Public Borrowing for Private Organizations: Costs and Structure of Tax‐Exempt Debt Through Conduit Issuers

Abstract

Conduits are public organizations that issue debt on behalf of third‐party borrowers, both government and private. Additional transaction costs from using conduits offset lower interest costs. We find debt issuance costs 25 percent higher for private organizations than the broader municipal debt market, primarily from fees charged by conduits. Further, existing issuance cost reporting focuses on upfront costs, which fail to capture the significance of annual conduit fees. Also, private borrowers have debt structures that keep more principal outstanding over longer periods of time. Despite additional costs, conduits still provide these private borrowers with substantial interest cost savings.

The elephant in the dark: the social origins of research in nonprofit financial management

“…In a nonprofit context, bonds are more often considered possible forms of finance through the use of conduits for nonprofits, while bonds are treated almost exclusively as an investment option within the for-profit literature (Calabrese and Ely, 2016;Ely and Calabrese, 2016). Bond analysis in nonprofits is an indicator of the tendency of public finance scholars to generalize the behaviors of large institutions, such as those with needs involving public dormitory authorities, as representative of the entire nonprofit sector.…”