Fund-raising gifts are an important source of funds for the University to consider when determining the financing vehicle for capital projects. The University will give consideration to the benefit of investing endowment and other funds at a rate of return that would be higher than the cost of debt and applying unrestricted gifts to the endowment rather than towards financing capital projects.
Key considerations for determining an appropriate financing vehicle include the following:
- Capital Fund-raising may involve uncertain timing of the receipt of funds.
- Equity financing can minimize impacts on the University’s operating budget.
- Equity financing can weaken the University’s balance sheet.
- Fund-raising targeted toward unrestricted gifts to the University’s endowment afford the maximum financial flexibility to the University over time.
- Unrestricted gifts to the University’s endowment can often be invested at higher yields than the interest rate paid on debt (especially tax-exempt debt available to the University).
- Equity financed projects cannot be refinanced to take advantage of lower interest rate environments.