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XV. Property and Equipment
Recognition of Fixed AssetsAt one time in the Church's history, the recording and reporting of these assets was subject to great debate. Now, all have accepted the notion of recording and reporting their assets. The primary reason for recording and reporting diocesan land, building, and equipment is neither that other institutions do it, nor that market value is a real factor. Rather, reporting and recording these assets are truly necessary to fulfill the requirements of stewardship. Responsible stewardship extends to all assets, whether they are cash, securities, or buildings.
Organizations that have not previously capitalized their fixed assets should do so retroactively. If historical costs are not available for assets already in service, another reasonable basis can be used to value such assets. Other bases might be cost-based appraisals, insurance appraisals, replacement cost values, or property tax appraisals adjusted for market value. An alternative basis should be used only if historical cost information is unavailable and only to establish the initial value at the date of recording. Subsequent additions should be recorded at cost or fair market value for donated assets.
All fixed assets, except land or property held for investment, should be depreciated on a systematic and rational basis. Typically, not-for-profit organizations depreciate assets on a straight-line basis over the useful life of the asset.
The diocese should also establish a capitalization policy for fixed assets. Basically, this is to establish a minimum amount in order to categorize an asset as a "fixed asset" subject to depreciation. Any fixed asset purchased or donated greater than or equal to the minimum amount would be categorized as a fixed asset and depreciated over its useful life. If a fixed asset is purchased or donated for less than the minimum amount, it would be expensed in the period when purchased rather than capitalized.
Carrying Value of Fixed AssetsMany dioceses purchase property in advance for future growth and development. Care should be taken to periodically review and inventory such properties to determine the future suitability for needs within the diocese. Property so purchased and held should be carried at its cost value. If, however, the future use of the property changes, the continuing value of the property should be reviewed. Property held that no longer meets its original intended use should be written down to the lower of its cost or net realizable value. Likewise, facilities that are closed and no longer serve their intended purpose should be considered for proper valuation in accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. Should a facility no longer serve its intended purpose, its value should be reviewed and written down to the lower of its cost or net realizable value in light of changing circumstances.
Net Asset ClassificationFixed assets represent a significant dollar amount in the total assets of a diocese. However, these assets do not reflect the same liquidity and values as do other more common assets. Accordingly, in order to differentiate the relative values of net assets held by a diocese, consideration should be given to a separate net asset classification for fixed assets on the balance sheet. Within the category of unrestricted net assets (what might have been more commonly called "fund balances" in the past), "Net Investment in Property and Equipment" could be further designated. This further distinguishes the amount of net assets that may be less liquid in the financial statement of the diocese.
Oversight of Fixed AssetsProperty should be classified as to its use, and management responsibilities should likewise be classified by use. Property of parishes and schools should be placed under the oversight of the individuals in charge of such institutions, and the requirements of Canon 1283(2) and 1283(3) should be considered when there is a change in administrators. Typically, a pastor or principal will be in charge of property maintenance at a related facility. Recognizing the specialized skills needed to care for fixed assets, one must rely on the support and assistance of committees and volunteers to help maintain, advise, and coordinate their activities.
Careful consideration should be given to the development/improvement of existing real estate for future purposes within the diocese. Improvements to land should be considered along with the long-term growth objectives of the diocese. Careful planning is required, recognizing the long-term nature of these assets and the expected long-term use.
A number of procedures should be followed in order to carefully institute and exercise oversight and stewardship responsibilities of fixed asset holdings. The first procedure is a complete inventory of fixed assets. This inventory should include the following:
Other procedures should be established to provide for the physical safeguard of assets from theft, vandalism, or unauthorized disposition.
- A complete legal description of each real estate parcel and related buildings and improvements
- A description of buildings and improvements on each parcel and a detailed picture or drawing of such
- A description of the use of the property
- A description of the form of ownership of the property
- A description of any mortgages or encumbrances related to the property
- An identification of each parcel's property manager, if applicable
Procedures should likewise be established to provide for the ongoing maintenance of facilities. Maintenance should consist of both daily and routine activities, while a plan should be established for long-term improvements, such as roof replacement and major maintenance. Institutional budgets should include a capital budget as well as an operational budget. The capital budget should take into consideration necessary long-term repairs and improvements to the facilities in order to keep them safe and operational.
Procedures should be established to ensure that adequate insurance is maintained to minimize liability with respect to use of facilities. Insurance coverage should be reviewed on an annual basis. Periodic insurance appraisals should be obtained to ensure that property coverage is adequate.
Alienation and Acts of Ordinary and Extraordinary AdministrationCertain acts relating to temporal goods are more significant than others and require a more elaborate system of authorization. The Code of Canon Law clearly distinguishes acts of administration (whether ordinary or extraordinary) from acts of alienation of property whereby a juridic person divests itself of all or part of its stable patrimony.
To place acts of ordinary administration of greater importance, a diocesan bishop, for validity, must first hear the finance council and college of consultors. A diocesan bishop's acts of extraordinary administration, as defined by the USCCB, require, for validity, the consent of the finance council and college of consultors. No permissions from outside the diocese are required for acts of ordinary or extraordinary administration.
Canon 1277 reads as follows:
The diocesan bishop must hear the finance council and college of consultors to place acts of administration which are more important in light of the economic condition of the diocese. In addition to the cases specially expressed in universal law or the charter of a foundation, however, he needs the consent of the finance council and of the college of consultors to place acts of extraordinary administration. It is for the conference of bishops to define which acts are to be considered of extraordinary administration.To place acts of extraordinary administration, as defined in the statutes of public juridic persons other than the diocese, administrators require, for validity, the consent of the Ordinary (c. 1281).
