Archive for Tuesday, October 16, 2007

Congress may put pressure on KU

Committee considers forcing universities to use endowments to lower tuition

October 16, 2007


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.

- The Associated Press contributed to this report.


Kuku_Kansas 10 years, 7 months ago

Perhaps Congress should be more interested in forcing states, like Kansas, who already underfund their state universities (and have been increasingly for decades) to actually fund accordingly.

I have stated time-and-time again, though not a popular or viable choice...the University of Kansas should strongly consider privatizing. It can still serve the needs of Kansas constituents and remain strong in several academic areas. It would be able to conduct its own finances and determine its own academic standards.

bd 10 years, 7 months ago

They should force them to give overages to the University for infrastructure/maintenance inprovements so this crumbling classrooms/differed maint. issues would not come up every 7-10 years!

Ken Miller 10 years, 7 months ago

Since I have very little disposable income, I don't know exactly how endowment fundraising works - but don't a lot of the folks who give $$$ to KU and other public academic institutions earmark the money for a specific use? If this idea to "force" KU to use funds to hold the line on tuition, or spend on infrastructure updating goes through, I would think a LOT of the monied class would think twice before giving to KU.

penguin 10 years, 7 months ago

closing the other regional schools????

There is nothing lesser about them. I am sure the consistent high marks Emporia State gets for their teacher education program make them a lesser school. Also they manage to get their teachers out faster than the 5 years at KU. Also I would laugh at the prospects of any KU graphic designer attempting to get a job over a Fort Hays State graphic design graduate. Pitt State has some pretty impressive programs too. These are just a few examples from the "lesser" schools, which by the way are the only source of real growth, in terms of increased enrollment, in the Regents system.

Even if, these schools were closed in the name of supporting bigger school, there would still be money problems. As a KU Grad, it made me sad to hear of all the problems related to maintenance issues....until I looked at the actual report. They have the old Multicultural Resource Center listed on the report...the one being replaced by the addition to the Memorial Union. The point being that no matter how much money any source throws at KU, they will always want more. So in the end, no amount of money from the state or money forced out of endowment will ever stop the tuition from jumping...because we all know now at KU, tuition is guaranteed to remain the same for 4 years for each incoming class (I don't think I noted the appropriate sarcasm in my comment on the 4 year guaranteed tuition.

Godot 10 years, 7 months ago

"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."

The endowment predates the income tax, so there must have been some generous individuals who were willing to donate prior to their being a tax break for doing so.

It is highly precedented government interference in the form of tax breaks, and providing tax exempt status to the endowment rganizations that has enabled the endowments to grow to mammoth proportions.

I say remove the tax exempt status from these organizations. They clearly do not need support from the taxpayers if they can leverage their funds to achieve 19% return, and then spend less than 5% on their intended "charities." These are no longer charities, they are massive money generating and power wielding organizations that are created by taxpayer subsidies (not paying taxes on huge sums of money) with no, nada, zero oversight, by the taxpayers.

Funny how the endowments can pool all these "little buckets of money" to generate huge investment returns, yet they cannot pool these buckets to better serve their states and their students.

BigDog 10 years, 7 months ago

Let me make sure I have this correct. If the fund performs similarly this year, they will achieve a return of approximately $193,000,000 (19.3%) and spend roughly $56,000,000 (5.6%) for about $137,000,000 in tax exempt returns.

The money given to the endowment may be for a specific purpose but why can part of the financial gains be spent on maintenance or to keep tuition lower. Even 3% would provide $30,000,000 toward maintenance or tuition, yet allow for $107,000,000 in new assets (non-taxed of course).

Kuku_Kansas 10 years, 7 months ago

consumer1-- I'm glad you got my little quip about "coo coo" Kansas. Usually passes over others' heads assuming I'm just a huge KU supporter (although I am that too.)

I paid my out-of-state tution through 3 degrees at KU through loans and one master's degree was covered by a grant program. My tuition was raised several times during my 8-year academic tenure though, while the State of Kansas continued to fund less-and-less.

Being that KU is currently a state educational instutition, but is not even close to being state funded, then I advocate for privitization. I believe they're currently funded through state dollars by about 33% or so. While that 33% funding does make a huge difference, I would love to find a way to make up that difference, and then wouldn't have to be subjected to the state's "disapproval" of our programs and operations.

Danimal 10 years, 7 months ago

We might as well privatize KU if the governmental entities that are supposed to be funding them are now seeking to penalize the private, non-profit organizations that are trying to pick up the slack left by irresponsible state governments.

LJD230 10 years, 7 months ago

The real issues are these: how many institutions of higher learning can the state of Kansas support and what is the return on that investment?

Kansas is education poor and the time has come to suck it up and close some state supported schools so that KU , K State and Wichita State can be appropriately funded. The lesser schools--and they are lesser, are simply an unceccessary drain on the state's economy.

No doubt this is an unpalatable argument for many, but it is one that merits strong consideration.

Godot 10 years, 7 months ago

I'd be all for privatizing KU as long as it was made into a for-profit institution that was responsiblity for paying tax on propery, equipment and investments, and as long as it took over the pension liability for all classified staff. Even swap.

BigDog 10 years, 7 months ago

That "small amount of the budget" that is received by higher education is roughly 14% of the entire state budget. K-12 uses 51% of entire state budget.

Privatizing KU might sound good ..... heck it sounds good to me as a tax-payer. Question would be how much would you have to raise tuition to make up for the small nearly $300,000,000 KU and KU Medical Center receive in state tax dollars.

situveux1 10 years, 7 months ago

Even if they spend more from the Endowment, I won't see it in decreased tuition...KU is a money pit and they'll find ways to spend it without the students benefiting. They're very good at that.

All you 'more money for ed' people need to get a grip...tell me exactly how much more they need, not just this 'give more' but exactly how much more they need and then explain to me where it's going to come from when over 66% of the state budget is already allocated to K-12 and universities?

I get so tired of the 'give more money' crowd who have not a single clue as to how to fund their ideas, nor do they have a clue as to how much more they really need. Just throw money at the problem, that'll fix it!

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