Posted on April 24, 2009

As Recession Deepens, Universities Look to Restricted Gifts

As colleges and universities struggle to fund their core operations during the worst recession in decades, many are eyeing a rich pool of restricted gifts as a source of funds, the Wall Street Journal reports.

According to American Council on Education president Molly Corbett Broad, more schools are expected in the coming months to ask donors of restricted gifts to free up cash for urgent needs like financial aid. Indeed, many schools already have, resulting in some instances in public outrage and heated court battles. Recently, for instance, Brandeis University was stung by criticism after it announced it would close its Rose Art Museum and sell the museum's 7,000-piece collection — a decision it later rescinded — to pay faculty salaries and other expenses. Meanwhile, Trinity College in Hartford, Connecticut, is facing government scrutiny of its plan to use part of a $9 million endowment from the late Shelby Cullom Davis, a Wall Street investor, to fund scholarships for international students, in potential violation of Davis's wishes.

Donors have noticed, and a growing number of them have indicated that they plan to enforce the terms of their gifts, aided in part by laws passed in many states allowing them to do just that. Some experts, including Connecticut attorney general Richard Blumenthal, who has been involved in the Trinity College case, have cautioned that increased need is no excuse for colleges to ignore donor intent. Still, some schools see the tapping of restricted gifts as a last but necessary option for making it through the current economic crisis.

"Schools are scrambling to find assets they can turn into cash," said Frederic Fransen, an Indiana adviser to big donors who helps them structure gift terms to maximize control. "If you've given something that the university doesn't believe is part of its core mission, those are the first things to go."