KU Endowment ended year with $137M that could plug KU budget holes. But should it?
photo by: Chad Lawhorn/Journal-World photo
In the fundraising world, there is nothing quite like a check without strings.
Think of a check that doesn’t come with any instructions on a particular building it should construct, a specific academic field it should support, or even a desire to see more wins on the football field. It is simply a check to be used for whatever is needed — or maybe simply wanted – at the moment.
In the field of higher education, such checks are a lot like a free lunch — much desired but seldom received. The latest numbers at KU Endowment drive home that point. In the fiscal year that ended in June, KU Endowment received $124.2 million in contributions and grants that contained some sort of donor restriction. The organization received $820,000 in contributions free of restrictions.
It is numbers like those that have long driven an important narrative around the Endowment Association: KU’s oldest friend — the association turns 130 years old in 2021 — can only do so much to help the university in troubled financial times, like the times KU is facing today.
A frequent number that endowment leaders offer in presentations and conversations is that roughly 97% of the money that KU Endowment raises has restrictions put on it by donors. That’s important because you can’t accept a check to construct a building, for example, and then use it to plug a budget hole to save faculty positions.
Both the numbers and the sentiment are true. But, they also only tell part of the story at KU Endowment.
A closer review of the financial statements of the $2 billion organization, which the Journal-World undertook this month, shows KU Endowment has amassed a large amount of funds that are free of donor restrictions and can be spent on any legitimate university purpose, including filling worrisome budget holes at KU.
How much available money is there? On June 30, the financial statements showed $137 million of assets that both were free of donor restrictions and also easy to access, meaning KU Endowment could make them available to spend in less than a year’s time.
The $137 million number changes the longstanding narrative some. Often it is not that KU Endowment doesn’t have money to address financial challenges facing KU. Rather, it is a question of whether it would be prudent to spend those dollars now.
There have been signs during the pandemic that KU Endowment is willing to make some of those extraordinary expenditures during these extraordinary times. KU Endowment in mid-2020 made a fairly low-key $33.1 million grant to the university, with part of it going to help the university with reopening costs, but the majority of it going to grow KU research enterprises.
KU Endowment doesn’t dispute that the $137 million fund could be spent to plug budget holes, but has stopped far short of endorsing that strategy.
“That invested balance, which has been developed over many years, could be divested for use to provide temporary assistance,” KU Endowment spokeswoman Michelle Tevis Strickland said in a written response to questions about the $137 million amount. “From an individual’s perspective, it would be like cashing out your retirement fund to cover current expenses. It isn’t advisable.”
But raiding the retirement fund does happen, if times are tough enough, some members of the KU community are now noting.
“I think many faculty believe that if this not a moment of emergency, we don’t know what is,” Nick Syrett, a professor of women, gender and sexuality studies at KU, said of budget shortfall projections that have ranged from $40 million to $120 million.
There really hasn’t been a visible movement on the KU campus, however, calling for KU Endowment to begin plugging budget holes — at least not to the degree at places like Princeton, where a group of graduate students have been publicly lobbying for Princeton to use its more than $26 billion endowment to avoid layoffs of vulnerable workers on campus.
Instead, it appears many members of the university community haven’t been aware of the extent of unrestricted funds KU Endowment possesses.
“We didn’t get that number,” Sanjay Mishra, president of KU’s University Senate, said of the $137 million amount. KU Endowment recently gave a presentation to the senate to answer questions about how the organization can help during the budget crisis. “This is the first I’m hearing of it.”
Syrett, who is a member of the OneKU group that is exploring creating a union to represent faculty at the university, said he also had never heard that KU Endowment had access to that amount of unrestricted funds. He said the information about how most donor funds are restricted had always led him to believe the amount of unrestricted funds available was fairly small.
“I’ve absolutely never heard that number before,” Syrett said. “That seems like a lot of money.”
A review of KU Endowment’s finances indicates there are a couple of ways the organization has accumulated the funds. One is through earnings on investments. While contributions themselves may sometimes have restrictions placed on them, there are also instances where the earnings — think dividends paid by stocks or increasing share prices of securities — are not subject to donor restrictions. Financial statements show that KU Endowment last year earned just more than $33 million in income from its unrestricted assets.
