The COVID-19 pandemic has presented significant challenges to higher education. High fixed costs, declining enrollment numbers, shifts to online and hybrid models, and the cancellation of major sports have caused deep concerns about red balance sheets. As discussion has raged over avenues for mitigating revenue losses, questions about endowment have naturally emerged. Namely: can colleges tap into their endowment? And more importantly – should they?
As a diehard college football fan – Go Buckeyes! – I heard these two questions recently raised on my favorite sports radio show. I had three things to say in response:
1. Legally, most endowments cannot be used like a bank. The funds are restricted by the donor.
3 tweets about endowment. #1 They’re not “banks”. Legally, an organization like @OhioState is bound by the donor’s restrictions to the use of funds and cannot invade that principal to be used for other purposes. @BeauBishop@JLaurinaitis55 @971BLS
— J.D. Beiting (@jbeiting) August 13, 2020
2. In cases where endowments can be tapped, organizations should still exercise caution. Future donors may not view the decision to raid endowment as a prudent one – and could alter their own giving as a result.
#2 Sometimes the board sets money aside for general use, that money is more flexible and could be used like a bank. But, future donors may look askance at contributing to the endowment if not used properly by the university. @BeauBishop@JLaurinaitis55 @971BLS
— J.D. Beiting (@jbeiting) August 13, 2020
3. Don’t eat your seed corn.
#3 View the endowment like seed corn. DO NOT EAT YOUR SEED CORN unless it’s a matter of absolute survival. Is this a moment of absolute survival for @OhioState? @BeauBishop@JLaurinaitis55 @971BLS
— J.D. Beiting (@jbeiting) August 13, 2020
COVID-19 continues to be a great reckoning. For some colleges, these are unprecedented times that will force difficult decisions – for those institutions, this may be the moment to eat the seed corn (I.e., tap into the endowment). Yet colleges with a solid financial foundation, strong major donor base, and evergreen value proposition will likely survive – and for these organizations, the endowment may best serve students and faculty in other ways.
Thanks to 97.1 The Fan for the impromptu call-out during the show! And thanks to Laura MacDonald for the assist.
