Our Body of Finances

Enjoying contemplating the Solemnity of the Most Sacred Heart of Jesus and wishing you all a blessed end to your day.

While I am not a sports fan, I will note the Warriors win last night as one cannot swing a dead cat (even here in sleepy Antioch) without hitting a Golden State fan. I, however will go against the grain and publicly declare my support the Cavaliers for giving prominence to Matthew Dellavedova “Delly” a graduate from my own alma-mater St. Mary’s here in our Diocese. Go Cavs!

Yet another day of silence from our Brothers and Sisters in Pleasanton in my vainglorious quest for a copy of their strategic plan. I am beginning to feel like Percival in search of the Holy Grail. I do wonder whether I have failed to ask the right question of the Fisher King! My latest failed attempt netted a kind note from a Secretary effectively saying “not my job” — which confirms that my notes are getting through and being ignored. Whilst I seek entrance to the Grail castle on that high hill in the East Bay, I will turn my attentions back to Quercopolitana as a whole.

I have taken a good read through the Moss Adams audit report from 2013. There is quite a bit there and far too much for this post this evening. I will start by making summary observations.

First, kudos to the finance team at the Chancery for a relatively complete set of financial statements. We must ask however, where are similar reports for 2014? This is especially important for an informed laity going into a diocesan capital campaign. For the financially inclined, here are some areas worth noting as you review our results. My advice to you, brothers and sisters, when reading financial statements is to read the footnotes first. That’s where all the juicy bits can be found. Here is what I saw when I started to read them:

1. Our diocese is organized as a “Corporation Sole” which is not unusual as religious institutions go, but is different than the average layperson would think of as a corporation in a modern business sense. A rather lengthy, but thorough review of the topic can be found here. The important thing to remember is that “RCBO” or The Roman Catholic Bishop of Oakland (as the corporation is known) is also a 501(c)(3) which gives the Bishop’s corporation tax exempt status.

2. We accountants like to use phrases like “consolidated financials” which is a fancy way of saying that we take the outputs of various entities all under the same “owner” and add them up into one big summary. We call these wholly owned entities subsidiaries. You might also take time to note that our Diocese has quite a few (too many for my liking) subsidiaries with names like: Adventus, Furrer Properties, Catholic Cemeteries, and of course the “Space Egg” (Christ the Light Cathedral), among others. Although you may read the Diocesan financials with a sense that they are a complete consolidation of all the subsidiaries, they are in fact not. So for example, when you look at our numbers you must bear in mind that they DO NOT include any figures from Catholic Cemeteries (amongst others). This is very, very important.

(and here I pause to point out that I have not even left the first footnote)

3. I will skip ahead in the footnotes to point out that the RCBO routinely makes loans not requiring collateral to related parties within the diocese and our auditors (Moss Adams) has made a determination that all the loans the Diocese has so far made are “generally not considered past due or delinquent”. That is worth considering as you read the financial statements. Remember, this is a corporation Sole. The Bishop has at his complete discretion the right to collect or even convert loans to contributions. That means he can make bad debt go away almost magically. If you think this makes doing the books a difficult thing, you are correct.

4. In 2013 the Oakland Diocese had a $69 Million loan outstanding to a related party known as the Catholic Cathedral Corporation of the East Bay. This is the Diocese loaning and paying paying money to itself. It sounds strange but there are good reasons to do something like this.

5. In 2013 Parishes, Schools, Institutions and Seminarians owed the Diocese $20.9 Million of which a determination was made that $4.1 Million was “doubtful” (this is a nice way of saying that they don’t think you are going to be paid back). We must ask why any of our good Seminarians would not pay a loan back (that is attempted humor, I hope).

6. And then the motherlode: we (you and I dear brothers and sisters) have a collective mortgage in the amount of $114,700,000.00 at an interest rate of 6.4%. Starting this year (2015) we have to pay back approximately $22 Million each year through 2019. We did this in a form of a bond (that’s the mortgage) with Deutsche Bank National Trust Company, and unlike the Bishop’s loans to related parties, this one is collateralized between cash and real property holdings here at our Diocese. We have agreed to always maintain certain amounts of cash and real property on hand. The converse of this is that if we do not have those specific amounts on hand at any point in time, we are in default. Any good christian will recognize the term used for this type of agreement: it is called a covenant. I will put out a whole post on just this topic, but this one point is worth considering right now: all of our treasure (as in the monetary, but not our time and talent) has been and will be mortgaged for at least the next five years. I am emphasizing the “we” because this is worth reflecting on the costs we already bear as the basket is passed this coming Sunday at Mass.

That is my introduction to our 2013 Diocesan finances.

I would like to point out that from an outsider’s look in, I find them needlessly complex. They are certainly incomplete and as such it is hard to put a complete value judgment on them as a whole. We have too many subsidiaries and too much going on for an entity our size. It may in fact be one of the reasons that we publish our financial reports so slowly. We should not be in June 2015 waiting to see what happened in 2014. I do not like the amount of debt we have. I do not like the fact that the financial statements are not complete. Did I mention that I don’t like the debt?

I would like all of you to consider first and foremost that this statement of treasure is a statement of stewardship around your treasure, our treasure; not a Corporation Sole, not Adventus, or RCBO or any other name the Chancery has wrapped around it. Those dollars are YOURS.

It is appropriate to review the finances “from the top”; that is to say the Bishop (or in this case RCBO) as that is where the numbers are consolidated (even if incompletely so). As a result we tend to think about the finances from the head. But we (you and I) are the body: the eyes, the arms, the feet; and the body does not consist of only one part but many… The head cannot say to the feet “I don’t need you”. The head cannot act like the feet do not exist. Just because we are subject to decisions, even financial ones, made by Pastors or Bishops does not mean that we are the “weaker” part of the whole.

On the contrary, those parts of the body that seem to be weaker are in fact indispensable, and the parts of the body that we think are less honorable are treated with special honor, and we make our less attractive parts more attractive. However, our attractive parts don’t need this. But God has put the body together and has given special honor to the parts that lack it, so that there might be no disharmony in the body, but that its parts should have the same concern for each other. If one part suffers, every part suffers with it. (1 Cor 12:22)

We are all one body. With respect to the finances in the Diocese of Oakland, I think it is time for us all to become less passive and more strategic.