All this talk about billion-dollar university endowments has inspired me to wonder when is a billion dollars not a billion dollars? Or to put it another way, is a billion dollars for one institution the same as a billion dollars for another?
As president of The George Washington University I was thrilled, over an almost twenty year tenure, to oversee the growth of the university’s endowment from around $200 million when I arrived to about $1.2-billion when I stepped up to a professorship: A pat on the back to me, my faculty, my deans, my trustees, my alumni and my benefactors. Yes, indeed. But, as Einstein instructed us, everything is relative. GW likes to compare itself to a “market basket” of other universities; they are similar in size and mission. Private, urban, comprehensive, you will recognize the names: Boston University, New York University, the University of Southern California, etc. While we were growing our endowment, they were growing theirs. We more than held our own, we may have even pulled a little ahead. But truth be told, we didn’t rank very high in the pecking order at the outset, and we still weren’t where we needed to be at the end.
The real test of an endowment is not how much it totals, or at least that is not the only test. To really understand the value, or rather the worth, of an endowment you need to have some of the following data:
How does the endowment compare to comparable institutions? What is the operating budget of the institution? What percentage of the operating budget is being, or can be, supported from endowment income? What is the full-time enrollment of the institution? What is the number of endowment dollars per full-time matriculant? What is the program mix of the university? (Recognizing that medical students cost more than philosophers to support; a dollar of med-school endowment is worth less than a dollar of humanities endowment). How many endowed professorships are there? How much of the endowment is unrestricted and how much is earmarked? Saying that GW has a billion-dollar endowment, in other words, is saying a lot less than saying Smith College has a billion dollar endowment. Saying that Harvard provides $120-million in financial aid to its students would be saying a lot less than saying the George Washington University provides $120-million in aid to its students.
The tyranny of headlines and apparent absolutes needs to be avoided if we are to truly understand the economics of higher education, if we are to comprehend who is being generous, and who is being strategic. All is not as it appears at first blush.
Moreover, simply requiring an institution to spend 5 percent of its endowment income, as some have proposed, is simplistic, a blunt instrument at best. To be of much effect, one must go further. Be surgical. Are we willing to instruct line-item expenditures? Operating budgets good; capital budgets no good. Most schools could use 5 percent of their endowment income paying for construction projects rather than, as they now do, floating bonds, borrowing and incurring debt. Is that an intended consequence of proposed policies?
Let’s not understate the fact that $1-billion dollars, any way you count it, is an impressive number. But to a school about to slice up the pie, knowing how many pieces the billion is going to be divided into makes the individual portions perhaps too big, too small, or just about right.
Happy New Year to one and all, rich and poor.
