Diocese of Tucson Special Financial Report Fiscal Year 2005

ANNUAL REPORT OF FINANCIAL INFORMATION

The annual report of financial information is intended to show how the Diocese of Tucson Administrative Offices uses the funds that are so generously contributed by parishioners, benefactors and grantors to enable the Diocese to fulfill its mission to serve the spiritual, pastoral, social service, educational and other needs of the Catholic Faithful within the nine counties of the Diocese.

The financial information presented includes only that related to the Diocese of Tucson Administrative Offices under the direct control of the Bishop of Tucson.

In addition to the Office of the Bishop, the Administrative Offices include the offices of the Chancellor, Judicial Vicar (Tribunal), Vicar General, Communications, The Catholic New Vision publication, Catholic Social Mission, Vocations, Human Resources, Fiscal Services, Property Management and Insurance Administration, Office of Child, Adolescent and Adult Protection, Office of Formation, Office of Catechesis, Office of Evangelization, the Department of Catholic Schools, the Permanent Diaconate and the Vicar for Women Religious.

Not included is financial information for parishes, schools, Diocese of Tucson Catholic Cemeteries, Catholic Foundation for the Diocese of Tucson, Catholic Community Services of Southern Arizona, Catholic Tuition Support Organization and the Diocese of Tucson Charity & Ministry Fund, all of which are separate incorporated entities.

The information includes sources and uses of income, as well as the liabilities and net assets that assist and support the Bishop of Tucson in fulfilling his responsibilities for pastoral care and leadership of the Diocese.

The information included in this annual report is excerpted from both the audited balance sheet and the internal statement of activities of the Administrative Offices of the Diocese of Tucson.

No audit was conducted last year during the Chapter 11 bankruptcy process. The Diocese made full disclosure of its finances through filings each month with the U.S. Bankruptcy Court during the Chapter 11 process. This information is part of the public record of the Chapter 11.

As a cost saving measure in light of its present limited financial resources, the Diocese elected to have only the balance sheet audited this year. A full audit, including audits of the statement of activities as well as the balance sheet, will be conducted for the 2006 Fiscal Year ending June 30, 2006.

The balance sheet audit was conducted by Keegan, Linscott & Kenon, P.C., who rendered an unqualified opinion. The complete audit report, including all accompanying notes, is available at the Diocese of Tucson website, www.diocesetucson.org, under "Special Financial Report."

WHERE THE DIOCESE OF TUCSON ADMINISTRATIVE OFFICES INCOME CAME FROM IN FY 2005

HOW THE DIOCESE OF TUCSON ADMINISTRATIVE OFFICES USED FUNDS IN FY 2005

CHANGE IN DIOCESE OF TUCSON ADMINISTRATIVE OFFICES NET ASSETS

The Administrative Offices of the Diocese of Tucson
Statement of Financial Position
June 30,2005

ASSETS

LIABILITIES AND NET ASSETS

NOTES:

Note 1: Parish assessments consist of two separate assessments made to parishes according to the provisions of canon law: the priests' salary subsidy assessment and the chancery assessment.
The priests' salary subsidy assessment is applied to parishes in proportion to their offertory income relative to all parish offertory income diocesan-wide, and is used to help pay the salaries of priests in poorer parishes.
The Diocese collects the assessments and disburses the subsidy to poor parishes and missions throughout the Diocese. No portion of the salary subsidy assessment is retained by the Diocese.
The chancery assessment is a levy or tax on a parish's offertory collection. For parishes with annual ordinary income of less that $30,000, the assessment is 3.5 per cent of income; for parishes with ordinary income greater than or equal to $30,000, the assessment is seven percent of ordinary income. The chancery assessment is the primary funding source for administrative functions of the Diocese, including debt service, human resources, fiscal services, and general and administrative expenses.

Note 2: Insurance expense continues to be a significant cost for all diocesan entities. The Diocesan Administrative Offices negotiates and secures health, worker compensation, property, liability and auto insurance for parishes and other Catholic organizations. Currently, worker compensation, property, liability and auto coverage are a combination of self-insurance and reinsurance coverage from major insurance carriers.
As part of the insurance program, the Diocese of Tucson has joined with other (arch)dioceses across the country to form two captive risk retention insurance companies.
The Bishops' Property Insurance Company (BPIC) provides reinsurance coverage for property/casualty and worker compensation losses.
The Diocese is also a shareholder in The Ordinary Mutual (TOM), which provides liability insurance, including sexual misconduct insurance coverage.