Canons 1291 and 1292, §§ 1, 2, and 3, deal with the validity of acts of alienation. In cases involving alienation of stable patrimony, permission from the Holy See might be required, depending on the value of the property to be alienated.
Canon 1291 reads as follows:
The permission of the authority competent according to the norm of law is required for the valid alienation of goods which constitute by legitimate designation the stable patrimony of a public juridic person and whose value exceeds the sum defined by law.1"Alienation is a transfer of ownership of property by sale, gift or exchange." It is not a mortgage, nor easement, nor lien, nor an option to purchase, nor borrowing or loaning with or without collateral, nor assuming a mortgage on a piece of property, nor the leasing of property.2 Such transactions, however, may, in certain circumstances, be canon 1295 transactions, discussed below.
Canon 1292, § 1, reads as follows:
Without prejudice to the prescript of can. 638, § 3, when the value of the goods whose alienation is proposed falls within the minimum and maximum amounts to be defined by the conference of bishops for its own region, the competent authority is determined by the statutes of juridic persons if they are not subject to the diocesan bishop; otherwise, the competent authority is the diocesan bishop with the consent of the finance council, the college of consultors and those concerned. The diocesan bishop himself also needs their consent to alienate the goods of the diocese.Effective March 31, 2004, the United States Conference of Catholic Bishops decreed that:
Sections 2 and 3 of canon 1292 further read as follows:
- 1. the maximum limit for alienation and any transaction which, according to the norm of law, can worsen the patrimonial condition is $10,000,000 for Dioceses with Catholic populations of half a million persons or more. For other Dioceses the maximum limit is $ 5,000,000(cf. can. 1295).
- the minimum limit for alienation and any transaction which, according to the norm of law, can worsen the patrimonial condition is $1,000,000 for Dioceses with Catholic populations of half a million persons or more. For other Dioceses the minimum limit is $ 500,000.
- for the alienation of property of other public juridic persons subject to the Diocesan Bishop, the maximum limit is $5,000,000 and the minimum limit is $25,000 or 5% of the prior year’s ordinary annual income, whichever is higher.
- both the maximum and minimum amounts within the region are linked to the consumer price index as determined annually the United States Bureau of Labor Statistics, and reported by the United States Conference of Catholic Bishops to the appropriate offices of the Holy See and to the Conference members.
- the aforementioned dollar limits are in effect until March 31, 2006, at which time they are subject to change.
The permission of the Holy See is also required for the valid alienation of goods whose value exceeds the maximum amount, goods given to the Church by vow, or goods precious for artistic or historical reasons. (§ 2)Canons 1292, § 4; 1293; and 1294 prescribe conditions for the liceity of acts of alienation, as follows:
If the asset to be alienated is divisible, the parts already alienated must be mentioned when seeking permission for the alienation; otherwise the permission is invalid. (§ 3)
Those who by advice or consent must take part in alienating goods are not to offer advice or consent unless they have first been thoroughly informed both of the economic state of the juridic person whose goods are proposed for alienation and of previous alienations. (c. 1292, § 4)
The alienation of goods whose value exceeds the defined minimum amount also requires the following:
1° a just cause, such as urgent necessity, evident advantage, piety, charity, or some other grave pastoral reason;
2° a written appraisal by experts of the asset to be alienated. (c. 1293, § 1)
Other precautions prescribed by legitimate authority are also to be observed to avoid harm to the Church. (c. 1293, § 2)
An asset ordinarily must not be alienated for a price less than that indicated in the appraisal. (c. 1294, § 1)
The money received from the alienation is either to be invested carefully for the advantage of the Church or to be expended prudently according to the purposes of the alienation. (c. 1294, § 2)
Canon 1295 TransactionsCanon 1295 says that the alienation process applies not just to the alienation of stable patrimony but to any transaction by which the patrimonial condition of a juridic person can be worsened. In transactions where the stable patrimony of a public juridic person may be jeopardized or placed in danger of loss to such an extent that the overall financial condition of the public juridic person's stable patrimony is worsened, then the alienation procedures must be followed. As a result of canon 1295, the procedures for alienation must be applied not only to transactions where the stable patrimony of a public juridic person is alienated, but also to those transactions where the overall economic condition of a public juridic person is jeopardized or placed at risk.
The application of canon 1295 is contingent on the level of risk and on the economic condition of the public juridic person. The canon deals with such matters as the transfer of rights such as easements, mortgages, liens, and options. It also deals with incurring debt, including guarantees, surety and gift annuities, and the making of unsecured loans. The canon has to do with accepting an obligation, giving up a right, assuming a debt, or being responsible for the liability of another.
For a greater discussion of alienation and ordinary and extraordinary acts of administration, suggested reading includes The New Commentary on the Code of Canon Law and the Church Finance Handbook (Kevin E. McKenna, Lawrence A. DiNardo, and Joseph W. Pokusa; Washington, D.C.: Canon Law Society of America, 1999).
- All canon law quotes in this section are taken from the Code of Canon Law Latin-English Edition (Washington, D.C.: Canon Law Society of America, 1998).
- R. T. Kennedy, "Book V: The Temporal Goods of the Church (cc. 1254-1310)," in John P. Beal, James A. Coriden, and Thomas J. Green, eds., New Commentary on the Code of Canon Law (Mahwah, N.J.: Paulist Press, 2000), 1493-1494.