O.C. Diocese Close to Debt Payoff

Less than a year after a landmark payout of $100 million to settle sex-abuse claims against priests, the Roman Catholic Diocese of Orange has repaid most of the money it borrowed, and expects to be debt-free by July.

Unlike Catholic officials in Boston, Tucson and Portland, Ore., who sold church property or declared bankruptcy after abuse lawsuits, the Diocese of Orange avoided such drastic steps by liquidating part of its $200-million investment portfolio -- although officials still might sell their Marywood headquarters in Orange.

Church officials stressed that no parish or school funds were spent on the settlement.

“When a person drops their envelope in the collection basket, they don’t want that money to be used to pay off a sex-abuse lawsuit,” said Father Art Holquin, who chaired the diocese’s debt-reduction task force. “They want it to be used in their parish.”

The debt-repayment plan was announced by Bishop Tod D. Brown in a letter distributed at weekend Masses throughout Orange County.

In the letter, Brown said he envisioned no further cutbacks in programs or services beyond the 11 layoffs and belt-tightening enacted by the diocese a year ago.

Last December, the diocese agreed to pay $100 million to settle 90 sex-abuse claims against priests. The payments averaged $1.1 million per alleged victim, minus fees of up to 40% for their lawyers. The diocese admitted no legal liability, but Brown agreed to personally apologize to each of the alleged victims.

Half of the $100 million was covered by insurance. The rest came from a one-year bank loan.

“We did not want to panic and start selling properties,” Holquin said. Taking out a loan “gave everybody breathing room to look at the broad picture,” he said.

On Aug. 15, the diocese repaid $35 million -- 70% -- of the loan. The remainder, which is due in February, will be covered by profits from Catholic cemeteries and other business units and by additional loans, said Rob Fitzgerald, a former Pimco executive who served on the debt-reduction task force.

Everything should be paid off before next July, officials said.

Despite the quick turnaround, Holquin said, “it would be unfortunate if people perceived that what we did caused no pain. It did cause pain.”

Struggling Catholic schools in Santa Ana and other low-income areas could have benefited from the $50 million that was diverted to the sex-abuse settlement, he said.

Also unresolved is the fate of Marywood, a former girls’ high school that now serves as a retreat center and diocesan headquarters.

A decision on whether to sell the sprawling hillside property will be made before the end of the year, Holquin said.

Noting that 40% of Orange County’s population is projected to be Roman Catholic by 2010, Brown said Monday that the debt-payoff plan was structured to accommodate future growth.

The Diocese of Orange, which was spun off from the Archdiocese of Los Angeles in 1976, is the 11th-largest diocese in the U.S. Two decades ago, it was No. 37.