholic Appeal

Ms. Kathleen Driscoll, Secretary for Institutional Advancement for the Archdiocese of Boston, reported that the goal of the 2011 Appeal is $14M which represents an increase of 11% over the final 2010 Catholic Appeal amount of $13.0M. The 2010 Catholic Appeal ($13.0M) represents a decrease of 14% vs. Catholic Appeal 2009 ($15.0M). This 14% decrease in 2010 was due primarily to the slow recovery of the economy, whereas many non-profits experienced anywhere from 11% to 40% decline in donations.

First of all, we commend the archdiocese for releasing this comprehensive information.  It is more extensive than what is released by most, if not all, other dioceses.  It takes a lot of work to pull all of this together, and we agree with the archdiocese that this sort of transparency and accountability helps build trust.  It is also a good thing for people to all know and understand the challenges that lie ahead, and when one closely reviews the reports, those challenges are clear.

For today, we will just start by highlighting a few things that jumped out at us.

  • 2010 Catholic Appeal decrease of $2 million from 2009 to 2010.  We commend the archdiocese for finally releasing the number and acknowledging the 14% decrease.  (Somehow, the Boston Globe must have misread the news in their article, which originally said, “Contributions to the archdiocese’s big annual fund-raiser increased substantially.”  See screen capture to the right for the original version, as it will no doubt be corrected soon).The explanation given by the archdiocese for the drop–the “slow economy” and “declines in donations to many non-profits”–does not entirely hold water. Donations to Boston Catholic parishes held steady.  And donations to churches in the U.S. were actually up in 2010 according to multiple sources.We wonder why they did not cite the data referenced in this article in the NY Post dated April 9, 2011 :

“Defying secular trends and scandal, donations to churches are up, after slumping through the economic downturn. In fact, of the staggering $303 billion given by Americans in 2009 — accounting for 2.1 percent of GDP — about 33 percent was for religion, according to Giving USA. Nationwide, giving was up 43 percent last year compared with 35 percent in 2009, according to the State of the Plate Survey. Indeed, the US Conference of Catholic Bishops’ national collections are projected to total some $58 million for 2010, up from $56.6 million in 2009.New York and surrounding states led the nation — giving to churches rose 51 percent last year. The Archdiocese of New York’s Stewardship Appeal alone grew from some $15.58 million in 2008 to $17.76 million last year.”

  • Balanced budget was achieved in Central Ministries. Well, that all depends on how you define “balanced budget.”  Central ministries revenues = expenses on paper, but that does not account for how the archdiocese will pay back the $42 million in notes due to St. Johns Seminary, re-fund the $92.5 million that the clergy retirement fund needs for accrued clergy post-retirement and pension obligations, or come up with the $74 million that the lay pension plan needs to make up for its under-funded status.  That is more than $200 million in debt.  If paid back on a schedule over 10 years with zero interest, that would be a $20 million annual expense, which would seem to undermine the “balanced budget” claim just a little bit. For those people with home mortgages, can you consider yourself as having a “balanced budget” if you keep living in your home paying your food, clothing, and utilities bills, but fail to make a monthly mortgage payment for several years?
  • The bit about pay reductions of 5-10% for six-figure salaried executives (page 5 of the annual report itself) just does not check-out with the numbers.  It says: “When planning began for fiscal year 2010, we were faced with a cash flow deficit of almost $4 million given our fiscal year 2009 budgeted deficit of $2.3 million, an anticipated Appeal decline of $1.5 million and expected increases in employee benefit costs. To address this deficit, various budget reduction strategies were implemented including:
    • staffing decisions resulting in over 20 positions affected by lay-offs, freezing of open positions, transfer of staff to other diocesan entities, positions not filled after attrition and certain open positions kept unfilled;
    • no cost of living adjustments to staff;
    • pay reductions of between 5% and 10% on staff earning $100,000 or more per year”

In the 2009 report released in June of 2010, they said they had reduced salaries by those percentages in the prior year “until conditions permit restoration to their agreed upon salary.” [we erred in our earlier post].  Even if this reduction was extended through the 2010 year, the numbers still do not align with the words. Mary Grassa O’Neill was at $325,000 total compensation previously, and in this report, she is listed as earning “reportable compensation” of $320,426, plus “other compensation” of $28,946.  A decrease from $325K to $320.4K is only a drop of 1.4%.  Was she getting a whole lot more “other compensation” before that was not reported?  There are many other examples just like this we do not have time for today.

