University endowments are safe from government control - for now, at least.

Legislation mandating a minimum 5 percent spending rate on university endowments will not appear before the Senate Finance Committee this year, and Penn officials are breathing a sigh of relief.

"I think it is potentially very harmful," Penn President Amy Gutmann said of the legislation. "I don't think that Washington has the knowledge or the flexibility to determine payouts on the basis of what's in the best interests of our students or our faculty or our donors."

The potential endowment legislation was part of a larger debate about a higher-education tax-credit bill. Senators could not come to an agreement on the bill for reasons unrelated to the endowment legislation, so Congress tabled the discussion for the current session.

"I don't expect this issue to pop up this year, but I wouldn't be at all surprised if someone were to offer some legislation or something on university endowments next year," said Bill Andresen, the head of Penn's office in Washington.

Part of Andresen's job is to explain to congressional staff members how university endowments work, and during the bill's discussion he argued that federal regulation on endowment spending would be harmful.

"It's not like Penn has a bank account with 6 billion that it can write checks on whatever it feels like," he said. "Most endowments are heavily encumbered and restricted. Hill staff doesn't fully understand that."

Spending requirements ensure that while Penn's endowment currently stands at $6.6 billion, the University cannot spend the money however it wants to.

"Endowment gifts are restricted and must support the donors' intent," Chief Investment Officer Kristin Gilbertson wrote in an e-mail. "There are thousands of individual endowments which have been rolled up into" the collective University endowment.

Some of these endowments support financial aid, some support chairmen of departments or professors, and some are geared toward specific schools and centers.

Contrary to the thoughts of some on Capitol Hill, "increasing the spending rate would not translate into a dollar-for-dollar increase in financial aid," Gilbertson wrote.

Starting in fiscal year 2007, Penn adopted a new spending rule for its endowment payouts - a formula based on past spending and endowment levels that hovers around 4.7 percent.

The amount that can safely be spent each year is the projected return on the endowment minus inflation. Spending more than that would cause the endowment's value to drop, and future spending would decrease as well.

Andresen thinks the endowment discussion is at least partially spurred by politicians who want their constituents to think they're doing something to reduce college expenses, even if the legislation would do no such thing.

"A number of people have decided it's good politics," he said. "They really don't know if it's good policy or not."

Comments powered by Disqus

Please note All comments are eligible for publication in The Daily Pennsylvanian.