NCPA - National Center for Policy Analysis


April 24, 2009

Financially strapped colleges are angering their benefactors by selling school radio stations, auctioning Georgia O'Keeffe paintings and dipping into endowments for purposes their donors may not have intended.  Consequently, the nation's universities may have trouble finding the cash for urgent needs in a deep recession.  As schools struggle more than they have in decades to fund their core operations, many are looking to a rich pool of so-called restricted gifts -- held in endowments whose donors often provide firm instructions on how their money should be spent, says the Wall Street Journal.

Such disputes were easier to avoid during the economic boom, explains the Journal:

  • A rising stock market and deep-pocketed donors helped boost college endowments to $413 billion in the fiscal year that ended last June.
  • Last year alone, donors to higher education gave a record $31.6 billion, according to the nonprofit Council for Aid to Education.
  • Restricted gifts can account for as much as three-quarters of a university's endowment.
  • Schools rely on tuition, unrestricted gifts and often state and federal money to keep running.

Now the pie is shrinking, says the Journal:

  • Colleges posted average investment losses of 23 percent from July 1 to Nov. 30, and markets have fallen more since.
  • Administrators are bracing for the sharpest drop in giving since 1975, when contributions fell 3.6 percent, the biggest drop in half a century.
  • Already, institutions are laying off employees, calling off tenure searches and scrapping construction plans.

Schools are scrambling to find assets they can turn into cash, says Frederic Fransen, an Indiana adviser to big donors who helps them structure gift terms to maximize control.  If you've given something that the university doesn't believe is part of its core mission, those are the first things to go, he says.

Source: John Hechinger, "New Unrest on Campus as Donors Rebel," Wall Street Journal, April 23, 2009.

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