January 17, 2023
Financing Higher Education Facilities: Developing Procedures to Comply with Requirements of Tax, State and Securities Laws
Many public and private colleges and universities use bonds and other debt to finance capital facilities such as student housing and dining facilities, research labs and clinics, software and other information technology, academic buildings, and athletic facilities. Bonds may be issued on a tax-exempt basis to lower the cost of financing these facilities, and may be sold via the public bond market or placed directly with a bank or other lender. Public universities generally issue tax-exempt “governmental” bonds and also may issue qualified private activity 501(c)(3) bonds (“qualified 501(c)(3) bonds”) for flexibility in partnering with 501(c)(3) nonprofit entities. Private colleges and universities access tax-exempt borrowing rates through state conduit issuers of qualified 501(c)(3) bonds. Applicable tax requirements under the Internal Revenue Code of 1986, as amended (the “Code”), limit the types of expenditures that can be funded with bond proceeds, limit private use of tax-exempt bond funded facilities, and impose other ongoing obligations. State and securities laws may impose additional requirements both during the process of selling the bonds and during the life of the bonds.