When word spread that Loyola would be facing a $9 million deficit next year, a question that arose on the “Pathways” blog and at the town hall meeting was, ‘Why not use the endowment?’
As of March 31, Loyola’s endowment was valued at $327.5 million, according to Rhonda Cartwright, vice president for finance and administration. So why is Loyola saying the budget shortfall will be several million dollars and cutting programs if there’s such a large endowment?
In a recent email, the Rev. Kevin Wildes, S.J., university president, wrote: “The Board (of Trustees) has a fiduciary responsibility to preserve endowment assets, which are intended to strengthen the long-term viability of the university. Reducing the endowment now would weaken the university’s capacity to borrow in the financial markets, as it will undoubtedly have to do.
“The Board’s policy is that the endowment is to be used to preserve the long-term health of the University and not to shore-up gaps in the operating budget that the university has to deal with in the aftermath of Hurricane Katrina. … Deficits in the operational budget need to be resolved in other ways (e.g., lowering costs, increasing enrollment).”
For the powers that be, Loyola has a lot of money, so there’s even more incentive to use it wisely.
Contributions and the sale of WWL-AM and TV in the late 80s and early 90s fund the endowment. Nine investment managers manage the money in the endowment, Cartwright said, “to achieve the proper allocation among domestic equities, international equities, fixed income and cash.”
Suffice to say, the endowment isn’t a checking account at Whitney Bank.
Part of the endowment – $75 million – is the restricted fund, consisting of donations that have specified uses, Cartwright said. The restricted fund pays for endowed scholarships, professorships and chairperson positions, the Gillis Long Poverty Law Center and departmental endowments. The unrestricted fund is valued at $252.5 million, according to Cartwright, and does not have any restrictions.
In a statement to the University Senate, Wildes said, “While much of our unrestricted endowment came from the sale of WWL, the sale came from the hard work and vision of trustees who had a long-term vision about what the university might be. This is the moment to use the endowment to realize that future and not merely shore-up the past.”
The Board has approved an annual drawdown, or withdrawal, from the unrestricted fund of between five and six percent to help fund the operating budget. In 2004-05, Loyola’s drawdown was just more than $11.5 million. The operating budget for 2005-06 was budgeted at $124.2 million.
The projected deficit of $15 to $16 million for this year includes the budgeted 5 percent draw from the endowment, totaling $11,355,000.
“In other words if there were no draw from the endowment, the deficit would be even larger,” Cartwright said.
But still, why can’t Loyola, with the fifth-largest endowment of all Jesuit universities, spare the money from the unrestricted fund to shore up losses?
Administrators are saying to think of it this way: You, as a student, have a credit card bill of $400 dollars, $200 in cash and $400 in a savings account with a 10 percent interest rate. You can easily spend your $400 in savings, be debt-free and still have the $200 in cash left over. But that $200 has to support you from that point, and you’ll likely wind up using your credit card again shortly thereafter, incurring more debt. Had you used some of your cash and part of your savings, the interest rate could, hypothetically, repay the money you used to start paying off your debt, and you’d still have money left over. Granted, you’d have to give up something to keep you financially sound, but your debt would be in control, and you’d still have money.
While the above example is greatly simplified, that’s the situation Loyola administrators say they are facing.