We know there is more that we need to get to.  Stay tuned for more next time.


Pension Consternation

March 8, 2011

Was everyone excited to have endured heard the launch of the Catholic Appeal this past weekend? Did your parish announce their individual goal publicly?  Naturally, each parish has a goal, but the overall goal for Jack Connors’ crack fund-raising team is nowhere to be heard, so nobody knows if they succeeded or failed. That is part of the “accountability” and integrity of the Archdiocese of Boston in fundraising.

Speaking of accountability and integrity, an alert reader commented on our last post that the biggest fundraiser of his tenure Cardinal O’Malley kicks off this week is not actually the Catholic Appeal–rather it is the “attempt to  intimidate thousands of former employees out of their pension money.”  We will have a lot more to say about this topic, but will cover a few points today.

First, BCI wonders how many people are aware that this is not the first time that Cardinal O’Malley and the Archdiocese of Boston have reduced the employee pension plan benefits.  A few years back, they cut out the cost of living allowance (COLA).  So, this is actually the second cut to pension benefits.

Second, with the new round of communication that the Chancellor and his minions are undertaking and all of the memos and PR flying around about the pension plan cuts, the average person would probably assume that the RCAB has done extensive research about how other dioceses are handling their pension obligations. Just like one would reasonably expect for employee compensation, one would also expect they have spoken to other large archdioceses like New York, Chicago, Los Angeles, and presumably ones in the northeast, like Worcester, Hartford, Fall River, Philadelphia, and maybe the likes of Cincinnati or Detroit.   Not necessarily. Sources tell BCI that when someone working for the Boston archdiocese in employee and retirement benefits in recent years took the initiative to speak to some other dioceses to ask about their plans, they were told by one of the powers-that-be (which means Chancellor McDonough or Carol Gustavson) to basically cease and desist.  Maybe work had already been recently done, and they were just saving the duplicate effort. We know in years past, before the current regime, the financial management of this diocese surveyed other dioceses on such matters.  But sources tell BCI that in recent years there had not been any kind of competitive study done for either benefits or compensation programs. Of course, we already knew that no one at 66 Brooks Drive or on the Finance Council cares about making sure compensation in this archdiocese is comparable to other dioceses.  Why should they?  They can pay a retired multi-millionare banker $1.25M over five years and pay a retired lawyer and retired school administrator nearly$1M each over 3 years, while claiming they didn’t have the cash to fund pension plans, and everyone basically lets them get away with the breaches of fiduciary responsibility and trust. 

Tip for the day: Try writing to Carol Gustavson today (cgustavson@rcab.org, benefits@rcab.org) and ask her to email a competitive assessment report performed no later than 2010 of the pension/retirement benefits in other dioceses.  Let us know what you hear back.

Lastly, former employees of the diocese who paid into in this pension plan need to understand that a lump-sum payment is not a good idea except in certain circumstances.  Re-read the Boston Globe article from December 12, “Archdiocese to end lay pension plan

Those workers can choose to receive their benefits in a single lump sum, or to begin receiving annuities while they continue to work. But the early payments would be reduced to reflect the plan’s unfunded liability and, in the case of the annuities, to reflect the younger age at which the employee receives payments.

If, for example, an employee who has earned $30,000 in benefits chooses the lump-sum option and cashes out and the plan has been 80 percent funded, on average, during the previous year, she would receive $24,000.

The more employees take advantage of these opportunities, the faster and cheaper it will be for the church to reduce its risk and eventually end its obligations under the plan. But pension experts say both deals are poor ones for employees, unless they have a terminal illness, because it guarantees that they will receive a smaller amount of money than they have earned.

