Dwight V. Denison

Revenue Structure and Nonprofit Borrowing

The capital structure of nonprofit organizations plays a crucial role in their sustainability and development. This article explores the extent to which revenue diversification is incorporated into the leverage decision. In addition, this study investigates whether government grants have an impact on the long-term liabilities of nonprofit organizations. A model of nonprofit borrowing is proposed and examined with a national sample of arts, culture, and humanities nonprofit organizations. Model estimates show that nonprofit organizations with higher degree of revenue diversification are more likely to issue debt, but do not necessarily have higher debt ratios. Arts organizations with more government financial support are also more likely to issue debt and to have higher leverage ratios.

Is Management Performance a Factor in Municipal Bond Credit Ratings? The Case of Texas School Districts

Municipal bond ratings are an important determinant of interest costs that a bond issuer must pay. The three major bond rating firms profess that economic and management factors are considered in assigning a bond rating. The management component is of particular interest to public administrators because they can exert more direct control over management factors. Management factors have not been studied empirically in the literature because management performance is generally difficult to quantify. However, the public education sector has seen advances in performance measures and at the same time has increasingly relied on municipal bonds to finance construction. The ordered probit estimation provides support that management performance, as measured in the districts performance on standardized test scores and success in student college admission rates, does influence Texas school district bond credit ratings.

Which Nonprofit Organizations Borrow

The tax benefit, bankruptcy value, and pecking-order theories of corporate capital structure are discussed in context of nonprofit organizations. A bivariate probit model shows that coefficients differ between models meaning mortgages and tax-exempt bonds are not equivalent forms of debt. Organizations with proportionally more program revenues, contributions, total assets, total revenues, and executive compensation are more likely to have a mortgage. Nonprofits that rely on special event fund-raising or contributions have a lower probability of using bond financing. The use of debt is also influenced by the nature of the organizations mission as measured through the NTEE classification.

An Empirical Examination of the Determinants of Insured Municipal Bond Issues

Research demonstrates that there are interest cost savings associated with municipal bond insurance, and yet only half of the bonds are issued with insurance. The theoretical determinants of bond insurance are discussed and evaluated empirically through logistic regression. Statistically significant bond attributes are the underlying credit risk, maturity, par value, and a call option. In addition, regional market characteristics at the time of issue and market segmentations are determinants of bond insurance. These findings strengthen the hypotheses that insurance mitigates market segmentation and that insurers function as delegated monitors of bond quality.

Making the Case for Using Financial Indicators in Local Public Health Agencies

The strength of the public health infrastructure determines the ability of local public health agencies to respond to emergencies and provide essential services. Organizational and systems capacity measures and assessments are important components of the public health infrastructure. Hospitals and governments have a long tradition of using financial indicators to assess fiscal and operational activities. We reviewed the literature on how hospitals use financial indicators to monitor financial risk, promote organizational sustainability, and improve organizational capacity. Given that financial indicators have not generally been employed by public health practitioners, we discuss how these measures can be applied to local public health agencies to improve their organizational capacity.

State Debt Limits: How Many Are Enough?

There is a growing concern among state policy makers that unrestrained debt may exceed politically acceptable or financially sustainable levels of debt. Many states have established limits to restrict debt, but many of these limits are circumvented through issuing more complex and specialized bonds. In this article, we focus on the use of debt limits as an instrument to manage a states debt in context of two key questions: (1) under what circumstances should a state consider multiple debt limits and (2) if multiple limits are established, what factors should be considered in setting such multiple limits. In addressing these issues, we consider the theoretical and conceptual issues associated with setting debt limits, we highlight current state debt limit policies, and discuss factors that appear to be influencing decisions to establish and set multiple limits.

Determinants of Debt Concentration at the State Level

We examine the general factors that affect the distribution of debt among state and local governments. We measure the distribution as the percentage of total state and aggregate local debt that is issued or held by the state level of government. Using a fiscal federalism framework, we discuss the fiscal, legal, and political factors that play an important role in determining the level of government that issues debt. Findings suggest that important factors of debt concentration at the state level include state political ideology and economic factors of income per capita and unemployment rates.

Borrowing for College: A Comparison of Long-Term Debt Financing between Public and Private, Nonprofit Institutions of Higher Education†

Institutions of higher education provide an excellent opportunity to compare long‐term debt financing in the nonprofit and public sectors. The proposed models explain the long‐term debt per student at public and private‐nonprofit research universities. Student enrollment, enrollment growth, total assets, and revenue variables as a group all influence debt levels. The strongest predictors of debt balances are the fixed characteristics of the universities themselves. Empirical evidence from the university sector also suggests the absence of a powerful arbitrage incentive to issue debt.

A Four-Step Process to Assess the Fiscal Performance and Sufficiency of State Road Funds

Aging transportation infrastructure and diminishing financial resources are challenging the management of state transportation systems. Policy makers and administrators are seeking fiscal performance measurement tools to better monitor and manage infrastructure. This article discusses and applies a four-step process to examine past revenue and expenditure trends to determine transportation expenditure sufficiency for state road funds, using the Kentucky Road Fund as a template. A comprehensive approach to this issue is utilized by demonstrating several possible measures of sufficiency and then presenting some future scenarios. Expenditures across various facets of the transportation system are then analyzed with a number of performance metrics as well as construction cost measures to estimate sufficiency. Finally, short-term forecasts of several revenue scenarios are presented to provide context for possible future funding levels under the current revenue regime. The Kentucky case study provides a template to analyze state road funds and potentially draw conclusions as to the continued solvency and state of transportation infrastructure. As policy makers better understand the sufficiency of road fund resources to meet transportation priorities, they will better understand the costs of meeting future transportation needs and the opportunity costs of diverting transportation resources to other policy priorities.

Local Government Debt Management and Budget Stabilization

Debt can be friend or foe when it comes to budget stabilization. While short-term debt may be used to bridge temporary cash shortfalls that arise from incongruent timing of revenue receipts and expenditure payments, most state and local governments have balanced budget requirements that restrict the use of short-term debt for current (or operating) budget expenditures. Long-term debt may be used to leverage operating resources to enhance infrastructure and long-term projects. Nevertheless, excessive amounts of long-term debt will increase the fixed costs associated with debt payments, which could reduce the stability of non-debt-related expenditures. This chapter focuses predominantly on the interaction of state and local long-term debt and budget expenditures. First, we discuss historical trends in the use of long-term debt by state and local governments. We then examine aggregate fiscal data from local governments by state to demonstrate the correlation of expenditure volatility with outstanding debt balances. We find that in 20 % of the states, expenditure volatility increases as debt increases.