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University OK with endowment deficit in ‘09

Funds that help recruit and retain the University’s most valuable scholars and teachers – endowments – are down 30 percent, but the University is faring just fine without $270 million of its private donations, an administrator said.

“For fiscal year 2009 we were able to fund all of the needs as far as scholarship commitments and endowment professor commitments, but we did so because we had a bit of a reserve,” said Tom Landrum, senior vice president for external affairs.

As for fiscal year 2010, beginning July 1, he said, “What we’ll see in the near-term is a very cautious belt-tightening approach to how we support those programs that are supported by endowments.”

One of those programs experiencing some “belt-tightening” may be the University’s premier scholarship program, the Foundation Fellowship, said Arnett Mace, senior vice president for academic affairs and Provost.

“We in fact may offer fewer [fellowships] in number or we may reduce some of the benefits that are provided or opportunities that are provided to Foundation Fellows,” he said in a phone interview last week. “But a final decision has not been made on that.”

The most recent high point for the University’s total endowment was in fall 2007, when it was worth $705 million, Landrum said. One year later, the endowment has fallen to $437 million.

Mace said administrators “currently are doing an analysis on where we do have the shortfall and we know every endowment is down and support for our faculty who hold [endowed] chairs is down because of the stock market.”

During the next couple of months, administrators will prioritize endowed projects to decide where funds should be directed, Landrum said. Taking top priority are endowed chairs and “key scholarships that are used to help recruit students,” he said.

Endowed professorships and scholarships are critical to the University’s competitive advantage next to peer institutions, Landrum said. So far, the University has retained competitive leverage because its endowment losses equal the national average, he said.

By definition, endowments are funds donated by individuals, corporations or foundations. Those funds, Mace said, “provide support for our GRA chairs – our Georgia Research Alliance chairs – our other chairs, the professorships and the various scholarships that are endowed at the University. So they provide for students and they provide support for faculty to conduct the programs for which they are responsible.”

Landrum said smaller, annual gifts tend to support the University as a whole, whereas larger gifts – which typically range from $50,000 to $100,000 – are subject to contracts, or “recipes,” which specify exactly how the money is to be spent according to donor wishes.

Three separate organizations collect endowment donations for the University – the Arch Foundation, the UGA Foundation and the University’s Banking and Trust Department.

“All three have trust funds that have a recipe for how that money is to be used,” Landrum said.

These organizations invest the donated funds in the market to augment and sustain the gifts over time. The methods for investment differ for each organization, but the general theme is the same, he said.

“The idea for higher education investment is to take a cautious, precautionary approach because you’re in this for the long run. You want to have your endowment grow over the years rather than spending a lot,” Landrum said. “You want to make sure you are earning enough money on your endowment so you can do what you want to do, but that your base [amount] does not decrease.”

With so much money tied up in a bear market, the University has tried to sustain its endowed programs through reserves and state funds, Landrum said.

Unlike private institutions, which are completely dependent on tuition and endowments for revenue, the University has the support of state funds to keep its head above water in tough economic times, he said.

“We are very lucky to have state money … because while our state budget is down, we still have some of it. So as a result, it’s not life or death like some of the schools or colleges that are totally private.”

As administrators prioritize endowed projects in the next few months, “the areas at lower priority will be things more discretionary, such as lectures, speakers and receptions,” Landrum said.

At recruitment receptions, for example, “Instead of having a dinner we will have coffee and donuts,” he said.

But those are small cutbacks compared to cutting entire professorships or eliminating scholarships – moves that may happen in the future if reserves run out and the state budget is slashed even more, Landrum said.

Climbing out of the endowment deficit will probably take two to three years, he said.

In the meantime, the University is gearing up for a full-fledged season of active fundraising.