Second Research Paper on The Internal Bank
Co-authored by Jon Speare (of Commonfund), Chris Cowen and Linda Fan (of Prager Sealy & Co., LLC.)

The enclosed whitepaper represents current thinking on debt as a critical component to an organization's financial structure or "Internal Bank."

Although debt is not a panacea without risk, incorporating debt into the capital structure of a university offers a number of advantages.

• Debt allows institutions to plan and execute major capital programs on a systematic basis by providing a financing mechanism that spreads cash flows over longer periods of time.
• Debt allows institutions to plan and manage major capital projects without having to directly coordinate cash flows from gifts or other funding sources with individual projects.
• Debt imposes the financial discipline of building debt service requirements into the operating budget so that, over time, debt capital becomes a permanent financing source for future projects.
• Debt can provide access to a "low cost" source of funding.

Universities need to look at this side of capital with the same methods employed on the investment side; as a permanent component of the financial structure, with a portfolio approach and overseen with a well thought out policy.