2011 FINANCIAL REPORT ARCHDIOCESE OF BOSTON (This page intentionally left blank) Archdiocese of Boston Financial Report for the Year Ending June 30, 2011 TABLE OF CONTENTS SECTION 1 – Letter from Cardinal Sean P. O’Malley, OFM Cap. SECTION2 – Chancellor’s Annual Overview SECTION 3 – Management’s Discussion and Analysis of Financial Position and Results of Activities SECTION 4 – The Roman Catholic Archbishop of Boston, A Corporation Sole Financial Statements, Supplemental Schedules and Report of Independent Certified Public Accountants SECTION 5 – Compensation and Vendor Expenditure Disclosure SECTION 6 – Compensation Committee Report SECTION 7 – Funding for Abuse Settlements and Related Costs SECTION 8 – Audited Financial Statements of Corporation Sole’s Related Organizations SECTION 9 – Financial Statements of Corporation Sole’s Parishes Page 1 of 94 (This page intentionally left blank) Page 2 of 94 SECTION 1 – Letter from the Cardinal My dear friends in Christ, During the past year almost all organizations and businesses faced continued financial challenges as the effects of the recession proved more long-standing than had been expected. In light of these circumstances, I am very proud of the Archdiocese of Boston’s careful management of our resources and the contributions provided by donors. During the past fiscal year we were able to again achieve a balanced budget, much to the benefit of our parishes, schools and pastoral ministries. Stewardship is at the heart of all that we do as a Church. We are called to exercise prudential judgment in carrying out the mission entrusted to us by Jesus Christ, to ensure a strong foundation and provide opportunities for growth. We are also called to be attentive to the present realities of our local Church and develop sustainable plans for the future. For that purpose, much time and effort is being given to developing a Pastoral Plan for the Archdiocese. We are greatly indebted to Msgr. William Fay and Mr. Charles Clough, co-chairs of the Archdiocesan Pastoral Planning Commission, and all the members of the Commission for their significant contributions to this important work. We are blessed with many signs of hope in the Archdiocese at this time. Many parishioners dependably support their parishes with regular attendance and the gifts of time, talent and financial contributions. Our seminaries are approaching capacity as an increasing number of men answer the call to consider a vocation to the priesthood. We have expanded the Diaconate program and are now planning the ordination of Permanent Deacons every year. Campus ministry at area colleges and universities is thriving as large numbers of young people gather each week for prayer, the celebration of Mass and service projects. There are also many areas of our life as a Church that call for attention and improvement. We must continue the essential work of evangelization, reaching out to the faithful who are not with us at Mass each Sunday. Well thought out communication initiatives will be central to this effort, and to all of our planning, and we must provide meaningful opportunities for participation as people respond. With the help of those who oversee the fiscal management of the Archdiocese, I am committed to achieving these goals and realizing the potential of our Catholic community, going forward in the name of the Lord. With the assurance of my prayers for you and all whom you hold dear, I am, Sincerely yours in Christ, Archbishop of Boston Page 3 of 94 (This page intentionally left blank) Page 4 of 94 SECTION 2 – Chancellors Annual Overview James P. McDonough, Chancellor Secretary for Financial and Administrative Services This Annual Financial Report presents financial results and activities for the Roman Catholic Archbishop of Boston, A Corporation Sole (RCAB) for the fiscal year ended June 30, 2011. Corporation Sole is comprised of Parishes, Self Insurance, Endowment, and Central Operations. Central Operations, in turn, is comprised primarily of Central Ministries, which consist of nearly 50 agencies and departments supporting the mission and administrative needs of Corporation Sole. Also included in Central Operations are Reconfiguration Activities, Special Collections, and Restricted Funds. The report seeks to provide, in as complete a manner as possible, the financial position and changes in net assets, maintaining our commitment to financial transparency since fiscal year 2005. This financial information and those of RCAB’s related organizations, [where available], are also located on the website, www.bostoncatholic.org. CENTRAL MINISTRIES During fiscal 2011, the goal of a balanced operating budget was once again achieved. The budget was approved in June 2010 as balanced with gross operating revenue and