For decades, the Archdiocese of St. Paul and Minneapolis has been shifting money into separate nonprofits that may be beyond the reach of its creditors in bankruptcy court.
There's the Catholic Community Foundation, created in the 1990s. The Catholic Finance Corporation, created in 2000. The Aim Higher Minnesota Foundation in 2011. The Catholic Services Appeal Foundation in 2013.
The nonprofits were created for various reasons, but they carry the potential benefit of protecting the church's assets from liability linked to clergy abuse suits. The moves are seen as prudent by some church finance leaders, but by others as maneuvers to transfer money to where victims and their lawyers will have a harder time reaching it.
The archdiocese declined to discuss the moves.
"The archdiocese at no time has taken action to defraud any creditors," Joe Kueppers, chancellor for civil affairs, said in a written statement.
Priests such as the Rev. Michael Tegeder say litigious times require organizations to protect themselves. "People have donated large sums of money for specific purposes," he said. "That's a sacred trust."
David Clohessy, national director of Survivors Network of Those Abused by Priests, accused the archdiocese of "self-serving financial maneuvers."
"Can anyone honestly claim that Jesus would have spent time and energy shielding assets?" asked Clohessy.
The nonprofits are independent in name but closely tied to the chancery. Archdiocese officials have held key leadership positions on their boards of directors, and some of the organizations have been housed in the archdiocese's Hayden Center in St. Paul.
The spinoff nonprofits can be viewed as good financial stewardship and a way to ensure that donors' money is spent the way they intended, said Charles Zech, director of the Center for the Study of Church Management at Villanova University in Pennsylvania. An added benefit: It lands the archdiocese in a better place in bankruptcy.
A key focus of Chapter 11 bankruptcy is determining which assets are available to pay creditors. However, those decisions may not become public because the archdiocese is in mediation with its creditors instead of open court.
"We will have qualified people looking at all of the expenditures and all of the funds to make sure they comply with the law," said Patrick Noaker, a Minneapolis lawyer for victims of priest abuse.
The Catholic Community Foundation was the brainchild of then-Archbishop John Roach in 1990, the same year a jury awarded a victim of the Rev. Thomas Adamson $3.5 million, including $2.7 million in punitive damages against the archdiocese and Diocese of Winona. Although eventually slashed to $187,000, it was the first time an archdiocese or diocese had been ordered to pay punitive damages, said Jeff Anderson, the St. Paul attorney who represented the victim.
"They realized how exposed they were," Anderson said.
In a sworn deposition last year, the Rev. Kevin McDonough — the archdiocese's longtime point man for clergy abuse — acknowledged that the church created the Catholic Community Foundation in part because donors feared that courts would force the church to "surrender" their money for settlements. The foundation was a way for Catholics to donate but not to the church.
Incorporated in 1992, the foundation was distinct from the archdiocese yet still tightly aligned with it. Archbishop John Nienstedt is the chairman.
The foundation, which now manages assets of $280 million, was built on archdiocese money. In fiscal years 1994 through 1996, the first years of operation, the archdiocese transferred $11.5 million in endowment funds.
Zech summed it up this way: "A lot of activities, especially social service activities, that would have been funded by the archdiocese are now off the chancery's books and funded through a separate corporation."
"I can't imagine the courts including it in any settlement," Zech said.
Anne Cullen Miller, the foundation's current president, said the transferred funds were restricted — they were permanent endowments for specific beneficiaries.
"Those donations were never — and likely would never have been — assets of the church and thus the notion that the foundation exists to 'shield' such assets is simply wrongly founded," Cullen Miller said in a statement.
Carving off more
For decades, the Catholic Services Appeal has been the leading archdiocese fundraiser, providing at least one-quarter of its annual operating revenue. But in 2013, the year the state Legislature temporarily lifted the statute of limitations on older clergy abuse cases, the archdiocese established a new home for the millions of dollars.
The Catholic Services Appeal Foundation now receives parishioners' donations, which it stresses will be used for its mission "and for no other purpose." It raised more than $9 million last year.
Zech thinks the transfer of the foundation's assets "will certainly be contested" by creditors in the bankruptcy proceedings.
Another organization, the Aim Higher Minnesota Foundation, was launched in late 2011 to provide tuition assistance to attend Catholic elementary schools. It started with cash donations from the archdiocese totaling $1.2 million in fiscal 2012 and fiscal 2013, tax documents show.
Another spinoff came as the archdiocese faced growing pressure to underwrite parish construction projects. In 2000, it started the Catholic Finance Corporation to provide financial services to parishes and other Catholic institutions, said Michael P. Schaefer, Catholic Finance's founding executive director.
The archdiocese paid the corporation's start-up costs, including salaries and office space, Schaefer said. He said the start-up costs were repaid.
The archdiocese also raised $28 million for the corporation's loan fund in its Growing in Faith capital campaign in the early 2000s, he said.
Over the years the group has made 47 loans totaling nearly $61 million. The nonprofit was hired as a consultant to help the Spokane diocese after it filed for bankruptcy in 2004.
As clergy abuse cases surged, dioceses across the country have taken steps to protect assets. Many have set about incorporating their parishes as separate legal entities, said Ken Brown and James Stang, whose San Francisco law firm of Pachulski Stang has represented creditors in most of the Catholic archdiocese bankruptcy cases.
That's a step Minnesota did not have to take because parishes were always incorporated separately here.
What is unusual about St. Paul-Minneapolis is that it began protecting itself decades ago, bankruptcy experts said. That's largely because the work of Anderson, an internationally known litigator on behalf of clergy abuse victims.
"I think the archdiocese learned from other dioceses, where funds commingled with the archdiocese were part of the settlement," Zech said.
Jean Hopfensperger • 612-673-4511
Jennifer Bjorhus 612-673-4683