Note 3: The amount of $6,962,867 in parish loan claims represents the amount of parish unrestricted and restricted savings held by the Diocese in the Parish Deposit & Loan Program. The savings deposits are currently being transferred to the newly formed Parish Pooled Investment Program (PPIP) that is being established as an investment trust owned by the participating parishes. The Diocese has no ownership interest in any of the investments. The PPIP Board of Trustees is comprised of business professionals and clergy who operate the trust independently of the Diocese. As a result of the transfer, the parish deposits no longer will be reflected on the books of the Diocese's Administrative Offices.

Note 4: The Diocese continues to carry a deficit balance in unrestricted net assets of approximately $4.3 million, which is actually an improvement over two years ago when the unrestricted net asset deficit balance was almost $7 million.
The deficit balance is significant in that it represents the fact that the Diocese has more liabilities than assets. However, the improvement over the past two years also demonstrates that the Diocese is regaining its financial stability in spite of the enormous costs it bore during the bankruptcy process.

Note 5: The amount of $5,583,147 represents the amount that the Diocese will contribute to the Settlement Pool established in the Chapter 11 Plan of Reorganization. The majority of this money was raised by selling land held by the Diocese for future parishes. $5,383,147 was contributed to the pool in September, 2005, with the remaining amount to be contributed in $100,000 increments in 2006 and 2007.
The total Settlement Pool is approximately $22.6 million. The other major components of the Settlement Pool are from insurance carriers ($14.8 million), contribution from parishes ($2 million), and contribution from the Diocese of Phoenix ($200,000).
The Diocese also paid approximately $2.5 million in legal, accounting and other costs related to the Chapter 11 bankruptcy process from September 2004 though December 2005.

SIGNIFICANT ITEMS:

The 2005 Annual Catholic Appeal (ACA) was very successful, generating approximately $3.3 million in pledges compared to $3.0 million in 2004 and $2.7 million in 2003. Besides the providing resources for the Office of the Bishop and the ministries represented by the work of the diocesan Administrative offices and departments, the ACA also provides funding for charitable and social service programs of Catholic Community Services and for the Priests' Retirement Program.
Parish communities in the Diocese continue to grow, including the opening of the new Juan Diego Religious Center at Blessed Kateri Tekekawith Parish in Tucson; groundbreaking for a multi-purpose building at St. Rita in the Desert Parish in Vail; the beautiful new church and sanctuary at St. Andrew the Apostle Parish in Sierra Vista that are nearing completion; the Guadalupe Mission of Immaculate Conception Parish in Yuma that opened in October 2005; and the addition of the new rectory for Sacred Heart Parish in Willcox.
The Diocese is also facing a tremendous challenge and opportunity with the rapid growth in Pinal County creating demand for new parishes.
Bishop Kicanas continues to be advised by the Diocesan Finance Council, chaired by Nancy Stephan and with members Father Al Schifano, diocesan Moderator of the Curia, Lawrence McDonough, Luis Dabdoub, Maureen Dallago, Humberto Lopez, Deacon Gary Pasquinelli and Lirain Urreiztieta.


