Endowment Spending

On April 16, the Times has an article called “Colleges Ask Donors to Help Meet Demand for Aid.” In it the writer, Stephanie Strom points out something important that many people don’t know. “Laws in roughly half the states prohibit charities from spending out of endowed funds that have fallen below their initial value, which has crippled many charities at a time when money is scarce.”

It’s really important for the public to understand this stuff so they realize that it’s not as simple as spending the endowment to make up for shortfalls. Not only are endowed funds given for restricted/specific purposes, almost always with an agreement in writing about the use of the funds, but in many cases these days, organizations can’t even spend the money they have because the value of the initial investment has dropped.

One of the creative ways some universities are dealing with this is going back to donors whose endowed funds have lost value and can’t be spent and asked them to make cash gifts in the amount that they would’ve spent – usually between 5 and 7% of the value of the original gift.