“It’s really ugly, trying to get people to make bad financial decisions to save the Catholic Church some funding,’’ said Norman P. Stein, an authority on pension law and a professor at the Earle Mack School of Law at Drexel University.

He said corporations, unlike religious organizations, are prevented by law from discounting lump-sum payments to reflect a pension fund’s underfunded status. He said the payouts can be tempting, particularly for the unemployed, but financially unwise. “People sometimes have a hard time looking very far into the future.’’

By the archdicoese coercing you into taking a lump-sum now, they are reducing their obligation to pay the pensions to lower-paid past employees, so when the plan becomes fully funded again in a few years, they can take that full-funding and offer full benefits under the new plan to the likes of Jim McDonough, Beirne Lovely, Kathleen Driscoll, Mary Grassa O’Neill, John Straub, and everyone else making $200K+ a year. A better solution would be to uphold prior commitments made by ensuring the plan is fully-funded for those people who worked for years at low salaries in service to the church and were already vested–and then reduce benefits on a going-forward basis to current employees who are not yet reliant on those pension funds.

It increasingly appears there is no plan for a much-needed changing-of-the-guard in the financial management of the archdiocese, so the wasteful spending of donor money and rule by Archbishops Connors, McDonough, and Kaneb will continue.  More and more, BCI is becoming convinced that it will take an uprising of lay Catholics and priests–and perhaps even the threat of lawsuits–to stop this fast-moving train before more harm is done. Lay-people telling pastors they are not giving to the Catholic Appeal and pastors telling the archdicoese they will not support the Appeal is the first step.

What do you think?


Wasteful Spending: Gov. Patrick and Gov. Cuomo vs Cardinal O’Malley

March 4, 2011

Here at Boston Catholic Insider, we never thought we would find ourselves comparing political figures like Massachusetts Gov. Deval Patrick  or New York Gov. Andrew Cuomo to the Archbishop of Boston, Cardinal Sean O’Malley.  But, the situation we mentioned in our last post–about how Massachusetts Gov. Deval Patrick is moving to lower excessive salaries for a number of government officials while Cardinal O’Malley does nothing about the same problem in the Pastoral Center–made us begin to reconsider.

Then, when “Carolyn” brought up in a comment how New York Gov.  Andrew Cuomo is now proposing to cap school superintendent salaries at $175,000 to save money, we felt it was appropriate to finally go there.

If Gov. Deval Patrick is cutting excessive state salaries to save money, and NY Gov. Andrew Cuomo–in what the New York Times called, “his boldest attack yet on…wasteful spending by school districts” is planning to cap school superintendent salaries in the largest school districts at $175,000/year–one cannot help but make the comparison. The bill could save the state of New York $15 million a year. New Jersey Gov. Chris Christie had previously announced he is aiming for a similar cap.

We hate to use this term, but two governors generally considered “liberal” on fiscal and social issues are taking actions on the matter of fiscal management and spending that make them look rather “conservative” compared to Cardinal O’Malley on fiscal management.  Or expressed differently, these governors are making it an important priority to address the problem of excessive salaries and wasteful spending in the states where they are the leaders.

And objectively, Cardinal O’Malley is not making this a priority.

No public statements.  No actions.  Nothing.  Cutting wasteful spending of limited donor funds is not a priority for the Archbishop of Boston.  Nor is it a priority for the Finance Council and Jack McCarthy, the vice-chair of the Finance Council.  They modified their charter November 4 to create a corporate board-of-directors-type “Compensation Committee,” and four months later, cannot even list names of people on the committee, let alone any progress.

Yet this weekend, the annual, “The Archdiocese needs your money” campaign starts up again.  Here is a quote from Cardinal O’Malley in the 2011 Appeal brochure:

“Everything we are and all that we have belongs to our loving God.  Our support for our church is part of being a faithful disciple of Jesus and good steward of our possessions.  We are all so grateful for all the sacrifices our Catholic people make to support the mission Christ has entrusted to us.”

