2006 Accountability Report

Chief Financial Officer's Report

The 2005-2006 fiscal year was our second consecutive year of break-even financial operations. We also continued to experience growing stewardship, steady investment returns and challenging employee-benefit and facilities expenses. The people of the archdiocese continue to generously support the ministries of the Church as evidenced through the initial results of the Legacy for Our Mission: For Our Children and the Future capital stewardship campaign. This report highlights several significant areas of our financial operations.

Chancery 2005-06 Operating Results

The chancery and agencies of the Archdiocese of Indianapolis completed 2005-06 with a $614,000 surplus vs. a budgeted surplus of $221,000, a positive variance of $393,000. This represents the second consecutive year with an operating surplus for the archdiocese since the mid-1990s and a 2006-07 budget of $596,000 (positive) seems to indicate that the archdiocese has likely achieved a more stable footing than in recent years.

I must offer two cautions about the positive operating results: first, the surplus is very small relative to the total overall budget—only about 1.6 percent of operational expenses; second, any surpluses must be used to “repay” the deficit spending of recent years. In other words, we will still need to continue to hold expenses down; this is not the time to increase budgets, even for human and material resources that agencies have been doing without for a number of years.

Called to Serve: Parish Stewardship and United Catholic Appeal

Parish stewardship, through Sunday and holy day collections, continued to grow. Total parish Sunday and holy day collections for 2005-2006 throughout the archdiocese grew at a rate of 2.3 percent. This compares with a growth rate of 1.9 percent in parish Sunday and holy day collections for 2004-2005.

The 2005 United Catholic Appeal received pledges of $5.58 million, including Appeal goal amounts for the pilot parishes participating in the fall 2005 Legacy for Our Mission campaign. This compares to pledges of $5.65 million for the 2004 United Catholic Appeal, a decrease of 1.2 percent.

St. Francis Xavier Home Missions Fund

June 2006 brought the sixth year of allocations of the St. Francis Xavier Home Missions funds. The allocations committee, consisting of 11 members—pastors and parish life coordinators from each deanery—aided by two archdiocesan staff members, made recommendations to Archbishop Daniel M. Buechlein for home missions grants based on applications received from 36 parishes and agencies. Approximately $377,500 was awarded to 24 parishes.

Home missions grants are supported through the generosity of parishes that pledge some or all of the money they raise in excess of their Called to Serve/ United Catholic Appeal goal to the St. Francis Xavier Home Missions Fund and through distributions from the Catholic Community Foundation’s Archdiocesan Home Missions Endowment Fund, which was established through the Legacy of Hope from Generation to Generation capital and endowment campaign. While we’ve improved our funding to support needy parishes, parish needs still far outweigh available resources. Grant requests exceeded $1.3 million during the year. This means that less than 30 percent of the grant dollars requested was able to be awarded.

Catholic Urban School Consortium

The six center-city Indianapolis elementary schools that have joined to form the Catholic Urban School Consortium strive to provide a high quality education with a strong spiritual base, leading students of all faiths to secondary and post-secondary education. The consortium is working hard to continue to raise academic excellence, maximize available resources and increase enrollment at the schools. The operating deficit for these schools for the 2005-2006 fiscal year was approximately $1.7 million.

Eventually, this annual financial deficit is expected to be funded through annual fundraising and larger endowment distributions. In the short term, the corporate and foundation phase of the Legacy for Our Mission campaign will be used to meet this need.

The people supporting the consortium goals and operations are working to raise additional support, increase enrollment, and create expense savings through efficiencies. Significant facility needs are also present at several of the facilities which have and will continue to require capital expenditures. The goal of the Catholic Urban School Consortium continues to be to operate at a break even mark and will strive to accomplish this goal through additional development efforts.

Legacy for Our Mission Campaign

In the fall of 2005, Archbishop Buechlein launched the Legacy for Our Mission campaign. As noted in Archbishop Buechlein’s letter in this accountability report, the campaign benefits both local parish needs and archdiocesan ministry needs. Through fiscal year 2006, 23 parishes had conducted the Legacy for Our Mission capital stewardship campaign, raising $26.8 million in pledges. Approximately $7.5 million of these pledges had been collected through June 30. (As of the writing of this report, an additional 41 parishes have reported an additional $22 million in pledges in the fall of 2006, bringing the total campaign just shy of the half-way point.)

Expenses Related to Sexual Misconduct

In fiscal year 2006, approximately $85,000 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 $87,000 was spent for these purposes in fiscal year 2005. Additionally, approximately $196,000 was spent for legal fees to defend the archdiocese from sexual misconduct lawsuits in 2006. $204,000 was spent for legal defense in 2005.

