The U.S. Congress is taking a long look at university endowments, especially those with more than $1 billion in assets. It is also looking at those that are making more money than they’re spending each year, as well as those at schools where tuition has gone up dramatically.

Kansas University’s endowment meets all three qualifications.

The endowment passed $1 billion and earned a 19.3 percent return last year. Tuition at KU has increased about 66 percent in the past five years.

Last year, about 5.625 percent of the fund was spent.

That puts KU’s and many other universities’ endowments squarely in the crosshairs of representatives who are tired of constituents complaining about increasing tuition prices. There’s a proposal on the table that would force endowments to spend a certain portion of their assets each year.

But leaders at the KU Endowment Association say this is unprecedented interference from Washington that would harm an endowment that has been around for 116 years.

“We’re concerned about this approach,” said Rosita McCoy, the endowment association’s senior vice president for communications. “Higher spending rates really fly in the face of history and modeling data.”

McCoy said 4.7 percent of the endowment’s assets were spent to support the mission of KU, while 0.925 of 1 percent was spent as an administrative fee for the endowment association.

Billion dollar clubs

KU’s endowment value passed $1 billion recently, and the most recent year-end value will be released in early November.

Although growing, the club of universities with endowments greater than $1 billion remains small.

Harvard, the world’s wealthiest university with $34.9 billion, beat the stock market again with a 23 percent return. There also were good returns for smaller schools such as Bowdoin (24.4 percent) and William & Mary (19.2 percent). By last year, 62 colleges had hit the mark. Within a few years there likely will be 100.

While those numbers were coming out, some members of the Senate Finance Committee in Washington were wondering aloud why the rise in endowments wasn’t stemming tuition increases. At a hearing last month, lawmakers batted around the idea of forcing at least some wealthier colleges to spend more savings on reducing costs.

“Senators, what would your constituents say if gasoline cost $9.15 a gallon?” Lynne Munson, an adjunct fellow at the Center for College Affordability and Productivity in Washington told the committee. “Or if the price of milk was over $15? That is how much those items would cost if their price had gone up at the same rate that tuition has since 1980.”

But KU’s McCoy said it’s not that simple.

The endowment is less like one big savings account and more like a number of small accounts. A gift for an endowed professorship, for example, cannot be used for scholarships.

And if requirements are imposed to spend greater amounts in boom times – when investments are making 15 percent and 20 percent returns – there won’t be enough money to cover the lean years.

“There will be years when we have negative returns. You have to invest and make money in good times to help sustain spending in difficult time,” said Jeff Davis, KU Endowment Association’s senior vice president for finance.

“Markets tend to move to extremes. When you see these outsized returns over a few years, it typically means in the future we will see negative returns.”

Separate standards

Private foundations are required by law to spend at least 5 percent of their endowments each year on their missions, but public charities – a category that includes colleges – face no such requirement. Holding colleges to the same standard is an idea that clearly interests Iowa Republican Sen. Charles Grassley, the minority leader of the Senate Finance Committee and Capitol Hill’s closest scrutinizer of non-profits.

“It’d be good to see the very elite institutions, with the richest endowments, take the lead and create a ripple effect throughout higher education to make college more affordable for everyone,” he said in a statement.

It’s unclear right now, both Republicans and Democrats say, whether the proposal will make it out of the committee, which is considering several ideas related to taxes and higher education.

In fact, colleges spent on average 4.6 percent from their endowments last year, according to the latest figures from National Association of College and University Business Officers.

KU’s Davis indicated a requirement like this could have unintended consequences, including a decrease in endowment spending when the market is down.

Right now, Davis said, the endowment association spends about the same amount when the market is up as when it’s down. If it had to spend more money when the market is up, it might have to reduce its expenditures when the market is down.