Congress Seeks Information on College Endowment
Issue   |   Wed, 03/09/2016 - 00:32

Congress sent Amherst a letter on Feb. 8 regarding the management and spending of the college’s endowment. Amherst is one of 56 colleges and universities that have been requested to provide supplementary information on their endowments. Congress sent the letter to institutions with endowments valued at over $1 billion by the National Association of College and University Business Officers. The college’s endowment is $2.2 billion, according to the most recent financial report.

Chairman of the Senate Committee on Finance Orrin Hatch (R-Utah), chairman of the House Ways and Means Committee Kevin Brady (R-Texas) and chairman of the House Committee on Ways and Means Oversight Subcommittee Peter Roskam (R-Ill.) were in charge of writing the letter. Each of those committees deals with federal tax policy.

“It’s probably no coincidence that we’ve received, in 2016, the same sort of letter we received back in 2008,” said Kevin Weinman, the college’s chief financial officer. “Endowments have grown, and colleges enjoy tax-exempt status. We’re a mission-based, not-for-profit organization, so our endowment money is not taxed once we’ve received them or spend them. It’s understandable that legislators would ask questions when endowments grow to a certain level.”

The college makes two sets of financial information publicly available: the IRS form 990, which is the tax return for organizations exempt from income tax, and the college’s annual financial report, which details revenues, expenditures and investments. The congressional letter requests information beyond the scope of those documents, including whether institutions grant naming rights to donors based on donation levels, and what policies they have in place to prevent conflicts of interest among people who work with the endowment.

This supplementary information will partially be used to examine tuition hikes in recent years. “Despite these large and growing endowments, many colleges and universities have raised tuition far in excess of inflation,” the letter states, and although IRS form 990 was revised in 2007 to request more information about oversight and management of non-profit organizations, it does not deal specifically with college endowment policies.

“There is a misperception about the relationship between comprehensive fee, or sticker price, with the amounts that we actually collect,” Weinman said. “Without a doubt, Amherst and other schools have increased tuition above inflation for some time. Yet the piece of the story that’s missed is that we increase financial aid even faster, so that the amount that we collect on a net basis is much more in line with inflation than is generally understood.”

The letter also addresses the issue of restrictions in its questions about endowment management. Restricted funds must be spent according to the directions of their donor. According to Weinman, Amherst is similar to other institutions in that much of its endowment is restricted loosely to general areas such as financial aid or “instruction.” If Congress passes laws requiring specific expenditures of endowments as a result of the ongoing inquiry, it is possible that those laws could come into conflict with existing donor restrictions.

Endowment management and spending are particularly relevant to the college because of its high reliance on its endowment. 51 percent of the budget is funded from the endowment, which puts Amherst in second place nationwide behind Princeton.

“We have a riskier financial profile than a lot of schools because we’re endowment-dependent, and we can’t control investment returns as much as we’d like,” Weinman said. “Given our endowment reliance, the care and prudence and with which we invest it, [and] with which we use it, is a uniquely important question to Amherst.”

The letter requests that colleges respond by April 1. Weinman said that his office plans to make the college’s response fully public after it is sent to Congress.