NCPA - National Center for Policy Analysis

Church Schools and Bonds

April 8, 1997

Some advocates of school choice argue that private schools -- including those that are church-related -- should be allowed to use municipal bonds to finance building programs. In fact, that is already being done in some places.

  • Last year, the Archdiocese of Indianapolis issued $38.5 million in tax-free municipal bonds through the Indianapolis Economic Development Commission.
  • As the first Catholic institution to receive a debt rating from Moody's, the AAA rating and tax-free status allowed it to save two percentage points on interest payments -- leaving an overall savings of $570,000 each year in interest over the 30-year life of the bonds.
  • The bond issue reportedly cost the city next to nothing and the development commission was used mainly as a conduit to the tax-free debt market, offering private schools access to the borrowing authority already available to the city's public schools.
  • The diocese is totally responsible for repayment.

The advantages of issuing tax-free bonds are reportedly so great that the idea is catching on. Philadelphia's Catholic Archdiocese is considering such an issue, as is De La Salle High School, one of Chicago's largest Catholic high schools.

There are some restrictions: the money can't be used for specifically religious facilities, for example. But as long as students and faculty aren't chosen on the basis of religion, the schools pass the test that they aren't "pervasively sectarian."

Therefore, advocates contend that the practice is constitutional and, as it spreads, could boost the number of private school facilities and opportunities.

Source: Xander Mellish (WBIS+TV, New York), "Liberty Bonds for Inner-City Schools," Wall Street Journal, Tuesday, April 8, 1997.


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