Bankruptcy will allow the Diocese of Helena to efficiently compensate sex abuse victims, Bishop George Thomas hopes, so it can begin rebuilding a church already in financial straits.

While the bankruptcy case will take several months to sort out, Thomas and diocese attorneys believe they can reach an agreement that will allow the church to emerge financially viable and with parishes intact.

That hasn’t been the case in some other diocese bankruptcies around the country, which have taken years to resolve and with mixed outcomes. Attorneys and church leaders in Helena say cooperation with victims has led to an arrangement that will allow the diocese to move forward.

“Mediation in my opinion benefits the entire group of people that are involved,” Thomas said.

However, the church still faces difficult decisions in the coming months as the diocese, creditors and a bankruptcy judge negotiate its financial future.

The settlement reached with victims’ attorneys in January will require the diocese to pay at least $2.5 million of $15 million in damages. Insurance will cover the rest.

But the money the diocese owes to its parishes is much greater, and is the result of several years of financial problems and past sex abuse claims, according to Thomas.

Bankruptcy documents indicate that the church’s assets are around half of its liabilities. They also show that a church revolving loan fund, in which parishes pool savings for capital projects, is underfunded by more than $5 million.

“I think with or without the litigation, financial reorganization was inevitable,” Thomas said.

In most dioceses, the church has asked its parishes to chip in to cover the claims, according to Charles Zech, director of the Center for Church Management at Villanova University.

The Diocese of Helena will try to pay its claims without asking parishes to contribute, diocese bankruptcy attorney Ford Elsaesser said.

It’s also unlikely that parishes or schools would close or be sold as part of the proceedings. Under canon law, the diocese operates as a “corporation sole,” with the bishop holding parishes in trust while each remains a separate entity.

Parish buildings, land and schools in the Diocese of Helena have a combined value of $33 million but aren’t listed among diocesan assets in the bankruptcy.

The independence of parishes has been challenged, but never resolved, in other church bankruptcy cases.

Elsaesser doesn’t anticipate the court will challenge it in this case. Keeping parishes separate is part of a tentative agreement with insurers and claimants, he said.

Still, parishes see effects from sex abuse settlements and church bankruptcies.

Zech pointed to the Diocese of Wilmington, in Delaware, where he said parish money kept in trust by the diocese was wiped out to cover claims.

“No parish ever expected their savings with the diocese to be at risk,” he said.

Church savings in the Helena diocese are already reduced or depleted, Thomas said, tapped in recent years to cover operating expenses as the church fell into financial duress. He said the diocese has paid around $9 million in past sex abuse claims.

As a result, some church building projects have been curtailed, Thomas said.

According to bankruptcy documents, parishes have deposited at least $11.5 million into the loan fund while owing $6.1 million.

The diocese has around $262,000 in bank accounts for the fund, the filing shows.

One of diocese’s top goals during the bankruptcy proceedings will be to find a way to return money to parishes over time, Elsaesser said.

“It may not be entirely possible,” he said.

The diocese will soon convene a blue ribbon committee to propose budget cutbacks to the court, Thomas said. The church must demonstrate that it will meet current financial obligations and have a tenable business plan thereafter.

Some reductions are already being made, he said. Ten employees on the diocese staff have been laid off, and the remaining will take monthly furloughs. Thomas has discontinued The Montana Catholic newspaper and closed its resource library.

In other bankruptcies, dioceses typically have sold nonessential properties — land planned for expansion, investments and retreat centers — to cover claims, Zech said.

The Diocese of Helena listed in its bankruptcy filing real estate worth $7.4 million. Its two most valuable properties include the $3.5 million Legendary Lodge camp on Salmon Lake, and the International Paper site in Missoula, worth $2.2 million.

The church is just beginning to explore its options, Elsaesser said, but some property may be used to fund a portion of the settlement or rebuild parish savings.

Elsaesser added that there’s a strong belief among Catholics in western Montana that Legendary Lodge should remain in the church.

The church is exploring how it might keep the property while potentially using some of its value to stabilize the diocese, he said.

No matter how the diocese fulfills its obligations, impacts will be felt at all levels of the church, Zech said.

“The diocese is going to be poorer and unable to provide as many services to parishioners,” he said.

Thomas hopes a bankruptcy agreement will be in place later this spring. Rebuilding diocesan assets, though, will take longer.

“I think it’s a time of purification for the church,” Thomas said. “I think in some ways that while this is a very painful process to go through, I think that the church will be holier, better and stronger by facing into the shadows.”

Reporter Derek Brouwer can be reached at derek.brouwer@helenair.com or 447-4081. Follow Derek on Twitter @IR_DerekBrouwer

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Education and business reporter. Twitter: @IR_DerekBrouwer

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