SAN DIEGO(special)--On Jan. 11, the San Diego Jewish Academy will learn whether more than a half-year of governmental applications, hearings and reports will pay off in the form of tax-exempt securities financing for its $36 million building program in The Carmel Valley.

That's when the Association of Bay Area Governments Financing Authority for Non-Profit Corporations, based in Oakland, will decide whether to approve the Academy's request that ABAG serve as its conduit in issuing up to $40 million in 30-year fixed-payment securities.

While originally created to serve as a planning vehicle for the nine counties adjoining San Francisco Bay, ABAG has branched out into helping non-profit organizations raise money through the issuance of tax exempt securities.

Because under federal law, such securities must be issued by a governmental entity, what ABAG does, in essence, is to issue the securities under its name, but all the costs associated with the securities are paid for by the non-profit organization. In essence, ABAG is simply a conduit-- for which it is paid a fee by the non-profit organization.

Under ABAG's rules, tax exempt financing is available only to those non-profit organizations which are located within the jurisdictions of its member governments. At the urging of the San Diego Jewish Academy, which wanted to take advantage of the financing, San Diego County recently decided to join ABAG as an associate member. Other government entities far removed from San Francisco Bay, including the city of Escondido, previously had joined ABAG, setting that precedent.

The County of San Diego, itself, has the power to serve as a conduit for tax-exempt securities for non-profit agencies. So too, does the California Statewide Communities Development Association (CSCDA), which was created by the League of California Cities and the California Supervisors Association of California, in which the County of San Diego has been a longstanding member.

So why did the County of San Diego and San Diego Jewish Academy decide to go all the way to the San Francisco Bay Area to arrange the financing?

William Kelly, the county's chief financial officer, said as a matter of policy the county provides conduit financing only for those non-profit agencies which are working directly with the county on government-related projects. In the past, other non-profit agencies were routinely referred to CSCDA.

In fact, the San Diego Jewish Academy was recommended by a vote of the county Board of Supervisors for CSCDA financing on July 20. But CSCDA officials told HERITAGE that the Academy never formally applied for financing. 

Supervisor Ron Roberts told HERITAGE that the San Diego Jewish Academy instead urged the county to join ABAG so that the school could take advantage of ABAG's tax-exempt financing. 

Tom Lockard, managing director of the investment banking firm of Stone & Youngberg, said his company advised SDJA to use ABAG rather than CSCDA because ABAG would charge a lower fee to handle the transaction. 

But there was another issue as well, HERITAGE learned. At least informally, some staff members of CSCDA had raised a question whether issuing tax-exempt bonds in behalf of the San Diego Jewish Academy would violate the constitutional doctrine requiring separation of church and state, according to Roberts and Kelly. 

An advantage of ABAG for the San Diego Jewish Academy, according to Kelly, was that the Bay Area agency already had issued bonds for other religiously connected organizations.

None of this background discussion was alluded to when the matter of joining ABAG was put before the Board of Supervisors on its consent calendar on Nov. 16.

In his written report to the Board, the County's Chief Administrative Officer Walter Ekard stated simply that by joining ABAG the county would be providing options for non-profit agencies located within the county.

Along with a variety of other measures on the consent calendar, the proposal for the County of San Diegoto become an associate member of ABAG was approved by routine unanimous vote. Eckard reported associate membership had no cost implications to the county.

Kelly told HERITAGE that attorneys have offered a variety of opinions over whether tax exempt financing should be just as available to religious organizations as they are to other non-profit organizations. He said there are cases of such financing not only at ABAG but throughout the United States.

He said he believes such financing is appropriate inasmuch as the government agency which serves as a conduit does not pay out any money, but in fact earns money through fees paid by the non-profit agency. 

Therefore, he said, such financing is not a subsidy to a religious institution -- just the reverse. Further, Kelly said, such financing is completely different from the issuing of vouchers for religious school students -- in which a subsidy is paid out of public funds.

Just as government permits tax deductions for charitable contributions to religious organizations, so too may it permit those institutions to raise money by selling tax-exempt securities, Kelly said. 

The advantage of such securities is that they can be sold at a lower interest rate than conventional securities. Inasmuch as a buyer doesn't have to pay taxes on the profit made on such securities, the yield can be higher than that from conventional securities issued at higher interest.

Although everyone concerned at the county government indicated that they did not believe there is a church-state violation in such conduit financing, the San Diego Jewish Academy's headmaster Larry Acheatal as well as others persons interviewed by HERITAGE were extremely circumspect about talking about the issue.

Explained one source, on a not-for-attribution basis: "We're sure the courts would uphold such financing. The thing is we don't want a court suit."

With students of San Diego Jewish Academy now studying at Tifereth Israel Synagogue, Congregation Beth El and in temporary quarters at the Lawrence Family JCC, there is a sense of urgency on the part of Academy administrators and parents to be able to have SDJA up and running on its Carmel Valley campus in time for the school year beginning next September.

Under SDJA's master plan, elementary school classes then would be held at Tifereth Israel Synagogue and at the new Carmel Valley campus, while middle and high school classes would be held on the Carmel Valley campus. Classroom space no longer would be required at either Congregation Beth El or at the Lawrence Family JCC.

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The issuance of San Diego Jewish Academy's securities had been scheduled for the Dec. 13 meeting of the ABAG Finance Authority for Non Profit Corporations, but was delayed until Jan. 11, according to ABAG spokeswoman Christine Cleary. Stone and Youngberg's Tom Lockard told HERITAGE that his firm wanted more time to attract investors before the bonds were issued.

While SDJA has been successful raising money and pledges for its new campus, according to an ABAG staff report the campaign currently stands at $21.5 million -- less than the $36 million desired for the project.

The ABAG staff report also said: "The mission of SDJA is to provide high quality Judaic and secular education in a nurturing Jewish environment. This philosophy is rooted in a set of beliefs about child development, curriculum, the learning environment, school organization and Jewish community. As a "communal" Jewish day school, SDJA is unaffiliated with any of the formal movements of Judaism. The school does not discriminate on the basis of religion, ethnic or national origin in either its admissions process or scholarship programs."

Discussing the public benefit of the project, the report continued: "The borrower asserts that its commitment to public service is evidenced by its provision of a high quality educational environment to all members of its community. SDJA offers financial aid to families of limited economic means. The total amount of financial aid offered in the recent past has ranged from $260,000 to $300,000 annually. For the academic year 1999/2000, SDJA expects to offer aid totaling approximately $340,000, which will benefit 80 to 95 families."

Another benefit asserted by SDJA is the Carmel Valley campus's consistency with the San Diego County Multiple Species Conservation Program. The report said "development of the school will preserve open space and restore sensitive wetlands adjacent to the Torrey Pines State Beach and Park. Also, the Carmel Valley Community Planning Group gave the school its unanimous support in obtaining the school's development permits from the Coastal Commission and the City of San Diego."

The report said the school is asking to privately place "fixed-rate, non rated, tax-exempt certificates of participation with a thirty-year final maturity and amortization creating level periodic repayment for the life of the loan. The financing will provide a debt service reserve account equal to one year's maximum principal and interet payment. The fixed interest rate will be set at the closing of the issue and payments will be made to investors on a semi-annual basis. The structure would provide approximately $32.2 million of construction proceeds upon delivery of the certificates. There would be no borrowed capitalized interest in the transaction."