When members of the University Foundation needed to find$7.5 million to construct the Alumni Center, they could only accrue about $5.6million in direct contributions.
So, they tapped into an alternative cash source.
Millions of dollars in endowments had been given over theyears to the Foundation for student scholarships. That money, when invested,had yielded millions more in accessible cash.
In the end, about $1.9 million - coming from gifts thatdonors had given for no specific purpose and money earned on endowmentinvestments - was permanently sealed away inside the Alumni Center.
Similar transactions, which draw money away fromscholarships to other purposes, have gone on since the Foundation's inceptionmore than 50 years ago.
Thomas Kinghorn, the vicepresident of business affairs and a member of the Foundation's Board ofDirectors, calls such transactions "institution building."
But in a recent report, two economics professors calledthem "difficult" and "extremely costly."
Whenever a person gives an endowment, a common way toestablish a scholarship, that money is invested. Often, these investments occurunder the "Stable Value Endowment Policy."
In the Above and BeyondCampaign, Ball State's most recent fund-raising effort, most of the endowmentsfell under this policy.
Under the "Stable Value" policy, some of the earnings oninvestments are-รกreturned to the endowment, but only enough to keep the initialdonation at the same amount. This allows the Foundation members to maintain thesame level of scholarship money throughout the years.
The rest of the earnings, however, are parlayed in theFoundation's general budget, where the board of directors can use it to fuelwhatever programs they prefer.
If someone, for example, were to give $25,000 - theminimum needed for a scholarship endowment - the Foundation would invest thatmoney, and pay a certain percentage of it in the form of a scholarship (theUniversity currently allocates 3 percent of the principal for scholarshippurposes).
That $25,000, however, would not change, and the amountsiphoned for the scholarship would also remain the same, even if theinvestments are making a profit in the market.
Marilyn Flowers, the chairwoman of the economicsdepartment, and Gary Santoni, a professor ofeconomics, said the "Stable Value" policy denies to donors investment earningsthat should be returned to students via increased scholarships.
The professors' report, using hypothetical amounts,showed that if someone were to give an endowment of $10,000 in 1980 to
At a university that did not follow Ball State's policy,however, that initial $10,000 would yield almost $2,800 in scholarship money in2000, though some students would have less than the previous year during the20-year period because of a declining market.
The professors also say in their report that the policyeffectively creates a tax on endowments, because it is basically more expensiveto give for a specific cause than it is to give money without a cause.
The policy also does not account for inflation and alsopotentially discourages donors.
"I was surprised," Flowers said. "That was not my understandingof what an endowment would be."
The amounts, and the investment portfolio, arehypothetical, but no one will argue that, despite the occasional dip,investments on endowments have been profitable.
Kinghorn, however, said theinvestment policies of the Foundation reflect the wishes of the donors, whoultimately want to enhance the university.
"That's the way it works," Kinghornsaid. "I think everyone feels really good about the outcome. They're supportinga wide variety of priorities that help support students and faculty."
The "Stable Value" policy is not an illegal procedure,and David Bahlmann, the president and CEO of theFoundation, said a plethora of other programs, from merit scholarships to thedistinguished professor program, would not have started without the policy.
Also, donors can choose to put their earnings back intheir endowments.
"We don't want anyone to feel that anything we've doneover the years was inappropriate or illegal," Bahlmannsaid.
Several donors, including
Sam Smith, a sports columnist for the Chicago Tribune,said he assumed his endowment would be used to support other programs.
"My view is that they want to do as much as they can,"Smith said. "That's my hope.
"(But) I would be hopeful that the money I endowed wouldbe going to student scholarships."
Since 1989, the Foundation has spent about $65 million inunrestricted funds, which are comprised of both endowment earnings and monetarygifts given for no specific cause.
Of the $65 million, about $14.3 million, or 22 percent,consisted of money that had come from investing donors' endowments - includingscholarships.
Though 22 percent came from endowments, however, scholarshipsreceived only 11 percent, or $17.5 million, back - the fourth highest allotmentof the unrestricted funds since 1989.
Faculty endowments were given about $1,300,000 - or 2percent - of the pie.
Fund raising absorbed the largest chunk of unrestricted funding- 28 percent.
Management received 16 percent of the unrestricted funds,and major capital projects (including the
About 10 percent of the unrestricted funds were given tocapital projects on a temporary basis, Bahlmann said.
With temporary allotments, the CEO effectively borrowsfrom its unrestricted funds to help finish a project. Eventually,
Such allotments were given to help pay for the
That money will ultimately be paid back,
In 2001, Santoni and Flowersgave a finished copy of their report to Kinghorn andother members of the Foundation's board of directors. They hoped to sparkuniversity-wide discussion, they said.
The Foundation created a task force, led by
The policy, however, remained basically the same.
"Discussion was very brisk," Santonisaid. "There weren't any real questions raised at all.
"In our view, this is a very, very small step in theright direction."
While reviewing the paper, the only opinions the taskforce solicited outside their own ranks were those of Santoniand Flowers, but Kinghorn said members of the taskforce, including himself, served on other foundations.
Yet, Kinghorn said a majorityof the other foundations he serves on does not follow
"I don't know that I would call it unique, but it isdifferent than what other universities have," he said.
Read More
Three Air Jam teams take home the win
October 12, 2012Nineteen teams shimmied, shook and flipped for a sold out John R. Emens Auditorium on Thursday night during the 25th annual Air Jam.
Bill Clinton Speaks at North Central High School
October 12, 2012Former President's Speech Could Have Effect on State Senate Race
