The Senate Finance Committee announced yesterday that it would be taking a close look at over 100 universities with large endowments. Its announcement came in the wake of a report by the National Association of College and University Business Officers showing that the average college endowment spending rate was at a notable low—4.6 percent in 2007. For schools with the largest endowments (over $1 billion), the rate was at 4.4 percent, the lowest spend-down in nearly a decade.
Do the trustees have a clue?
Probably not, if you read a prescient 1998 piece written by ACTA advisor and Columbia trustee emeritus Edward Costikyan, entitled “Spending Endowment Income for Current Use: Why So Little? Mea Culpa.” In it, Costikyan took himself and fellow trustees to task for being asleep at the switch when it came to investment policies—virtually handing over endowment matters to administrators, no questions asked.
In the article, Costikyan emphasized what ACTA says every day: Trustees have a fiduciary obligation to oversee the financial and academic well-being of their institutions. And that means examining their institutional investment policies. With rising tuition, escalating costs, and ballooning endowments, recent surveys show a growing public concern about higher-education cost management and cost control. It’s time the trustees took note.
Beyond the issue of enhanced endowment spending (a luxury that many schools simply don’t have) is the bigger issue of cost. As Costikyan also acknowledges, trustees have an obligation to examine both the cost side—and the spending side—generally. Is the endowment income a viable option to closing the gap? Are tuition increases and loans the only way to address higher ed costs? Could some programs actually be closed? Are unproductive programs regularly reviewed? Are the faculty productive? Is performance a criterion for funding?
Stated another way: Are parents and taxpayers’ hard-earned dollars being used in ways that ensure the highest quality education at the lowest possible cost?
These are just some of the many questions trustees should be asking if they are to fulfill their important oversight of the university. It appears they haven’t done their job; and, as a consequence, Uncle Sam is preparing to do it for them.