The Baltimore Sun last week found that at least 115 Maryland churches have illegally contributed to political campaigns since 2000. The same day, The Washington Post reported on allegations of misappropriated funds in the Orthodox Church in America. Meanwhile, Roman Catholics in Boston, already outraged over charges of clergy sexual abuse, are still seething over the local archdiocese's decision to close and consolidate several parishes.

With such news stories and other perennial questions about the use of congregational funds, observers say the debate over requiring the disclosure of church finances isn't going away.

It has, however, suffered a major setback. The Massachusetts House rejected legislation January 25 that would have required religious organizations to file financial reports with the state. The bill was overwhelmingly defeated in the House by a 147-3 vote after passing in the Senate last fall.

The legislation would have required churches, synagogues, and mosques to file the same financial disclosure forms with the state that are required of other nonprofit organizations. Any organization with annual revenues of more than $500,000 would have needed to hire an independent auditor to file detailed financial reports every year.

Though the bill would have applied to all religious groups, the chief sponsor of the bill, Sen. Marian Walsh said frustration with the Massachusetts archdiocese sparked the creation of the bill. Lawmakers and lay Catholics have demanded more information from the archdiocese as it settled civil suits from the clergy sexual abuse crisis and closed several parishes.

"The incredible irresponsible events of one of the largest public charities were the genesis of this bill," said Walsh, a Democrat. "People want the books opened up. I just think it's going to take more time."

Walsh said she is not discouraged and will consider other future legislative efforts to require financial transparency.

Beyond Massachusetts

Hard news can make bad law, says Charles Haynes, senior scholar for the First Amendment Center. "I think it's a big mistake to use a crisis like the sexual abuse crisis in the Catholic Church or any church as an opportunity to limit religious freedom," he said.

But the Massachusetts bill wasn't only about frustration with the Boston archdiocese, Haynes says. In recent years, the government has demonstrated an increased desire to treat religious groups in the same way it treats other groups. That, he says, is dangerous.

"Our framers of the First Amendment understood that religion is different," he said. "It needs special protection from governmental interference. To interfere with the internal affairs or to entangle government in financial affairs, the great danger is that we will lose religious freedom."

Article continues below

Still, Haynes says, it's likely that bills similar to Walsh's will be introduced in other states.

"I don't think it's going to go away at all," Haynes said. "With the strong Roman Catholic population in Massachusetts, it may be easier in other places to pass such legislation."

Such legislative initiatives may also get more traction when introduced apart from touchy issues like clergy abuse scandals and church closings. Jan Masaoka, executive director of Compass Point, a consulting and research organization that works with nonprofit organizations, said church disclosure laws may be most attractive to lawmakers looking for increased government revenue. Forcing church financial books open may reveal taxable revenue that's not core to church missions, for example.

In the journal Stanford Social Innovation Review last year, Masaoka argued for a federal law requiring religious institutions to file the same tax form (known as Form 990) that is required of other nonprofit groups.

Requiring uniform accountability across the nonprofit world would not violate the First Amendment, Masaoka told Christianity Today.

"We don't exempt churches from safety laws. They are accountable to labor laws and property management laws," she said. "It's not really true that we have a separation of church and state." If churches share the same tax advantages as non-profit organizations, they should be subjected to the same disclosure rules, she argued. And it's especially important, she argued in the journal article, that billions of dollars in federal grants are going directly to faith-based organizations.

Diana Aviv, President of Independent Sector, a leadership forum for charities, foundations and corporate giving programs, agrees that President Bush's faith-based initiative may drive a push for disclosure.

"When houses of worship get public funds, then the question becomes, does the public have a right to know how those institutions how they use the money," she said.

Voluntary transparency

But bills like the one proposed in Massachusetts unconstitutionally entangle the government in church business, says Paul Nelson, president of the Evangelical Council for Financial Accountability. Even if it had passed, he said, it would have had a long future in the courts.

Article continues below

"It is probably reflective of an increasing mood driven by abuse or perceived abuse," Nelson said. "The charitable community is lightly regulated and the lawmakers are saying, 'Wait a minute.'"

Nelson said such efforts demonstrate the responsibility for churches to operate above par so they will not be charged with abuse. Some religious organizations do have skeletons in their financial closets, he said, but "the bigger problem is the precedent that the government is stepping in and imposing on local churches."

Representative Byron Rushing, the leading opponent of the Massachusetts bill, said many local Protestants didn't recognize the potential reach of that precedent until the Massachusetts Council of Churches rallied them.

"I think most people thought this was just a legislative attempt to force the Roman Catholic Church make its books available," said Rushing, a Democrat. "What the legislation did was to redefine religious institutions in Massachusetts."

Diane Kessler, executive director for the Massachusetts Council of Churches, which represents approximately 1,700 Orthodox and Protestant congregations, warned that regularly compiling and releasing financial statements would make church volunteers less inclined to serve.

"Everybody would've been swept up in the reporting requirement. It wouldn't have matter whether you were independent or denominational," Kessler said. "The religious leaders thought it was an unwarranted intrusion into the religious communities."

The burden would fall most heavily upon smaller congregations, not big ones, said Daniel Herrell, associate minister of Boston's Park Street Church.

"Given that most congregations in New England are under 75 people, to hire an independent auditor is a luxury that many don't have," he said. "It was extraordinary to see how one bill drew everybody together like nothing else has."

That unity has dissipated now that the bill is no longer under consideration. Whether a similar coalition can rise among those who want to see disclosure requirements remains an open question—as does the matter of what would happen if the disclosure debate went national.

Related Elsewhere:

News elsewhere includes:

House rejects disclosure of religious funds | The Massachusetts House yesterday defeated legislation that would have required religious organizations to file financial reports with the state. (Boston Globe, January 26, 2006)
Article continues below
Reason for anger | While the measure was clearly aimed at the Catholic Church, a spectrum of religious groups banded together to shoot down the bill. (Boston Globe, January 26, 2006)
Is It Constitutional To Make Churches Disclose Their Finances? | Lawmakers will consider a bill this week that would require all religious organizations in the state to disclose their real estate holdings. (Bostonist, Aug. 8, 2005)
Bill would force church to disclose its finances | Attitude shifts on Beacon Hill (Boston Globe, Aug. 8, 2005)
The Economic Strain on the Church | Legal liabilities from the sex scandal threaten a U.S. Catholic Church already beset by systemic financial problems (Business Week, April 15,2002)
Let the sun shine in | Ultimately, sunlight protects constituents of an organization from breaches of trust. (Thomas P. O'neill Iii And Steven Krueger, Boston Globe, Aug. 8, 2005)
Checking out churches | Other than tradition, there is no clear reason why religious organizations should be exempt from the duty to disclose financial information. (Boston Globe August 10, 2005)

More background from the Boston Globe is available from a Google search.

In 2002, for Christian History editor Elisha Coffman described why churches shouldn't pay taxes.
Jan Masaoka piece in the Stanford Social Innovation Review is available from their website.
Wall Watchers and the Evangelical Council for Financial Accountability keep track of financial accountability for churches and ministries. The ECFA also has an article on whether to file form 990.
But some watchdogs need watching, according to David Middlebrook and Robert W. Rucker in Church Executive.