Insurance Plans and Parish Services

The archdiocese operates several insurance plans, employee benefit plans and other services on behalf of parishes, schools and employees. Two of the most significant plans are the lay employee health insurance plan and the property insurance plan. Both have seen significant changes in recent years.

The lay employee health insurance plan experienced a $465,000 surplus. As with the archdiocesan operating budget, I caution that this surplus is very small relative to the size of the health plan—about 3 percent. Small changes in enrollment or claims can quickly eliminate this surplus and swing the plan to a loss. Increasing health care costs continue to challenge parish, school and agency budgets. At the same time, they create financial challenges for individual employees.

The property insurance plan experienced a surplus in excess of $1.3 million. 2005-06 is the third consecutive year that the plan has been designed to run at a significant surplus. These results have supported the establishment of a property insurance reserve fund in the Catholic Community Foundation that is now approximately $3.5 million. This reserve fund will help to protect parishes, schools and agencies against catastrophic losses and will help to mitigate annual insurance cost increases.

Tax-exempt Bond Financing and Moody’s Credit Rating

In 1996, the Archdiocese of Indianapolis became the first diocese in the country to obtain a credit rating from one of the major credit rating agencies—Moody’s Investors Service. Our initial credit rating was A3—a strong rating that ranks in the top one-third of the ratings categories Moody’s uses. In November 2005, Moody’s announced that it had upgraded the credit rating of the Archdiocese of Indianapolis to A2. As the basis for their decision, Moody’s cited strong parish operations (specifically as measured by Sunday collections), strong parishioner support of archdiocesan ministries (measured by the Called to Serve/United Catholic Appeal and the Legacy of Hope Capital and Endowment Campaign), and the success attained in resolving sexual misconduct lawsuits without financial settlements.

In the spring of 2006, the archdiocese refinanced its 1996 tax-exempt bond issue. The refinancing is projected to save approximately $140,000 in principle and interest payments each year for the remaining 20 years of the bond issue.

Catholic Community Foundation, Inc.

The Catholic Community Foundation’s total assets topped $137.0 million at June 30, 2006, an increase of 6 percent from the previous year. Investment returns achieved a rate of 7.5 percent. Foundation investments have returned a very respectable 9.2 percent (annualized) since the inception of the current investment structure in January 1995. Parishes, schools and agencies of the archdiocese added 18 new endowments during the year, bringing the total number of endowments held in the foundation to 323. For the first time since its inception, the Catholic Community Foundation endowments distributed more funds than were raised through the annual United Catholic Appeal. The endowments distributed over $6.0 million last year to support parish, school and agency ministries, demonstrating the ability of endowments to provide long-term funding for ministries.

2006-07 Operating Budget

We enter the 2006-07 fiscal year with an operating budget of $596,000 (surplus) on approximately $39 million of total operating expenses. We anticipate the most significant challenges to include:

• Health care and employee benefit costs that are increasing much faster than Sunday collections
• Construction and facilities costs (such as property insurance and heating costs) that continue to increase
• School operating costs (including health care expenses) that are increasing faster than our ability to increase tuition
• Several parishes that continue to operate at a deficit.

On the other hand, we have several positive opportunities:

• A trend of positive growth in Sunday collections
• The Legacy for Our Mission campaign, which has seen strong positive results among the pilot and initial waves of parishes conducting this effort
• The formation of the Catholic Urban School Consortium to address financial operations of Indianapolis center-city Catholic schools
• Three consecutive years of strong investment returns and growing endowments
• The introduction of alternative health care plans to better control escalating costs
• A growing property self-insurance reserve fund to protect against future potential large losses and mitigate future cost increases.

While the budgeted surplus is certainly small relative to the total operating budget, it is our belief that we are seeing the beginning of a stable operating trend that will help us recoup deficit operational spending from previous years.

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.

Archbishop Buechlein 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:

• Most Rev. Daniel M. Buechlein, O.S.B., Archbishop, Chairman
• Rev. Msgr. Joseph F. Schaedel, Vicar General, Vice Chairman
• Clark Byrum, President
• Jacqueline Byers, Vice-President
• Philip B. McKiernan, Secretary
• Patrick Carr
• Dale Gettelfinger
• Kenneth J. Hedlund
• Mary Horn
• David R. Milroy
• Timothy Robinson
• Jeffrey D. Stumpf, Chief Financial Officer, Staff

This past fiscal year marked continuing financial recovery for the parishes, schools and agencies of the Archdiocese of Indianapolis as we worked to build a sounder financial footing. Stewardship grew, investment returns were strong, and expenses generally fell in line with budget expectations. Now, we look with hope toward the conclusion of the Legacy for Our Mission campaign. 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