The estimated 25 percent plunge of Yale’s endowment has not convinced several members of Congress to cast aside their scrutiny of Yale’s and other universities’ enormous stockpiles of wealth.
Rep. Peter Welch, Democrat of Vermont, renewed Tuesday his pledge to introduce legislation that would require colleges to spend more of their endowments to make higher education more affordable. And the office of Iowa Sen. Chuck Grassley, the ranking Republican on the Senate Finance Committee, which last year requested detailed endowment and spending data from the wealthiest 136 colleges, continues to assert that the issue is a priority that the senator will continue to study.
Following years in which Yale and its peers reaped double-digit endowment returns, mounting political pressure in part contributed to Yale’s decision last January to boost its endowment payout and expand financial aid. But neither those measures nor the flagging fortunes of Yale’s fund have erased that pressure: These lawmakers say Yale might be facing tougher times, but not nearly to the same extent as the middle class.
“Rep. Welch understands that many colleges and universities have been hit hard by this economic downturn and that their endowments are suffering because of it,” Welch’s spokesman, Paul Heintz, wrote in an e-mail after discussing the issue with Welch. “At the same time, as much as colleges and universities are struggling, middle class families are struggling all the more. Even before this recession, college education was out of reach for too many Americans. That is all the more true today.”
Jill Gerber, Grassley’s press secretary, said Yale’s 25 percent loss does not bear on the issue because it has also seen recent gains as much as 25 percent.
Grassley first turned heads with his suggestion last year that federal law should require universities with endowments of more than $500 million to disburse 5 percent of their funds annually. Most nonprofit foundations other than educational institutions are already required by law to spend 5 percent of their funds annually.
Gerber said the senator is still engaged in the issue and is weighing his options for legislation in the new session of Congress.
“He’s looking for a more uniform payout rate to help with college affordability,” she said, “so the payout is consistent, and to manage fluctuations to the benefit of students.”
But Yale officials said a federally fixed spending rate would actually increase the university budget’s exposure to market fluctuations.
“Although we could cope with mandated spending rules, we much prefer the flexibility that not having them allows us (and other institutions of higher education),” Provost Peter Salovey wrote in an e-mail. “The last few months have demonstrated the desirability of being able to think flexibly about the University’s assets.”
Currently, the endowment payout is governed by a spending rule, amended last January, that factors in inflation and past spending with the goal of smoothing over and stabilizing the endowment’s contribution to the operating budget. The function is designed to restrain spending in boom years in order to spread it out over leaner times and continue to support the university’s operations. The payout usually hovers around 5 percent but, since last year’s reform, cannot dip below 4.5 percent.
“If we had been constrained to spend 5 percent a year every year for the last 15 or so, our endowment would be substantially smaller going into this recession,” University President Richard Levin said. “The swing between what you can afford in good times and what you can afford in bad times would be much bigger. A spending rule that’s counter-cyclical as ours does a much better job of buffering the university operations. It also does a better job of preserving the long-term value of the endowment.”
While Levin disagreed with the proposed policy on principle, he added that the point is moot in the immediate future because the projected 25 percent loss to the endowment — shrinking the fund to $17 billion from nearly $23 billion — is poised to push Yale’s spending rate toward its upper limit of 6 percent in coming years anyway.
Gerber said a greater spending rate that benefits students is “what Senator Grassley likes to see.” But, she added, he would have also liked to see higher spending in the years when Yale’s endowment was skyrocketing, not just now.