Colleges Feeling Market Decline

Colleges and universities nationwide, many already hurting from the slow economy, are feeling a further pinch as the volatile stock market shrinks the value of their investments and makes some donors skittish.

“People are nervous about their own futures right now, and some are backing off from making long-term commitments to major gifts,” said Nancy Strouse, senior director of development at California Lutheran University in Thousand Oaks.

College administrators in California and across the country say some donors, especially those whose wealth derives from hard-hit technology stocks, are seeking to delay gift payments, reducing the amount of major donations or opting to wait before making good on earlier pledges.

The Council for Advancement and Support of Education, which tracks such gifts, says it expects the fiscal year ended June 30 to show a drop in donations nationally for the first time since 1974.

At the same time, the value of many university endowments has plummeted, especially since early June. Though the figures in most cases are not yet complete, many college administrators are predicting declines in their institutions’ portfolio values of 8% to 10% for the fiscal year just ended.

“It’s gone quickly from where it was great, to look at the daily stock quotes, to where you just don’t want to look,” said Al Horvath, vice president for business and finance at Caltech. He said that the value of the Pasadena institution’s endowment has fallen from a high of $1.5 billion in early 2001 to about $1.2 billion now, but that the drop so far has not had any major effect on campus.

Colleges’ reliance on endowments for such day-to-day expenses as financial aid, faculty salaries and maintenance varies widely.

At some schools, endowment money makes up a third or more of the annual budget; at other schools, much less. But the accounts assume even greater significance, experts say, as a cushion in tough economic times.

For the most part, college administrators in California and elsewhere do not predict immediate cutbacks as a result of the stock plunge. But some worry that if the rebound is not sustained, they may have to consider such steps as dropping academic programs, freezing faculty salaries and deferring maintenance.

“We’re all kind of sweating it in the current environment, but we don’t expect any immediate impact,” said Jacqueline Doud, president of Mount St. Mary’s College in Los Angeles. The endowment for the small Catholic school fell about 8% in the year ending June 30, Doud said, dropping to about $40 million.

At a handful of schools, the pain is already evident.

At Wheaton College in Illinois, a fund-raising campaign that ended in June fell far short of its $13.5-million goal for a new student center, garnering just $7.7 million, officials said.

Administrators at the small Christian college near Chicago had expected little trouble raising the money after a larger campaign completed the previous year more than met its goals.

“People are not saying we don’t need a [new] student center,” said Mark Dillon, the college’s vice president for advancement, explaining that the project will be delayed for at least a year. “It’s just coming a little slower than we would like.”

The unsettled market and plunging tech stocks also forced a delay in a major payment on a $250-million gift to the University of Colorado. At the time the gift was announced in January 2001, it was the largest ever to a public university.

But last week, university officials said Internet entrepreneur William T. Coleman III and his wife, Claudia, had deferred--until 2006--a $40-million payment that was to have been made last November. A second major payment--$50 million due this November--also may be delayed.

The total amount of the gift, based on stock in Coleman’s company, San Jose-based BEA Systems, also may be reduced, said David Braddock, associate vice president for research at the university.

Braddock, who will head the cognitive disabilities institute that is the gift’s focus, said the Colemans already have given more than $15 million to launch the institute. “We know the Colemans are profoundly committed to following through if they can,” he said.

Two California universities that also received huge pledges last year from technology leaders--$600 million to Caltech from Intel founder Gordon Moore and his wife, and $400 million to Stanford from the William and Flora Hewlett Foundation--say there is no word of delays on those gifts.

In fiscal 2001, despite the markets’ decline, gifts to colleges and universities nationwide rose 4.3% to $24.2 billion, according to the Council for Advancement and Support of Education.

Vance Peterson, president of the Washington-based council, said he expects the final figures for the year ending June 30 to show a drop. “We’re hearing that a number of institutions have either delayed announcing campaigns or are hearing from donors who wish to renegotiate pledge payments,” he said.

There are notable exceptions to the downtrend.

Officials at USC and Claremont’s Pomona College said that their schools managed to set fund-raising records for the most recent year.

With the help of several multimillion-dollar gifts, USC took in $500 million in cash donations for the fiscal year just ended, compared with $300 million the year before, university officials said.

Pomona, with just 1,500 students, said it took in $48 million for the same period, including a gift of $23.3 million in June from the estate of the late oilman Frank R. Seaver.

But officials at other schools said their fund-raising fell short of expectations or dropped for the year.

“People are telling us they support the university, but this is just not the right time,” said Strouse of Cal Lutheran. “They’re asking us to give them time to see where they are.”

She said donations to the college’s annual fund--which attracts smaller, unrestricted gifts, mostly from alumni--were down about 10% for the year, although overall giving was up, the result of foundation gifts based on proposals written in earlier years.

Stanford University, whose fiscal year ends in August, also expects 2002 donations to fall short of the previous year’s $469 million, itself down from a record $581 million in 2000, officials said.

Stanford and other schools also are concerned by the recent plunge in the value of their investment portfolios.

After years of major gains, the average university endowment lost 3.6% on its investments in fiscal 2001, the first negative return since 1984, according to an annual survey by the National Assn. of College and University Business Officers.

For most schools, the recent losses were even worse, several experts said, although the fiscal 2002 figures are not yet final.

“We’re expecting high single-digit losses for the year just ended, if not into the double digits,” said John Griswold, senior vice president of the Commonfund, a Wilton, Conn.-based nonprofit organization that manages endowment assets for 1,600 colleges, private high schools and other nonprofit groups.

“A lot of schools will be trying to rein in their operating budgets, and that’s tough to do because a lot of their costs, like salaries, are pretty much baked in,” Griswold said.

As recently as June 1, Stanford officials were still expecting a positive year for their $7.5-billion endowment. A month later, the fund was down about 3%, said Michael McCaffery, president and chief executive of Stanford Management Co., which oversees the endowment.

Others experienced bad times earlier. The value of Boston University’s endowment dropped nearly 27% in fiscal 2001, to $674 million from $930 million a year earlier, officials said, and has fallen further since. The campus has enacted a partial hiring freeze and a tuition increase, but officials say those were not directly related to the investment losses.

College endowments also have suffered in Wall Street’s recent corporate accounting scandals.

The University of California, for example, lost $352.5 million from its pension and endowment funds this year in the collapse of WorldCom Inc., and lost an additional $145 million in Enron Corp. investments. The university is the lead plaintiff in a shareholder class-action lawsuit against the former energy giant.

UC officials said neither loss would affect the university’s ability to provide pension benefits to its employees. As of June 30, the nine-campus system managed $51.1 billion in its retirement and endowment portfolios.

To soften the effect of market losses, colleges typically average their endowments’ values over three years and spend a fixed percentage of that amount.

But after two years of diminishing endowments, many educational institutions--like stockholders everywhere--are watching the market with growing anxiety.

“I think we’re all anticipating some pretty bleak numbers for the next year,” said Larry Goldstein, senior fellow at the university business officers association. “It’s not over yet.”