1. 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

2. A Financing Plan Is Essential (And too often neglected) The best way to finance the project is the issue (not just some way) 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 helps ensure a clear understanding of scope and costs of the projects A plan creates a common understanding among all critical parties A plan creates a common understanding among all critical parties The plan must be completely realistic The plan must be completely realistic A sophisticated team—in the law school—is important A sophisticated team—in the law school—is important

3. Elements of a Plan How much financing will be necessary How much financing will be necessary When will the money be needed When will the money be needed What are the sources of funding expected to be What are the sources of funding expected to be Who has responsibility for what elements of the funding Who has responsibility for what elements of the funding What $$ needs to be set aside to “prime the funding pump” What $$ needs to be set aside to “prime the funding pump” How does the law school relate to the university and other partners How does the law school relate to the university and other partners

4. Other Considerations The Context: university and law school The Context: university and law school Caution of hidden overhead Caution of hidden overhead Creativity is good, within limits Creativity is good, within limits The costs of operating the new facility The costs of operating the new facility What happens if things go wrong: What happens if things go wrong: Financing plans do not materialize Financing plans do not materialize Cost estimates were unrealistic Cost estimates were unrealistic Change orders proliferate Change orders proliferate

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

6. 10 Ways to Finance The facility as an element of a larger governmental facility (e.g., courts) The facility as an element of a larger governmental facility (e.g., courts) Commercial mortgage/bonds Commercial mortgage/bonds Leasing Leasing Non-interest loans Non-interest loans Tax-exempt bonds Tax-exempt bonds

7. 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

8. Annual Results Tax-Exempt Bonds Annual $1. 67 Million Annual $2.0 Million (average) Annual $333,000 Direct Payment Payments $0 Revenue $.08 Excess $80,000

9. 30 Year Results Tax-Exempt Bonds Total Excess $10 Million* Principle Remaining $25 Million *Compounding would Direct Payment over 30 Years $2.4 Million* at end of 30 Years $1 Million increase this amt.

10. A Few Notes Law schools should keep in mind this technique Law schools should keep in mind this technique It is not available to all institutions It is not available to all institutions There really is the need for a sophisticated financing team in the law school There really is the need for a sophisticated financing team in the law school Help the university understand the options Help the university understand the options The law school (not just the university) should benefit from this mechanism The law school (not just the university) should benefit from this mechanism

11. Some Process Notes Start early—this takes time Start early—this takes time A formal committee or workgroup in the law school is important A formal committee or workgroup in the law school is important Develop a timeline Develop a timeline Consider all of the alternatives, not just the first thing that comes to mind Consider all of the alternatives, not just the first thing that comes to mind Consider existing financing and financial plans for the future Consider existing financing and financial plans for the future Keep to the plan, but be flexible Keep to the plan, but be flexible Have an ongoing review throughout the project Have an ongoing review throughout the project