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lobbied successfully for a 2002 bill that granted private schools access to special to finance capital improvements. But only four schools have taken advantage of the program since its inception.

In a move rare among states, the Hawaii Legislature has authorized 19 private schools to use up to $262 million in tax-exempt . But only four of them have actually issued bonds, totaling about $51 million. Under this plan, the state forgoes tax revenue to help Hawaii private schools.

The bill the Hawaii State Constitution to allow private schools to participate in a program already open to other entities serving the general public, such as utilities and nonprofit health-care facilities. The Legislature screens and approves eligible entities before authorizing the Hawaii Department of Budget and Finance to issue bonds in specific amounts on their behalf, said Scott Kami, administrator for the Financial Administration Office in the state budget department.

The schools that issue bonds may repay them over a longer period than would be possible with a commercial loan. These bonds also typically have lower interest rates than schools would otherwise pay because the interest investors earn on the bonds is exempt from federal and state taxes.

“We’re basically acting as a conduit for them to borrow money from bond investors,” Kami said. “The real benefit to the schools is that investors are willing to lend the schools money at a lower rate because they don’t have to pay tax on the interest earned.”

This means that, although the dollar amount may not be huge, the state and federal governments are forgoing tax revenues to help Hawaii private schools.

Other state governments rarely assist private schools directly, said Mike Griffith, senior school finance analyst for the Education Commission of the States in Denver. “Usually when you start a program like this you have to throw the doors open to everyone,” he said, in explaining why most other states don’t offer this benefit.

“There is very little money in other states that goes to private education,” he said. “In most states it is in the constitution that they cannot fund private schools, specifically if they’re religious.”

Fewer than half a dozen states have programs for private schools to issue bonds, he said, but those programs are very different from Hawaii’s, because in other states the government cosigns the bonds. That is risky, because if the school defaults on the loan, the state is liable to repay the bond.

In Hawaii, the government does not bear any risk, said Kami, in the state budget department. He stressed that when special-revenue bonds are issued, the state is not liable in the event of a default. Each entity — in this case, each school — pledges its own security and backing and is fully responsible for repaying the loans with interest. The interest, which would normally be taxable, is determined by the private bond investors on a case-by-case basis, Kami said, depending on each school’s credit strength.

But most of the schools that have been approved to issue the tax-exempt bonds have opted not to use them after all, for . Five have already let their authorization expire (there is a standard five-year authorization period); 10 others have yet to use theirs.

Montessori School of Maui followed through on its 2004 authorization for $5.7 million in tax-exempt bonds. It was a daunting and difficult process though, said Cheryl Kaupalolo, the school’s business manager. She speculated that’s why many schools back out of the deal after they are cleared to issue bonds.

“I can’t remember exactly what happened, other than that we found out it would be too costly to issue them,” said Teresa Rizzo, finance director of Haleakala Waldorf School, which received authorization to issue $10 million in bonds and never did.

“There really aren’t very many financing options for schools,” Kaupalolo said. “Not too many want to loan schools money, because they don’t want to have to foreclose on you. We couldn’t find anybody to finance us,¹ and we have pretty good bankers.”

Kaimuki Christian School, the latest to receive authorization for the bonds, applied for $20 million to help finance campus improvements.

“We are looking to break ground next June on the first phase of our project,” said principal Mark Gallagher. “We were just exploring financing options, and this is a good one.”

It is not the only option, however. The school, which has 300 students, also has a good relationship with its bank, is seeking grants and is a member of an organization with a similar revenue bond program on the mainland.

“We wanted people to see that we had this option as we got ready to sign contracts for next year,” Gallagher explained. “If we had waited until the next legislative session to seek authorization, it would have been too late and we wouldn’t have had the option if we wanted it.”

It seemed like a good idea to apply for the state’s special revenue bond program, but the school may end up among those that never issue their authorized bonds, he said.

Robert Witt, executive director of the Hawaii Association of Independent Schools, said he would like to see schools use the program more.

“The state has been more than generous with us in getting these approved,” he said. “It may be a little more bureaucratic than you might find in another state, but it is a system that works.”