Magazine article Momentum

Low-Interest Tax-Exempt Bond Program Now Available to NCEA Members

Magazine article Momentum

Low-Interest Tax-Exempt Bond Program Now Available to NCEA Members

Article excerpt

Catholic Education Capital Corporation offers access to taxexempt bonds for new capital expenditures, reimbursing prior capital expenditures and building working capital

NCEA members and affiliates now can finance educational facilities through a newly formed organization called the Catholic Education Capital Corporation (CECC). The CECC was established to provide Catholic educational institutions an efficient and cost-effective way to provide tax-exempt bond financing for capital expenditures and other projects.

Tax-exempt financing offers substantial benefits in comparison to taxable debt or other sources in financing capital projects. These include lower interest rates and. in many cases, better borrowing terms and conditions.

The CECC operates under an agreement with NCEA and the Colorado Catholic Education Conference (CCEC). The CCEC was established by the three Colorado Catholic dioceses (Denver, Colorado Springs and Pueblo) to support Catholic education in Colorado and to provide financing opportunities for NCEA members throughout the country.

Tax-exempt bond financing is made available through the Colorado Educational and Cultural Facilities Authority (CECFA), which was established more than 30 years ago to serve educational and cultural nonprofits in Colorado and throughout the United States. Since then, CECFA has issued almost $2.5 billion in bonds. CECFA issues taxexempt bonds and then loans the proceeds of those bonds to borrowers at low interest rates. Borrowers must be creditworthy and find their own source of fundingto purchase the bonds.

Under the agreement with NCEA, these services now are available to NCEA member educational facilities such as schools, seminaries, parishes, colleges and universities. The bond funds may not be used to construct purely religious spaces such as churches or chapels, but they may be used for classrooms, recreational facilities, dormitories, administrative spaces or other educational purposes.

According to NCEA President Karen Ristau, "This agreement adds another level of service to members. Many Catholic schools want to expand or modernize but have been hampered by the high interest rates for construction loans or state laws that prohibit them from borrowing through a tax-exempt issuer. This tax-exempt opportunity may be the deciding factor that allows a school to move ahead in improving the educational setting for students."

Lower Interest Rates

In virtually every conceivable situation, tax-exempt bond financing will offer a cost of borrowing that is meaningfully lower than comparable conventional or taxable financing. This lower interest cost stems from the fact that the interest paid on tax-exempt debt is exempt from both federal income tax and, in this case, Colorado state income taxes. Bond investors seeking to maximize their after-tax income benefit are willing to accept a lower interest payment because these interest payments are exempt from income taxes.

The savings to the borrowing school from these lower interest rates can be significant. In most cases, the differential between a taxable and tax-exempt financing will be about Ito 2 percent. On a $10 million bond issue, a 1 percent interest savings would yield a benefit of $70 thousand in the first year and approximately $1.4 million over the course of a 20-year fully amortizing bond timeframe.

Better Terms/Conditions

Tax-exempt bonds can be issued on a long-term fixed-interest rate basis, with terms typically between 20 to 30 years for good credits. However, should it be advantageous to the borrowing school, variable interest debt can be issued. …

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