Catholic church takes loss in loan settlement with Burlington College

Burlington College
Burlington College, and the former headquarters of the Roman Catholic Diocese of Burlington. Photo by Phoebe Sheehan

BURLINGTON — The Roman Catholic Diocese of Burlington lost at least $1.5 million and perhaps as much as $2 million on a $3.65 million loan to Burlington College, according to financial statements from the church.

In 2010, Burlington College bought the former diocese headquarters on North Avenue for $10 million. The diocese sold the property to help cover the cost of a $17 million settlement with victims of priest sex abuse in Vermont.

The college borrowed heavily to buy the 33-acre prime Lake Champlain waterfront property. The purchase was part of an ambitious expansion plan for the school, led by Jane Sanders, the former Burlington College president and the wife of presidential candidate Sen. Bernie Sanders. In August 2011, Jane Sanders resigned as doubts emerged about her plans and fundraising strategy. The college trustees gave her a $200,000 early exit package.

Sanders hoped to double the size of the college and create a new campus at the diocese location. When she signed off on a $6.7 million loan from People’s United Bank and a $3.65 million loan from the diocese in 2010, she was banking on pledged donations from supporters.

The diocese loan was settled earlier this year, and recently released documents show the diocese lost $1 million in principal payments, plus $500,000 to $1 million in interest accrued but never paid over a five-year period.

Burlington College President Jane O’Meara Sanders. Photo courtesy of Burlington College.
Former Burlington College President Jane O’Meara Sanders. Photo courtesy of Burlington College.

A VTDigger investigation in September showed that Sanders overstated pledged donations used to secure the People’s bank loan. Pledged donations never materialized, according to documents and statements from college officials. Ambitious plans to boost enrollments failed, pushing the college toward financial collapse.

Sanders declined to be interviewed for this and previous stories about the loans.

To avoid bankruptcy, the college sold 27 acres to developer Eric Farrell in February for $7 million. At about the same time, Burlington College settled the loan with the diocese.

Farrell plans to build more than 700 units of housing on 15 acres of the property. As part of the deal, the Champlain Housing Trust and other partners will build 160 units of affordable housing. The college will retain a 6-acre parcel.

The development, which includes a 12-acre park, was approved by the Burlington City Council Monday night. Many residents laud the deal for striking a balance between the city’s need for affordable housing and open public space, but a vocal contingent decry the deal as a giveaway to a wealthy developer.

The diocese takes a haircut

Arriving at a precise figure for the amount the Roman Catholic Diocese lost is difficult because Farrell, church officials and Burlington College officials refuse to discuss how the loan was settled.

The church and the college declined multiple interview requests, and neither would answer a set of written questions about how the loan was discharged.

VTDigger requested an interview by email with Bishop Christopher Coyne; and made interview requests to the Rev. Monsignor John McDermott; Diocese CFO Martin Hoak; Burlington College President Dr. Carol Moore; Burlington College CFO Gibson Smith; and Burlington College Board Chair Yves Bradley.

“They probably refused to talk to you about it, because it’s none of your business,” Farrell said. He, too, declined to provide details of how the debt was settled.

Martin Hoak, the diocese chief financial officer, declined to answer financial questions but said a “careful reading” of the church’s public audited financial statements would provide answers.

Here’s what the documents show: The Roman Catholic Diocese of Burlington lost $996,000 of the $3.65 million principal on the loan it made to Burlington College.

Burlington College, Roman Catholic Diocese of Burlington
Burlington College, and the former headquarters of the Roman Catholic Diocese of Burlington. Photo by Phoebe Sheehan

There is also no evidence that the diocese received any interest payments during the five-year life of the loan. Depending on who had prevailed in a disagreement between the diocese and Burlington College over whether the loan went into default, the unpaid interest totaled between $593,000 and $923,000.

If a default occurred, the total loss to the church, principal plus interest, would be just shy of $2 million. If a default did not occur, the loss would be a little more than $1.5 million.

Burlington College paid the diocese $542,000 prior to June 2014, reducing the amount the church was owed to $3.1 million. Then sometime prior to June 2015, the loan was settled for a $1.05 million cash payment and a $1 million investment in an unidentified company.

The $1 million investment represents a 16.7 percent stake in that company. The audit states that the diocese plans to exercise a “put option” in February 2016, meaning they will cash out for the agreed upon $1 million. Returns on the investment so far totaled $60,822 as of a June 2015 diocese audit, the most recent financial information available from the church.

