Financial Context
Endowment Spending
Declines in endowment value, such as those the University currently is experiencing, do not automatically reduce the endowment’s contribution to next year’s operating budget. Our policy is to increase that contribution by 5% each year, as long as the amount falls between 4.0% and 5.75% of the value of the endowment, as determined on June 30 of the prior fiscal year. When our rate falls below that range we make upward adjustments in spending and when it rises above that range, we must make downward adjustments. On five occasions in the past 11 years we have made special upward adjustments, and in the 2009 fiscal year our spending rate was comfortably within the range at 4.76%.
Anticipating the decline in the value of our endowment, we are reducing its contribution to the University’s general funds operating budget by 8 percent each in 2010 and 2011. The 23.7 percent decline in the value of our endowment during 2008-09 has put our spending rate above the upper limit of our range at 6.04 percent for 2010 even if we achieve our budget plan of decreasing costs by $170 million. A return to the middle of the band will require some combination of two factors: more positive investment returns than we have projected and/or an annual increase in endowment spending beyond FY11 that is lower than the 5 percent annual increases that are anticipated under our established policy.