Duke research spawns bills to correct the expense of racism
Research by a professor at the Fuqua School of Business has inspired the introduction of a second bill in Congress aimed at eliminating racial inequity in the higher education bond market.
Professor Bill Mayew found historically black colleges and universities pay more to float bonds in the market than other schools. He found evidence race was a factor in the higher costs.
On September 16, U.S. Rep. Keith Ellison announced the introduction of the HBCU Investment Expansion Act, which would allow municipal bonds issued by HBCUs to be exempt from taxes at the local, state, and federal levels.
Ellison met with Mayew to discuss his findings earlier this year after the research went public. Mayew found state tax benefits mean that higher education bonds tend to be sold within their home states, and that tended to result in higher costs for HBCUs to sell bonds in states with more documented instances of racial tension.
The HBCU Investment Expansion Act would increase the investor base by making the benefits nationwide and lower placement costs for these bonds, Ellison says.
When universities issue bonds to raise money, there’s cost involved. Schools contract with underwriters to sell bonds to investors, much like the seller of a home does with a real- estate agent. Bond traders find a willing buyer, and they get paid a search cost based on how much time and effort it takes.
Traders find it more difficult to place bonds from historically black colleges and universities. “The contention was that racial animus among wealthy white investors made it harder to sell bonds and drove up search costs,” Mayew says.
After combing through more than twenty years of public data to see whether this was true, Mayew found evidence that race does appear to impose higher search costs on underwriters and bond traders, which ends up putting more financial burden on HBCUs.
States were scored using a composite of measures established in past academic research examining racism: racial resentment and opposition to affirmative action as measured in the Cooperative Congressional Election Study survey, racially charged Google searches, and frequency of racist tweets after President Obama was elected.
In the three states that ranked highest on those measures— Louisiana, Alabama, and Mississippi—HBCUs paid underwriters three times more to place their bonds relative to HBCUs in other states. North Carolina ranked thirteenth of fifty states plus the District of Columbia.
Mayew and the other researchers collected data for 4,145 tax-exempt higher-education municipal bond issues between 1988 and 2010, worth a total of $150 billion. The bonds were issued by 965 individual colleges, 102 of which were HBCUs.
They looked at differences between HBCUs and other schools in the publicly disclosed underwriter spread—how much underwriters charged schools to take a bond and put it in the hands of investors. They found HBCU issuance costs are about 20 percent higher than non-HBCUs, because it is more difficult for underwriters to find a buyer. To issue a $30 million bond costs an HBCU about $290,000, versus about $242,000 for a non-HBCU. “This $48,000 difference is a significant financial burden,” Mayew says.
Mayew’s research already had spurred action in Washington to tackle this problem. In July, the HBCU Capital Financing Improvement Act passed the House and is awaiting action from a Senate committee. That bill would make it easier for HBCUs to access the existing HBCU Capital Financing Program. That same month, the U.S. Government Accountability Office agreed to investigate the barriers facing HBCUs when they seek to finance capital projects.
“My coauthors and I are excited our research has brought attention to this imbalance and is resulting in efforts to correct it,” Mayew says. “Having a positive impact on society is ultimately why we do research in the first place.”
New degree focuses on data
Fuqua is launching a Master of Quantitative Management degree. The ten-month program will be known as M.Q.M. and is designed for college graduates with strong quantitative skills but little to no work experience. Most candidates likely will have backgrounds in science, technology, engineering, and math.
“We are hearing from employers who are looking for people who can sort through data quickly and identify and communicate key insights,” says Dean Bill Boulding. “Employers are telling us the skill set is in short supply.”
Duke’s board of trustees gave final approval to the program, which will start in July 2017.
M.Q.M will offer students the ability to study in one of four tracks: finance, marketing, strategy, or forensics.
“We feel the ability to focus in one of those areas is really going to allow students to add immediate value to an employer,” Boulding says. “The key to developing strong analysts is teaching students not only how to interpret data but explain the insights in meaningful ways.”
The program has been designed with input from the business community, including senior leaders in some of the world’s top companies.
David Taylor ’80, president and CEO of P&G, who also serves on Fuqua’s board of visitors, strongly supports the program.
“These are the kind of candidates that P&G and many other Fortune 100 companies seek out. The candidates’ skill set applies to a wide range of functions and enables them to contribute at all levels within an organization,” Taylor says.
Board of Visitors welcomes new members
Six new alumni join Fuqua’s board of visitors for 2016-17. The board of visitors advises the school on all matters related to curriculum, programs, facilities, and operations while continuing to promote better communication and relationships within the business community. Board members contribute to the success of the school by serving on active subcommittees and facilitating relationships with key business and government entities in regions around the world. The new board members are:
George Brochick M.B.A. ’74, Penske Automotive Group Inc., executive vice president
Mike Elia M.B.A. ’88, Gerber Scientific Inc., president and CEO
Greg Kelly ’90, McKinsey & Company, senior partner
Bill Luby M.B.A. ’85, Seaport Capital, partner
Cynthia Meyn M.B.A. ’10, PIMCO, executive vice president, Operations
Mary Sawyer M.B.A. ’05, Deloitte LLP, senior manager
Alan Wise ’94, M.B.A. ’98, Boston Consulting Group, senior partner and managing director