This essentially says that our supporting our church–“our” apparently means donors in the pews–is part of following Jesus Christ and being a good steward of our possessions–once again, “our” apparently meaning donors. So, the people giving the “widow’s mite” or anyone asked to give by opening their checkbook are supposed to be good stewards of our own possessions, while the archdiocese has no obligation to be good stewards for our donations?

And the archdiocese appreciates the sacrifices the faithful make to support the mission Christ has entrusted to us, but the archdiocese apparently does not care about prudent management of the donor contributions entrusted to the archdiocese.

If they cared about prudent management of donor contributions, why have they paid $1.2M to a multi-millionaire Chancellor for the past 5 years who said when hired he actually “didn’t need a job”?  Why have they paid $1 million over 3 years to the schools superintendent with no precedent for a comparable salary in any other archdiocese in the country, and much lower comparables in other larger major metropolitan public schools?  And while Catholic school enrollment drops every year, why did they need to hire 3 new regional superintendents in December? Do we really need “existing archdiocesan school officials” who are paid $185K/year on up to $325K/year to focus on “other administrative tasks” back at 66 Brooks Drive, or should they be instead be making salaries comparable to their peers in other dioceses–and actually be out there in the trenches working with principals and teachers who make orders of magnitude less money helping them figure out how to teach the Catholic faith on shoestring budgets?

Political and social views notwithstanding, at least on this one matter of wasteful spending on excessive salaries, Gov. Patrick and Gov. Cuomo cannot be accused of shirking their responsibility to govern.

Can the same be said of the Archbishop of Boston on this same issue when it comes to his responsibility to govern?

ps. This Sunday, March 6, Cardinal Sean will be at St. Brigid in Framingham to celebrate the 12 noon Mass and launch the Annual Appeal.


Reducing Salaries

March 1, 2011

Headlines in the Boston Globe Sunday said, “Patrick takes aim at agency salaries: Hefty payrolls at state’s independent bodies attract new scrutiny.”  The governor’s secretary of housing and economic development, said Patrick is reviewing salaries…at the state’s 42 independent agencies and will reduce those he believes are excessive.

Meanwhile, at the Pastoral Center at 66 Brooks Drive, has anyone heard any moves from the leadership of the archdiocese about reducing excessive salaries doled out over the course of the past six years?  Nope.  Nearly 4 months after the Finance Council amended their Charter to create a Compensation Committee, they have not even published the names of the committee members on the Finance Council website.

Beyond that, this weekend the new development “dream team”–you know, the “transparent and accountable” team that missed their most recent two major goals but will not let anyone know the results–will launch the annual Catholic Appeal for 2011.  There will be a video from Cardinal Sean played at every parish recounting yet again how much the archdiocese needs your contributions to support critical ministries, while at the same time no one at 66  Brooks Drive cares to deal with the small matter of dumping more than $1M of your contributions down the drain annually on excessive six-figures. 

Former employees just received letters telling by exactly how much their pension benefits has been slashed because the archdiocese does not have enough money to fund the plan, but no one has the intestinal fortitude to do anything about the excessive salaries, where savings could have made the pension cuts less severe.

In case people have forgotten some of the most egregious examples, we highlight them once again for you, and how just adjusting the salaries of 5 of the six-figure salaried staff saves a cool half million dollars:

Carol Gustavson, Pension/Medical Plan Trust Administrator.  Was making somewhere in the range of $125K to more like about $150K before her job as Executive Director of HR was reduced by about 2/3, and we believe she is still making that. Other archdioceses we surveyed said they were not paying their head of HR nearly what Carol was making when she was responsible for HR.  Now, Jim DiFrancesco is “Director of Human Resources” and Carol is only responsible for the Pension/Medical Trust (minus most of the work of dealing with plans for 10,000 Caritas Christi employees who now mostly Steward’s responsibility).  Oh yeah, Carol is also responsible for the incredibly taxing jobs of coordinating the phone system and Pastoral Center floor plan. A pension/medical plan administrator for an archdiocese like Boston makes around $80-85K.  Annual salary savings: $70,000.