expense of $33.9 million. While this represented only a 1% reduction when compared to the fiscal 2010 budget plan, the fiscal 2011 plan included $1.2 million of revenue and expense for the [one-time] “Catholics Come Home” Program which, if excluded, would have represented a 5% reduction from the fiscal 2010 budget plan. To address a potential shortfall of $3.5 million in the budget for fiscal 2011, the following measures were taken: Staffing decisions resulting in over 20 positions affected by lay-offs, freezing of open positions and salary reductions; No cost of living adjustments to lay staff; Further reductions for travel and conference budgets; Various other expense reductions across the organization. Since 2006, the Central Ministries operating budget has been stabilized but not without significant impact. Expenses are down 13% or $4 million, and the staff has been reduced by over 20% or 50 people. Despite these challenges, Central Ministries continues to build upon its culture of service. PARISHES Parishes and schools continue to persevere amidst an uncertain economic climate and through the leadership efforts of our pastors, parish financial operations remained stable over the course of fiscal 2011. Parish expenses in fiscal 2011 were significantly impacted by increases in maintenance and utilities costs due to the harsh winter weather. In fiscal 2012, we have launched a number of programs to address bulk purchasing, power consumption and other cost savings opportunities that will directly benefit our parishes. Page 5 of 94 SCHOOLS Our Catholic Schools Office provides support and service to 124 pre-kindergarten to grade 12 schools that educate approximately 42,000 students throughout the Archdiocese. This includes 89 parish and/or archdiocesan related entities, which have over 29,000 enrolled students. Academic excellence and strong faith formation continue to characterize all our Catholic schools as evidenced by grades, assessments, attendance, college matriculation, and evaluation reports. Our students outperform state and national averages on the Stanford10, PSAT, and SAT. They also attend college at far higher rates: 92 percent matriculate to college and 88 percent pursue four-year degrees. As noted last year, our goal is to help schools establish tuition rates that cover at least 85% of the per-pupil cost, with fundraising and other sources providing the resources needed to achieve fiscal stability. Many of our schools have historically operated with tuitions rates $2,500-$3,000 less than the average cost per student. While scholarships and other sources of financial aid are helpful, they are not sufficient to cover the per-pupil cost differential. With the financial metrics and tools developed with the Elementary Schools Task Force, we now have a financial dashboard for our parish schools to help guide their short and long-term financial planning and monitoring. Financial workshops, training programs, and fiscal planning in the field with our boards and school leadership continue under the guidance of our Catholic Schools Office team. Enrollment management has been a top priority for the Archdiocese of Boston and our partners for the past several years. In fiscal year 2011 we began to see positive results from our efforts. The enrollment decline that has dominated Catholic education nationally and locally for decades has slowed in the Archdiocese and in some cases been reversed: Rate of decline dropped to 1.1 percent, the lowest rate in 10 years; Enrollment grew in over half the schools; Boston Catholic school enrollment grew by 1.0% – first time in 20 years (up to 7,700 students); Lowell Catholic school enrollment grew by 2.0% (up to 2,400 students). Our schools are bolstered in all their work through systematic professional development, technical support and consultations from the Catholic Schools Office and partner education agencies. We are most fortunate to have the strong leadership and support of the Catholic Schools Foundation, the Campaign for Catholic Schools, the Lynch Foundation, the Mosakowski Family Foundation, and our five area Catholic college presidents. To further advance the Archdiocese’s commitment to Catholic education, Cardinal Sean has now established an Education Advisory Council (July 2011) to provide strategic guidance and support to the work of the Catholic Schools Office. Chaired by Peter Lynch, the Education Council includes John Kaneb, Vice Chairman, Jack Regan, Jim Mooney, Sean McGrath, Msgr. Francis Kelley, VF, Peter Zotto, Dr. Patricia Weitzel-O’Neill, Tom Healey, and Fr. Kevin O’Leary, VF. We are grateful to the dedication of these business, civic, educational and religious leaders. RISK MANAGEMENT Risk management includes general insurance as well as self-insurance