Penn's endowment may have shrunk over the past fiscal year, but a spending rule and an upward trend in donations to the endowment mean the University won't be feeling a squeeze yet.
The University takes certain steps in the way they plan endowment spending to ensure that year-to-year fluctuation in endowment returns - like this year's 3.9 percent drop to $6.3 billion - does not have an immediate or large effect on the operating budget.
The future budget is based on a formula that takes into account past market value of the endowment, the current income and changes due to inflation.
Because "there tends to be a fairly stable growth rate" for the endowment over time, using a spending rule ensures that one-year gains or losses don't affect the University's operating budget, Penn Treasurer Stephen Golding said.
The buffer between the budget and endowment performance provided by the spending rule allows the University to better plan budgets in advance.
"The spending rule . tends to be a less volatile [measure] than the year-to-year [performance] because we use a broader basis to determine that," Golding added.
For instance, next year's budget is already in the planning stages and will be approved in June, before the endowment's performance for the next fiscal year is determined.
"The performance of [this] fiscal year . won't affect our operating budget until fiscal [year] 2010," said Bonnie Gibson, Penn's vice president for budget and management analysis.
Even then, she added, the University will see an increase in spendable income, just not as much as previously anticipated.
Beyond the use of the smoothing rule, Penn puts less of its endowment toward the operating budget than most peer institutions, said Craig Carnaroli, Penn's executive vice president.
"If I took the Ivies plus peers' [averages], you'd see they get about 18 percent of their operating budgets covered from endowment," he said.
By comparison, Penn only draws about 9 percent of its operating budget from the endowment.
While this makes Penn more tuition-dependent than its peers, it also means that in tougher times, its budget is less affected by poor endowment growth, Gibson said.
Increases in gifts and donations to the endowment also helped offset losses this year.
Penn received a record $200 million in gifts toward the endowment this year. And while this amount is included in the net $300 million loss the endowment experienced, giving has been an upward trend since President Amy Gutmann arrived in 2004, Carnaroli said.
And the endowment's performance is unlikely to affect future giving, Vice President for Alumni Relations John Zeller added.
"It's much more of an overall market issue. . So many things are uncertain in terms of the economy," he said.
Last year, Penn also set a new record for participation in giving, and Zeller hopes that number will continue to grow, even if the dollar amounts are affected by the economy.
In the upcoming year, "people may not be able to contribute as much," he said.
"The interest and engagement in support of Penn is at an all-time high. It's just reconciling that with" the economic situation, he said.