Terry Donilon, Communications Secretary.  Currently makes $166,304.  By means of comparison, sources indicate that the lay communications secretary who preceded Terry–and who was actually good with spelling and grammar–started at about $100K and was making $115K when she left.  But of course, she was not hired for the archdiocesan job by Ann Carter at Rasky Baerlein through Donilon family political connections like Terry was.  Coincidentally, BCI just happened to be looking at what the State of Massachusetts pays for communications staff in a similar role.  According to this “Your Tax Dollars at Work” listing, Gov. Deval Patrick’s former communications director and press secretary, Kyle Sullivan was paid $97,850/year in 2009 to communicate information for the Governor of a state with an estimated population of 6.6 million people and a budget of about $27 billion.  Terry is paid to communicate information for an archdiocese of about 300,000 Church-going Catholics and 2 million total Catholics with a $34M Central Ministries budget.  Regardless of how you do the math, the person in his role should be making no more than $115K.  Annual salary savings: $50,000.

Jim McDonough, Chancellor.  Currently makes $250,000. The former CEO of Abington Bank, he held 244,665 shares or 6.28% of the stock when it was sold to Seacoast for $139.4 million in June of 2004, making his stock at the time worth nearly $9 million.  Needless to say, when he took the job, he said he was “very blessed and didn’t need a job.”  If he didn’t need a job, why has he soaked the cash-poor archdiocese for nearly $1.25M in salary since 2006? If top lay administrators were capped at $150,000 in this archdiocese, the annual salary savings would be $100,000.

Beirne Lovely, General Counsel: Currently makes $300,000This is basically a post-retirement job for the 65-year-old attorney, after he spent 32 years at the national law firm Goodwin Procter LLP, most recently as senior partner. If top lay administrators were capped at $150,000 in this archdiocese, the annual salary savings would be $150,000.

Mary Grassa O’Neill, Secretary for Education.  Currently makes $325,000 from the archdiocese, on top of a state teachers’s pension worth at least $75,000 annually. We have covered her excessive six-figure salary already. No other Catholic archdiocese pays at her level.  Much larger public school systems in Boston, New York, Chicago,  and Los Angeles that serve as much as 10X to 25X the number of students pay their top administrators less. In her last superintendent job running the Milton Public Schools, her annual compensation was $138,000.  With a lay administrator salary cap at $150,000, the annual salary savings would be $175,000.

There is much more to be saved in excessive salaries, as we covered previously in “How to Save $2 Million Annually Without Really Trying: Part 1”  This is just five people or many making excessive compensation relative to other archdioceses. No established goals, metrics for success, or accountabilities.  Salary savings alone for these 5 people/roles would be $550,000.  We have raised concerns in “Is Boston Archdiocese Violating the Law?” and many other posts.  Apparently neither the Cardinal nor the Finance Council, who are canonically charged with ensuring the temporal goods and assets of the archdiocese are well cared for, cares about this.

Since those charged with caring for archdiocesan assets are not caring for them, Catholics need to complain even more to their pastors, and pastors need to complain at vicariate meetings and at the Presbyteral Council and withhold contributions from the archdiocese.  We hate to say this, but Catholics probably also need to make a stink about this to the Holy See and to the government agencies charged with overseeing non-profits.

Much as BCI has to criticize about Massachusetts Gov. Deval Patrick, at least he is making public statements and efforts to cut excessive salaries.  He cut his pay and legislative salaries by 5% in January in view of the state budget situation and ongoing recession. Now he is going after excessive salaries in other agencies.

In the Archdiocese, what are they doing?  Nothing. 

After you hear the video from the Cardinal this weekend asking for money, chat with your pastor and let him know you are not going to give to the appeal, and tell him why.

Have we missed anything?


Fungible Fundraising

February 14, 2011

Last November, when Kathleen Driscoll was announced as the new Secretary for Institutional Advancement and the new Boston Catholic Development Services was formed to centralize fundraising, we were all told this new effort would “ensure donors of independence and accountability.”

