When Yale needed help managing its stockpile of gifts, some dating back three centuries, it sent in a SWAT team.
Over the summer, a group of University administrators and staff dug into Yale’s $16 billion endowment, which is essentially a pool of some 9,300 separate funds, in search of any loose change that could be used to close a $300 million budget gap. As it turned out, the SWAT team, as its members nicknamed themselves, found hundreds of gifts established to fund specific purposes — some of them as old as Yale itself — whose income had lain untouched in Yale’s coffers for years.
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Administrators from the offices of Development, the Provost, Finance and Administration, and the General Counsel swept the 150 funds with the largest unused balances, which amounted to more than $1 million in some cases, cataloged them in a database and started to see if the funds could be put to better use. Then they turned their attention to the funds with less leftover money.
From prize money for Latin compositions to student scholarship funds to an endowed professorship in railroad engineering, many of the gifts Yale has received have become obsolete or forgotten, and have accumulated untouched or can be used for purposes broader than their original intents. To help departments and programs make the deep budget cuts forced by the endowment’s 24.6 percent plunge, administrators are asking departments to depend less on funding from the general operating budget and more on gift money.
“We are religious about honoring explicit intentions,” said Provost Peter Salovey.
Though the University has occasionally tried to repurpose gifts in recent years, this effort has intensified over the past year as Yale has faced a budget shortfall. Most departments, though not all, have restricted gifts, even if they only support one visiting lecturer or a few student prizes, and it is not uncommon for departments to have as many as 10 unused gifts, Deputy Provost Charles Long said.
“Endowments that are in departments are supposed to be spent,” Long said. “They’re not supposed to be hoarding money.”
Critics, including Sen. Chuck Grassley (R–Iowa), have questioned why Yale and other wealthy universities have made deep budget cuts when they still have billions in endowment funds. Unless these institutions can find a way to use restricted gifts to cover general expenses, the endowment is of little help, said Rae Goldsmith, a vice president of the Council for Advancement and Support of Education.
“The donor’s going to define how that gift can be used,” Goldsmith said. “That’s why depending on the endowment doesn’t work: Most endowment money is restricted to certain causes of the institution.”
No matter how much Yale may need the money, it legally cannot disregard the wishes of donors, who sign formal contracts, called indentures, with the University to specify the purposes for which their money should be used. Bending a restricted gift’s interpretation too far can lead to the loss of millions and a storm of bad publicity, as Yale has learned.
In 1995, the Yale Corporation voted to return the $20 million given in 1991 by billionaire Lee Bass ’79 to fund a Western civilization curriculum after Bass clashed with Yale over how the University was developing courses and picking professors for the program. Yale administrators were determined not to repeat their mistake, University President Richard Levin said last year.
“The main lesson learned from Yale’s return of Lee Bass’s gift in 1995 is that we must be diligent in complying expeditiously with the specified terms of a donor’s gift,” Levin said. “It was a painful and embarrassing episode for me and for the University, and we have since made major improvements to the processes we use to ensure good stewardship of any restricted gifts that we do accept.”
The dispute could also make donors shy about giving again, the Council’s Goldsmith explained. But Long said Yale would spare no effort to avoid alienating donors.
“An institution that depends on its alumni and endowment donors as we do cannot be too careful,” he said.
The improvements Yale made included establishing a gift stewardship committee, composed of Yale officers and administrators, to evaluate whether the University had used gifts in accordance with the donor’s wishes. An even larger staff is carefully monitoring the current process of repurposing gifts, Long said, precluding any more Bass affairs.
Most gifts are flexible to begin with since most restricted funds can be used at a specific department chair’s discretion, Long said. But departments should be using such gifts to cover graduate student stipends or other general expenses instead of conferences and special lectures as they have been, he added. In many cases, a gift has been used for one purpose for so many years that the gift’s stewards have simply forgotten that its income could pay for many other expenses, administrators said.
In most cases, then, repurposing is just a matter of convincing chairs and directors to shift costs away from the general operating budget and into their gifts, Long said. When gifts are more specific, development officials search archives for the original donor agreements to see if the language allows for broader use, Vice President for Development Inge Reichenbach said.
If the language does not permit a more flexible interpretation, Levin said, department administrators and development officials may even ask the donor or the donor’s heirs for permission to use the money for purposes close to the original. This happens only rarely, or in under 10 percent of cases, Levin added.
When no donor is living, Reichenbach said, administrators may present their case to Connecticut’s attorney general. As long as they can show a donor’s original intention is no longer viable despite Yale’s best efforts, the attorney general typically grants such requests, she said.
Examining hundreds of Yale’s gifts sometimes felt like a historical tour, Reichenbach said, as SWAT team members turned up gifts for long-disused prizes and centuries-old letters from former Yale presidents to wealthy alumni. But this was no mere exercise: The gifts presented unexpected opportunities to close Yale’s budget gap.
One striking example administrators like to cite is that of an alumnus who made a fortune developing railroad ties. In 1923, the alumnus gave money to establish a professorship in railroad engineering, a now-obsolete faculty chair that lay unoccupied for years until an attorney general allowed Yale to put the money toward supporting a School of Engineering professorship in transportation science, Long said.
“Most instances are not that dramatic,” Salovey said.
Still, over the years, donors have established dozens of prizes in departments ranging from chemistry to classics, yet many of these prizes are no longer awarded or have accumulated thousands of dollars in extra income during the boom years, he said.
Now, the administration is examining these gifts to see whether they can be used to support outstanding students in other ways — by awarding financial aid rather than prize money, Long said.
Reichenbach said the wording of indentures, especially older ones, often allows for more than one use for each gift. One donor gave money to establish a prize 30 years ago but told development officials he would have liked to provide financial aid to students if he had enough money. Now that his gift has accumulated thousands of dollars in income, it will be used for scholarships in accordance with his original wishes, she said.
Similarly, many department gifts that have long been used for merit scholarships for graduate students can be repurposed for regular stipends, Long said.
Then there are the gifts, such as Jonathan Edwards College’s library acquisition fund, that have simply outgrown their original purposes. JE’s library fund is currently only used for buying new books for the JE collection — but not for maintaining books or even expanding the library to accommodate all of the new books it takes in each year, Long said.
“I joke that it’s worth looking at whether you could honor the commitment by putting a JE bookplate in [a book] and putting the book in Sterling,” Long said. “There are some funds in colleges that really could be better used.”
THE CHANGING LANDSCAPE OF DONATIONS
If there’s anything Yale has learned from trying to use money from the numerous restricted funds in its endowment, it is that donors must be encouraged to give Yale flexibility in using their gifts, Reichenbach said. Not only will broader agreements with donors allow Yale to overcome its budget troubles, but they will also prevent gifts from becoming irrelevant as the railroad professorship gift did, she said.
“The use you have today — nobody knows if you will have it 100 years from now,” Reichenbach said.
She and her staff are encouraging donors to sign contracts allowing the University to discuss alternative purposes with the donor or use it for a purpose as close as possible to the original one if it becomes obsolete, she said.
Universities across the country are asking donors to consider making their gifts unrestricted or at least allow administrators some leeway, the Council for Advancement and Support of Education’s Goldsmith said.
“You’re seeing institutions open up that conversation with the donor,” she said. “But in the end, the intent of the donor is what institutions will defer to.”