Endowment Economics 101

A relentless drumbeat of downbeat economic news is drowning out a real success story: two straight years of growth for Gettysburg College’s endowment, thanks to a virtuosic performance by our financial professionals.

 But even a virtuoso cannot coax a world-class sound out of a so-so instrument. Gettysburg’s endowment totaled nearly $246 million in mid-2011, demonstrating the College’s basic financial soundness — but our endowment remains hundreds of millions of dollars smaller than those of our peer institutions.

In a ranking of 865 U.S. and Canadian institutions’ fiscal 2010 endowment market values, the National Association of College and University Business Officers (NACUBO) and Commonfund Institute listed Lafayette College 108th, Bucknell University 131st, Dickinson College 199th, Franklin & Marshall College 211th, and Gettysburg 236th.

College President Janet Morgan Riggs ’77 was characteristically candid:

“The data and the landscape are very clear. We have less money to spend on the educational experience we offer than the colleges we compete with most closely for students — Bucknell, Lafayette, F&M, and Dickinson.

“Each of those institutions has more endowment per student than does Gettysburg. Each can count on more annual giving from their alumni than can Gettysburg. In recent years each has even charged a little more for tuition than Gettysburg.

“Although we should be proud that we have remained competitive despite our smaller resource base, I worry that we can’t keep this up forever.”

Only if alumni and friends recognize the real need to invest in Gettysburg’s future can we maintain and maximize positive trends like these:

• Total endowment as of May 31 grew from $197.9 million in 2009 to $215.2 million in 2010 and $245.9 million in 2011. Nonetheless, the endowment’s highpoint remains 2007’s total of just under $272 million.

• During the same three-year period, Gettysburg’s endowment per student rose from $75,000 to $80,000 to $93,000.

Excellent as those gains are, they do not lift Gettysburg’s endowment to the range of Lafayette’s (approximately 2,360 students), which was $580.7 million in the NACUBO listing, or Bucknell’s (approximately 3,500 students) at $491.5 million.

Not a piggy bank

The endowment is not merely a number in an accounting ledger. It is not simply a savings account; it is one of the main sources of the College’s revenue.

Each year, the College withdraws 5 percent of the endowment to support operations and financial aid. The annual “draw” is calculated on the basis of the endowment’s market value over the most recent 12 quarters. In normal times, this “trailing average” ensures that a bad quarter or two does not erode the draw. But there have been many bad quarters since the fall of 2008. As a result, the draw keeps shrinking. The endowment’s contribution to operating funds fell from $9.5 million in fiscal 2010 to $9 million in fiscal 2011, versus total operating revenue of approximately $110 million. And the dwindling draw isn’t expected to bottom out until 2012 or 2013.

At the same time, the College’s other main revenue sources — tuition and alumni giving — are also under pressure.

“My biggest concern is student scholarship support — financial aid,” Riggs said. “We must assure that a Gettysburg education is available to all deserving students, not just those who can afford it. It’s the right thing to do. It’s also, frankly, the necessary thing to do. We have to recruit a more diverse student body if we’re going to compete with other great colleges for the top talent of the coming generations.”

And in today’s economy, more students are seeking financial aid. The endowment pays for only about 8 percent of financial aid. The remainder comes from operating funds, including annual giving to the Gettysburg Fund. “It’s imperative that we figure out how to make more endowment funds available for financial aid, while continuing to invest in the campus,” said College Trustee Kaysie Uniacke ’83, who chairs the Trustee Endowment Committee and is managing director of Goldman, Sachs & Company’s Investment Management Division in New York.

Simply raising tuition may seem like a quick fix, but the idea is a loser in the current competitive climate. College tuition in general outpaced inflation in the 1980s and 1990s, thanks to factors like skyrocketing health insurance and the need for highly trained faculty in sufficient numbers to provide one-on-one interaction with students. But the recession’s impact on household budgets — and the resulting growth in demand for financial aid — means that colleges cannot keep tacking onto the bill paid by students and families. Accordingly, over the last few years, Gettysburg’s Board of Trustees has worked to hold down tuition increases.

Alumni giving at Gettysburg, already low by the standard of comparable liberal arts colleges, understandably stalled after 2008. Young alumni may be having difficulty establishing their careers, while older alumni are concerned about their own financial health. In addition, the College never firmly established a tradition of asking alumni to give back. “It wasn’t part of our culture to ask for money,” said Bob Duelks ’77, who chairs the College’s Board of Trustees. “Certainly, it wasn’t part of our culture to ask for a lot of money.”

But, facing today’s realities, the College is becoming less shy about asking. It is working to inculcate a “culture of philanthropy” in students before they graduate, and to reestablish connections with alumni, many of whom have found success in business and the professions.

“Janet, along with the faculty and staff of the college, has a compelling vision for developing and enhancing the educational experience for our students,” said College Trustee Jim Chemel ’71, “but it takes money to add to the programs and special opportunities that Gettysburg College affords its students.” Chemel is a partner at Chemel Kornick & Company, a Pittsburgh firm specializing in high-level tax planning and compliance services.

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