Borrowing for the Public Good: The Growing Importance of Tax-Exempt Bonds for Public Charities
Nonprofit and Voluntary Sector Quarterly, 45(3): 458-477
Thad Calabrese and Todd Ely
The importance of tax-exempt borrowing as a capital source to the nonprofit sector has significantly grown over time. Tax-exempt bonds issued by nonprofits has risen from an inflation-adjusted $106.3 billion in 1993 to $388.5 billion in 2010 representing an 8% compound annual growth rate over the period. The increased importance of tax-exempt borrowing relative to other borrowing for nonprofits has gone unnoticed. Here we ask what factors are associated with this trend. We find wide variation in the increasing use of tax-exempt bond usage between nonprofit sectors. While nonprofit borrowers other than hospitals have increasingly entered the tax-exempt capital market over the past decade, they still tend to be large organizations with lower risk of bankruptcy or default. Our empirical findings continue to raise the questions that others have raised: how do we make smaller, capital-starved nonprofits better able to take advantage of the tax-exempt market in a responsible manner?