KU spent most of that income, but not all of it. Money that is not spent accumulates, and after years it has grown to $137 million, which KU Endowment keeps in ways varying from cash to investments. In total, KU Endowment has $204 million in unrestricted assets, but the $137 million amount is the key figure because it is the portion that is liquid, meaning it can be easily accessed for spending.
That figure doesn’t necessarily stand out in KU Endowment’s financials. The Journal-World noticed the figure after reading an accounting note in the financials that was describing a large reserve fund KU Endowment keeps. The financials noted KU Endowment has a reserve fund equal to 75% of its operating expenses each year. Compared to other organizations, that’s a large percentage to keep in reserves. The city of Lawrence, for example, generally holds less than 30% in reserve.
In the case of KU Endowment, it spends about $21 million a year on basic operations, such as staff salaries, fundraising expenses, utilities for its office building and other types of ordinary business expenses. With the 75% guideline, that means KU Endowment sets aside almost $16 million a year on the off chance that the year’s revenue stream doesn’t produce enough money to pay those $21 million in business expenses. However, KU Endowment’s revenue stream is pretty stable. It takes a fee based off of the total amount of investments it is responsible for overseeing. In fiscal year 2020, those investments totaled about $2 billion.
While reviewing that reserve fund, the Journal-World noticed a chart that lists the total amount of unrestricted funds available to cover shortfalls showed an amount much greater than the $16 million. Rather, it showed the $137 million amount.
Strickland said KU Endowment leaders have had discussions about deviating from that 75% guideline during the pandemic.
“We project a substantial reduction in our available cash balance over the next few years in recognition of the pandemic and the challenging situation the university faces,” Strickland said via written statement.
However, that doesn’t mean KU Endowment has decided to start cashing in investments and other assets that make up part of that $137 million balance. There is a big reason why that isn’t the path endowment leaders have taken: Time. The organization is the oldest public university endowment in the country, and leaders there take pride in it being built for the long haul. Investments that are cashed out now may take generations to replace.
“We continue to hold true to the value of intergenerational equity,” Strickland said via the statement. “If those before us had divested these funds, we would not be able to support the students and faculty of today. And if the funds are divested and spent today, they won’t be available to assist the university in the future. It is a balancing act.”
Every $10 million that remains invested produces about $550,000 a year in annual earnings that can be spent year after year, KU Endowment estimates.
Mishra, the University Senate president, isn’t necessarily advocating for KU Endowment to spend down the $137 million account. He generally has been impressed with some of the support KU Endowment has provided, calling it a “friendly endowment environment.” KU Endowment has statistics that show the amount of support it provides to the university — it totaled $160 million in fiscal year 2020 — is consistently higher per student than other regional state schools, such as Iowa, Iowa State, Indiana, Illinois, Kansas State, Nebraska and Oklahoma.
But even before knowing of the $137 million worth of unrestricted funds, Mishra said university governance long had been interested in knowing how often and for what purposes KU’s chancellor asks KU Endowment for funding assistance.
“There is always this cloak of secrecy around it,” Mishra said.
The Journal-World didn’t have much luck in lifting it. The financial statements note that KU Endowment’s executive committee meets at least three times per year “to review and approve grant requests from resources that are without donor restriction.” The financial statements also note those grant requests are recommended by the chancellor.
The Journal-World asked KU Endowment to provide a list of grant requests the chancellor has made in fiscal year 2020 and to date in fiscal year 2021. KU Endowment did not provide a list of specific grant requests, but rather said such information was “proprietary.” KU Endowment is a private organization that doesn’t face the same public disclosure laws as the university itself.
Upon further questioning, KU Endowment provided a general list of types of requests it has funded. Those were: student support; faculty support; facilities; land; research, programs and equipment. However, the organization provided no details about any of those categories, amounts awarded, or any information about grant requests that were denied, if any.
