Growth in spending from
endowment should be placed
into larger fiscal perspective
The $4 billion value of Emory's endowment usually inspires awe because
it appears that the University has the wherewithal to fund its every desire.
But there are limits on endowment spending and much of the spending is committed
to programs already underway. "We need to turn a psychological corner
[and stop believing] that our wonderful endowment needs only to be augmented
for Emory itself to become even better," President Bill Chace told
the Faculty Council last month, referring to the very real limitations of
its impact on Emory's finances.
Unlike an individual, Emory is not saving for retirement, so the endowment
is invested to provide income in perpetuity. Annual income from the endowment
is set at a spending rate of four percent of a three-year rolling average
of its market value and another .75 percent is used for Emory's capital
matching program for new facilties. For example, Emory's spending rate in
1997 (last fiscal year) resulted in $102 million of endowment income; this
amount was calculated based on 4.75 percent of a three-year moving average
ending in August 1995.
Like most universities, Emory uses a moving average of the market value
of the endowment to minimize annual fluctuations in income and to provide
income for spending that will meet, at a minimum, inflationary increases
in costs. The spending rate also protects the endowment's value against
inflation so that it can be invested for long-term growth.
Growth in endowment spending for the current fiscal year stands at 33.82
percent, and the distribution from the endowment in fiscal year 1999 will
increase 21.35 percent. The increases come after four years of single-digit
increases in endowment spending following the lower growth years of the
endowment in the early 1990s.
"The value of our endowment has just grown substantically in the
last three years, which is the reason for the corresponding large increases
in our endowment spending in 1998 and 1999," said Edie Murphree, associate
vice president of administration. The spending increases are a result of
the rising market values shown in the chart on page 4. "We need to
remember, however, that much of the endowment income is restricted to certain
schools or designated for certain purposes."
For fiscal year ending Aug. 31, 1997, approximately $45 million, or 44
percent, of the $102 million of income distributed (including Woodruff Endowment
income) was credited to the basic educational and general budget. Of this
amount, $28 million was restricted to the schools and the remainder, $17
million, was used for school subsidies. The remaining income is used for
Woodruff initiatives, capital matching for construction, debt service, restricted
funding for scholarships, fellowships and professorships and other programs.
The chart at left indicates how Emory's endowment funds were used in fiscal
"The growth in the value of the endowment helps fund current operating
costs, programs and intitiatives in all areas of the University," said
Murphree. "For example, in the past two years, we have been able to
increase or initiate funding for teaching initiatives, university research,
Woodruff professors and scholars, utility infrastructure and landscaping
and capital matching funds for new building and renovation projects. In
addition, the large increases from restricted endowment funds also assist
schools in increasing scholarship and fellowship support for students.
"When you take the long-run view, the past 15 years have been a
confidence building scenario for us," said Chancellor Billy Frye, who
has included a chapter about Emory's fiscal resources in his upcoming "Vision
for Emory" report. "We are still in a developmental phase as a
research university," he added. "We're still short on space and
are setting aside a huge sum of money for the physical facilities fund that
will be used to build new facilities as matching gifts are raised."
He also noted that not all of the increase in the value of the endowment
is fully invested, as the spending rate is based on previous years' values.
"I often think we put too much emphasis on the endowment in measuring
where we are. When you look at annual cash flow of our endowment peers,
say Harvard, Princeton or Yale, we're just not running academic programs
of their size or magnitude because we're still creating the infrastructure
Total Endowment Income Fiscal Year 1996-97
Distribution (in thousands)
Allocation to Basic Education & General Budget
School Restricted (scholarships, fellowships & professorships)
Emily and Ernest Woodruff Endowment
Allocated to E&GB
Woodruff and Visiting Professors
Facilities, Utility Infrastructure, Landscaping
Other Program Development Funds
Physical Facilities Endowment/Set-aside for Debt Service
Capital Matching Program for Construction and Renovation
Other: Museum, Library, Carter Center, Health Sciences,Yerkes, Hospitals,
Total Endowment Spending Distributed in '96-'97
to March 23, 1998 Contents Page