While it appears the diocese plans to request the $1 million owed, “that doesn’t mean the company has the cash to pay it off,” said Don Keelan, a CPA who helped VTDigger analyze the financial statements.

Keelan said the investment is “certainly at risk.” If the diocese can’t collect, “that loss (on the principal) of $996,000 could be a lot greater.”

“When you step back from it all, here the (diocese) had a note from the college where a good portion didn’t materialize, and now the note was converted into another instrument, an investment in an LLC. That’s not very liquid,” Keelan said.

“The diocese should be getting their money, that’s what they need, not putting themselves in a speculative position. It goes to show how desperate the diocese was to collect on this,” Keelan said.

Burlington College and the diocese both refused to name the company the diocese now partially owns. In a statement, Burlington College officials said, “Any questions about the details of the financing that EF Farrell, LLC utilized to purchase the property should be directed to Eric Farrell.”

In November 2014, Seven Days reported that it had obtained a document detailing a “proposed transaction between the diocese and Farrell.”

According to Seven Days, the deal Farrell proposed involved the church forgiving $2 million of the Burlington College debt and accepting a $1.5 million investment in the company Farrell created to build his planned housing development.

Farrell declined to say if the diocese owns a stake in the housing project, noting that it’s not a matter of public record. “I have a group of investors who joined me in that company, and I don’t think it’s appropriate to say who they are,” he said.

Eric Farrell
Developer Eric Farrell at a Dec. 21 City Council meeting where a development deal he reached with the city was approved by councilors. Photo by Morgan True / VTDigger

The proposal reported by Seven Days closely mirrors the arrangement financial documents show was used to settle the loan, except that it appears the diocese negotiated a slightly more favorable deal, which included a cash payment and a write off of only $1 million of the principal as bad debt, instead of the $2 million in the proposal reported by Seven Days.

If the diocese owns a stake in Farrell’s project, that $1 million investment may never materialize. As City Councilor Tom Ayers told residents in an attempt to placate those who feel the city’s deal with Farrell was reached behind closed doors and without sufficient public input — a point Ayers contested — the public process “is just beginning.”

In order for the developers to move forward, the project must get environmental approval through the Act 250 process, approval from the city’s Development Review Board and other city boards and commissions. It also needs approval of zoning changes related to height and density. All of the processes will provide opportunity for public involvement, Ayers said.

If Farrell is unsuccessful overcoming the regulatory hurdles, the loss to the church could be greater. The church also has an option to cash out their stake this February, provided Farrell has the money.

At the same time, Keelan acknowledged that if Farrell did partially pay the diocese with an investment in the housing project, it would have reduced the amount of cash he needed at the closing with Burlington College.

That means Farrell may have only paid $6 million in cash at closing for a $7 million purchase price on a property that the City of Burlington valued at nearly $20 million in 2010.

Uncollected interest

The diocese’s 2014 and 2015 financial audits show no evidence that Burlington College made any interest payments on the $3.65 million loan. A Burlington College audit from 2013 shows the school was not making any principal or interest payments and the amount of unpaid interest was listed on the books as a liability.

The original note had an interest rate of 3.6 percent. Interest payments for the first 18 months of the loan were deferred and would have been forgiven if the $3.65 million principal was paid before December 2014. It was not.

Starting in July 2012, Burlington College was to begin making monthly principal and interest payments of $36,265, which it did not make. As a result, the diocese served Burlington College with a notice of default in August 2012, and began charging an 8 percent “penalty interest rate” stipulated in the loan.

The college disputed the loan was in default. The college audit states that payments to the diocese were contingent on whether the college had at least $1.45 million in the bank prior to making each payment.

The college was unable to make principal or interest payments because it hadn’t banked that amount, according to the audit. The diocese sought to impose the higher interest rate, which it says would have resulted in the college owing $140,000 more in interest as of June, 30, 2013.

“The ultimate resolution of this matter is unknown,” the Burlington College audit states.

With the penalty rate being applied from August 2012 to when the loan was settled earlier this year, the uncollected interest would total $923,000. Without the penalty interest, the interest owed to the church would be $592,000.

Paid a premium?

Though unwilling to answer questions about how the Burlington College loan was settled, Martin Hoak, the diocese CFO, provided a statement disputing that the Roman Catholic Diocese lost money in the deal.