The Journal-World also asked the chancellor’s office for a list of projects requested and funded during the two most recent fiscal years. It referred the Journal-World back to KU Endowment’s response which provided only general types of projects. The Journal-World asked the chancellor’s office why the chancellor believed the funding requests and amounts received shouldn’t be made public. The chancellor’s office did not directly answer that question, but parts of its statement indicated it believed it had answered the question by merely confirming the types of projects that are funded with the money.
Information was provided about the $31.3 million grant that was awarded to KU in 2020. Chancellor Douglas Girod briefly mentioned part of that grant in a previous public statement. In an Oct. 30 written message to the campus community about financial challenges facing KU, he noted that KU had incurred about $30 million in expenses for personal protective equipment, COVID-19 testing, quarantine and isolation space, sanitation technology and the reconfiguration of spaces. He said about $20 million of the cost had been covered through federal funding. He said the “remaining $10 million has been covered by a grant from KU Endowment made possible by gifts from donors.”
In that message he did not note the entire grant was for $33.1 million, and that $23 million was awarded to grow KU’s research enterprise.
KU Endowment did report on that portion of the grant in a fall newsletter to endowment supporters. The organization also provided the information to the Journal-World as part of its responses for this article, and included additional information on the $10.1 million portion of the grant that wasn’t related to research. While KU Endowment said the $10.1 million assisted KU with reopening the university, it doesn’t appear any of the money was used for PPE, COVID testing, quarantine space, or other similar items.
Instead, KU Endowment described the funds as being used for the two following purposes:
• “$7.6 million to create innovative courses, upgrade infrastructure to deliver HyFlex instruction, and revise KU’s academic and financial portfolios to guide them into the future.”
• “$2.5 million to facilitate the review and enhancement of all KU’s courses to ensure they are meeting students’ ever-changing needs.”
University governance leaders would appreciate having details like those about the other grants the chancellor has requested and received from KU Endowment. But more so, faculty, staff and student leaders would like to be involved in helping the chancellor determine what grant requests to make to KU Endowment, Mishra said.
“I’m sure shared governance could help come up with those requests in a more transparent way than how they have progressed today,” Mishra said. “As shared governance, we don’t know what the asks have been.”
Syrett is concerned that the funding requests aren’t doing enough to save jobs at KU, which will be important as KU tries to rebound from the downturn. But more importantly, he said such funding could help avoid some employee suffering.
“I understand the logic of not spending all of that money down,” Syrett said of the $137 million of unrestricted funds. “But I think the main concern of faculty and staff is that people are afraid of losing their jobs or already have lost their jobs. That is going to create devastating consequences for people.
“We want the money to go toward maintaining the livelihoods of people who work here.”
Endowment leaders noted that even though it has funds that can be used to patch short-term holes, it still has to be mindful of whether donors think that would be a good use for funds. Otherwise, donors might be less willing to give in the future.
“Donors are not motivated by funding budget gaps and temporary shortfalls,” Strickland said in the statement. “They desire to contribute to excellence.”
She said that’s one of the reasons the endowment board included the $23 million for research endeavors in the recent grant to KU: it showed KU Endowment was not just focusing on the short term, but also was investing in KU’s future.
The Journal-World asked Girod for his views on how KU Endowment can use unrestricted donor funds to help the university during the downturn.
“As the university faced a pandemic that presented the university with an unprecedented revenue shortfall, KU Endowment provided its largest ever $33.1 million grant in support of KU students and faculty and their research,” Erinn Barcomb-Peterson, a spokeswoman for the chancellor, said via a written statement. “The university — through the Chancellor — works with KU Endowment to balance the university’s current needs with an obligation to donors that these funds endure and maintain their purchasing power in perpetuity while ensuring funds are available to students, faculty and staff now and in the future.”
That gives a bit of blueprint of how Girod thinks the money should be spent, but Syrett said there is a way for the university community to learn even more — for Girod to share the specific requests he makes of KU Endowment with the entire university community.
“Obviously, I think everyone would like more transparency about what the chancellor’s priorities are,” Syrett said.