Bankruptcy case brings financial fears for Catholic schools

As president of an inner-city Catholic grade school that depends critically on donations, Helen Dahlman admits to an unconventional fundraising strategy.

"We believe in miracles, so we pray a lot," said Dahlman, who leads Risen Christ School in south Minneapolis, a place devoted to poor immigrants and other severely disadvantaged kids.

Risen Christ is among dozens of Catholic schools across the Twin Cities watching how the Archdiocese of St. Paul and Minneapolis shoulders millions of dollars of anticipated debt from clergy sexual abuse lawsuits. And as the church's bankruptcy case unfolds, they are keeping the faith that it won't have ripple effects on their finances.

Catholic leaders in St. Paul have said repeatedly that the church's decentralized corporate structure will protect individual schools and parishes from financial harm — a stance proven correct in other U.S. Catholic church bankruptcies.

Still, some veterans of the Twin Cities Catholic education scene worry about a trickle-down of pain.

"Many of these schools already have their backs against the wall," said Fred Zimmerman, professor emeritus at the University of St. Thomas and a former finance council member at Immaculate Heart of Mary parish in Minnetonka. "The bankruptcy is a problem they don't need."

If grouped together, the 80 Catholic elementary schools and 10 Catholic high schools in the archdiocese would rank as the fourth-largest school district in Minnesota. Enrollment has declined in the past decade, but the schools still serve 30,000 students, at an estimated savings to state taxpayers of $300 million a year.

Bishop Andrew Cozzens, vicar for Catholic education in the archdiocese, said in an interview this week that the archdiocese didn't undertake an official study of what could happen to Catholic schools as a result of a bankruptcy. But he said schools are separately incorporated and not at risk.

"Everybody has, of course, expressed fear and concern at times," Cozzens said. "But we have tried to assure everybody as much as we can that the [bankruptcy] filing affects the archdiocese and doesn't affect the independent corporations directly."

Charlie Rogers, a bankruptcy attorney for the archdiocese, also said he's not aware of "any basis where the bankruptcy should affect Catholic schools."

But Zimmerman, a business authority who has discussed the bankruptcy with friends in the local Catholic clergy, said heavy bankruptcy debt and related legal expenses will put pressure on Catholic fundraising across the board. Some observers also fear that plaintiffs' lawyers will go after cash in the newly formed Catholic Services Appeal Foundation, a nonprofit corporation that gives more than $2 million a year to needy schools.

The new foundation collects money from parishioners across the archdiocese in an annual fund drive. Before its establishment in January 2014, money from the same fund drive flowed directly into the archdiocese. Zimmerman said creditors could argue in court that the foundation was established only to shield money from bankruptcy claims.

"It will be heavily discussed," Zimmerman said.

Clarence Shallbetter, a Catholic deacon from Minneapolis who works in prison ministries, said he thinks about all the money that will be required to pay the "battalion" of lawyers and financial restructuring consultants working on the case.

The Rev. James Connell, a Milwaukee-area priest who has observed bankruptcy proceedings in his archdiocese over the past four years, said there hasn't been any obvious effect on Catholic schools. Universally lower church attendance, fewer bequests as people live longer and the recent economic downturn probably explain individual fundraising declines more than any perceived discontent from parishioners, he said.

But Catherine Cory, director of the Murray Institute at the University of St. Thomas, said Catholic schools in the Twin Cities could suffer indirectly if the bankruptcy drags on. The nonprofit institute she heads provides advanced-degree scholarship money to Catholic schoolteachers who commit to staying in the system for at least three years.

Even before the Twin Cities bankruptcy began, she said, Catholic school enrollment was ebbing because parents were frightened away by the barrage of stories about clergy sexual abuse. The enrollment crunch makes it more difficult for schools to sustain pay for teachers who already earn less than they could in the public system, Cory said.

"The biggest help to Catholic schools would be for the priest sexual abuse problem to be solved as soon as possible," she said.

Cozzens said he hopes for a turnaround in enrollment despite the bankruptcy noise — with quality education and high graduation rates as the selling points. "We are looking at ways to turn around the trends," he said.

At Risen Christ, Dahlman and the Rev. Joe Gillespie, the school's liaison with the archdiocese, refuse to believe the bankruptcy will damage fundraising. The school, a consolidation of five parish schools in south Minneapolis, draws more than $500,000 in annual support from the Catholic Services Appeal Foundation and raises upward of $600,000 from other sources.

The bankruptcy has been a "jolting reality," Gillespie said, but he added: "At this point I think we are operating in the fairly safe zone. It would be hard to imagine that a little school like this would be clawed at" by bankruptcy attorneys.

Dahlman said Risen Christ families are so poor, they often can't afford to send more than one child to school at a time for the minimum tuition of $800 a year. All but 5 percent of students at the school qualify for the free or reduced lunch program, and most students enter Risen Christ two years behind where they should be academically.

"The dignity and worth of each child here matters to us," Dahlman said.

She was touched recently when a graduate announced plans to attend Harvard University to become an immigration attorney. The student's life was falling apart at age 9 when her mother was deported to Mexico, Dahlman said. Risen Christ became her surrogate family.

Pointing to a brightly decorated kindergarten classroom where students were working with iPads, Dahlman said, "Nobody wants this harmed."

Tony Kennedy • 612-673-4213