The CFO says an independent appraiser the church hired assessed the 33-acre, lakefront property with several historic buildings, including a 19th century orphanage, for $6 million, $4 million less than what the college paid.

“Therefore, all funds received above that amount are a premium, and any amounts not collected on the loan reduces our premium, but are not a loss,” he said. Hoak did not respond to VTDigger’s request for a copy of the appraisal.

Boston-based Joseph J. Blake and Associates appraised the property for $11.9 million in 2010 at the time of the sale to Burlington College. The city of Burlington valued the property at $19.8 million.

The Blake and Associates appraisal says the college’s $10 million purchase price was agreed to after “several negotiations” with the diocese. At one point, the diocese was “anticipating” a price of $12.5 million, according to Blake and Associates.

Keelan, the CPA, called Hoak’s assertion that the diocese received a premium “totally bogus.”

“In 50 years of doing this I’ve never seen such a claim,” he said. “They didn’t get the principal back, and they didn’t get any interest payments, so they had to book a loss.”

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Morgan True

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  • Bruce S. Post

    Thank you, VTDigger, for shining a spotlight on this whole sordid episode, which has stunk from the beginning. Its odiferous roots sprung from the pedophilia scandal that the Diocese of Burlington covered up for years, and the stink, obviously, goes on and on and on.

    I use the term “shining a spotlight” purposefully: Presently showing in local theaters, the acclaimed movie Spotlight depicts the Boston Globe’s efforts to investigate and publicize sexual abuse by priests of the Archdiocese of Boston. The banner for the film is “Spotlight: Break the Story. Break the Silence.”

    Obviously, there is a whole lot more to the Burlington Diocese/Burlington College land deal than the folks involved want us to know. Therefore, Morgan True, Don Keelan and others, my compliments for breaking the story and my commiseration for experiencing how difficult it is to break the silence. This is just one more reason why I, a practicing Roman Catholic, a Benedictine Oblate and a Saint Michael’s College graduate with a masters in Theology, no longer contribute to the Bishop’s Fund.

  • dennis morrisseau
  • Andrew Simon

    Everything about this deal is shrouded in secrecy. Even when the City of Burlington touts the “transparency” of their process and the enormous community input they solicited, it’s all to distract the public from the back room deals that allow this project to go forward. Thank you, Morgan True and VTDigger, for persistently shining a light into some of the dark corners of their shenanigans. If Eric Farrell thinks that “it’s none of your business”, all the more reason for all of us to keep asking questions until we finally get some answers.

  • Ruby Perry

    Digger, I think we need to send you a bigger donation! You are doing key work in creating an arena where democracy has a chance to flourish. Burlington’s City Council approved an equally flawed agreement for the BC/Catholic Diocese land unanimously, effectively supporting this land grab. Digger and Morgan True, you are following in the footsteps of Boston Globe’s investigative team Spotlight (now currently playing in Burlington, and not to be missed!).

  • Paul Richards

    “Sanders hoped to double the size of the college and create a new campus at the diocese location. When she signed off on a $6.7 million loan from People’s United Bank and a $3.65 million loan from the diocese in 2010, she was banking on pledged donations from supporters.”
    Is this a theme of churches and our federal government? In the case of our government it would be banking on the expected tax revenue squeezed out of the citizenry. For overstating the pledged donations they gave Mrs. Sanders an extra $250k kind of like the IRS rewarding people for poor performance with bonuses. Seems to me that the $250k they gave to Mrs. Sanders would have helped to pay back the loan.

  • Scott Chapman

    Pay attention folks this is the Sanders finantial plan. Overstate income, understate expenses, take your cut and run leaving someone else holding the bag.

    • Wendy Wilton

      Agreed. Things like Bernie’s “free college” sound great except when it comes to how to fund that. Look at what’s happened in Pre-K through 12 education which. Is publicly funded. Very costly, union dominated and low performance on any international scale. Bernie’s wife Jane certainly showed us what happens when you try to run a small college like the revenues will magically appear as they do in government with a seemingly unending flow of taxpayer cash.

  • A day doesn’t go by without the American people hearing Bernie Sanders railing against greedy Wall Streeters and the “risky financial decisions” they make. He may be right in some of his thinking.

