NEW ROCHELLE, N.Y. — At a time when many Catholic schools face serious financial challenges, one Catholic high school in the northern suburbs of New York City is expanding its educational capacity in a surprising way: Iona Preparatory School recently acquired a nearby elementary school, thanks to a first-of-its-kind financial-planning program for Catholic institutions made available through the National Catholic Educational Association and the state of Colorado.
Iona Prep is an academically rigorous, all-boys high school in New Rochelle, N.Y., founded by the Congregation of Christian Brothers. The school serves 775 young men on a 26-acre campus.
“We’re proud of our academic curriculum,” said Brother Thomas Leto, president of Iona Prep, “but what sets us apart is our commitment to community service. Our students learn to give back by giving of themselves — to classmates, to the school, to the community at large.”
With the opportunity to expand in many areas, Iona Prep recently borrowed $9 million to purchase Iona Grammar School, a private Catholic elementary school near its campus that serves about 200 students. The goal is for the two schools to forge closer ties, expand educational offerings at both schools and operate more efficiently.
Iona Prep would likely have paid more than 5% in interest over the life of the loan had they used customary financing for acquisition. Instead, Iona Prep will pay just 2.09%. The difference in rates of interest means Iona Prep expects to save approximately $1.8 million over the life of the bonds.
The school got the financing through a relatively new tax-exempt bond program offered by the Colorado Educational and Cultural Facilities Authority (CECFA), accessed through the Catholic Education Capital Corporation (CECC) and the National Catholic Educational Association (NCEA).
“Iona Prep was the first school that took advantage of this new program through the CECC,” said Jenny Kraska, executive director of the Denver-based CECC.
The Colorado Connection
So how did a school in New York get such great rate financing in Colorado? And can other Catholic institutions do the same?
To begin, the Colorado General Assembly created CECFA 30 years ago to provide tax-exempt financing for colleges, universities, charter and private schools and other educational institutions, as well as cultural nonprofits, and also empowered CECFA to issue bonds for out-of-state borrowers that meet certain requirements and have a connection to Colorado.
Enter the CECC: The connection to Colorado for a Catholic school like Iona Prep is provided through it and the NCEA.
Kraska said there was a CECFA program already in place for evangelical and Jewish institutions like the National Jewish Federation bond program and the Association of Christian Schools International bond program.
“We thought it was about time for Catholic schools to access bond financing where in other sections of the country it’s difficult if not almost impossible to access tax-exempt-bond financing,” she said.
So the CECC was incorporated in 2010 as a Colorado nonprofit corporation with two members — the Colorado Catholic Education Conference and the NCEA. The education conference is the undertaking of the three Colorado bishops in the Dioceses of Denver, Colorado Springs and Pueblo, formed to promote and support Catholic education in Colorado, including making possible tax-exempt funding of Catholic schools, seminaries and colleges.
CECFA, which has issued almost $2.5 billion in tax-exempt bonds and offers loans to borrowers at low-interest rates, has an agreement with the NCEA to make its services now available to NCEA member facilities like schools, seminaries, parishes, colleges and universities, whether located inside or outside of Colorado. It’s all done through the CECC connection.
How to Qualify
To pursue tax-exempt financing through the CECC, a Catholic educational institution must have a qualifying project, must be creditworthy and must be a member of NCEA and maintain its membership for the life of the loan.
Iona Prep qualified as a NCEA member. In fact, the NCEA convention is where Brother Leto first learned about the loan availability (from materials handed out at a luncheon). He gave the information to the prep’s board, knowing they were looking for money to acquire the other school.
“The more we learned about it, the more we thought this was the best way to finance the project,” said Barbara O’Meara, Iona’s director of finance. “We had a commitment from a local bank. For us, it was not the only avenue, but, financially, it was the lowest interest rate.”
Brother Leto said of the aiding organizations, “Phenomenal folks helped us through the process. They walked us through every step of the way. The whole process was painless.”
“We’re happy to be part of this transaction,” said Kraska from her CECC office. “There are a number of states — New York, California, North Carolina, among them — where local statutes make it difficult for religious schools to access the tax-exempt market. This is a tool for them. And in the case of Iona Prep, this was a very straightforward transaction. From their initial contact with us to closing was a matter of only a few months.”
The farthest Brother Leto said he had to go was to the school lawyer’s office a few minutes away in White Plains, N.Y. Today, the combined campuses are being called Iona Preparatory School K-12.
Practically any Catholic educational institution in the country that might be unable to access low tax-exempt interest rates due to local statutory or political limitations can take advantage of tax-exempt bond financing through this program.
“We’re trying to spread the message because it is such a new program, and a lot of Catholic institutions aren’t aware it exists,” Kraska said. “We’re hopeful that, through the experience of Iona Prep and other schools, we can spread the word about this service available to Catholic schools throughout the United States.”
What Can Be Financed
Kraska noted that usually people accessing this route are looking for millions of dollars. There is no cap.
The financing can be used in a variety of ways, such as new construction and renovations, purchasing existing buildings as well as other purposes. Kraska said the only specific restriction is that it cannot be used for building a purely worship space, like a chapel.
Mary Groves, a partner with Peck, Shaffer & Williams, a national public-finance law firm that acted as bond counsel for Iona Prep, noted the same concerning the simple bond-funds prohibition. “But they may be used for classrooms, recreational facilities, dormitories, administrative spaces or other educational purposes,” she said.
Kraska added another use. With the CECC offering tax-exempt straight-up bond financing, some borrowers are using it to refinance.
“With interest rates so low now, it’s a great opportunity,” she said. “If you have an outstanding loan or building project [in progress], you can access these tax-exempt bonds to refinance and get a lower interest rate.” And interest paid on tax-exempt debt is exempt from federal income tax.
Besides local community-service projects, Iona Prep students have made annual treks to New Orleans for the last several years to help with rebuilding following Hurricane Katrina. The experience gained by these annual trips came in handy when Superstorm Sandy devastated the New York area late in 2012.
Although destruction to the campus was minimal, the school closed for a week because of damage in the surrounding area and transportation difficulties. That gave students time to help out in Breezy Point in Queens, N.Y., one of the areas hit hardest by Sandy. Students and teachers collected donations, helped with cleanup, sorted food, distributed food and supplies, organized stations, unloaded trucks and helped wherever else needs arose.
Courtesy of the financial assistance obtained through CEFCA and CECC, the school believes it now will be able to make an even more positive educational and social contribution.
“Iona Prep is a great school, and the acquisition of Iona Grammar is an opportunity to make us even greater,” said John Verni, chairman of Iona Prep’s board of directors. “Prep has so much to offer young men: academics, athletics and the arts, while strengthening their spirituality. This new development allows us to continue building on the existing foundation.”
Joseph Pronechen is the Register’s staff writer.
Further information is available at: http://www.ceccbond.com
To apply for a loan, call CECC's executive director, Jenny Kraska, at (303) 894-8808.