Budget woes won’t cut into USF’s endowment

While the Board of Governors battles the Florida Legislature to raise tuition costs and the barrage of state budget cuts continue, USF has one weapon left unused in its money-saving arsenal – its endowment.

Essentially a tax-free savings account for a university, the endowment has become a topic of debate for university administrators and U.S. congressmen alike. Some universities, such as Yale and the University of Florida (UF), have chosen to make greater use of the return on these funds to combat various financial issues.

Meanwhile, USA Today reports that some members of Congress want major universities to defray ever-climbing tuition costs by instituting mandatory endowment payouts that increase funding for financial aid.

Despite the buzz around endowments, USF Senior Vice Provost Dwayne Smith said that dipping into USF’s would be the University’s last resort.

“Usually, when universities start tapping into their endowment they do so because they’re in a serious downward spiral,” he said. “Quite the opposite, I think a part of our strategy is going to be ‘timing is everything’ because of the national economy. We really want to try to find ways of getting our endowment built up and receiving the payout that comes from that endowment.”

Due to statutory and donor restrictions, dipping into an endowment is not as simple as making a withdrawal from the bank, however.

“An endowment is usually a gift that has been made to the University, with the stipulation that the face value, or corpus, of the gift, be invested, and on an annual basis, only some percentage of the annual earnings be spent,” USF vice president of University advancement Jeffrey Robison said.

Of the earnings made on investments, Robison said 4.4 percent of USF’s endowment last year went to scholarship funds and other charitable purposes affecting the University, and an additional 2 percent covered the cost of investing money and running the endowment foundation.

David and the endowment GoliathsAt about $388 million, USF’s endowment ranks 167th in the nation, according to the 2007 endowment study by the National Association of College and University Business Officers (NACUBO). The University has the third-highest endowment in Florida’s State University System (SUS), though this amount is considerably less than No. 61 University of Florida – with an endowment in excess of $1.2 billion – and No. 132 Florida State University, which has an endowment of about $549 million, according to the NACUBO study.

Dwarfing all three of these schools, however, are the top five on NACUBO’s list, which are part of the 136 schools targeted by the Senate Finance Committee for increased endowment spending. Their endowments range from $15.6 billion at the University of Texas system to $34.6 billion at Harvard, which has the largest endowment in the nation, according to NACUBO.

The committee wants universities with endowments of more than $500 million to pay out at least 5 percent of their endowment annually, USA Today reported. Members of the committee argue that because many endowments have seen double-digit percentage increases over the past few years and yet continue to raise tuition costs, universities should help make higher education more affordable to students by making use of more endowment money.

Robison said this concept is flawed, however.

“If they mandated the 5 percent payout, you’re still going to have the administration fee on top of that,” he said. “Let’s say your earnings were zero percent one year. You would be eroding into the corpus of the endowment. The only way you could pay it would be to take money away from the (face value of the endowment).”

Though USF’s endowment falls below the amount necessary to be impacted by the committee’s proposal, Robison said the University’s endowment increased by 19.9 percent over the past year. If the endowment continues to grow at this rate, it would surpass the $500 million mark within two years, which falls in line with Robison’s goals.

“We’d like to see – over the next five or six years – the endowment grow by 65 to 70 percent,” he said. “That would take us up to about $780 million.”

Battle of the budget cutsSince Florida SUS schools’ tuition ranks 50th in the nation, USF doesn’t face the same push to supplement tuition costs with financial aid, like fellow public schools Penn State University or the University of Michigan with their respective $12,164 and $10,341 tuition costs for the 2006-2007 school year, according to the American Association of Universities (AAU).

Though the Board of Governors, which oversees USF and the other 10 universities in the SUS, has approved an 8 percent tuition increase for the next school year, this amount must be approved by the state Legislature before it can take effect. More pressing than offering more financial aid, however, is devising a way to offset the $52 million that USF could potentially lose due to state funding cuts, also known as Educational and General (E&G) funds.

“We realize we’re going to take a hit in E&G money, so the president (Judy Genshaft) wants to aggressively find other sources of money that can replace some of that,” Smith said. “A term I hear being used a lot is ‘backfilling.’ Backfilling means you’re digging a hole in your budget but then you’re filling it in with other sources of funding. Building the endowment is just one strategy.”

Having a larger endowment could also benefit the University in terms of obtaining AAU status, one of the major goals of USF’s strategic plan.

“As it stands, our endowment is larger than some AAU universities,” Smith said. “Having a good endowment is a great enhancement in terms of striving toward AAU (accreditation). It’s an indirect factor (in the AAU’s decision). While you can get there without it, it sure helps to have it.”

The key to defeating the budgetary battle and actualizing the University’s strategic plan, Smith said, is to think long term.

“Backfilling and building the endowment take time,” he said. “You can’t just snap your fingers and have it happen.”