We recently read a great article in the Nonprofit World Magazine that shared a little secret for nonprofit funding. When planning a capital project, many nonprofits have to execute multi-year capital campaigns to save up for necessary funding. Then, more often than not the campaign takes years longer than expected which in turn increases the amount needed due to inflation and compounded annual construction cost increases. Traditional capital campaign fundraising efforts rarely catch up with the cost creep.
However, there is good news… A secret within the industry (which we are happy to publish), is in the use of low cost, and often tax-exempt bonds issued by state, county or city development agencies. While the specifics vary from state to state, most can usually be identified as industrial development agencies, economic development authorities, educational facilities authorities, or something similar. There are more than 1,000 groups like this across the country that provide incentives and financing assistance, including bonds, on behalf of borrowers planning capital projects.
Tax-free bonds can save nonprofits thousands of dollars in interest, not to mention reduce taxes. Some great examples include:
- The Masters School in Dobbs Ferry, NY, who was able to cut the cost of financing a new $17.6 million science building by $600,000 a year because they were able to get financing through a bond issue at 2-2.5% less interest than a bank loan over the first 10 years of a 30 year bond.
- An assisted-housing project in Vigo County, IN, was made possible with a $4.5 million, tax exempt, and variable-rate bond at an initial interest rate of under 2.0%.
- The Boys and Girls Club of Greenwich, CT, expanded its facilities and service to the community with the aid of $14.8 million variable-rate bonds with an opening interest rate of 1.2%.
The good news about bonds doesn’t stop there! They can also be used to refinance your organization’s debt into lower interest rates or get a head start on a project that would otherwise be years in the making. A great example of this is when a group interested in establishing a cultural art center purchased the shuttered Rome Theater in Pleasantville, NY. It had been closed as a theater for 33 years and was being used as office space. The group needed to launch a $5 million capital campaign in order to turn the theater into the Jacob Burns Film Center. However prior to starting their campaign, the group learned that they could use a tax-exempt bond as interim financing. It enabled them to begin operations years faster than they would have otherwise. Completing renovations ahead of time made it easier to enhance their fundraising campaign and allow the Film Center to start generating operating revenues early.
If your organization is considering a capital project in the next few years, be sure to look into bonds as a way to save money and get your project done faster!