Most universities are dependent on charging for fees or on public and other support. Still, there are a small number of universities and colleges that have endowments that are large and growing. This situation makes some people unhappy that these universities and colleges with well-heeled alumni often collect enormous sums of money from them and spend very little of that. In effect, the endowments became an arms race for accumulation in which the principal sums continue to grow while learners have to pay fees and start their lives with substantial loans.
I agree too that the essence of college endowment funds may be lost because the accumulation means that they exist merely to provide employment for fund managers. Select universities in the US especially hold endowments that add to billions of US$ and a number have responded to this criticism by providing more scholarships and tuition waivers to more students. One cannot fail to see the slight irony when centers of learning are more liquid than some banks are.
In spite of the oddity of this situation, I am opposed to the idea that these institutions should somehow be compelled to draw on the funds until they are completely spent. George Will discusses a meeting convened by two congressmen who are intent on levying taxation on institutions unless they spend close to 5% of the fund every year. Understanding that his persuasion would lead to opposition of taxes anyway, I agree that this is not a well considered measure because of the fact that only a minority of institutions have large endowments. In addition, the annual returns on endowment funds is not guaranteed and so a pre-determined minimum expenditure simply means that where returns are negative, then the endowment will have to spend the principal sum.
Whatever the solid reasons, it is clear that taxation is not the way to ensure that colleges with large endowments give more scholarships. I think that the alumni who continue to provide contributions should be more active in demanding better application of the funds. An early blog post here argued the same points shows that the alumni are already posing those questions. Government has no business here.
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American politicians should leave college endowments alone, even if they're sizable.
October 27, 2008
To the Vassar community:
It will come as no surprise that the current global economic uncertainties are having a direct effect on the College's own financial situation. The endowment -- the source of 33% of Vassar's operating support and valued at $845 million on June 30, 2008 -- fell $80 million in value through September 30th. Further substantial losses have occurred in October, reflecting the general direction of the capital markets. The volatility in financial markets has been dramatic, and no one knows how long it will take for the markets to settle down or at what level. We are fortunate to have a significant endowment, which supports our spending in normal times and protects us in times of uncertainty. But, we must also act to protect that endowment for the future.
During the recent meeting of the Board of Trustees, we agreed that the College should plan for losses on investments this fiscal year and should take immediate steps to control current operating expenses and adjust plans for next year’s operating budget. In light of the current economic uncertainty, we also agreed to develop contingency plans for managing the College in the next few years. There was an equally strong consensus about our priorities and the core values that we must try to protect as we consider our responses to the current economic challenges. These include:
Need-blind admissions and meeting full need for all four years;
Competitive compensation levels for our faculty and staff; and
Strategies to address deferred maintenance and other needs within the physical plant.
To deal with developments in financial markets to date and expectations for the coming year, we must control operating expenditures this year as well as create a budget plan for 2009/10 that does not rely on increasing the significant amount already being drawn from the endowment. Keeping our priorities and core values in mind, we are taking the following steps:
Under the leadership of the College’s senior officers, each division of the College will develop a set of immediate steps to control and reduce operating costs in 2008/09.
We will not be filling any vacant positions, unless they are considered essential. The senior officers, along with the Associate Vice President for Human Resources and the Director of Budget and Planning, are examining all vacant administrative and staff positions to determine whether we can postpone filling them. The Dean of the Faculty and I are considering all faculty vacancies for 2009/10, including previously approved tenure track positions for 2009/10 and all leave replacements.
We will examine every capital project currently planned but not yet started to see which can be eliminated or postponed.
We are looking at all of our operating expenses to see where else we can make savings for the coming year.
As we move forward with these changes and others, we will be working with our existing on-campus governance committees to discuss ideas and we will be communicating regularly with the Vassar community, so that we can move forward collaboratively.
In keeping with the values that we all associate with Vassar, we will seek to be sensitive to those in our community most affected by the current economic uncertainties, including many of our students, whose families may be experiencing significant economic challenges.
I am confident that we have the ability to manage the current challenges facing us in ways that leave us stronger in the future. Our aim is to make sure that the changes we make now will be consistent with preserving and strengthening the most important core values of the Vassar community:
An exciting academic program that is not only strong in the humanities, social sciences and natural sciences but also in multidisciplinary programs;
A talented and diverse student body;
A faculty and staff dedicated to the educational mission of the College;
A sense of community and common purpose among our faculty, students, staff, administration and Board of Trustees;
Strong connections between Vassar and its immediate and extended communities; and
Stewardship of the beautiful environment in which we all work.
— Catharine Hill, President
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