Endowments are an important component of institutional stability and sustainability. They are a way to help address future needs and to leverage fundraising now and in the future. The growth of endowments at all colleges and universities has come under increasing scrutiny as those institutions with meaningful endowments examine their investment policies, and those with small or developing endowments look at how to grow theirs.
We asked Dr. John Berry to provide his insights in this guest blog. Dr. Berry’s dissertation focused on effective fund raising operations for endowment development. Let us know your thoughts.
It’s safe to write that these are times in which greatness comes to the fore, as development professionals manage to make a way out of no way. It seems that all around us the fund raising landscape looks extremely bleak.
If you work in higher education in this country, these are challenging times. Large, midsized, and small colleges and universities are struggling with the reality of shrinking lines of credit or perhaps no line of credit at all. This situation has the potential to cause a catastrophic system failure for numerous colleges and universities, which is an unimaginable scenario.
At the Historically Black University where I am employed, my weekly directors’ meetings have become dire, to say the least. It’s clear from all of the power centers within the university that this institution is experiencing the onset of a massive reduction in its operational budget, stemming from the extremely poor condition of the national economy. The briefing that I’ve received is sobering.
But the circumstances surrounding my institution are not isolated. This university is not the exception but rather the rule, as its leadership grapples with the very difficult decisions of scaling down programs, disciplines, and the very heart of any college or university—its faculty and staff.
The drastic funding concerns of higher education nationwide are simple and yet complex in their formulation. Historically, the primary resource formula is based on a college’s or university’s projected student recruitment. The more students successfully enrolled, the more tuition fees paid by Pell grants, along with scholarships, fellowships, and students loans to supplement financial aid packages. These are the power centers/funding streams of colleges and universities’ chief financial officers.
The present economic climate of institutions indicates that students from low-income households or those facing the loss of parental employment and federal grants no longer will no longer be able to cover the full cost of tuition. These students often must defer their dreams of pursing a college degree. In the past, a viable option for a family’s tuition shortfall was applying for a private-sector student loan which generally supplements an existing federal grant thereby resulting in a zero balance with a college or university for the academic year.
At public universities such as mine, we have seen our state economy drop. Therefore state tax revenue has dropped, meaning massive operational budget cuts along with the act of reverting existing allocated funds back to the state’s treasury.
The question then becomes, what are the options for small to midsized schools like those within the HBCU sector? As a professional development officer/fundraiser at an HBCU, I have—along with many of my colleagues at other HBCUs—seen the handwriting on the wall. But I have been for the most part unable to build up counter measures to address difficult times such as this unprecedented economic downturn. All but a very few colleges and universities, if called upon to do, so could fully cover their annual operating budgets by drawing on the school’s private reserves resources. The critical aspect to this sustainability function is that the larger a college or university endowment, the more options an institution’s leadership has to ward off periodic economic downturns.
The fundamental question for higher education leadership of small and midsized colleges and universities must be “what is the annual yield of primarily unrestricted funds coming from their respective institutions’ endowment portfolios?’ The pure income from a college- or university-invested endowment has become of the utmost importance to chief financial officers. The leadership at HBCUs will be called upon to aggressively manage these funds for maximum growth toward annual income yield.
The Challenges for Leadership
Given the grim economic prognosis for the United States—perhaps for the next few years—nationally, higher education will be called upon to do more with less government-allocated and philanthropic resources. However, the reality is that colleges and universities with larger endowments portfolios will probably fare better than those that do not. The late Dr. Benjamin E. Mays, former president of Morehouse College in Atlanta, Georgia, said once in an affirming speech to “always think big.” This should be the rallying cry for 21st century HBCU sector leadership.
The Nobel Laureate and Yale economist James Tobin said in regard to higher education leadership and endowment management responsibility in 1974, “The trustees of endowed institutions are the guardians of the future against the claims of the present. It is their task to preserve equity among generations.”
The challenge in the early part of the 21st century is daunting for most institutions of higher education, but one could argue even more so for the HBCU sector and these institutions fund raising officers. However, if history does nothing else in this kind of situation, it can provide a road map from which a plan of action can be developed and implemented to achieve a new desired outcome. Case in point: Dr. Mary McLeod-Bethune, founder and president of the college which bears her worthy name, started that institution with $2.50. However when Dr. Bethune stepped down as president of the college, it had a $2 million endowment. As noted in her biography, Dr. Bethune herself cooked and sold fried-fish sandwiches to enhance the schools fund raising efforts. A word to the wise is sufficient: We are able.
John M. Berry
Chief Development Officer
South Carolina State University Student Affairs