2008 Accountability Report

Chief Financial Officer’s Report

We find ourselves in the midst of great uncertainty, dramatic change and rampant fear in our economy and our financial markets. Our society faces business failures, rising unemployment, reduced ability to obtain credit to fund business operations or refinance existing loans, and non-stop speculation on the effects that a new presidential administration will have. Economic conditions challenge the financial position of our ministries, especially the contributions they depend on, while at the same time creating a greater need for many of our charitable services.

Some interesting factors include:

• We’ve experienced the worst 10-year period in U.S. stock markets since the Great Depression.
• Several prestigious firms such as Bear Stearns and Lehman Brothers, some with histories of more than 100 years, no longer exist. In fact, rather than struggling for a long period of time, their businesses came to an end almost overnight.
• Research generally shows that charitable giving tends to decline somewhat during economic recessions. Giving to churches, however, tends to hold up relatively well during these periods.
• Inflationary concerns throughout much of 2008 seem to have largely given way to concerns about deflation. We do see this a bit in planning for capital/facility projects—labor prices have decreased from busier times and we’re starting to see a reduction in some materials prices as well.
• The tax implications of President-elect Barack Obama’s platform are not yet clear. Early promises to raise taxes have changed to views of cutting taxes for middle and low-income taxpayers and delaying any planned increases for wealthy taxpayers. It will be important to monitor how specific changes may impact contributions as well as major campaign gifts and estate planning. (As always, we ask that you remember the Archdiocese of Indianapolis, its Catholic Charities and educational ministries and your parish in your will.)

Yet, as we embrace the Thanksgiving and Advent seasons, the Archdiocese of Indianapolis has much to be thankful for: stable agency, parish and school operations; a successful Legacy for Our Mission campaign; and the commitment of nearly 280,000 Catholics across our 39 counties. This report highlights several significant financial aspects of our operations.

Chancery Fiscal Year 2008 Operating Results

The chancery and agencies of the Archdiocese of Indianapolis completed 2007-2008 with break-even operations which was consistent with the expectations for the year as determined through the budgeting process. This represents the fourth consecutive year with break-even operations or better for the archdiocese. We started the 2008-2009 fiscal year with a break-even budget which would seem to indicate that the archdiocese has a bit more stability in its operations than in previous years. However, the new fiscal year budget was put together prior to the economic turmoil that we are all experiencing. It will take a concerted effort by everyone to hold operating expenses down and eliminate any unnecessary expenses while the credit and equity markets recover and we see the growth in our endowments resume.

Called to Serve: Parish Stewardship and United Catholic Appeal

For the fiscal year ended June 30, 2008, parish stewardship, through Sunday and holy day collections, continued to grow. Total parish Sunday and holy day collections for 2007-2008 throughout the archdiocese grew at a rate of 2.0 percent. This compares with a growth rate of 2.5 percent in parish Sunday and holy day collections for 2006-2007.

The 2007 United Catholic Appeal received pledges of $5.26 million, including Appeal goal amounts for the parishes participating in the Legacy for Our Mission campaign. This compares to pledges of $5.27 million for the 2006 United Catholic Appeal.

Annual parish stewardship through Sunday and holy day collections and the United Catholic Appeal will be critical to the success of the many ministries resident in our parishes and deaneries and those supported by the Archdiocese of Indianapolis. It is important that annual giving amounts are sustained during these trying economic times to the extent that our families and parishioners can support.

St. Francis Xavier Home Missions Fund

June 2008 brought the eighth round of allocations from the St. Francis Xavier Home Missions fund. The allocations committee, consisting of members—pastors and parish life coordinators from each deanery—aided by archdiocesan staff members, made recommendations to Archbishop Buechlein for home missions grants based on applications received from 36 parishes and agencies. Approximately $260,000 was awarded to 21 parishes.

Home missions grants are supported through the generosity of parishes that pledge some or all of the money they raise in excess of their Called to Serve/ United Catholic Appeal goal to the St. Francis Xavier Home Missions Fund and through distributions from the Catholic Community Foundation’s Archdiocesan Home Missions Endowment Fund, which was established through the Legacy of Hope from Generation to Generation capital and endowment campaign. While we’ve improved our funding to support needy parishes, parish needs still far outweigh available resources. Grant requests exceeded $860,000 thus only approximately 30 percent of the grant dollars requested was able to be awarded.

Mother Theodore Catholic Academies

The six center-city Indianapolis elementary schools that have joined to form the Mother Theodore Catholic Academies strive to provide a high quality education with a strong spiritual base, leading students of all faiths to secondary and post-secondary education. The schools are working hard to continue to raise academic excellence, maximize available resources and increase enrollment. The operating need for these schools for the 2007-2008 fiscal year was approximately $3.5 million.

Eventually, this annual operating need is expected to be funded through annual fundraising and larger endowment distributions. In the short term, the proceeds from the Legacy for Our Mission Campaign have been used to meet this need.

