Core operational deficit shrinks by $1.8 million as compared to fiscal year 2013.
Significant progress is being made in regard to balance sheet liabilities.
Contextual Background
In December 2013, the Archdiocese of Philadelphia published audited financial statements for the fiscal year ended June 30, 2013. Those financial statements disclosed a $4.9 million core operating deficit for that period exclusive of non-recurring credits and charges. That figure compared very favorably to the $17.6 million core operating deficit experienced for the fiscal year ended June 30, 2012. Additionally, several very significant and ongoing balance sheet liabilities that measure in the hundreds of millions of dollars were detailed.
These financial statements were for the entity designated as the “Office for Financial Services (OFS),” which is the official title for the majority of administrative offices and ministries located at the Archdiocesan Pastoral Center. OFS provides administrative and programmatic support to the parishes, schools and other related ecclesiastical entities of the Archdiocese. For financial reporting purposes, it is considered a wholly-owned subsidiary of the Archdiocese.
Comparative Operating Results: Fiscal Year 2014 Versus Fiscal Year 2013
The analysis presented below compares the “Change in Net Assets Before Other Items” for fiscal years 2014 and 2013. The “as reported” deficit of $ .7 million in FY 2014 compares to an “as reported” surplus of $3.9 million in FY 2013. These amounts can be found in the Statements of Activities and Changes in Net Assets under the caption “Change in Net Assets Before Other Items” in the “Unrestricted” column. This analysis provides a meaningful comparison of each fiscal year after adjusting for the impact of items that are non-recurring in nature. All figures are in millions of dollars. Endnotes are provided with additional information on selected line items.
| (in millions) | FY 2014 | FY 2013 |
| Change in Net Assets Before Other Items | ($ .7) | $ 3.9 |
| Non-Recurring Credits | ||
| Net gain on sale of real estate assetsi | (1.2) | (10.3) |
| Net assets released from restrictionsii | (2.3) | (2.7) |
| Contribution from Cemeteries Office iii | – | (2.0) |
| Favorable Welfare Benefits Trust experience | (1.2) | – |
| Fidelity Insurance recovery | – | (.7) |
| Investment Gains | (.5) | (.5) |
| Non-Recurring Charges | ||
| One Time Pledges/Subsidiesiv | – | 2.9 |
| Legal and Professional Feesv | 1.2 | 1.1 |
| Recurring deficit including depreciation expense | (4.7) | $ (6.4) |
| Depreciation expense | 1.6 | 1.5 |
| Recurring Deficit excluding Depreciation Expense | ($ 3.1) | $ (4.9) |
The recurring core operational deficit of $3.1 million compares favorably to the $4.9 million for fiscal year 2013.
It is expected that the core operating deficit for fiscal year 2015 will remain below $5 million. It is the goal of the Archdiocese to eventually eliminate the core operational deficit.
Status of Significant Balance Sheet Liabilities as of June 30, 2014
As disclosed in financial statements for the fiscal years ended June 30, 2013 and June 30, 2012, the Archdiocese faces several, significant underfunded balance sheet liabilities. Those obligations included the following: The Trust and Loan Fund, The Risk Insurance Trust, The Lay Employees’ Retirement Plan and the Priests’ Pension Plan. Current information on the status of each of these items is provided below.
Trust and Loan Fund
Included in the financial statements for the Office for Financial Services are all assets and liabilities of the Archdiocesan Trust and Loan Fund. The Trust and Loan Fund is a cooperative deposit and loan program established for the benefit of parishes and to assure continuation of the ecclesial goals of the Archdiocese and the parishes. If a parish deposits funds in the Trust and Loan Fund, it receives a competitive interest rate. In turn, these funds are loaned by the Fund to other parishes for construction and other projects. During FY 2012, the Archdiocese executed a promissory note to the Trust and Loan Fund in the amount of $82 million, which represented the excess of deposits over assets as of June 30, 2012.
The promissory note is collateralized by specific pledged real estate assets which are documented in the note. As pledged properties are sold or monetized, net proceeds from these Trust and Loan collateral transactions will be deposited into the Trust and Loan Fund, in accordance with the provisions of the promissory note. In the event a transaction generates in excess of $20 million in net proceeds, the Archdiocese has discretion regarding alternative uses for the excess so long as remaining pledged assets are at least equal to the then outstanding principal amount owed. The Archdiocese closed the cemeteries transaction with StoneMor in May 2014 and $30 million of the net proceeds from that transaction was used to make a payment on the promissory note.
As of June 30, 2014 the unfunded obligation in the Trust and Loan Fund was as follows:
| (in millions) | |
| Deposits | $ 131.3* |
| T&L Fund Assets (excl. promissory note and related party receivable) | 80.0 |
| Excess of Deposits Over Assets | $ 50.3 |
* includes approximately $800K in Trust and Loan Fund Liabilities.
As of June 30, 2013 the unfunded obligation in the Trust and Loan Fund was $79.8 million.
Insurance Fund/Risk Insurance Trust
Effective July 1, 2014, the Archdiocese of Philadelphia Risk Insurance Trust (“Risk Insurance Trust”) replaced the Insurance Fund. On that date the assets and liabilities of the Insurance Fund were assigned to and assumed by the Risk Insurance Trust. The Risk Insurance Trust administers the risk management program of the Archdiocese. As part of the risk management program, levels of self-insurance risk are retained. As of June 30, 2014 insurance related liabilities exceeded dedicated insurance assets, as follows:
| (in millions) | |
| Insurance Related Liabilities | $ 51.9 |
| Insurance Related Assets (excl. prepaid expenses) | 32.3 |
| Excess of liabilities over assets | $ 19.6 |
As of June 30, 2013 insurance related liabilities exceeded dedicated insurance assets by $30.4 million.
