FundSvcs Community

 View Only

  • 1.  Capital Project Fundraising and Tax-Exempt Bonds

    Posted 01-09-2023 10:25 AM

    Good morning,

    We are fundraising for a new building on campus. Due to the short timeline of the project, we have issued tax-exempt bonds to cover the cost of the project less current pledges. However, our Development team is committed to continuing to fundraise for the project. We have been notified by our Finance team that due to rules around "replacement proceeds", we cannot direct any additional fundraising directly to the building. Instead, we need to ask donors to give unrestricted gifts to the university. Internally, it's fine if we turn around and use these unrestricted funds to pay off the issued debt for the project, but we cannot have the donor agreements specify that the pledge can only be used for the project.

    I'm curious how other institutions handle this situation. Our Development team is, understandably, concerned about donors' reactions to documenting these gifts as unrestricted. Our Finance team is, also understandably, concerned about ensuring we follow the tax-exempt bond regulations to the T. Our Finance team is consulting our bond counsel, but I'm looking into this from a fundraising/gift agreement perspective. How do other institutions structure their capital project fundraising? If others have similar situations, where tax-exempt bonds are issued prior to the conclusion of fundraising, how are those gift agreements handled?

    I appreciate any feedback or advice! Thank you,

    Tori



    ------------------------------
    Tori Sellner '12, '19 MSL | Director of Gift Administration and Compliance
    University of St. Thomas, University Advancement
    2115 Summit Ave, Mail DEV | St. Paul, MN 55105
    p (651) 962-6899 | f (651) 962-6996
    ------------------------------


  • 2.  RE: Capital Project Fundraising and Tax-Exempt Bonds

    Posted 01-09-2023 12:02 PM
    Hi Victoria,

    There are two broad approaches to this issue, which is grounded in anti-arbitrage rules that prohibit bond-issuers from taking proceeds raised from the bond and investing them in higher-yield investments. The first approach is to avoid raising funds that would be considered "replacement proceeds." To do that, solicitations have to be open-ended (ie, listing many campaigns and projects that the raised funds might support), rather than soliciting for the specific project in question. The accompanying gift agreements and acknowledgements must similarly be generalized. This can also be accomplished by contribution to a quasi-endowment fund whose expenditures are directed by the board towards many possible campaigns and expenses. 

    The second approach is to raise money specifically for the operating costs and program needs of the facilities that you're building, as distinct from the costs of building them or paying the debt service on the bonds. Note that funds can be ruled "replacement proceeds" based on facts and circumstances that establish a close connection between the bond and the raised gifts, so take caution and follow legal advice in going forward.

    In both cases, donors do not get to restrict funds in the way they might otherwise be used to. 


    Thank you,
    Isaac Shalev
    Data Strategy Expert
    Sage70, Inc.
    (917) 859-0151
    isaac@sage70.com

    Schedule a 30-minute consultation now:




    Original Message


Related Content