Written by Therena Ho
This past March, the New York Public Library was showered with gifts. Running on strong philanthropic support, donations from friends in high places created a cushion of $1.5 billion in net assets by mid-summer, which reduced the burden to raise debt to finance new projects. With endowment funds readily available to tap into, either to support operations or repay principal debt payments, New York Public Library’s $185 million taxable bonds were reviewed under a positive outlook by Moody’s and upgraded one-notch to Aa3.
The new rating translated to a downward adjustment in risk for investors, while simultaneously bolstering New York Public Library’s profile to obtain financial capital and government aid. Founded in 1895, the public library system is the largest in the nation with 88 neighborhood branches and four scholarly research facilities across Manhattan, the Bronx, and Staten Island. Over half of its operating revenue comes from New York City, and a large portion of its earnings is currently allocated to a $317 million establishment of a Beaux-Arts Stephen A. Schwarzman Building. Near Bryant Park, the new establishment will be dedicated to furthering public research, exhibitions, and educational programs by 20 percent. The initiative is made possible thanks in part to Schwarzman, co-founder of Blackstone, who donated $100 million to the library in 2008. The library has never fell short of attracting private gifts and donations from high-net-worth individuals, especially when there are ties to multiple financial and tax benefits as well as exclusive galas and memberships alongside the pure, altruistic intent of doing good.
Looking back, recent tax reforms have shifted the municipal bond market. With coupon payments backed by property taxes or a secured revenue stream under agencies of a state, municipality, or county, municipal bonds are perceived to be safe investments. Because they are exempt from federal as well as most state and local taxes as well, the bonds are attractive investments for individuals in higher tax brackets. A decrease in tax rates diminishes the draw of the deductible feature, leading investors to seek alternatives. At this current time, with an increased appreciation for tax havens, there is strong demand given the lower default risk in comparison to corporate bonds and a new wave of international investors and foreign infrastructure projects. Furthermore, recent declining interest rates fueled strong returns and contributed to investor demand outpacing moderate supply.
The New York Public Library is essential to the community, attracting tourists, providing a haven for bookworms, and launching future leaders. It is a staple of New York City, and relief from high-net worth individuals coupled with incentives from tax reform has allowed it to remain as such.