2010 Accountability Report

Chief Financial Officer’s Report

This past year has been a busy year in the administration of the archdiocese. Two major initiatives started a year ago have come to fruition—the archdiocese has become the first Catholic diocese in the country to operate public charter schools and the archdiocese has successfully made the transition to incorporate each of our 151 parishes as separate civil legal corporations.

The charter schools initiative will help stabilize the finances of the archdiocese’s effort to educate inner city children and help many families break the cycle of poverty. While this initiative requires a secular approach to operating the schools, the hosting parishes have had significant success attracting school students to their after school faith formation programs.

The incorporation of our parishes, high schools and many agencies will help make our organizational structure more understandable to those more familiar with secular organizations. This initiative helps define relationships, lines of authority, areas of responsibility, and ownership of real and personal property.

This accountability report provides more detailed information about many of the administrative operations of the archdiocese.

Chancery Fiscal Year 2010 Operating Results

The chancery offices and agencies of the Archdiocese of Indianapolis were budgeted to break even for 2009-2010 and actually ended the fiscal year $1.5 million or 4 percent ahead of budget. This represents the sixth consecutive year of break-even operations or better for the archdiocese. However, much of the recent budget success is due in large part ($1 million for FY 2010) to the lower interest rate environment which reduces our interest expense. As interest rates begin to rise, much of that budget benefit will diminish.

Parish and Archdiocesan Stewardship

For the fiscal year ended June 30, 2010, parish stewardship, through Sunday and holy day collections, remained virtually consistent with parish stewardship from the previous year. The steady stewardship results during a time when many families are facing significant hardships is a strong testament to the commitment of our parish families. Despite a small decrease in parish stewardship over the past two years, we do have a recent history of 1-2 percent annual increases in parish Sunday and holy day collections.

The FY 2010 annual parish and archdiocesan community appeal Christ Our Hope: Compassion in Community experienced an increase in recorded pledges. It received pledges of $4.3 million. This compares to pledges of $4.1 million for the FY 2009 annual appeal however, it is still lower than historic high levels by approximately $1 million.

For the FY 2010 and FY 2011 Christ Our Hope: Compassion in Community appeals, the efforts are focused on the three-fold responsibility of the Church as expressed by Pope Benedict XVI: proclaiming the word of God; celebrating the sacraments; and exercising the ministry of charity. The FY 2011 appeal also enabled parishes to direct resources into those ministries closest to their community.

Annual parish stewardship through Sunday and holy day collections and the Christ Our Hope: Compassion in Community appeal will continue to be critical to the success of the many ministries resident in our parishes and deaneries and those supported by the Archdiocese of Indianapolis.

Parish Services: Insurance and Benefit Plans

The archdiocese operates several insurance plans, employee and priest benefit plans, and other services on behalf of parishes, schools, agencies and employees. Two of the most significant plans are the lay employee health insurance plan and the property and liability insurance plan. Both have experienced positive results after significant changes several years ago.

Lay Employee Health Insurance Plan

For the past three-plus years, we’ve been operating a high deductible health insurance plan, complete with Health Savings Accounts (HSA), with very favorable claim results and thus have generated a surplus in this plan. A surplus in a plan of this nature is very important because a small change in enrollment or claim activity can dramatically change the dynamics of the plan and thus reduce an existing surplus or cause volatility in premium levels. Using the accumulated surplus in the plan, we established an endowment fund in September 2007 that is designed to help maintain the affordability of our lay employee benefits. Increasing health care costs continue to challenge parish, school and agency budgets. At the same time, they create financial challenges for individual employees. Our goal is to minimize large increases in healthcare premiums charged to parishes, schools, and agencies and attempt to keep premium increases for our employees well below national averages.

