Our fine state of Pennsylvania just announced its budget: 50% decrease in funding for state Universities.
The closing of campuses and dramatic increase in tuition fees are imminent.
Every day The Saxifrage School project seems more and more relevant and exciting. We need a model for higher ed institutions that are self-sufficient, that do not require any funding from the State or Federal government.
Recently I put together a first attempt at a 5-year budget outlook for the School’s founding. It begins with year zero, when no students are yet attending and scales up until we have a fully established student body, freshmen through senior. The budget is really exciting because it start to provide a realistic framework for our structural theories and because most of our “best guesses” on operating costs have proved to be fairly accurate. The closest best guess was that we needed $2,000,000 to start the school; the budget shows we need $2,000,500.

So, two million dollars. How?

While this amount of money seems a lot to me personally, I know that in the scope of things–especially college funding– it is quite small. University of Pittsburgh just had their funding decreased by almost $100 million; my alma mater, Washington & Jefferson College recently constructed a new $33,000,000 science building for their campus of 1400 students. W&J already has a large science building, a physics building, and a chemistry building in addition to the new science center. By comparison, the amount of money we need to catapult The Saxifrage School into an existence that, according to our plans, will need no charitable support to support the continuance operation after the initial foundational period.

Now for a crazy idea:

Although it is not a lot of money to ask for, we at The Saxifrage School would prefer to have genuine investment rather than one-sided charity. Although, we certainly will not deny charitable giving when offered to us, we are interested in pursuing financial investors more than donors. If an idea is really good, it should work without anyone having to lose money. In pursuing this idea, we are looking into offering what have been called Social Impact Bonds or Social Enterprise Bonds. This concept was recently piloted in the U.K. last year in a project supported by prime minister Gordon Brown. The context for their pilot was different than our, but it can certainly be adapted to our own situation.
These Saxifrage School Bonds could be offered with one of two promises, with an optional clause:
The Saxifrage School will repay the bond in full within a period of X years along with X interest accrued over that time period; if the holder of the bond so chooses, they can relinquish their investment to The Saxifrage School.
The Saxifrage School will repay the bond in full within a period of X years; the repayment of this bond includes no interest and will be exactly equal to the initial amount of the investment; if the holder of the bond so chooses, they can relinquish their investment to The Saxifrage School.
For either of these options, the following clause could apply: If under financial hardship that prohibits their ability to repay these bonds The Saxifrage School is not required to repay these bonds within the agreed period. If financial hardship persists, The Saxifrage School can continue to withhold repayment indefinitely and maintains the ability nullify the bonds.
This clause (in part or whole) could be considered if we decide it too risky to enter into a strict financial obligation with investors as with a loan. Although it does seem to water down the investment, in actuality the clause makes the bonds function like a traditional stock investment. Any publicly traded company is under no obligation to pay dividends to its shareholders and only does so if it is profitable. Similarly, The Saxifrage School will only repay its bonds if its model proves profitable.
People will invest in The Saxifrage School if they believe in the model. If it does not work and they lose their investment, it is no worse than if they simply donated the money to the school. In both cases, they money they gave us would have been lost and their tax-benefit is the same: the money lost from a failed stock investment is tax deductible just as a non-profit donation is tax deductible. But, assuming The Saxifrage School is successful–all signs point to this being the case–the benefit from a bond investment as opposed to a charitable donations would be much improved.
According to our current budget projections, by year five The Saxifrage School’s income will exceed expenses by almost $500,000 per year. A portion of this money each year, say $200,000, could be set aside to repay these bonds. Accompanying the bond payments could be a letter from a Saxifrage graduate thanking the investor for their supporter and sharing some of their collegiate experiences with them.

We love this model because it truly asks our supporters to invest in our project not just theoretically and philosophically or with money they are just giving away, but with money they hope to get back. This expectation of a return demands their further involvement, and demands a high standard from the institution. A small but important detail to this improved relationship is that supporters would have a financial incentive to continue to keep in touch with our project, and to consistently update us with their current contact information. Most non-profit organizations have the problem of donors who contribute once and then are never heard from again and have the large burden of attempting to keep up one-sided communication with people whose addresses, phone numbers, and e-mail addresses may no longer be current.

To put it simply, what better way to get people invested in our work, than to ask them to invest in it.

So.
Saxifrage School Bonds? $50 a piece.
Definitely a lot more to consider, but it is an exciting prospect…