Scarcity Amidst Wealth: The Law, Finance, and Culture of Elite University Endowments in Financial Crisis

By Conti-Brown, Peter | Stanford Law Review, March 2011 | Go to article overview

Scarcity Amidst Wealth: The Law, Finance, and Culture of Elite University Endowments in Financial Crisis


Conti-Brown, Peter, Stanford Law Review


INTRODUCTION--ENDOWMENTS IN CRISIS?

I.   THE THEORY OF UNIVERSITY ENDOWMENTS
     A. Intergenerational Equity
     B. A "'Rainy Day" Fund.

II.  UNIVERSITIES AS "DRUNKEN SAILORS"?
     A. Universities Spent Too Little, Not Too Much
     B. How Much Is Too Much?

III. THE LAW OF UNIVERSITY ENDOWMENTS
     A. The Development of Law and University Endowments: Trustees,
        Corporations, and UMIFA
     B. UMIFA, UPMIFA, and the Financial Crisis
     C. Charitable Trusts and (the Illusion o39 Donor Restrictions
     D. Litigation Risks
        1. Donor suits: the example of Princeton University
        2. UPMIFA and prudential spending
     E. Conclusion

IV. THE FINANCE OF UNIVERSITY ENDOWMENTS
     A. The Yale Model and the Change to Endowment Management
     B. The Yale Model and Liquidity Problems
     C. The Trade-Off Between Forced Sales and Budgetary Disruption
     D. Other Financial Explanations for University Behavior

V. THE CULTURE OF UNIVERSITY ENDOWMENTS
     A. The Sacred Endowment and the Popular Endowment
     B. University Administrators and the "Legacy Costs" of Endowment
        Accumulation
     C. Endowments and Interuniversity Competition
     D. Political Cover for Budget Cuts
     E. Endowment as Core University Mission

CONCLUSION: IMPLICATIONS OF THE CULTURAL ENDOWMENT

APPENDIX A: EXAMPLES OF BUDGET CUTS AT ELITE UNIVERSITIES
     A. Harvard
     B. Yale
     C. Stanford
     D. Princeton
     E. Massachusetts Institute of Technology

APPENDIX B: DATA ON THE SCHOOLS' FINANCES

INTRODUCTION--ENDOWMENTS IN CRISIS?

In late 2007 and early 2008, Senators Max Baucus (D-Montana) and Chuck Grassley (R-Iowa)---Chairman and Ranking Member, respectively, of the Senate Finance Committee (SFC)--called higher education to attention by opening an inquiry into how elite universities manage their multibillion dollar endowments. (1) Commentators during the previous decade had extolled the genius of elite universities' investment management departments, (2) and now the Senators and others began asking the important question: to what end the accumulation of so much wealth? Indeed, the Senators' own questions carried added bite. They asked universities to provide detailed information regarding endowment restrictions, financial aid policies, student demographics, and the average amount that families must pay for students to attend the universities. (3) Additionally, the Senators and others explicitly challenged one of higher education's sacred cows: its favorable tax treatment under [section] 501(c)(3) of the Internal Revenue Code. (4)

Soon, however, the inquiry skidded to a stop. (5) Along with most other participants in the global financial market, (6) university endowments were severely battered by the financial crisis of 2008. (7) The early estimates predicted an average loss of 23% of endowment value in only five months. (8) The political momentum that had grown around Senators Baucus and Grassley seemed to dissipate while many elite universities scrambled to make sense of budgets that had not anticipated the endowment losses. Roughly a year after the SFC's questionnaire dominated news in higher education, (9) the news shifted to focus on university endowments' increasingly dire financial straits and the university budget cutting that soon followed. Even the most elite universities, with the largest endowments, were not immune. Consider the various responses to the financial crisis from the five private American universities with the largest endowments, measured by absolute dollar value--Harvard, Yale, Stanford, Princeton, and MIT. The schools variously have cut budgets up to 15%, (10) laid off hundreds of employees, (11) frozen salaries, (12) halted or delayed construction projects, (13) issued billions of dollars in debt, (14) canceled or downgraded varsity sports teams, (15) and closed libraries, (16) among many other responses. (17) By every account, universities--including the wealthiest in the country--have made significant cuts to almost every area of their budgets. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Scarcity Amidst Wealth: The Law, Finance, and Culture of Elite University Endowments in Financial Crisis
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.