If the archdiocesan fundraising efforts are characterized by “accountability,” then why is it that no one is accounting for what they have raised for two major initiatives in a timely manner after the fundraising terms have finished?

As we mentioned in early January in our post “Jack Connors’ Catholic Schools 2010 Initiative: The Verdict is…”, the 2010 Initiative of the Campaign for Catholic Schools was supposed to raise $70 million and finish December 31, 2010.  Here we sit well past that deadline, and has anyone seen or hear a word about how Jack Connors, Kathleen Driscoll, and their “dream team” of fundraisers did against their goal by December 31?   We heard they got a big donation of about $5 million late in the year, which would have put them somewhere in the range of about $63 million.  How can there be accountability, when there is no announcement of the financial result?

Then there is the silence about the result of the 2010 annual Catholic Appeal.  The 2010 Catholic Appeal goal was never announced last year, but sources indicate the target was kept flat from the prior year at around $15.1 million. The appeal closed January 31.  What was actually raised against the goal?  Last year, they announced on February 8 they had surpassed their $15 million goal, raising $15.1 million. It is now February 14, and no announcement yet.  How much you want to bet that they did not match hit $15 million, and are down from previous years?  Sources indicate that they missed the goal they needed to raise this past year by at least $700K, which means even if they get out the gate with a really strong start to next years’ appeal ASAP, there could be more layoffs and budget cuts this spring.  What are the consequences for the Archdiocese, assuming the Catholic Appeal goal was not achieved? What are the consequences for Kathleen Driscoll and the BCDS staff if the goal was not achieved?  How much is the current fund-raising staff of 15 people for BCDS costing that was not on the payroll last year? Will any of them be laid off should cuts be necessary? Are any of those salaried expenses covered by donors (as was supposedly the case with the CCS), or are those now borne by the Archdiocese and BCDS, and thus by parishes and individual donors who give to the Catholic Appeal?

Three months after the announcement that followed the infamous “sham search” to fill the position, why is there no disclosure of the names of the people on the “newly established Board of Trustees” who “will provide oversight”? 

Why exactly is there so much secrecy around fund-raising for the Catholic Appeal and for the goals of BCDS, especially in view of the announcement that said there would be greater accountability? 

Beyond the Catholic Appeal, BCDS also has responsibility for raising money for the Clergy Retirement fund.  In addition to raising $1M/year at an annual dinner, what exactly are the plans to fully fund the hundreds of millions of dollars now needed to assure the future retirement security of hundreds of priests?

What are the plans to fund the lay pension fund? 

And is it true that the archdiocese is still carrying some liabilities for the Caritas Christi pension plan, even after the healthcare system was sold off to Cerberus?

Boston Catholic Insider is really glad that the archdiocese is making “accountability” an important part of this new fundraising effort, because if this is what donors get with “accountability,” imagine what they would get if the archdiocese set out to keep everything confidential.


Archdiocese Taketh and Spendeth

February 2, 2011

In our post from yesterday,  Easy Come, Easy Go, you got a glimpse of the budget for the 2010 fiscal year at a high level, and today we drill deeper into how the Administrative Services function (aka Chancellor’s scope of responsibility) takes and spends money.

Yesterday we shared how the 2010 budget of $34,260,000 was balanced–but only because the Chancellor tapped $1.4 million in insurance funds in order to balance it. That raised the question from one alert reader of whether it is legal and legitimate to take money intended for self-insurance and spend it on an entirely different purpose to balance the budget.  How do the trustees of the self-insurance fund make such decisions?  At what point should they insist the fund be repaid?  That is a whole ‘nother can of worms for another day.

We also shared yesterday how 30% of the budgeted expenditures in 2010 were to be spent on the Administrative Services function, or about $10.2M annually.  Here is how the Chancellor budgeted to spend that $10.2M, and how they said they were generating $6.3 million in “revenue.”

