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School Funding

A lot of universities are struggling with endowments that are now underwater. If the current financial downturn continues, the problem will only get worse. Most states adopted a uniform law that prohibits withdrawing money from endowments that fall below their “historic dollar value” — the money given to create the endowment, plus any later gifts. The law is designed to protect endowments by preventing institutions from dipping into the principal. An endowment is supposed to be a perpetual source of revenue, with institutions drawing off only the earnings. The rule affects newer funds most severely, since they have had less time to invest a gift and build the endowment’s value.

Some donors may have intended for the principal to remain intact, but was it their intent that the students they want to help won’t get any help? Certainly there is a need to loosen the strings attached to the gifts.

In the University of North Carolina system, where as many as 70 percent of the endowments at one campus are underwater, some of the system’s 16 schools are going back to donors and asking them for one-time donations to pay for what would normally be covered by the endowment.

The University of Wisconsin system suspended payments this month from 38 underwater endowments, taking away $700,000 that would have gone for scholarships and other programs at campuses across the state. At New York University, about $10 million of $16 million in scholarship endowments is untouchable.

Because of funding problem, Brandeis University originally planned to close its Rose Art Museum and sell its more than 7,000 works, including pieces by Willem de Kooning and Jasper Johns. After much criticism, the school backed off.

There are ways to get around the law. In creating an endowment, nonprofits can enter into an agreement with the donor that allows for the use of principal in emergencies. They can also ask the donor to change the endowment’s terms retroactively, which requires a trip to court if the donor has died.

Since early 2007, 26 states and the District of Columbia have passed laws that give nonprofit organizations more flexibility in using money from endowments that are underwater. Because of the economic meltdown, 12 other states are considering such laws, according to the National Conference of Commissioners of Uniform State Laws.

Tuesday, March 3rd, 2009, by Gem and is filed under "Graduate, Undergraduate, colleges, endowment, finance, funding, money, scholarships, school, students, universities ". Responses are currently closed, but you can send a Trackback from your own site.