2010-11 Accountability Report

Chief Financial Officer’s Report

The 2010-2011 fiscal year will be remembered for the continuing economic and political challenges faced by our society. 2010-2011 was also a year for significant events impacting our Archdiocese. The opening of school in the fall of 2010 marked the first time that a Catholic (arch)diocese in the United States has operated public charter schools—Andrew Academy and Padua Academy. The Archdiocese of Indianapolis received its largest-ever bequest payout in the form of farmland that was later sold for $7.6 million. This gift will be used to support seminarians and to establish an endowment funding capital needs at parishes throughout the archdiocese. Historically low interest rates provided the opportunity to refinance $17 million of tax-exempt bond debt at attractive rates. And, perhaps most important long-term, the Indiana General Assembly passed legislation in the spring of 2011 to support scholarship funding for needy families sending their children to private schools.

These and many other events will shape the Archdiocese of Indianapolis in years to come. This accountability report provides more detailed information about many of the administrative activities of the Archdiocese.

Chancery Fiscal Year 2011 Operating Results

The chancery offices and agencies of the Archdiocese of Indianapolis completed its seventh consecutive year with a break even or surplus operating budget. For fiscal year 2010-2011 we ended the fiscal year $1.1 million or 3 percent ahead of budget on $35 million of operational expenses. The operations surpluses were generated mostly from unexpected bequests and gifts as well as certain endowment returns performing better than budgeted.

The archdiocese continues to be challenged by parish operating deficits. The financial impact of these parish deficits shows up in the deposit and loan fund operated by the archdiocese for its parishes (“ADLF”). The ADLF has approximately $15 million in negative net equity as a result of parish loans and interest forgiven over the last 15 years. The ADLF currently operates at a small surplus (inclusive of the current level of annual parish operating deficits) designed to slowly recover this negative equity over a period of years.

Parish and Archdiocesan Stewardship

For the fiscal year ended June 30, 2011, parish stewardship, through Sunday and holy day collections, experienced a slight increase over the previous fiscal year. This 1% increase over fiscal year 2010 continues the positive trend of increased giving at the parish level and proves the strong and steady member commitment in our current economic environment.

The FY 2011 annual parish and archdiocesan community appeal Christ Our Hope: Compassion in Community experienced an increase in recorded revenues. The

FY 2011 appeal also enabled parishes to direct resources into those ministries closest to their community. The appeal received pledges totaling $4.7 million in FY 2011, compared to the pledges of $4.3 million in FY 2010, an increase of 9% over prior year. While the annual appeal continues to improve we are still below our historic highs by nearly $1 million.

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 larger plans are the lay employee health insurance plan and the property and liability insurance plan. Despite the challenging economic environment, both of these plans continue to experience positive results.

Lay Employee Health Insurance Plan

Since 2007 the Archdiocese has been operating a high deductible health insurance plan, complete with Health Savings Accounts (HSA) for our lay employees. While medical and dental expenses trend upward on a national basis, our claims experience has trended much lower and has contributed to generating a surplus in this plan. Each year since inception of our high deductible plan, we have been able to give back to both the employees participating via bonus contributions to their personal HSA and back to parishes, schools and agencies via premium reductions. We have also funded an endowment with some of the surplus that is designed to be used to offset significant expense increases in the future. For the first time this year we have spent a portion of the surplus from the Lay Health plan to close the funding gap for our Lay Retirement plan (see section Parish Services: Priest and Lay Employee Retirement Plans).

Property and Liability Insurance Plan

The property insurance plan also experienced positive results for the 2010-2011 fiscal year. The continued positive results have enabled us to fund a property insurance reserve fund in the Catholic Community Foundation of $7.1 million. The reserve fund was established to protect parishes, schools and agencies against catastrophic losses and will help to mitigate annual insurance cost increases. The Archdiocese was also able to maintain our self-insurance level at $1 million for the 2011-2012 fiscal year which translates into lower premiums paid by our parishes, schools, and agencies for property and liability insurance.