Legacy for Our Mission Campaign

In the fall of 2005, Archbishop Buechlein launched the Legacy for Our Mission Campaign. As noted in Archbishop Buechlein’s letter in this accountability report, the campaign benefits both local parish needs and archdiocesan ministry needs. The $100 million goal for the parish phase of the campaign was reached and exceeded with pledges totaling $103.9 million. The strong campaign results have been achieved because parishes and the Archdiocese put together compelling cases, had strong leadership, and had quality implementation throughout the local campaigns. As pledge payments are received, they are immediately used to support the ministries within the Archdiocese. Through the end of the 2008 fiscal year, the Legacy for Our Mission allocations from the Chancery portion included:

• Endowments
  • Home Missions $ 1,000,000
  • Making a Difference (Financial Aid) $ 2,500,000
  • Priest Retirement $ 1,000,000
  • Cemeteries $ 600,000
• Catholic Charities capital $ 770,000
• High School capital projects $ 1,250,000
• Catholic Charities Programming $ 925,000
• Mother Theodore Catholic Academies Programming $ 5,000,000
• Permanent Diaconate Formation $ 575,000
• St. Mary’s Child Center $ 150,000
• SS. Peter & Paul Cathedral capital $ 50,000
• Total $ 13,820,000

Expenses Related to Sexual Misconduct

In fiscal year 2008, approximately $102,000 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 $114,000 was spent for these purposes in fiscal year 2007. Additionally, approximately $156,000 was spent for legal fees to defend the archdiocese from sexual misconduct lawsuits in 2008. In 2007, $170,000 was spent in legal defense costs.

Insurance Plans and Parish Services

The archdiocese operates several insurance plans, employee benefit plans and other services on behalf of parishes, schools and employees. Two of the most significant plans are the lay employee health insurance plan and the property insurance plan. Both have seen significant changes in recent years.

Starting January 1, 2007, the previous lay employee health insurance plan was fully replaced with a high deductible health plan complete with Health Savings Accounts (HSA). For the first 18 months since its inception, the plan has experienced a $3.7 million surplus. I caution that this surplus is an initial 18 month surplus, and although we are optimistic about these results, small changes in enrollment or claim activity can quickly reduce this surplus and swing the plan to a loss. Additionally, because we are only in our 2nd year of our new lay employee health insurance plan, it could take several years for us to accumulate credible data with which to budget and project costs for the plan. In the meantime, we will continue to use an endowment fund established in September of 2007 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 below national averages.

The property insurance plan experienced a surplus in excess of $1.3 million for the 2007-2008 fiscal year. This fiscal year marks the fifth consecutive year that the plan has run at a surplus. These results have funded a property insurance reserve fund in the Catholic Community Foundation that is now approximately $4.3 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 2008-2009 fiscal year which translates into lower premiums paid by our parishes, schools, and agencies.

Catholic Community Foundation, Inc.

The Catholic Community Foundation’s total assets were $151.7 million at June 30, 2008, a decrease of 6.9 percent from the previous year. The decrease in asset values were driven by the overall investment returns which were a negative 7.9% for the fiscal year. Foundation investments have returned a very respectable 8.5 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 18 new endowments during the year, bringing the total number of endowments held in the foundation to 356. The endowments distributed over $6.8 million this past year to support parish, school and agency ministries, demonstrating the ability of endowments to provide long-term funding for ministries.

Operating Budget for 2008-2009

We enter the 2008-2009 fiscal year with a break-even operating budget on approximately $40 million of total operating expenses. We anticipate the most significant challenges to include:

• A very difficult national economy that is resulting in large negative investment returns and large reductions in endowment balances.
• Health care and employee benefit costs that are increasing much faster than Sunday collections.
• Construction and facilities costs (such as heating costs) that continue to increase.
• School operating costs that are increasing faster than our ability to increase tuition.
• Stable but not increasing school enrollment across the Archdiocese.
• Growing parish stewardship to meet operating needs and eliminating parish operating deficits.

On the other hand, we have several positive opportunities:

• A trend of positive growth in Sunday and Holy Day collections.
• The strong results for the Legacy for Our Mission campaign.
• Strong support for the Called to Serve/United Catholic Appeal.
• The formation of the Mother Theodore Catholic Academies to address financial operations of Indianapolis center-city Catholic schools.
• A history of strong investment returns and growing endowments which help to mitigate rising operating costs.
• The maturation of an alternative health care plan to better control escalating costs and a funded health care reserve endowment to protect against future large premium increases.
• A funded property self-insurance reserve endowment to protect against future potential large losses and mitigate future cost increases.

As mentioned previously, our break-even operating budget for 2008-2009 will be very difficult to achieve within the boundaries of our struggling economy. However, our recent operational performance leads us to believe that once the economy is bolstered and back on track, we will be capable of continuing the stable operating trend of the past 4 years which will help us to recoup deficit operational spending from previous 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
• Rev. Msgr. Joseph F. Schaedel,
  • Vicar General, Vice Chairman
• Philip B. McKiernan President
  • Immaculate Heart of Mary, Indianapolis
• Mary Horn Vice-President
  • St. Charles Borromeo, Bloomington
• Kenneth J. Hedlund Secretary
  • St. Matthew the Apostle, Indianapolis
• Members
  • Clark Byrum St. Luke the Evangelist, Indianapolis
  • Daniel L. DeBard St. Patrick, Terre Haute
  • Dale Gettelfinger Holy Family, New Albany
  • David R. Milroy St. Bartholomew, Columbus
  • Scott Nickerson St. Pius X, Indianapolis
  • Timothy Robinson St. Joan of Arc, Indianapolis
  • Jerry Williams St. Simon the Apostle, 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. Stewardship grew, expenses generally fell in line with or below budget expectations, and we saw the successful conclusion of the Legacy for Our Mission campaign. 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