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Spotlight Report

Archdiocese mortgages Law's home to pay debt

By Michael Rezendes and Thomas Farragher, Globe Staff, 9/28/2002

The Archdiocese of Boston, underscoring the precarious condition of its day-to-day finances, yesterday mortgaged Cardinal Bernard F. Law's Brighton residence and the chancery grounds that serve as its headquarters in a deal that will allow church officials to cover a variety of expenses with a loan of up to $38 million.

The mortgage agreement with the Knights of Columbus, a Catholic service organization that makes church loans and donates millions to charitable causes, comes with an initial advance of $12.5 million that will give church officials financial breathing room as they grapple with a drop in donations attributed by many to the clergy sexual abuse scandal.

''It is clear that some people who have supported the church's work in past years are withholding, at least temporarily, their support financially due to their feelings regarding the terrible scandal of sexual abuse of the young by clergy,'' church chancellor David W. Smith said, in a prepared statement.

Smith, the chief fiscal officer of the archdiocese, acknowledged in an interview that borrowing against fixed assets such as the 16-acre chancery grounds to cover day-to-day operating expenses is not the most prudent or desirable way to manage church finances. But he said church officials are committed to continuing programs for the poor and disadvantaged and found themselves with few options.

''The social work of the church has to go on. You can't shut the church down,'' Smith said.

Much of the initial advance will be used to retire a short-term $9 million debt to Fleet Bank, part of a $17.5 million unsecured line of credit that was shut off by the bank earlier this year. Another portion of the Knights of Columbus loan will be used to complete the new Shaughnessy Family Center, a social service center serving low-income families in South Boston.

Smith said the mortgage will not affect plans to slash church spending by up to 40 percent during the fiscal year that began July 1 by reducing - and in some cases eliminating - subsidies to scores of church programs. ''We replaced short-term debt with long-term debt. It doesn't have anything to do with anything else,'' Smith said.

In his statement, Smith said that after taking the initial $12.5 million advance, the church would be able to borrow up to $25.5 million more, and that the entire $38 million, plus interest, would be repaid over 20 years from the date of the advance. The entire loan, Smith said, would be equal to about 75 percent of the value of the 16-acre chancery grounds.

The Knights of Columbus, in a statement, described loans such as this one as common practice for the organization, which is a major benefactor of church causes. ''Loans to Catholic churches,'' the statement read, ''have been a modest but important part of the Knights' investment portfolio.''

The Knights' assets come from the sale of insurance and annuities to its members and others.

Until recently, it was the practice of church officials in Boston to cover shortfalls by spending down the Fleet Bank line of credit. Typically, the church would borrow money on a short-term basis in the summer and fall and repay all or most of it in the spring and winter. That is because donations to the annual Cardinal's Appeal usually arrive in two bursts: in late May and early June after the Appeal is launched, and in late November and December, when many donors are looking for tax deductions.

But church officials say the sluggish economy slowed donations in recent years and that the trend has been exacerbated by a downturn in the stock market and the sexual abuse scandal that erupted in January.

The mortgage deal follows a $10 million legal settlement reached earlier this month with victims of former priest and convicted pedophile John J. Geoghan. Church officials said they funded the agreement with third-party insurance and a self-insurance fund and that no church operating money was used.

Yesterday, Smith said the deal with the Knights of Columbus church loan program would have no bearing on future attempts to reach settlements with an estimated 300 additional people who say they were sexually molested by priests from the archdiocese.

But lawyers for more than 200 alleged victims of clergy sexual abuse said they hoped the financial restructuring would hasten efforts to settle the lawsuits filed against the archdiocese. ''This shows that the church has access to a wide variety of sources of funds and has the financial wherewithal to resolve these cases if they really wanted to do so,'' said lawyer Robert Sherman of Greenberg Traurig, whose firm represents more than 200 alleged victims.

Still, Jeffrey A. Newman, a lawyer with Greenberg Traurig, said the archdiocese's effort to stanch its cash-flow problems does not necessarily mean it will now quickly proceed to settlement talks.

''There's still no discussion, no plan, and no impetus to even examine a potential for resolution with the victims,'' Newman said. ''In the greater scheme of things, they've found a way to stay afloat and I'm happy for them. But I represent 237 victims of sexual abuse and there's been not one word about attempting to draw forward on this terrible chapter.''

Stephen Kurkjian and Matt Carroll of the Globe Staff contributed to this story.

This story ran on page B1 of the Boston Globe on 9/28/2002.
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