FORT WORTH, Texas — While colleges and universities slash budgets in the face of historic losses, a common echo on every campus rings, “Use the endowment!”
Stanford University, with the nation’s fourth-highest endowment at $26.4 billion, cut 11 sports from its athletic department.
TCU, with an endowment of $1.7 billion, has scaled back benefits for employees, and high-ranking coaches and administrators have taken pay cuts.
The University of Texas system’s endowment is the second-richest in the U.S., and its schools have narrowed budgets via pay freezes and some layoffs.
Why are the colleges and universities that have hundreds of millions, to billions, in endowments cutting rather than using those funds to maintain it all through COVID?
Because if they do, it will mean this pandemic is worse than it already is.
With the aid of a retired university administrator, and a relative who works in the finance industry, enjoy the following:
HOW AN endowment lives is semi-complicated, and how they breathe is one of the many flaws that exist not only in college athletics but in higher education that COVID has exposed.
Withdrawing $200 million from an endowment to cover the shortfalls that exist at schools, and their athletic departments, is not a trip to the ATM to take out $20 to buy lunch.
By law, any school or organization that has an endowment can spend it whenever they want.
By practice, and some law, any school or organization that has an endowment cannot spend it on whatever they want. There are designations, and potential consequences.
Most of the money that exists in these obscenely large endowments comes from donations, and wealthy individuals who contribute. A portion of the endowment may come from the school that owns a property, such as oil and gas rights, or leasing land.
The oil and gas rights owned by the University of Texas and Texas A&M systems routinely put those institutions in the top 10 of endowments every year; UT’s endowment is just over $30 billion, and A&M’s is $13.5 billion.
Because of the plummeting price of oil and gas, as well as a drop in school-related revenues, the A&M system is reporting a loss of $147 million; the UT system estimates losses of around $131 million.
Schools prefer not to touch the endowments beyond what they plan to subtract from them every year. By growing the endowment annually, the school can withdraw the interest generated from their investment portfolio’s income and appreciation to cover almost all of its expenses, from scholarships to salaries, to research projects, to athletics, to standard cost of living increases.
When a person makes a financial donation to their school of choice, typically the gift is designated for a specific purpose. That purpose could be the biology department, the women’s tennis team, or money to pay for flowers.
For instance, TCU receives an annual contribution from one donor to cover the costs of the “beautification of its campus.” According to one source, it’s a seven-plus figure donation.
