Vatican declines to bail out dioceses filing bankruptcy

VATICAN CITY -- From New Zealand to Newfoundland, sex abuse settlements are posing an enormous financial burden on the Roman Catholic Church, even leading the Boston Archdiocese in the United States to consider the unprecedented step of filing for bankruptcy.

But when it comes time to pay the bills, Vatican officials won't be signing the checks.

Settlement costs this year in Ireland are estimated at $140 million, and in the United States dioceses could wind up paying hundreds of millions of dollars for new claims. Victim advocates estimate that U.S. dioceses had already spent $1 billion on settlements before this year's crisis.

In the Boston case, the Vatican would have to approve a bankruptcy filing, but otherwise the Holy See doesn't bail out dioceses in financial trouble. It expects each diocese to pay its own way -- often counting on them to help the Vatican's worldwide mission.

What's more, the Vatican has always said that claims of its immense wealth are exaggerated, and that the precious art work and real estate it possesses are held in trust for humanity.

The Vatican "does not have a responsibility, not in a strict sense," for a diocese's finances, said Cardinal Edmund C. Szoka, who headed the Vatican's budget planning office through much of the 1990s.

"The bishop in a diocese is responsible for his diocese," he said.

Szoka, a former archbishop of Detroit and now president of the commission that governs the Vatican's city-state, has received credit for helping turn the perennial red in Vatican balance sheets to black, demanding strict financial accountability.

In July, however, the Vatican reported its first deficit in nine years -- about $3 million -- and blamed the shortfall on the worldwide financial slump aggravated by the Sept. 11 attacks.

At various times, the Vatican has faced calls that it sell off its art to finance its operations or to help the poor. Earlier this year, it formally denied a report that Pope Paul VI had discussed the possibility of selling Michelangelo's "Pieta" in a 1978 meeting with a French art dealer.

Church officials say the Vatican's real estate holdings, mainly buildings in and around Vatican City, are listed on the books as worth about $650 million.

But that doesn't include what are considered priceless holdings such as St. Peter's Basilica, part of the trust for humanity. Its worth is listed as a symbolic "one euro," a Vatican accountant, Ivan Ruggiero, told a news conference in July.

While bishops have financial independence, church law requires Vatican approval if the possible sale of assets exceeds a figure set for each country by its bishops conference. The figure for the United States is $3 million.

The Boston Archdiocese's financial commission has given Cardinal Bernard Law permission to file for Chapter 11 bankruptcy protection, a move that would open up the church's financial records to exceptional scrutiny by a state court in Massachusetts.

"A bishop, who enjoys unquestioned religious authority to administer his diocese as he sees fit, could not be expected to take kindly to such supervision by a judge nor to the relentless inquiries of the creditors," said Fred J. Naffziger, a professor of business law at Indiana University, writing in the Jesuit magazine America before Boston moved toward bankruptcy.

Law has been at the Vatican this week, presumably discussing the bankruptcy issue and possibly calls for his resignation for failing to remove sexually abusive priests.

The church in the United States is not alone in facing huge settlements for its mishandling of clerical sex abuse claims.

A $140-million settlement in Ireland will require the church to sell some property there. However, the Irish government is footing much of the bill because of the church's stated inability to pay, and because the state is responsible for monitoring the quality of care in schools or orphanages where the abuse occurred.

Other agreements this year have been reported in New Zealand and Canada, where Catholics have been asked to help raise funds to help pay sex abuse victims at a Newfoundland orphanage in a $12 million out-of-court settlement.

Still, bankruptcy is considered an extreme step.

Even if it brought some financial relief, bankruptcy would irreparably damage the Boston Archdiocese's image, said Chuck Zech, an economics professor at Villanova University who specializes in Catholic church finances.

"A lot of folks are going to say, 'Look at all the property they own. Look at where the cardinal lives. How could they declare bankruptcy?"' Zech said. "That's a legitimate argument."