    Now some of the same issues he has with Wall Street also apply to his wife Jane Sanders and the representations she made to induce the People’s Bank to make the loan that has lead to where we are today.

    When a bank makes a loan, a primary concern is sources of repayment. In this case, the critical source of repayment was to be the millions in donations to the college that Mrs. Sanders represented would be made. Without her representations on donations, its very doubtful that the People’s Bank loan and the secondary loan from the Diocese would ever have been made.

    Either because Mrs. Sanders didn’t really understand the likelihood of the donations being made or purposefully inflated them, the result is the same. She made “risky financial decisions” that resulted in the loans going into default. She then exited the college taking a $200,000 golden parachute that the college couldn’t afford and many would deem to be greedy.

    Thus, Mrs. Sanders behavior is very similar to Wall Street behavior that Bernie abhors: risky financial decisions and greed.

    Maybe instead of hiding and refusing to talk, Mrs. Sander should come forward and explain her actions. If she won’t, then maybe candidate Sanders should call her out and hold her to the same standards he sets for Wall Streeters.

  • Chuck Shannon

    It never fails to amaze me how Liberal Democrats teach us to hate the rich and powerful. The top 1% are evil and must be taxed to death. Yet the Democratic Party is loaded with affluent people. Somehow it’s ok for Hillary to demand no less then a G6 passenger jet for speaking appearances. This Summer she spent 15k on a lunch with her Hamptons friends. She tries to “dumb us down” with her ridiculous claims of helping the middle class. She doesn’t have a clue. And now Bernies wife has a big ol savings account because she lied to the church and a bank. He promises a lazy generation Free Stuff and they believe it. It us time for the Democratic Party to do a reality check. Stop over taxing the working class and teach the new generation that with hardwork anything is possible. The real world is not full of “safe zones”. I have been working since I was 12 and I am proud of my accomplishments. There is no substitute for work ethics and the wealthy owe us nothing.

  • Kathy Callaghan

    Considering the relevance of the Christmas season, I don’t find your byline, “Catholic Church ‘nailed’ in Loan Settlement” to be very appropriate. Yikes. Some sensitivity would have been appreciated.

  • Wendy Wilton

    It would seem the church did not get the best advice in this deal. At the end of all of this is a significant loss of money that would have been used by the church for good–either in direct aid to the poor, education, or supporting the parishes. The Catholic Church is a very generous entity, as are many other religious organizations, and helps people in need throughout the state and in each community. Now that $1 million+, is unavailable to the church primarily due to the misrepresentations made by Jane Sanders. Hope she feels really good about her golden parachute from BC.

  • Linus Leavens

    The biggest chunk of undeveloped land on the Burlington waterfront, sold off at half of it’s worth, & defaulted on to the tune of $1.5 to $2 million dollars. Pomerleau had a hand in making this risky deal happen by putting up a bridge loan himself. The details of Pomerleau’s involvement are not disclosed. Were there undisclosed options available to him should the loan default? And now the developer of the property (E F Farrell LLC) gets to develop most of the land. Is anyone surprised?

  • Tom Pelham

    As early as 2010 the flaws in Burlington College’s proposal were visible. It was clear that the Diocese was not selling the property at near fair market value and the loan to Burlington College by the Diocese to pay for the land placed additional financial risk on church resources. This, among other weaknesses in the overall proposal, caused me to vote no and to make sure my vote was clearly recorded, as such recordings were not the norm for VEHBFA board votes.

    “Even at the time, Burlington College’s application raised red flags with two VEHBFA board members, Agency of Human Services policy adviser Charly Dickerson and then-tax commissioner Tom Pelham. According to minutes from the meeting, Dickerson voted nay “out of concerns for Burlington College’s financial strength and its ability to repay the debt.”
    “Pelham recalls the deal as a “fire sale” that wasn’t good for the college, the diocese or the city — only good for the bank, which he figured would eventually acquire the property, assessed at nearly $20 million.”
    “I’ve done a lot of public sector-development. I know what a good project looks like, and this one just didn’t have it,” says Pelham, who asked for an unusual recorded vote on the matter. “In retrospect, I was on the money.”

    • Tom:

      Do I take it that you’re correctly quoted as saying the deal was “only good for the bank”, which he figured “would eventually acquire the property, assessed at nearly $20 million.”

      If so, I doubt that anyone who knows anything about commercial lending would agree with that sentiment. The very last thing any bank wants is to own foreclosed property. Foreclosed property is expensive to hold, is carried as a non-performing asset and gets bank regulators upset.

