Wealth in Higher Education Institutions

By Bradburd, Ralph M.; Mann, Duncan P. | Journal of Higher Education, July-August 1993 | Go to article overview

Wealth in Higher Education Institutions


Bradburd, Ralph M., Mann, Duncan P., Journal of Higher Education


1. Introduction

Sophie Tucker once said: "I've been rich, and I've been poor. Believe me, honey, rich is better." Few college or university presidents would disagree.

Wealth brings important advantages to colleges and universities. It may allow administrators to devote significant resources to long-term goals and to avoid having to make budget adjustments in response to short-term financial fluctuations. And, at the most basic level, wealth allows colleges to purchase inputs that make possible a better quality product: better faculty, better buildings, laboratories and libraries, and even, through the use of subsidized education, better students.

There are clearly huge disparities in levels of wealth among the three thousand or so institutions of higher education in this country. Some institutions with large amounts of wealth charge their students only a small fraction of their actual educational expenses; other institutions with little or no wealth can spend only as much as tuition levels will allow.

Measuring wealth is considerably more difficult than recognizing its merits. When comparisons are made among colleges and universities, wealth is frequently measured by endowment. However, this is a very restrictive measure. Not only does it exclude wealth in the form of physical assets such as land, buildings, and equipment, but it also excludes regular income flows from non-endowment sources that are "wealth-like" in their effect.

In this article we propose a measure of "institutional wealth" that includes the capitalized value of regular income flows from non-endowment sources as well as the value of endowment wealth. Although this measure has its own limitations, including the fact that endowment wealth and other "wealth-like" assets are not perfect substitutes, it is superior in several respects to using endowment alone as a measure of wealth.

One particular advantage of our more comprehensive institutional wealth measure is that it permits realistic comparisons of wealth across both private and public institutions. We demonstrate below that measuring wealth by endowment tends to bias comparisons of the relative wealth of public and private higher educational institutions. In this era of tight budgets, it is important that policymakers at both the federal and the state level have accurate information on the overall resources available to private and public higher educational institutions.

In the next section we investigate some conceptual issues relating to the definition of wealth in higher education institutions. We argue that the "total wealth" of an institution should include resources both in the form of "stocks," such as physical and financial assets, and in the form of regular income flows to a college or university, such as government appropriations and annual gifts and grants.

In the third section we turn to the measurement of wealth in institutions of higher education. In our comparisons of institutional wealth we categorize schools on the basis of control: public or private, and type: university, four-year college, or two-year college. The picture of the wealth status of various schools that emerges is quite interesting: whereas many of the very wealthiest schools are private, the vast majority of private schools have relatively little wealth; public institutions dominate the upper half of the wealth distribution. Universities tend to be wealthier than four-year colleges, while four-year institutions are typically wealthier than two-year schools. We contrast our definition of total wealth with the traditional and narrower measure that includes only net endowment. Significant practical problems are associated with the measurement of some components of wealth in institutions of higher education, particularly physical assets.

In the fourth section we consider the variability of income from three major sources of wealth: endowments, government appropriations, and annual gifts and grants. …

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