Bonds not best option for school code upgrades, says official

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PROVIDENCE - The diocese has helped secure bonds for two sets of capital projects for schools in the last two years, but it doesn't make financial sense to secure bonds for fire code improvements unless a large number of schools can bond for at least $4-5 million, said Michael F. Sabatino, diocesan Chief Financial Officer.

Following a meeting with parish and school representatives to discuss fire code improvements in November, Sabatino sat down to discuss the bonding process with the Visitor.

In April 2005, the diocese helped coordinate five schools to obtain a $23.1 million 30-year bond via a state bond agency, The R.I. Health and Education Building Corp. The diocese has used the state agency, which helps non-profits in health and education obtain low-interest bonds, to finance capital projects, such the ones obtained by St. Antoine Residence and the Villa at St. Antoine, Sabatino said.

"It's an excellent opportunity to obtain a favorable financing arrangement," Sabatino said.

The five schools and the amounts of their bonds were: Bishop Hendricken High School in Warwick, $6.1 million; The Prout School, Wakefield, $5 million; Msgr. Matthew F. Clarke School, Wakefield, $5 million; Mercymount Country Day, Cumberland, $4.5 million; and St. Philomena School, Portsmouth, $2.5 million.

The bonds are secured by the schools themselves, using their buildings as collateral, Sabatino said. The diocese is not responsible for repaying the bond, and Citizens Bank, the letter-of-credit bank, assures that an institution is financially sound and able to repay it. The money can be borrowed at a fixed rate or a variable rate, and in the case of the 2005 bond, it was initially set at a variable rate of about three percent. Since then, some of the schools have converted it to a fixed rate not exceeding five percent, said Sabatino.

The second bond was issued in April 2006, for $17.5 million, and involved the following schools: Salve Regina University, Newport, $6 million; St. Raphael Academy, Pawtucket, $5.5 million; The Cluny School, Newport, $2.5 million; Ocean Tides School, Narragansett, $2 million; and The Prout School, $1.5 million.

It took about six months for the diocese to complete the first bond application, but only four months for the second one, Sabatino said. He added that the template was established with the first one, which made the second one and future ones easier to process. He commended the work of all the professionals, but especially Robert Donovan, executive director of the R.I. Health and Education Building Corp., who guided the entire process.

"Because of the expense, it just doesn't make sense (to bond) for anything less than $4 million," Sabatino said.

That's one reason why it wouldn't make sense for Catholic schools to be eligible to apply for a bond. For example, a sprinkler system may cost between $80,000 and $100,000 to install. With almost 50 schools facing a 2008, or earlier, deadline for making improvements, the total bond would only be $5 million, and that's of all the schools utilized bonds as the financing tool, which is not expected to be the case.

Sabatino noted that a number of schools have already had the work done and financed it with reserves. He noted that in his estimate, about $2-$2.5 million would be the most needed for schools in which work still needed to be done but did not have the reserves to pay for it.

The other problem is that there isn't a clear picture yet of what kind of improvements the schools will be required to make, Sabatino said. He recalled the November meeting when some school leaders reported inconsistencies among fire code inspection reports from district to district, even from year to year for the same school. Diocesan Director of Facilities Carol Ann Nelson is currently gathering inspection reports to petition the state Fire Code Safety Board of Appeals and Review to clear up the problems. Until those inconsistencies are resolved, the schools will not even know what kind to changes they will have to make and how much it will cost.

Sabatino said that is the reason why he recommended tapping reserves or initiating plans for a capital campaign as a more cost-effective way of funding the projects.

In the next year or two, there doesn't appear to be any further bonding by Catholic educational facilities like what has been done the last two years, he said. If there were a moderately large project, then the smaller schools with lesser sums needed would be able to take part in the larger bond. If something does arise, this would be an opportunity for the schools to bond together.

Sabatino also said that, specifically in the case of parish schools, he would not allow a parish facing large operational deficits, enormous debt or large capital expenditures to mortgage its own financial viability solely for a school with little chance for survival, in order to meet fire code upgrades. The banks measure how well the school can financially be able to repay a bond. Unless the bank approves the application, the bond will not move forward.

Diocesan churches are also going to be inspected under the new fire codes, and renovations are likely to be required in many of those buildings as well, Sabatino said.

Unfortunately, the schools can't wait until parishes finish having their churches inspected, he added, because the fire code regulations for churches won't be written until July 2007.

"We feel their (the schools') frustration," Sabatino said. "We will continue to work with them and with the state fire marshal's office and town inspectors so that a viable solution can be reached for each institution."

(This article originally appeared in The Providence Visitor)