      As it turns out this deal appears to have been nothing but a headache for the People’s Bank, who in my estimation did a marginal job in underwriting the loan in the first place.

      • Tom Pelham

        Peter: In general I agree that banks aren’t in the business of foreclosure. That’s true in this case as well. But, this was still an unusual case. My comment might have been more along the line of “good for the bank or a developer aligned with the bank”. This property is special – 33 acres of essentially vacant land zoned for mid-rise residential overlooking Lake Champlain from the heights of North Avenue and running all the way down to the lake’s shore and within walking distance of Church St. and the Burlington waterfront. Likely, a more desirable property has not been on the market in Vermont for many years. However, this property was never properly placed on the market to test its value among potential bidders. Burlington College alone was given the inside track.

        At the VEHBHA board meeting, we were told the bank would not do the deal unless the fair market value was well in excess of the $6.7 million bond request. I think the number cited was $10 million. The Board did not have access to the appraisal; however clearly the bank was ready to do the deal. The City had the land assessed at $20 million, though not likely a well scrubbed assessment as the land’s tax exempt status had little bearing on property tax revenues. We now learn from the article above that the fair market appraisal valued the property at $11.9 million. Further the bank had first position ahead of the Diocese’s secondary loan and required the college to liquidate any other debt obligations.

        While I would agree that the bank’s effort was not focused on a foreclosure, given the spectacular nature of the property, the fire sale quality of the transaction, the first position of the bank and the loan to value ratio of the deal, should foreclosure be the end result the bank was more than well positioned to recoup the loan and associated fees, penalties, etc. Maybe some inconvenience, but little financial risk for the bank with additional financial up-side, political brownie points aside.

        The VEHBHA board is charged to approve tax exempt financing when in the public interest. Certainly, selling the property to a small, tax exempt, poorly financed college was not enhancing Burlington’s tax base. Further, the Diocese seemed not to be aggressively managing its fiduciary responsibilities to the benefit of either the church or potential additional plaintiff’s against the Diocese. Given all this, I could see little value in the public interest in approving tax exempt financing for this project and voted no.

        • Tom:

          There’s no doubt that you always do your homework and have the facts at your finger tips……..that’s by the vtdigger readers are always interested in what you have to say. Keep letting the folks in Montpelier know how they can do a better job in managing the affaires of the state.

          Enjoy the holidays and we look forward to hearing from you frequently in 2016.

  • William Hays

    So, when the dust (not snow) settles, is Jane O’Meara Sanders going to ‘skate’ (roller, not ice)?

  • Hank Buermeyer

    FABULOUS INVESTIGATIVE REPORTING! I guess it’s time for me to cough up some $$ for VTDigger. Way to go Morgan True.

  • samuel shultis

    Just imagine …. if you can, something like this taking place at Shelburne Museum’s sprawling abode …. there again, maybe that wasn’t a very good analogy given the museum’s selling off of $30 million in art back in 1996 ….
    Digger has raised many more questions then they answer and we won’t be seeing any Watergate discoveries in this story …. Until Digger finds a way of waterboarding the likes of Jonathan Leopold, Michael Luck, Christine Plunkett, Adam Dantzcher and above all – Eric Farrell or Matt Mahoney – this ‘story’ will remain at the 399 ft. line west of McNeil Cove…. Vermonters and a church snookered by the likes of this ‘crew’…. what has the state come to ….

  • Mark Donka

    Why did Sanders get 200K for doing a bad job at the college? This is one of the reasons higher education cost are out of control. Let’s hope that Bernie talks his wife info giving back at least 60% of the 200K. That way she can help pay to make college free. But I am sure this will never happen, Bernie talks the talk but won’t walk the walk when it might effect his wallet.

    • Michael McGowan

      You are so right. And 60% ? I don’t think she would even give back 60 cents.
      Maybe she and Bernie should have called on Donald Trump a few years ago to get this land deal done without putting the school out of business.?

  • Michael McGowan

    It’s amazing that the mainstream media all across the country always has front page space available to anything negative about the Catholic Church. Then what appears to be a big news story involving financial fraud committed by the wife of a far left socialist Democrat who could be our next president because his competitor for the nomination might be in jail no one in the msm will report this story. That’s why most journalists are seen as vermin.