Parish Services: Priest and Lay Employee Retirement Plans

Investment results for the fiscal year ended 2010-2011 contributed to the slight improvement of our archdiocesan 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. Last year we communicated the funding challenges the archdiocese and individual parishes face to fully fund these two benefit plans. While positive investment results will assist in closing the gap, the archdiocese has also contributed additional funding to assist in alleviating the funding deficit. An additional $3.3 million was transferred to the Lay Plan during fiscal year 2010-2011 making total contributions to the Lay Plan of $5.4 million. Fiscal year 2011 actuarial reports indicate that our current underfunded status has improved since the prior year report. The Lay Plan is underfunded by $14.5 million or a funding level of 76%, an improvement from a 66% funding level in 2010. In September 2011 the Chancery announced changes to the Lay Plan. Effective January 1, 2012, no newly hired employees will be eligible to participate in the Lay Pension Plan. Existing employees will continue to accrue benefits in the Lay Plan. In addition to the Lay Plan the Archdiocese provides a retirement savings plan or 403b Plan whereby both employees and employer can contribute. Beginning in January 2012 the Archdiocese increased the match of employer contributions. The Archdiocese matches 50% of up to a maximum of 8% employee eligible compensation. This match is an increase from 50% of 6% of eligible wages prior to 2012. The Archdiocese intends to continue to make contributions to these benefit plans for employees indefinitely. However, as we continue to focus on funding levels of our existing benefit plans we may need to re-assess these decisions at a future date.

Parish Services: Priest and Lay Employee Retirement Plans Con’t.

Fiscal year 2011 results indicate that the priest retirement plan is underfunded by $10.2 million, which represents a funding level of only 49 percent. This is also an improvement over the 2010 actuarial funding analysis that reported a funding level of 40%.

We look to invest new dollars and continue to recover investment losses in the plans, as the funding level of each of these benefit plans is a priority for the archdiocese. For financial reporting purposes 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 neither separate valuations of plan benefits nor segregation of plan assets specifically for the Chancery.

Expenses Related to Sexual Misconduct Lawsuits

In fiscal year 2011, approximately $76,000 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 $78,000 was spent for these purposes in fiscal year 2010. We have settled a total of three sexual abuse lawsuits through meditation with an average settlement per case of $187,000. Additionally, approximately $121,000 was spent for legal fees to defend the archdiocese from sexual misconduct lawsuits in 2011. $178,000 was spent in legal defense costs in 2010.

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 Daniel Buechlein, in FY 2011 we were able to award six parishes a total of $207,000. Parish needs continue to far outweigh available resources as grant requests exceeded $712,000. The following graph shows our most recent years of grants awarded compared to requested funding. Please note the 2009-10 funds were combined with the Growth and Expansion distribution process.

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. Since the inception of this granting fund we have disbursed $494,000 to support various growth opportunities in ministry and capital throughout the Archdiocese. We are currently in process of reviewing grant requests for the 2011-2012 fiscal year. The graph below reflects the funding the archdiocese has granted since we began the process including the comparison to the grant requests.

Catholic Community Foundation, Inc.

The Catholic Community Foundation’s total cash and investments were $171.2 million at June 30, 2011, an increase of 18.7 percent from the previous fiscal year. The increase in asset values were driven by the overall investment returns which were a positive 22.4 percent for the 2011 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 12 new endowments during the year, bringing the total number of endowments held in the foundation to 393. The endowments distributed almost $7.5 million this past year, compared to $6.4 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 2011-2012

For the 2011-2012 fiscal year we anticipate a break-even operating budget on approximately $34 million of total operating expenses. We anticipate the most significant challenges to include:

• Managing the parishes that are challenged by operating deficits. These parish deficits are reflected in the archdiocesan deposit and loan fund where management works to manage the negative impact of these debts.
• Continuing efforts to bring the status of the lay and clergy benefit plans to fully funded.
• Managing our public charter schools to be self sustaining.
• Providing parishes, schools and agencies with sound employee benefit and service plans while minimizing cost increases.

On the other hand, we have several positive opportunities:

• Utilizing the benefit of vouchers in our school system.
• Structuring our assets to better match liabilities enabling us to better manage our risks and opportunities.
• Continuing strong growth in the Catholic Community Foundation with an increase in endowments and charitable gift annuities.
• Utilizing generous donor bequests to further Bishop Bruté Seminary growth goals.

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. Archdiocesan leadership 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:

• Rev. Christopher J. Coyne Apostolic Administrator, Chairman
• Daniel L. DeBard, President; St. Patrick, Terre Haute
• Timothy Robinson, Vice President; St. Joan of Arc, Indianapolis
• Jerry Williams, Secretary, St. Simon, Indianapolis
   
• Members
  • Kenneth J. Hedlund, St. Matthew, 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
  • Daniel Riley, St. Luke, 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. Revenues continued to grow, expenses generally fell in line with or below budget expectations and we’ve seen a dramatic recovery in the investment markets. 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