Congress May Mandate Increased Endowment Spending

This story was written by Marielle Segarra, Brown Daily Herald
In an effort to make college more affordable, a panel of experts urged Congress last month to set a minimum amount that universities must spend per year out of their endowments in hopes of spurring financial aid spending, a proposal that, if it gains Congressional support, could have an impact at Brown University.

The experts, who testified at a Senate Finance Committee hearing in September, asked that universities -- which are exempt from taxation because of their status as nonprofit organizations -- spend at least five percent of their endowments each year, the same proportion charitable foundations must spend.

The proposal seeks to increase financial aid for students who cannot afford to pay their full college tuition.

University endowments are larger and more "aggressively invested" than ever before, said Lynn Munson, adjunct fellow at the Center for College Affordability and Productivity, at the Sept. 26 hearing. Endowments now receive large annual returns -- often exceeding 12 percent -- and can afford to pay out more than the average 4 percent they do, Munson told The Herald.

Brown currently boasts a $2.8 billion endowment and is in the process of a $1.4 billion capital campaign. Brown's highest governing body, the Corporation, sets the amount the University draws from its endowment each year -- usually around four percent.

Five percent should be a "starting point" for universities' spending of endowment money, Munson said.

"I believe that skyrocketing tuition is undoubtedly the biggest access problem in higher education. What can possibly be more discouraging to a capable student whose parents are not wealthy than a school with a $45,000 price tag on the door?" Munson said.

The proposed change has caused great concern at Brown, according to Elizabeth Huidekoper, executive vice president for finance and administration.

One concern to the University is that market fluctuations could lead to instability in payouts under the proposed minimum, Huidekoper said. The dependence of the value of the endowment on investment could lead to drops in aid levels, she explained.

Universities with large endowments recognize that they are fortunate to have the ability to rely on their endowments for spending, but Brown currently spends more than $55 million a year on financial aid, Huidekoper said.

Brown is also required by law to respect donors' initial intentions for large portions of the endowment funds. Restrictions on the way some gifts are spent could make the proposed policy impossible to enforce, according to Huidekoper.

Munson said that on average, 45 percent of endowment funds at independent schools and 20 percent of funds at public schools are unrestricted. She added that though financial aid is the top restriction designated by donors -- with 36 percent assigned in 2005 -- financial aid spending is "shamefully small."

Other Ivy League university officials are also opposed to the legislation, including University of Pennsylvania President Amy Gutmann, according to a Sept. 28 article in The Daily Pennsylvanian.

"The general philosophy of government in this country is not to have centralized control by a centralized government of literally what tens of thousands of nonprofits do," Gutmann said in the article. "It would not be wise for government to go down that route."

Brown's goal is to "optimize the returns to the endowment so (it) can support the University," Huidekoper said. The proposal "may be good for the federal budget, but I certainly don't think it would be good for the University's budget," she added.

"This story appears courtesy of UWIRE, a news service powered by student journalists at more than 800 universities. To learn more, visit UWIRE.com."
© 2007 Brown Daily Herald via U-WIRE
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