Endowment debate continues

Study of endowments causes UM system to evaluate its responsibilities.

By Elliot Njus

Published Feb. 1, 2008

Leaders of the U.S. Senate Finance Committee sent a letter Jan. 24 to every university and college with an endowment of $500 million or more asking for information about the school’s endowment growth and financial aid.

According to the National Association of College and University Business Officers study, which the committee used to select universities to contact, the UM system’s endowment market value in 2007 was more than $1 billion. This puts the UM system at No. 70 on the list.

The letter asks 11 questions about enrollment, tuition and financial aid and states that the university officials can answer “in brief — a page or less” for each question.

Committee chairman Sen. Max Baucus, D-Mont., and ranking member Sen. Chuck Grassley, R-Iowa, are concerned with rising tuition while endowments are also growing.

“Tuition has gone up, college presidents’ salaries have gone up, and endowments continue to go up and up,” Grassley said in a news release. “We need to start seeing tuition relief for families go up just as fast. It’s fair to ask whether a college kid should have to wash dishes in the dining hall to pay his tuition when his college has a billion dollars in the bank.”

The release states federal law requires private foundations to pay out 5 percent of their assets, but there is no such requirement for universities.

Nikki Krawitz, the UM system’s vice president for finance and administration, said she hasn’t yet received the letter, but that she’s been expecting it. She said the 5 percent requirement would affect the institutions on the list differently.

“I think they’re lumping lots of different institutions,” she said. “It’s almost like comparing apples and oranges.”

Krawitz said, as an example, Harvard University is a private school that isn’t constrained by tuition caps. The UM system, on the other hand, is a four-campus university that operates under a state-imposed tuition limit. She said Harvard is more dependent on endowment income as a revenue source, while the UM system is more dependent on state appropriations.

Harvard tops the NACUBO list with a $34.6 billion endowment.

Krawitz said the UM system has its own formula to control endowment spending. In a given year, the system never spends more than 106 percent of the previous year’s spending and never spends less than 96 percent of the previous year’s spending.

She said spending responsibly should be up to each university, given the challenges and situations they have to consider.

“Each individual institution has to comply with the rules of fiduciary responsibility,” she said.

Krawitz said in 2000, when the markets were falling, universities were criticized for spending too much of their endowments. Now that the market has been in an upswing, she said, universities are being criticized for not spending enough of the endowments.

“We try to protect the campuses from those fluctuations and protect the endowment for future generations,” Krawitz said.