As the initial funding levels we established for this endowment have been met by the accumulated surplus, we identified two ways to pass this plan savings along directly to the employees of the archdiocese and also to the parishes, schools and agencies that they serve. In January 2010, all participating employees received a one-time additional contribution to their Health Savings Account ($500 for single coverage and $1,000 for family coverage). Also in January 2010, all parishes, schools, and agencies received a “premium holiday” and did not pay any premiums for employee health insurance that month. This had the effect of reducing parish annual health insurance costs by about 8 percent for 2010. Going forward, the accumulated surplus will allow us to minimize premium levels charged for lay health insurance while re-directing dollars to other employee benefit needs.

Property and Liability Insurance Plan

The property insurance plan also experienced positive results for the 2009-2010 fiscal year. The recent results have funded a property insurance reserve fund in the Catholic Community Foundation that is now approximately $5.4 million. This reserve fund helps to protect parishes, schools and agencies against catastrophic losses and will help to mitigate annual insurance cost increases. The reserve fund has allowed us to maintain our self-insurance level at $1 million for the 2010-2011 fiscal year which translates into maintaining lower premiums paid by our parishes, schools, and agencies for property and liability insurance.

Parish Services: Priest and Lay Employee Retirement Plans

The archdiocese administers defined benefit plans for the priests and eligible lay employees employed at the various parishes, schools, and agencies throughout the archdiocese. The funding of these plans continues to be a significant challenge for the archdiocese and the individual parishes. This challenge was amplified by the poor investment results that the plans experienced in late 2008 and throughout 2009. Fiscal year 2010 results indicate that the priest retirement plan is underfunded by $10.4 million, which represents a funding level of only 40 percent. The lay retirement plan is underfunded by $20.5 million, which represents a funding level of 66 percent. The future funding of these plans remains a top priority of the archdiocese as we look to invest new dollars and continue to recover investment losses in the plans. Under general accounting principles these pension plans are considered to be multiemployer plans since the financial activity of parishes and other entities of the archdiocese, which contribute to these plans, is not included in the audited combined financial statements. There are no separate valuations of plan benefits nor segregation of plan assets specifically for the Chancery.

Expenses Related to Sexual Misconduct Lawsuits

In fiscal year 2010, approximately $78,000 was spent to provide counseling for victims of sexual misconduct perpetrated or alleged to have been perpetrated by priests or lay employees of the archdiocese. Approximately $87,000 was spent for these purposes in fiscal year 2009. Further, $199,000 that was paid to settle one lawsuit through mediation whereby the award covered future counseling costs for the alleged victim. Additionally, approximately $178,000 was spent for legal fees to defend the archdiocese from sexual misconduct lawsuits in 2010. In 2009, $147,000 was spent in legal defense costs.

Archdiocesan Grants Awarded

Thanks to the generosity of the parishes in the archdiocese, we have two endowments in the Catholic Community Foundation that have been established such that the annual distributions are used to award grants in the archdiocese to parishes, schools and agencies. These two grant opportunities are awarded based on an application process and target both home missions opportunities and growth and expansion initiatives in the archdiocese.

St. Francis Xavier Home Missions Fund

The St. Francis Xavier Home Mission Endowment Fund was established to provide grants to needy parishes in the archdiocese. With the assistance of an allocation committee who made grant recommendations to Archbishop Buechlein, in FY 2010 we were able to award nine grants to parishes in five of our deaneries totaling $220,000. While we’ve improved our funding to support needy parishes, parish needs still far outweigh available resources. Grant requests exceeded $570,000 thus only approximately 38 percent of the grant dollars requested was able to be awarded.

Growth and Expansion Endowment Fund

The growth and expansion endowment fund was established to provide grants to parishes, schools and agencies in the archdiocese that are growing their existing ministries consistent with the overall strategic plan of the archdiocese. In December 2010 and just the third year of this grant making process, we were able to award grants totaling $169,000 to 10 different archdiocesan entities. In December 2009, we awarded grants to six entities totaling $150,000.

Catholic Community Foundation, Inc.