	DIOCESE OF TUCSON SPECIAL FINANCIAL REPORT February 2006 Audit Report on the Diocese's Balance Sheet
	Dear Brothers and Sisters in Christ Jesus, Presented here is a report on our Diocese's finances for Fiscal Year 2005. The complete audit report on the Diocese's balance sheet prepared by the CPA firm of Keegan, Linscott, and Kenon, P.C., is available on our website at www.diocesetucson.org under "Special Financial Report." This is in keeping with our policy to be open and transparent in our financial operations. Such accountability is important in earning trust and communicating to you the respect and appreciation we have for your support. The past year has been tumultuous for our Diocese. Through all of the challenges, you have continued to support your parishes and the Charity and Ministry Fund so that the pastoral work important for our communities could continue. Your support demonstrates your love of the Church and your desire that the Church carry on its mission. While the Diocese still finds itself in significant debt and while we lack land for the development of new parishes so necessary to respond to the growth in our Diocese, I am confident that over time we can garner the resources necessary to strengthen the presence and work of the Church in our communities. I pray that the resolution of the Chapter 11 is helping to heal the hurt caused to people within the household of the Church. The Diocese, the parishes and the Catholic schools have committed significant time and resources to implementing the Safe Environment Program that I hope, as much as humanly possible, will protect children and vulnerable adults from abuse. I hope, too, that we now can enhance the mission of the Church. In the four years I have been privileged to serve in this Diocese, I have met generous people willing to share their time, talent, and treasure. I am confident that this will continue. As you review information presented here, let us know if you have any questions. My hope is to communicate clearly and fully the financial status of our Diocese. With the reorganization of the Diocese and the individual incorporation of parishes as 501(c)3 not-for-profit organizations, I have asked each parish's board of directors to make an annual financial report to their parish similar to that made by the Diocese. Thank you for your continued support. Be assured of my prayers, and please pray for me. Sincerely yours in Christ, Most Rev. Gerald F. Kicanas, D.D. Bishop of Tucson
	ANNUAL REPORT OF FINANCIAL INFORMATION The annual report of financial information is intended to show how the Diocese of Tucson Administrative Offices uses the funds that are so generously contributed by parishioners, benefactors and grantors to enable the Diocese to fulfill its mission to serve the spiritual, pastoral, social service, educational and other needs of the Catholic Faithful within the nine counties of the Diocese. The financial information presented includes only that related to the Diocese of Tucson Administrative Offices under the direct control of the Bishop of Tucson. In addition to the Office of the Bishop, the Administrative Offices include the offices of the Chancellor, Judicial Vicar (Tribunal), Vicar General, Communications, The Catholic New Vision publication, Catholic Social Mission, Vocations, Human Resources, Fiscal Services, Property Management and Insurance Administration, Office of Child, Adolescent and Adult Protection, Office of Formation, Office of Catechesis, Office of Evangelization, the Department of Catholic Schools, the Permanent Diaconate and the Vicar for Women Religious. Not included is financial information for parishes, schools, Diocese of Tucson Catholic Cemeteries, Catholic Foundation for the Diocese of Tucson, Catholic Community Services of Southern Arizona, Catholic Tuition Support Organization and the Diocese of Tucson Charity & Ministry Fund, all of which are separate incorporated entities. The information includes sources and uses of income, as well as the liabilities and net assets that assist and support the Bishop of Tucson in fulfilling his responsibilities for pastoral care and leadership of the Diocese. The information included in this annual report is excerpted from both the audited balance sheet and the internal statement of activities of the Administrative Offices of the Diocese of Tucson. No audit was conducted last year during the Chapter 11 bankruptcy process. The Diocese made full disclosure of its finances through filings each month with the U.S. Bankruptcy Court during the Chapter 11 process. This information is part of the public record of the Chapter 11. As a cost saving measure in light of its present limited financial resources, the Diocese elected to have only the balance sheet audited this year. A full audit, including audits of the statement of activities as well as the balance sheet, will be conducted for the 2006 Fiscal Year ending June 30, 2006. The balance sheet audit was conducted by Keegan, Linscott & Kenon, P.C., who rendered an unqualified opinion. The complete audit report, including all accompanying notes, is available at the Diocese of Tucson website, www.diocesetucson.org, under "Special Financial Report." WHERE THE DIOCESE OF TUCSON ADMINISTRATIVE OFFICES INCOME CAME FROM IN FY 2005 HOW THE DIOCESE OF TUCSON ADMINISTRATIVE OFFICES USED FUNDS IN FY 2005 CHANGE IN DIOCESE OF TUCSON ADMINISTRATIVE OFFICES NET ASSETS The Administrative Offices of the Diocese of Tucson Statement of Financial Position June 