The financial structure that has hurt the Catholic Church will likely help Boy Scouts in bankruptcy

I’ve written a couple posts about the finances of the Catholic Church and the Vatican (which are very different things when money is involved):

The staggering financial cost of predatory priests (and a do-nothing pope)

Pope Francis has apparently been running a hedge fund with the faithful’s donations

Both deal with how the franchise-like financial model of the Catholic Church leads to some bizarre outcomes as the church has been bombarded with lawsuits over clergy abuse. In the case of the Catholic Church, the Vatican has been shielded financially and dioceses across the globe have become insolvent. The Vatican, of course, has its own financial problems, but that is mostly related to speculative investments and an out-of-control budget.

Turns out, Boys Scouts of America is structured similarly from a financial perspective, but it will shield most of the organization’s assets in a potential (likely) Chapter 11 bankruptcy filing, which will limit the resources available for abuse victims:

Facing roughly 300 lawsuits alleging sexual misconduct by employees and volunteers, the Boy Scouts are considering a bankruptcy filing covering the national governing body but excluding 261 local councils, these people said. Councils operate local troops and own assets including land in many states….

While the organization hasn’t decided whether to begin chapter 11 proceedings, it said on an internal conference call Monday that a committee of local councils would be formed to represent their interests in a potential bankruptcy, the people said.

Membership numbers are declining, and some of the Boy Scouts’ efforts to broaden their appeal, such as opening their doors to girls, transgender youth and gay volunteers, have backfired.

States including California and New York have extended the statutes of limitation for sexual-abuse claimants, opening the courthouse doors for former scouts claiming they were sexually abused, regardless of when the alleged misconduct occurred.

The extended deadlines have fueled a wave of lawsuits, stressing the Boy Scouts’ finances. The national organization historically has picked up the cost of defending and settling claims against local councils when they too are named as defendants, people familiar with the matter said.

By placing the national organization but not the local councils into bankruptcy and funneling sexual-abuse claims to a compensation trust, the Boy Scouts are following a strategy of religious nonprofits that moved through bankruptcy over the past 15 years and limited the assets available to creditors using trusts, separately incorporated entities and other financial devices. Catholic dioceses were successful in keeping parishes out of bankruptcy and limiting the exposure of their properties to sexual abuse claimants.

[Some Catholic dioceses may have used trusts to move assets out of view, but dozens of US dioceses have given up and filed for bankruptcy now. Usually in these cases, some property will get liquidated, but the biggest loss to the diocese will be staff levels. Some dioceses have seen their staff cut in half, which is a very big deal from an operational standpoint. All while Francis pours donations into luxury real estate in London.]

Lawyers for former scouts who allege they were sexually abused say there isn’t enough money to fund the trust properly without dipping into the assets of the local councils, which are separate nonprofits with their own boards, properties, investments and endowments.

These regional groups hold roughly 70% of the Boy Scouts’ wealth, according to a Wall Street Journal analysis. A bankruptcy filing by only the national council could erect legal barriers to victims trying to collect from local councils. Some councils facing significant abuse claims still could contribute to the victims’ trust, but their participation would be voluntary, according to people familiar with the matter….

The national Boy Scouts council holds $1.4 billion in assets, according to the latest tax filings. But other affiliated nonprofits including the local councils separately hold about $3.3 billion in assets, according to a Wall Street Journal analysis of the most recently available Internal Revenue Service data, which largely covers 2018 tax filings. The Journal tallied assets for almost 400 nonprofits registered with the IRS under the Boy Scouts’ umbrella.

Placing the national council in bankruptcy would make its unencumbered assets—or those not pledged for loans or otherwise restricted—available to fund a victims’ compensation trust. However, some major Boy Scouts assets are already pledged as collateral securing loans. That includes the 140,000-acre Philmont Ranch in New Mexico, one of four major adventure bases that feed significant revenue to the national council, along with events like the National Jamboree, tax records show.

With $151 million in assets, the Sam Houston Area Council in Texas is the largest of the local councils, followed by the Atlanta Area Council, which has more than $78 million in real estate, investments, equipment and other assets, and the Michigan Crossroads Council, at $59 million in assets. In New York and New Jersey, local councils and affiliated nonprofits control, in the aggregate, more than $200 million in assets that are potentially vulnerable due to laws that opened the window on lawsuits in those states….

Like the Catholic dioceses and religious orders that have used bankruptcy to tamp down claims from victims of sexual abuse, the Boy Scouts can take advantage of nonprofit accounting rules to push assets out of view, said Marci Hamilton, a constitutional law scholar and founder of Child USA, a Philadelphia-based nonprofit focused on child abuse and medical neglect.

The bankruptcy system was designed to preserve businesses while victims of alleged sexual abuse take a back seat, said Ms. Hamilton, who has consulted on some diocesan bankruptcies.

Filing for chapter 11 would supply the Boy Scouts with a centralized forum for negotiations while potentially alleviating the cost of defending hundreds of sex-abuse claims simultaneously. Under bankruptcy protection, the Boy Scouts could also curtail the newly expanded statutes of limitations, setting a deadline by which alleged victims must come forward or be forever barred from collecting.

So both the Boy Scouts of America and the Catholic Church have franchise-like structures, but BSA will go broke as the locals stay rich and the Vatican will stay rich while locals go broke.

At the end of the day, this probably won’t stop the collapse of either “brand” overall. Much like how the Catholic Church seems destined for a schism over cultural issues, Boy Scouts has lost its broad appeal over cultural issues. So any bankruptcy filing is probably just a band-aid for their finances. If people don’t like you, on-going financial support is unlikely to materialize even as the victims are restricted to various trusts and other legal machinery for compensation. Bankruptcy can only do so much.

2 thoughts on “The financial structure that has hurt the Catholic Church will likely help Boy Scouts in bankruptcy

  1. In an effort to look more hip amid scandal they lost their base by changing their philosophy and their curriculum. My oldest was apart of the Sam Houston Council you mentioned. It was a wonderful experience for our whole family but when the curriculum started veering from hard tangible skills to touchy feely, everyone gets an award bunk they lost this family. My son just refused. He said it was dumb. I wasn’t going to make him continue. I hope they get back to their roots but I fear the financial bleed has gone too far and they’ve alienated too many of their base.

    Liked by 1 person

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