The announcement that Columbia University has begun a $4 billion capital campaign, much of it for endowment, and that the San Francisco Opera has just received a $35 million gift, of which $25 million will go into endowment, moves The Nonprofiteer to ask:

What’s the point?  It’s sometimes suggested that the existence of endowment prevents ticket prices from rising as fast as they otherwise would–but wouldn’t spending the money instead of saving it stabilize ticket prices even further?  College presidents similarly argue that generous endowments help control tuition–but by definition 95% of those generous endowments aren’t available to pay tuition or faculty salaries or anything else.  They’re available to–well, to be available.

Certainly a responsible institution makes sure it has six months or a year’s worth of reserve operating expenses in case of emergencies.  But what, precisely, is the point of retaining billions of dollars for years on end, other than to show that (as a University of Chicago t-shirt proclaims) "Our ivory tower is bigger than your ivory tower"?  Prudence, like any other virtue taken to an extreme, becomes the vice of stinginess.

Questioning the role of endowment is heresy in higher-education circles and among large cultural organizations, but one can’t help noticing the extent to which endowments assure that money is NOT spent on the things the institutions most value.  Isn’t it time to reexamine the received wisdom?


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3 Responses to “Well-endowed”

  1. Pua Says:

    I have affinal relations with a WASP family that had Money at the turn of the previous century and once heard someone say, “NEVER touch the principal, my dear!” (Be kind, they said it with an ironic giggle.) So that of their trust or inheritance or whatever it is they have, only the interest is to be spent. So the endowment exists to provide steady income from the interest, right? (At least until the Revolution or the next Crash….)

  2. Nonprofiteer Says:

    But why not touch the principal? If you can support an entire university (hospital, art museum, battered-women’s shelter) on the interest, you could support ten of them (or more) by using the principal. Why do we think that it’s more important to have money around to provide for universities, hospitals, etc. in the next century than to actually provide for them now? By the next century maybe we’ll have figured out how to provide public money for universities, hospitals, etc.–and aren’t we more likely to do so if we don’t have big wads of inert private cash sitting around all the time?

  3. Pua Says:

    Right. It’s not that I subscribe to the concept, just trying to understand the reasoning. Investments aren’t “inert cash” if they actually do earn interest.

    Something else along the same lines: As an alumna of an institution we both know, I once got a call fom the development office trying to convince me to contribute to an endowment for the library. Part of their argument was “both Yale and Harvard libraries have endowments; why shouldn’t we?” Which astounded me b/c I happened to know at the time (80’s?) that the Yale library was in incredibly poor physical condition compared to the Regenstein–no AC, dust, leaky roof.

    Now, in the past 5 years, Yale has undertaken a huge capital improvement project. I had a temp job in the library while construction was going on–massive replacement of windows, new AC thruout the historic bldg. And not just at the library. A new building devoured a parking lot in order to provide swing space while the residential colleges were renovated one by one.

    I guess I don’t care enough about it to have checked how they did it, but I can’t believe Yale didn’t dip into the endowment.

    But operating expenses, you ask? Yes, the unions here have often pointed to the endowment when asking why Big Blue can’t do better by them…

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