30,2005 ASSETS LIABILITIES AND NET ASSETS NOTES: Note 1: Parish assessments consist of two separate assessments made to parishes according to the provisions of canon law: the priests' salary subsidy assessment and the chancery assessment. The priests' salary subsidy assessment is applied to parishes in proportion to their offertory income relative to all parish offertory income diocesan-wide, and is used to help pay the salaries of priests in poorer parishes. The Diocese collects the assessments and disburses the subsidy to poor parishes and missions throughout the Diocese. No portion of the salary subsidy assessment is retained by the Diocese. The chancery assessment is a levy or tax on a parish's offertory collection. For parishes with annual ordinary income of less that $30,000, the assessment is 3.5 per cent of income; for parishes with ordinary income greater than or equal to $30,000, the assessment is seven percent of ordinary income. The chancery assessment is the primary funding source for administrative functions of the Diocese, including debt service, human resources, fiscal services, and general and administrative expenses. Note 2: Insurance expense continues to be a significant cost for all diocesan entities. The Diocesan Administrative Offices negotiates and secures health, worker compensation, property, liability and auto insurance for parishes and other Catholic organizations. Currently, worker compensation, property, liability and auto coverage are a combination of self-insurance and reinsurance coverage from major insurance carriers. As part of the insurance program, the Diocese of Tucson has joined with other (arch)dioceses across the country to form two captive risk retention insurance companies. The Bishops' Property Insurance Company (BPIC) provides reinsurance coverage for property/casualty and worker compensation losses. The Diocese is also a shareholder in The Ordinary Mutual (TOM), which provides liability insurance, including sexual misconduct insurance coverage. Note 3: The amount of $6,962,867 in parish loan claims represents the amount of parish unrestricted and restricted savings held by the Diocese in the Parish Deposit & Loan Program. The savings deposits are currently being transferred to the newly formed Parish Pooled Investment Program (PPIP) that is being established as an investment trust owned by the participating parishes. The Diocese has no ownership interest in any of the investments. The PPIP Board of Trustees is comprised of business professionals and clergy who operate the trust independently of the Diocese. As a result of the transfer, the parish deposits no longer will be reflected on the books of the Diocese's Administrative Offices. Note 4: The Diocese continues to carry a deficit balance in unrestricted net assets of approximately $4.3 million, which is actually an improvement over two years ago when the unrestricted net asset deficit balance was almost $7 million. The deficit balance is significant in that it represents the fact that the Diocese has more liabilities than assets. However, the improvement over the past two years also demonstrates that the Diocese is regaining its financial stability in spite of the enormous costs it bore during the bankruptcy process. Note 5: The amount of $5,583,147 represents the amount that the Diocese will contribute to the Settlement Pool established in the Chapter 11 Plan of Reorganization. The majority of this money was raised by selling land held by the Diocese for future parishes. $5,383,147 was contributed to the pool in September, 2005, with the remaining amount to be contributed in $100,000 increments in 2006 and 2007. The total Settlement Pool is approximately $22.6 million. The other major components of the Settlement Pool are from insurance carriers ($14.8 million), contribution from parishes ($2 million), and contribution from the Diocese of Phoenix ($200,000). The Diocese also paid approximately $2.5 million in legal, accounting and other costs related to the Chapter 11 bankruptcy process from September 2004 though December 2005. SIGNIFICANT ITEMS: The 2005 Annual Catholic Appeal (ACA) was very successful, generating approximately $3.3 million in pledges compared to $3.0 million in 2004 and $2.7 million in 2003. Besides the providing resources for the Office of the Bishop and the ministries represented by the work of the diocesan Administrative offices and departments, the ACA also provides funding for charitable and social service programs of Catholic Community Services and for the Priests' Retirement Program. Parish communities in the Diocese continue to grow, including the opening of the new Juan Diego Religious Center at Blessed Kateri Tekekawith Parish in Tucson; groundbreaking for a multi-purpose building at St. Rita in the Desert Parish in Vail; the beautiful new church and sanctuary at St. Andrew the Apostle Parish in Sierra Vista that are nearing completion; the Guadalupe Mission of Immaculate Conception Parish in Yuma that opened in October 2005; and the addition of the new rectory for Sacred Heart Parish in Willcox. The Diocese is also facing a tremendous challenge and opportunity with the rapid growth in Pinal County creating demand for new parishes. Bishop Kicanas continues to be advised by the Diocesan Finance Council, chaired by Nancy Stephan and with members Father Al Schifano, diocesan Moderator of the Curia, Lawrence McDonough, Luis Dabdoub, Maureen Dallago, Humberto Lopez, Deacon Gary Pasquinelli and Lirain Urreiztieta.