Lay Employees’ Retirement Plan
The Lay Employees’ Retirement Plan is considered a multiemployer plan for financial reporting purposes. As such, the assets and actuarially determined liabilities for these plans are not included in the OFS financial statements. The Archdiocese froze this defined benefit pension plan effective June 30, 2014. No current or former employee experienced a loss or reduction of vested benefit as a result of this action. More information regarding that announcement can be found at https://archphila.org/press%20releases/pr002266.php.
While not a direct liability of OFS the amount by which the plan liability exceeds plan assets is a liability of the Archdiocese. The actuarially determined liability for this plan as of June 30, 2014 was not available as of the issue date of the OFS financial statements. A preliminary estimate of that liability is $700 million.
When the estimated liability is compared to plan assets available for benefits as of June 30, 2014 (approximately $593 million), the plan’s shortfall is approximately $107 million. As of June 30, 2013, the liabilities of the LERP exceeded plan assets by $142 million.
Priests’ Pension Plan
The Priests’ Pension Plan is also considered a multi-employer plan for financial reporting purposes. As such, the assets and actuarially determined liabilities for this plan are not included in the OFS financial statements.
While not a direct liability of OFS, the amount by which the plan liability exceeds plan assets is a liability of the Archdiocese. As of June 30, 2014 it is estimated that the Priests’ Plan liabilities (estimated at $94 million) exceeded plan assets (approximately $14 million) by approximately $80 million. As of June 30, 2013, it was estimated that the Priests’ Pension Plan liabilities exceeded plan assets by approximately $92 million.
Looking Forward
The core operating deficit for FY 2014 of $3.1 million was slightly better than the deficit incurred in FY 2013 and was significantly less than FY 2012’s deficit of $17.6 million. We continue to acknowledge that the core deficit needs to be eliminated completely in the very near future.
The previously announced sale of the six nursing homes and one independent living facility operated by Catholic Health Care Services (“CHCS”) closed on November 3, 2014. Those facilities are now owned by Center Management Group. We anticipate that, once they are available, net proceeds – after accounting for amounts to be retained by CHCS, amounts allocated to other ministries, and transaction and other costs – will be allocated primarily to priests’ pension obligations and the Risk Insurance Trust.
We are hopeful that net proceeds from previously announced real estate transactions, that have not yet closed, will be sufficient to satisfy the remaining balance on the promissory note due to the Trust and Loan Fund for the remaining $50.3 million shortfall in that fund. As disclosed previously, we will continue to fund the shortfall in the Lay Employees’ Retirement Plan and project that the plan will be fully funded in 20-30 years.
At the present time no further information on other potential transactions is available. In keeping with past practice, announcements will be made publicly as transactions are completed.
Additional Financial Statements for the Fiscal Year Ended June 30, 2014
The audited financial statements for OFS do not include financial results for the Office for Catholic Education, Catholic Healthcare Services, Catholic Social Services, Saint Charles Borromeo Seminary, Catholic Charities Appeal or the Heritage of Faith-Vision of Hope Capital Campaign as all are separate entities. Audited financial statements for these entities will be published in the coming weeks.
Additionally, none of the reports released by the Archdiocese will include financial statements for individual parishes. All parishes are independent and autonomous entities.
Editor’s Note:
Complete copies of the audited financial statements for the Office for Financial Services for the fiscal years ended June 30, 2014 and June 30, 2013 can be found at www.CatholicPhilly.com.
Endnotes
i In FY 2014 the amount represents the net gain resulting from the sales of several Archdiocesan properties. In FY 2013 the amount represents the gain on the sale of the Archbishop’s residence.
ii The gain on the sale of the property known as “Villa St. Joseph by the Sea” in Ventnor, New Jersey was approximately $4.2 million. This amount was accounted for as a “Temporarily Restricted” gain and was reflected as such on the Statement of Activities and Changes in Net Assets for the year ended June 30, 2013. The proceeds from the sale were used for the benefit of Villa St. Joseph in Darby, Pennsylvania, a residence for retired Archdiocesan priests. Approximately $2.7 million of the gain was used for that purpose in FY 2013 and the balance was used in FY 2014. FY 2014 was also benefitted by approximately $ .7 million used to fund the Mission Schools commitment noted below.
iii The $2.0 million annual contribution from the Cemeteries Office was discontinued after FY 2013.
iv The $2.9 million includes: $1.5 million of transitional support – $750K in FY 2014 and $750K in FY 2015 – committed to the Independence Mission Schools, a non-profit organization managing 14 Catholic elementary schools; $1.0 million pledged to the World Meeting of Families event to be held in September 2015; and $370K representing the outstanding commitment to the St. Martin de Porres Catholic elementary school.
v Non-Recurring legal and professional fees is comprised of the following:
| (in millions) | FY 2014 | FY 2013 |
| Financial and legal costs incurred in connection with potential transactions | $ .9 | $ .5 |
| Fees incurred for supplemental finance office staffing | .3 | .3 |
| FY 2012 financial audit over-run costs | – | .3 |
| $ 1.2 | $ 1.1 |
Contact
Kenneth A. Gavin
Director of Communications
215-587-3747