As best as we can understand, Accounting and IT “revenue” comes from service fees to related entities.  In the 26-page 2010 budget document, this is never clearly explained, but the best way we can describe it is by inviting you to think about moving Monopoly money from one player to another player, from one pot to another pot.  It gets a little tough to follow quickly.

  • Chancellors Office: how the Chancellor’s office would generate $127,000 in revenue is a mystery to us. Did the Chancellor and Kevin Kiley run bake sales and car washes to raise money and BCI somehow missed the memos and bulletin advertisements?  Do they charge for expert financial management advice?  We are told that some of these must be service fees, but to whom and for what is unclear.  Past Chancellor, David Smith, used to service-fee out his entire operation with a markup, but pastors objected, so we are not sure exactly where this comes from today.
  • Finance and Accounting, and Information Technology (IT): The $2.2 million in “revenue” for finance/accounting and the $1.9 million in “revenue” for IT is also based on service fees. As best as we can understand, the Finance and Accounting service fees and IT service fees are cost-allocated against what archdiocesan related entities receive in finance/accounting or IT service. So, if the likes of The Pilot, the Catholic Schools Foundation, the Cemeteries Association, Catholic School Office, Pro-Life Office, Office of Professional Standards and Conduct, Catholic Foundation, Office of Cultural Diversity, HR department, etc.  were on the network and used email or some other IT services, they would get billed some pro-rated amount.   The same approach holds for the finance/accounting fees. Any department that receives paychecks or has their budgets or accounting supported by the Finance department–which is essentially everyone–gets charged fees that are deducted from their budget and then show up as “revenue” by the Finance/Accounting group.  If it is an area like Benefits or Risk Management that has some asset pool they are responsible for, those areas typically get hit with more of a fee because they are more capable of paying it.  This has also been a way to move money to and fro without hitting Office of the Chancellor funds.
  • Real Estate: this department charges fees to everyone they help, with somewhere around a 2% fee top of the transactions they work.
  • Risk Management: we believe they charge some service fee to the Mass Self-Insurance Group which insures Catholic properties throughout Massachusetts. 
  • Parishes and Accounting Fees: Parishes have often been hit the hardest with fees, putting the hands of the Chancellor and the archdiocesan spending appetite where they can still find some meat left on the bones.  Many parishes have their own accounting people but some share resources or leverage the archdiocese since they cannot all afford accounting staff.  Central Ministries still charges to check on their books (while at the same time, taking money away), and parishes are also still stuck with a collective annual bill of about $500,000/year for mandatory triennial audits, payable to the only archdiocesan-approved audit firm, Parent, McLaughlin & Nagle.  We suspect that some portion of those audit fees are probably counted as “revenue” here. (Do any readers know who this audit firm was friends with at 66 Brooks Drive in order to land this contract?)

Expenses are a whole ‘nother topic.  You have heard us rail against the six-figure salaries already, and those in the fiefdom of Chancellor McDonough are included here. FYI, included in the IT expenses is about $500,000/year on the ill-conceived Lawson Software project, covering annualized costs of software, hosting, and personnel.  As you may recall from previous posts, the estimated costs of this are about $5.5 million, and the system was a mismatch for the needs of the archdiocese, but the archdiocese is contractually committed to a five-year agreement running through 2012. To pull it out at this point would be costly, and to keep maintaining it will also be costly.

So now you have a glimpse of how the budgeting is done.  Money is moved from one bucket to another, so in the end, it looks like certain organizations consume less overhead than they really do. As for the actual expenses, those are only reported at a high-level when the annual report comes out, usually a year after the end of the fiscal year, but not at a level of detail like is found in this 2010 budget.

Will the Improved Financial Relationship Model and 18-percent tax on parishes improve any of this?  We are not sure, and are frankly doubtful it will change much at this point–except that parishes may feel more obliged to pay up.  That is, unless enough parishioners and pastors balk and say they are holding back.  

Anyway, as long as the archdiocese keeps wasting $1-2 million a year on excessive six-figure salaries and maintenance of the  “Invisible Vigils,”  does it really matter which Corporation Sole pockets the money is taken from?


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