by Jess Hoogendoorn
Individual investors are not the only ones feeling the financial crunch in today’s economy. Universities nationwide are being forced to re-examine their finances.
Endowments have universities particularly worried, with an average of a 22.9 percent decline from July 1 to Nov. 30 of last year, according to a study by the Commonfund Institute and the National Association of College and University Business Officers.
Rider University’s endowment met this average, experiencing a 25 percent reduction from June 30 to Dec. 31 of last year, according to Julie Karns, vice president of Finance and Treasurer. As of Jan. 3 of this year, Rider’s endowment was valued at approximately $41.8 million, down from about $55.8 million.
“What’s nice for Rider is that we’re less dependent than a lot of institutions on the endowment to fund our day-to-day operations,” Karns said. “And only about three-tenths of one percent of our operating budget comes from endowment support, so while a decline in the market value will have some impact, it’s less significant.”
Endowments are gifts made to the university with the specific goal of serving students for the long term, according to Karns.
“The gift itself is never spent, but when you look at the earnings on that gift and the appreciation in its value over time, every institution sets a policy that a certain percentage will be spent,” she said.
Rider has a 5 percent spending limit on its endowment. Rider never spends everything an endowment earns because the intent is for the money to last. By setting an endowment spending limit, the purchasing power will be maintained through good years and bad, according to Karns.
Rider’s endowment helps fund library needs, lecture series, academic department needs, scholarships and special programs such as the Holocaust/Genocide Resource Center.
Other universities, such as Harvard, are reportedly having financial difficulties. Harvard relies on endowments to generate a third of the money it uses for operations and has had to freeze salaries and offer early retirement to 1,600 employees to offset its $8 billion loss, according to an article in The New York Times. There have also been warnings at Harvard that students in need may not receive all of the support they require.
Dr. Jeffery Halpern, an associate sociology professor and the contract administrator and chief grievance officer for Rider’s chapter of the American Association of University Professors (AAUP), addressed inquiries he had heard concerning Rider’s finances in the current AAUP newsletter.
“So while it is true our endowment has taken the same type of hit as every other investment fund in the country, the impact of those losses to us is minor,” Halpern wrote.
Although other universities are having problems meeting their students’ needs, students at Rider do not need to worry, said Karns.
“We’ve done a lot of work and planning related to the operating budget for next year,” Karns said, “in terms of waiting to fill some positions and sort of tightening the belt on travel expenditures and other operating expenditures to help ensure that we have a balanced budget and we can provide, and continue to provide, high quality instruction and student service.”
Halpern also assured union members that Rider did not appear to be suffering.
“This is not to say that we are not in difficult times, but rather that we appear to be weathering them well,” he wrote in the newsletter.
According to Halpern, enrollment for the current semester is strong. The enrollment goal set for this semester for full-time undergraduates was 3,742, and as of Feb. 2, there were 3,758, according to Halpern.
Next year’s budget has already been calculated and shows a loss that is acceptable in view of the economic times.
“When we calculated the endowment support for next academic year versus the current academic year, it was down slightly but only by $155,000, and when you consider that we have an $180 million plus operating budget, that’s certainly something we could accommodate and work through,” Karns said.
Every year when administrators calculate the scholarship support and operating budget, the last three years’ worth of investment values are averaged, Karns said. This is a good strategy because there is more predictability in budget support, and this helps prevent a significant decline, she said.
“It sort of cushions you against negative markets,” Karns said. “The other thing that it does that people like a little less sometimes is that if the endowment value is growing because the stock market is doing really well and you’re adding gifts to the investment, it puts the brakes on a little bit.”
What makes current times so difficult financially is that in the past, a diverse portfolio would have a variety of markets so that the good could offset the bad, but this is no longer the case.
“But we’ve seen a market in the last six months where that diversification really didn’t provide the kind of protection you normally would expect it to do,” Karns said.