The Catholic Community Foundation’s total cash and investments were $144.2 million at June 30, 2010, an increase of 15.7 percent from the previous fiscal year. The increase in asset values were driven by the overall investment returns which were a positive 16.2 percent for the 2010 fiscal year. The Foundation investments have returned a very respectable 6.8 percent (annualized) since the inception of the current investment structure in January 1995 despite facing one of the worst 10-year periods in history of the U.S. equity markets. Parishes, schools and agencies of the archdiocese added 13 new endowments during the year, bringing the total number of endowments held in the foundation to 381. The endowments distributed almost $6.4 million this past year, compared to $6.5 million the previous year, to support parish, school and agency ministries, demonstrating the ability of endowments to provide long-term funding for ministries.

Operating Budget for 2010-2011

For the 2010-2011 fiscal year we anticipate a break-even operating budget on approximately $36 million of total operating expenses. We anticipate the most significant challenges to include:

• Re-establishing and increasing the historical stewardship levels for the Christ Our Hope: Compassion in Community annual appeal
• Health care and employee benefit and retirement costs that are increasing much faster than Sunday collections
• Construction and facilities costs that continue to increase
• School operating costs that are increasing faster than our ability to increase tuition
• Growing parish stewardship to meet operating needs and eliminating parish operating deficits

On the other hand, we have several positive opportunities:

• The re-definition and re-focus of the annual appeal – Christ Our Hope: Compassion in Community which will bring the focus of the annual parish and archdiocesan appeal into the local communities of the Church
• The operation of two of the Mother Theodore Catholic Academies as public charter schools to address the financial operations of Indianapolis center-city Catholic schools and continue the important ministry of providing quality education to those living in the center-city neighborhoods of Indianapolis
• A history of strong investment returns and restoration of the growth in our endowments which help to mitigate rising operating costs
• The maturation of an alternative health care plan to better control escalating costs and a funded employee benefits reserve endowment to protect against future large premium increases

By capitalizing on these opportunities, we should be able to face the challenges ahead of us and continue the stable operating trends that we’ve experienced over the past several years.

Accountability

Accountability is an important part of our stewardship responsibilities. Each year, the archdiocese subjects itself to the scrutiny of an independent audit. The firm of Deloitte & Touche LLP performed the audit for the last fiscal year. The audited financial statements are available for inspection through the Office of Accounting Services or at www.archindy.org/finance/archdiocese.

Archbishop Buechlein has established and regularly confers with the Archdiocesan Finance Council. The council, whose existence is required by canon law, focuses on financial policies, procedures and activities of the Church in central and southern Indiana. Current members of the Archdiocesan Finance Council are:

• Most Rev. Daniel M. Buechlein, O.S.B. Archbishop, Chairman
• Kenneth J. Hedlund President; St. Matthew, Indianapolis
• Daniel L. DeBard Vice President; St. Patrick, Terre Haute
• Timothy Robinson Secretary; St. Joan of Arc, Indianapolis
• Members
  • Clark Byrum St. Luke, Indianapolis
  • Mary Horn St. Charles Borromeo, Bloomington
  • Philip B. McKiernan Immaculate Heart of Mary, Indianapolis
  • Greg Monte St. Patrick, Terre Haute
  • Scott Nickerson St. Pius X, Indianapolis
  • Jerry Williams St. Simon, Indianapolis
  • Jeffrey D. Stumpf Chief Financial Officer, Staff

This past fiscal year marked continuing financial advancement for the parishes, schools and agencies of the Archdiocese of Indianapolis as we worked to build a sound financial footing. Expenses generally fell in line with or below budget expectations, we’ve seen a dramatic recovery in the investment markets and every day we see the use of the Legacy for Our Mission campaign proceeds at work in our deaneries, agencies and schools as they work hard on their missions. We continue to place great emphasis on improving the financial stability of those parishes experiencing deficit operations. May God lead us toward continued success in our ministries.

Respectfully submitted,

Jeffrey D. Stumpf, M.B.A., C.P.A., CFA
Chief Financial Officer