Millions in Synagogue Debt: A Better Path
For people like you and me, there are certain tax advantages to having a mortgage on our homes. For synagogues, having equivalent debt –like a mortgage on a building due to purchase or new construction – is another story.
The size of such debt at synagogues, most often associated with renovations, purchase or new construction has amazed me. Many years ago, I visited a 400 family synagogue that, with no help from fundraising counsel, raised $1.1 million to renovate their sanctuary. That is certainly admirable. However, at the end of the day, the project cost nearly $2 million, and the leadership decided to go ahead and finance the remaining $900,000. Loan rates were not has advantageous as they are today. A 20-year loan of $900,000 at 8% translated to about $90,000 in annual debt payments.
We can all think of better ways to use $90,000 such as hiring of a staff member to focus on member engagement or even simply a reduction in dues to the tune of more than $200 per family.
While that $900,000 mortgage seemed like a big number to me, it is paled in comparison to other synagogues that have shared with me loan sizes of $2 million, $3 million, and even $4 million.
The mantra of the 1990s and the first decade of the current century may have been “if you build it they will come”. Often the hope was the new building would encourage membership growth. Reality has often been different.
So what is the game plan here?
The recession of 2009 and the subsequent nationwide recovery efforts have led to many banks having loan money available. And loan rates of 4.25% interest are certainly attractive for refinancing. So if your synagogue hasn’t refinanced in recent years, this is something I advise your leadership to do as quickly as possible.
One of the big challenges for synagogues and other houses of worship regarding any type of bank loan is that its financial records have to be in order. So an annual audit would really be of benefit.
Unlike not-for-profit organizations, religious institutions do not have to file a 990, which equates to an individual tax return. Not every synagogue has an annual audit. Not only would it be helpful regarding bank loan applications, the audit would also help with a foundation proposal, and is really just good financial practice.
Having a comprehensive campaign akin to a capital campaign is also something to consider. Such an effort is not as sexy as a fund drive to build a new building or renovate a sanctuary. Tagging the effort to “insure our financial future” is more attractive than “paying down our mortgage”. Linking the campaign to the creation of an endowment fund is also advice I often offer.
Let’s say the current loan is $2 million. The goal of the campaign might be $3 million, which pays of the $2 million debt and creates a $1 million endowment fund. This campaign frees up $138,000 annually that was going towards annual debt (20-year loan at 4.25%), and adds $50,000 to the budget from the endowment fund (5% of the available interest on $1 million) – in perpetuity!
We can all find many things to do with $138,000 in terms of staffing, new programs and even addressing ongoing facility needs. Doing this will also cause you to not feel as much pressure in the annual High Holy Day Appeals.