The Corner

Is Endowment Hoarding by Universities a Problem?

The fact that most of our top universities hold huge endowments that mostly just grow frequently attracts attention by powerful people, among them Donald Trump. During the campaign, he said that he’d consider action against schools that seem to be “hoarding” their money.

In this Martin Center article, Jane Shaw takes a look at the issue. One fascinating point is that presidents of the universities holding billions don’t seem to have a good justification for continuing to amass more and more money. Duke University president David Brodhead, for example, couldn’t come up with anything but a circular argument. Shaw writes, “Duke’s argument seems to be that having an endowment protects against . . . the loss of the endowment. Such a circular defense appears to be little more than smoke-and-mirrors to keep federal officials off the backs of university officials. Besides, some perspective is needed if an endowment losing 25 percent of its value is considered a ‘near-catastrophic situation.’”

Moreover, universities often manage endowment funds without much regard to the wishes of the donors. One person who has studied that is Fred Fransen. Shaw quotes him, “‘After 75 years and innumerable staff changes, whatever restrictions I put on my gift will probably be forgotten and the money repurposed. . . . ’” A $1 million gift to establish the ‘Fransen Chair in the Study of Israeli Democracy’ could end up supporting a course called ‘Israel: Bellwether or Bully?’ he lamented.”

But what to do? Shaw is not enthusiastic about more federal meddling to compel universities to spend more of their endowment funds. She suggests that it would be best if schools began voluntarily paying out more. I suppose so, but if they were so inclined, they’d probably already be doing that. The inclination to rake in as much money as possible (whether you’re a non-profit organization or not) seems to be a fact of life. Therefore, if anything is to change, it will happen if and only if donors stop ladling money into general funds. Targeted donations that last for only a few years or to accomplish specific objectives make vastly more sense than just sending off a big check to fulfill your supposed obligation to the old alma mater’s general fund.

George Leef is the the director of editorial content at the James G. Martin Center for Academic Renewal.

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