Costs forcing sharp cuts at Christian Science church

Boston Globe/April 3, 2004
By Donovan Slack and Beth Healy

In the past two months, leaders at the First Church of Christ, Scientist in Boston have slashed 125 jobs, or nearly one-quarter of the church staff, and trimmed the page count and news-gathering budget of the Pulitzer Prize-winning Christian Science Monitor. In addition, they have installed a new financial chief and stopped all tours of the Mother Church and the houses of church founder Mary Baker Eddy.

Behind the majestic facade of the world headquarters in the Back Bay lies an organization reeling from an ambitious $100 million spending spree that has spurred its worst financial crunch in a decade.

The aggressive cost-cutting effort follows construction of a $50 million library intended to draw new followers to Christian Science and the $55 million renovation of the sprawling church grounds on Huntington Avenue. Church officials said the spending is part of fulfilling their mission, but conceded there was insufficient oversight of church spending across the organization.

In addition, the Globe found $60 million in accounting errors in the public financial filings of the church and its affiliates, mistakes officials said they were unaware of until the Globe brought them to their attention. Subsequently, church officials blamed them on their auditors at Ernst & Young. "We are coming off the back of roughly five years of having launched several very major programs here at the church," said Edward J. Odegaard, a former Wall Street executive who joined the church last fall to help with fund-raising and last month was put in charge of its day-to-day finances. "After having added so much, we didn't feel that we were operating in the most efficient and clear fashion. We've embarked on this period of assessment and, in some cases, pause."

That pause has sparked worry among employees of the church and its publishing arm, as well as in the ranks of its retirees and members. The church posted a financial loss in fiscal 2003, its first in a decade, as expenses exceeded revenues by nearly $8 million. That compares to a $27.7 million surplus in fiscal 2002, which ended April 30, 2002. In February, the church's board of directors initiated a broad reorganization of the church, including a number of spending cutbacks, that is slated to conclude by June. Further layoffs have not been ruled out.

The church and its finances historically have been controlled by five directors, in a structure laid out by Eddy, the founder of the Church of Christ, Scientist, which emphasizes healing through prayer rather than medical care. One director, Walter D. Jones, holds the title of treasurer and is charged with overseeing the organization's financial health.

The fiscal 2002 tax filing by the Mary Baker Eddy Library for the Betterment of Humanity Inc. indicates that $80.5 million was spent to build the library that year, $30 million more than the church told donors at the outset that the five-year project would cost, according to a Globe review of the documents. But church officials said that the $80.5 million was an error; in fact, less than $30 million had been spent at that point. Their outside auditors signed off on the error, which was not caught by their own accountants.

Odegaard said that the church had been unaware of the mistake and that the church has since filed an amended return with the Internal Revenue Service. He said the error had no impact on the church's financial health. Kenneth Kerrigan, a spokesman in the New York office of Ernst & Young, sounded surprised when told by a reporter that the church had blamed the firm for the error, but said that "the errors had absolutely no impact on the tax return or the financial statement."

To some church employees and members, the auditing errors are a reflection of poor financial management of the church. Maryfrances Cassell, director of a church group that opposes the church's recent spending, said, "They are just spending like they have unlimited funds. . . . There doesn't seem to be any financial responsibility at all."

The library cost is not the only error in the reports. In its 2003 financial statement, the church cited a $4 million loss on foreign currency transactions in one of its investment portfolios. Odegaard said that figure, described in a footnote, should have been reported as a gain, not a loss, and he called the mistake "embarrassing."

"We do take this seriously, both internally and in terms of our auditors," Odegaard said. "It reflects on us as an organization, and we don't like it."

The hiring of Odegaard -- a former investment banker with J.P. Morgan & Co. who was originally brought in for his fund-raising contacts, according to people who know him -- marks a rare placement of an outsider in an important role at the church. As senior manager of finance and development, reporting to Jones, the director, Odegaard is expected to help bring the church back into the black.

Odegaard downplayed last fiscal year's red ink, saying it was the result of heavy capital spending, much of which was paid for through donations, as well as the three-year stock market decline that lasted until early 2003. Indeed, losses in the investment portfolio have put a dent in the organization's endowment funds. The Mother Church's endowment dropped 15 percent to $51.3 million from 2002 to 2003, while the endowment that supports the money-losing Monitor slid 16 percent to $67 million in that period, according to the church's financial statements.

Another financial pressure facing the church is its pension plan, whose losses have distressed some retirees. Plan assets declined from $80.3 million in 2000 to $48.5 million in April 2003, according to the financial statements. Odegaard said the assets have rebounded to $59 million after last year's stock market rally. The plan is 82 percent funded, which Odegaard called "not too bad." That figure is roughly in line with the funding levels seen at many private-sector pension funds after the bear market. He said the church is adding funds to the plan, in addition to seeking gains from the market over time.

The last time the church faced significant financial difficulties was in the early 1990s, after a failed effort to build a television and radio empire. The church lost $327 million on its cable TV venture alone, and the losses sent shockwaves through the church, resulting in a large number of layoffs and the resignation of its chairman, Harvey W. Wood. His successor, Virginia S. Harris, remains chairman of the church and its 2,000 branches in 80 countries.

In the latest crisis, two-thirds of the 125 job cuts were handled through a buyout, which 80 employees have accepted since the reorganization was launched in February, church officials said. At least 45 other workers have seen their jobs eliminated, including the team that used to lead tours of the church headquarters.

For decades, visitors to Boston have taken tours through the distinctive Mother Church on the corner of Massachusetts and Huntington avenues. But after the tour staff leader accepted the buyout offer, the church decided to lay off the rest of the staff and halt the tours.

Many of the other jobs that have been phased out were administrative, the officials said. No positions have been cut at the Christian Science Monitor, part of the church's 230-employee publishing arm, they said, but other expense-trimming measures are in effect at the newspaper, which is published each weekday.

According to staff members at the church library, where back issues of the Monitor are kept, the Monitor has been cut to 20 pages from 24. Earlier cost cuts left the paper at 24 pages three days a week and 20 pages two days a week. The travel budget at the newspaper has also been slashed, curtailing reporters' abilities to gather news, according to a Monitor employee.

Paul Van Slambrouck, editor of the Monitor, acknowledged the belt-tightening. "We at the Monitor realize we're facing some really steep numbers here," he said. "We're going to do our best to grow our way out of this, rather than cut our way out of this."

News of the church's latest financial situation and reorganization have not been reported by the Monitor.