The Archdiocese of St. Paul and Minneapolis, facing an unprecedented wave of clergy abuse lawsuits, said Thursday that it is weighing whether to declare bankruptcy.

A bankruptcy filing would give a federal judge control over the church’s finances, and could affect how much money would be paid to the victims of clergy sex abuse.

In making the announcement, the church released a financial report that reflected how it is spending money addressing the child abuse lawsuits. In its most recent fiscal year, for example, the archdiocese said it spent $4.2 million to hire outside professionals to investigate its own handling of abuse charges over the years and to explore its financial options.

The 2014 finances do not reflect any payments to victims. With 18 cases pending and more likely to follow, the archdiocese said total claims would likely outstrip the $5.3 million it has set aside to compensate victims.

“The road ahead offers ‘trouble’ of its own,” wrote Archbishop John Nienstedt in his column in the Catholic Spirit newspaper Thursday. “We have no idea how many more legal claims may be made against us.”

No final decision has been made about filing for bankruptcy, said Chief Financial Officer Tom Mertens, adding that such a move would not be an attempt to avoid paying abuse victims.

“Reorganization under the bankruptcy code would be a way to respond to all victims/survivors by allowing the available funds to be equitably distributed to all who have made claims, not just those who have the earliest trial dates or settlements,” Mertens wrote in his introduction to the report. Church officials made no other comment on Thursday.

Plaintiffs’ attorney Jeff Anderson, who reached a landmark settlement with the archdiocese in October, withheld judgment on the church’s move.

“Actions speak louder than words, so I’ll make judgments on their actions and not about their words, and that remains to be seen,” Anderson said Thursday.

The report does not estimate the future costs of the global settlement reached with Anderson in October. But the church’s accounting firm noted in the report that uncertainty over the total potential payouts means “there is substantial doubt regarding the Chancery Corporation’s being able to continue as a going concern.”

About 20 alleged victims of clergy abuse have so far filed civil suits against the archdiocese through the Minnesota Child Victim’s Act, which allows older cases to be filed through May of 2016. Two cases were settled for undisclosed amounts this fall, and therefore are not reflected in the financial year ending June 30, 2014.

Bob Schwiderski, a longtime victims advocate in Minnesota, said it was a shame that the archdiocese spent “$4.2 million investigating itself while not spending $1 to help survivors heal.”

“The report makes it sound like they are spending all this money on abuse [lawsuits], but it’s going to upper-level management,” he said. “I’d like to know how much those people get paid.”

Thursday’s news came one week after the archdiocese announced plans to cut 20 percent of the chancery’s operating budget, or more than $5 million, in response to growing financial pressures resulting from clergy sex abuse lawsuits and other spending.

That includes the layoff of 11 chancery employees and may also mean sale of church assets.

“We are determined to achieve a balanced budget beyond 2015,” Mertens said, “and will evaluate our budget going forward.”

Appeals fund moved

The financial statements released by the archdiocese show an operating loss of $9.1 million. Revenue fell nearly $7 million from a year ago, but the reason for the drop was the archdiocese’s decision to transfer its annual fundraising drive, the Catholic Service Appeal, to a new, separate nonprofit.

The appeal, which raised more than $7 million in 2013 and has a goal of $9 million in 2014, was designated a separate nonprofit organization in January. Mertens said the transfer would allow for a “reduction in administrative expense.”

But the move holds some risks for the church if it files a bankruptcy petition.

“Courts are very concerned about the transfer of assets in anticipation of bankruptcy,” said Chuck Zech, director of the Center for the Study of Church Management at Villanova University in Philadelphia.

It’s unclear how much the archdiocese will pay out to victims and attorneys in the years ahead. The average settlement for victims in the type of “global settlement” reached between the archdiocese and victims’ attorney Anderson is about $100,000, said Zech. However, payments can vary widely, depending on the severity of the abuse.

Insurance payments also vary, Zech said. Nationally, insurance companies pay, on the average, about 40 percent of victim settlements, he said. That does not include attorneys fees.

The archdiocese’s total operating expenses were $34.6 million, compared with $36.6 in fiscal 2013. The biggest slice of the budget, $7.4 million, went to central services at the chancery, funding computers, the Metropolitan Tribunal, human resources, benefits and more.

The next largest piece, $5.5 million, went to clergy services such as training of seminarians and support for priests not in ministry due to health or disciplinary reasons.

Other church bankruptcies

If the archdiocese declares bankruptcy, it will join nearly a dozen other dioceses nationwide. But the process can be messy and time consuming, some church officials say.

The Milwaukee Archdiocese, for example, declared bankruptcy in July 2011 in response to a wave of lawsuits on behalf of abuse victims. More than three years later, the bankruptcy is still unresolved

At the beginning, the archdiocese welcomed survivors to file claims, said the Rev. James Connell, a retired Catholic priest and canon lawyer in Milwaukee. Survivors were hopeful that they would be treated right.

But by February 2014, the archdiocese took a stance in bankruptcy court that none of the 575 claims made by sexual abuse victims had judicial merit, Connell said.

l“Don’t assume that it [bankruptcy] is all clear-cut and simple,” Connell said.

 

Staff researcher John Wareham contributed to this report. hopfen@startribune.com 612-673-4511 tonyk@startribune.com 612-673-4213