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E4b-Financing Building Projects at a Private Law School

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									  Financing Projects
In Private Law Schools
         Bricks and Bytes Conference
                 March 2006
  Section of Legal Education and Admissions to the Bar




                Steven R Smith
      California Western School of Law
                  San Diego
     A Financing Plan Is Essential
                (And too often neglected)

   The best way to finance the project is the issue
    (not just some way)
   A plan helps ensure a clear understanding of
    scope and costs of the projects
   A plan creates a common understanding among
    all critical parties
   The plan must be completely realistic
   A sophisticated team—in the law school—is
    important
             Elements of a Plan
   How much financing will be necessary
   When will the money be needed
   What are the sources of funding expected to be
   Who has responsibility for what elements of the
    funding
   What $$ needs to be set aside to “prime the
    funding pump”
   How does the law school relate to the university
    and other partners
           Other Considerations
   The Context: university and law school
   Caution of hidden overhead
   Creativity is good, within limits
   The costs of operating the new facility
   What happens if things go wrong:
     Financing plans do not materialize
     Cost estimates were unrealistic

     Change orders proliferate
Top 10 Ways To Finance A Project
   Private fundraising
   Retained surpluses/operating expenses
   Grants
   Governmental appropriation
    (federal, state or local)
   Building as part of a commercial
    development, controlled either by the law
    school/university, or by the commercial
    developer
           10 Ways to Finance

   The facility as an element of a larger
    governmental facility (e.g., courts)
   Commercial mortgage/bonds
   Leasing
   Non-interest loans
   Tax-exempt bonds
         Using Tax-Exempt Bonds:
               An Illustration
Assumptions (simplified):
• $25 million project
• Gifts, surpluses, etc. are available to cover
  the costs of the project
• Tax exempt bonds are selling for 5%, with
  30 year straight repayment
• Investment returns average 8%
• Bond transaction costs of $1 million
              Annual Results
Tax-Exempt Bonds         Direct Payment
                 Annual Payments
  $1. 67 Million               $0

                  Annual Revenue
  $2.0 Million (average)       $.08

                Annual Excess
   $333,000                     $80,000
          30 Year Results
Tax-Exempt Bonds        Direct Payment

        Total Excess over 30 Years
   $10 Million*            $2.4 Million*

  Principle Remaining at end of 30 Years
    $25 Million             $1 Million

*Compounding would increase this amt.
                 A Few Notes
   Law schools should keep in mind this technique
   It is not available to all institutions
   There really is the need for a sophisticated
    financing team in the law school
   Help the university understand the options
   The law school (not just the university) should
    benefit from this mechanism
          Some Process Notes
   Start early—this takes time
   A formal committee or workgroup in the
    law school is important
   Develop a timeline
   Consider all of the alternatives, not just
    the first thing that comes to mind
   Consider existing financing and financial
    plans for the future
   Keep to the plan, but be flexible
   Have an ongoing review throughout the
    project

								
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