Call it a double whammy.

Already faced with cutbacks in state funding, Kansas University officials learned Thursday they would be receiving 20 percent less from the KU Endowment Association beginning immediately.

“It’s bad news on top of more bad news,” said Janet Murguia, KU’s executive vice chancellor for university relations. “We’re going to have to tighten our belts even more.”

The reason: The long economic downturn — 2002 was the third consecutive year of negative returns in U.S. equity markets — is eroding the endowment’s principal. To preserve its value, endowment officials said the only option was to recalculate their level of support for the university in such areas as scholarships, professorships and department support.

“The money basically isn’t there” to sustain previous levels, said John Scarffe, communications director for the Endowment Association. “The reason we’re recalculating is to build in some protection so funds will continue to provide benefits in the future.”

On Wednesday, officials of the Kansas State University Foundation announced cuts in payments from endowed accounts. There, the cuts could amount to $4.2 million from the $34 million provided by the foundation in the 2002 fiscal year.

Such funds are built on donations, which are pooled and invested in a variety of ways to achieve gains. Those gains, then, are used to support the university, and the original gifts remain.

At KU, Scarffe said officials still were working to determine the exact financial impact on the university. He said the decrease in market value of the association’s investment portfolio would have dictated a 10 percent decrease in spending in the next year without the new disbursement formula. With the new formula, the resulting reduction in payments to programs may be as much as 20 percent.

The Endowment Association still will make payouts of 6 percent from its funds, but will reconfigure the way it calculates the funds’ values.

Instead of figuring payouts based on a fund’s average for the past three years, the association will use the average of the quarterly values for those three years. The new policy also says the payout will be based on a figure no more than the average of the past four quarters.

The Endowment Association provided a record $68.9 million for KU projects in the fiscal year that ended June 30, 2002. But that figure included distribution of one-time donations as well as ongoing payouts from the endowment’s invested funds.

Scholarships and professorships are predominantly paid for from endowed funds, not one-time gifts. The Endowment Association spent $23.7 million on scholarships last year, meaning a 20 percent cut would amount to $4.74 million. It spent $17.8 million on professorships, which would add up to a $3.56 million cut.

The value of the endowment’s portfolio has decreased 20 percent since June 2000, to about $683 million.

In a memo to KU officials sent Thursday, Dale Seuferling, endowment president, said short-term gifts might help ease the pain of the cuts.

“KU endowment staff members remain dedicated to raising funds to the university — even more so with an emphasis on current, spendable gifts in an effort to mitigate the reduction in income from endowed funds,” he wrote. “We will be asking donors to make a special gift in the coming year to provide immediate funds to replace support that is not available from investment returns.”

The Endowment Association is amid its “KU First: Invest in Excellence” campaign, which has a goal of raising $500 million for KU by the end of 2004. Scarffe said many of the gifts made to the campaign were one-time gifts such as those for construction projects, which aren’t added to the endowment’s value.

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In a memo sent Thursday, KU Chancellor Robert Hemenway urged faculty and staff to use the same principles guiding state budget cuts to guide the cuts in endowed funds. Those included putting students and academic programs first, not making across-the-board cuts and “research remains critical.”

He said he supported the endowment officials’ decision.

“I believe this change is a prudent course of action, but it will mean a significant reduction in spending,” Hemenway wrote. “The change will affect different departments in different ways, as have the state budget reductions of the past year.”