Bankruptcy threat raises finance debate: investment confidence may be hindered, some analysts fear - church bankruptcies

National Catholic Reporter, Jan 21, 1994 by Demetria Martinez

Investment confidence may become hindered, some analysts fear

ALBUQUERQUE, N.M. - Top church finance officials say they have little reason to suspect that the threat of bankruptcy in the Santa Fe, N.M., archdiocese signals financial trouble for other areas of the U.S. church.

But a private Catholic financial planner warned that bankruptcy in New Mexico could lead to a wider skepticism among investors who lend money for church projects.

"I personally have no indication that similar circumstances are occurring elsewhere," said Sr. Frances Mlocek in a recent telephone interview. "The financial stress (in the Santa Fe archdiocese) is unique. Each archdiocese is autonomous." Mlocek is the director of finance for the U.S. Catholic Conference's budget and finance committee.

Information about internal diocesan finances is difficult to come by because of the autonomy factor, Mlocek continued, adding that she is likely to find out about any new financial crises from general newspapers and not from any church agency. "We don't have a clearinghouse, if you will, for this sort of thing."

The problems in Santa Fe result from approximately 35 lawsuits, involving priest sex abuse, against the archdiocese. The suits have generated claims against the church amounting to nearly $50 million. Officials of the archdiocese have warned that if the two major insurance companies covering the church here - Interstate Insurance and the financially troubled Lloyds of London - continue to refuse to pay claims, the archdiocese may be forced to declare bankruptcy.

Mlocek said that as far as she could tell, bishops around the country view the situation from a "concerned pastoral perspective. It's a diocese that's in a lot of pain from a human perspective as well as a resource perspective."

Other finance committee members were unavailable for comment, including Msgr. Robert Lynch and Columbus, Ohio, Bishop James Griffin. Seattle Archbishop Thomas Murphy, chair of the budget and finance committee, was on retreat, as was Memphis Bishop Terry Steib. Previous chair of the finance committee, Archbishop Daniel Kucera of Dubuque, Iowa, felt it would be "inappropriate" to comment on another diocese, according to his secretary.

Financial planner William A. Corbett, however, told NCR the church would do well to pay close attention to Santa Fe.

"It could affect the whole church. ... If indeed a diocese declares bankruptcy, that would make investors wary of loaning money to the church because that potential now exists. Before, it was considered highly unlikely for a diocese to declare bankruptcy."

Corbett serves on the finance council for the Gaylord, Mich., diocese and is the author of Financial Guide for Catholics (Our Sunday Visitor).

"I think there's a concern in financial councils around the country that advise the bishops. The cost of litigation is becoming unacceptable. Even when there are baseless charges, there are legal fees involved in defending the diocese. I think that's a concern everywhere," said Corbett.

"In the broader sense, this exemplifies the need for those in charge of the church and advisers to the church to be aware of the legal ramifications of the church's actions."