Posted on December 30, 2009

2009: Shrunken Endowments, Infusion of Federal Funds Dominate Education Agenda

After years in which tuition costs and fees rose almost as sharply as market returns, colleges and universities in 2009 found themselves scrambling to address the effects of state budget cuts and shrinking endowment values, with many university endowments falling 25 percent or more from their pre-panic peak in 2008.

Meanwhile, as the economy continued to worsen in the first quarter, the Obama administration moved to turn the crisis into an opportunity, earmarking more than $100 billion in American Recovery and Reinvestment Act (ARRA) funds to stabilize state education budgets, jumpstart education reform efforts around the country, and pursue partnerships with a range of philanthropic and business entities.

The year opened with endowed institutions reeling from the steep drop in equity markets. Combined with lower gift revenue, the resulting squeeze on university finances forced many schools to borrow at higher rates and look to donors of restricted gifts to relax the conditions on those gifts in order to help fund core operations and needs, including scholarships.

But while the markets began to recover in March, pushing the value of endowments higher throughout the summer and fall, the outlook for major gifts remained uncertain. In July, the Council for Advancement and Support of Education's Fundraising Index survey found that gifts to schools, colleges, and universities in 2008-09 had fallen an average of 3.9 percent and projected only modest growth in 2009-10. Indeed, by year's end, several schools had announced they were reevaluating the decision to offer "no-loan" grant aid to students from middle-income families, even as tuition and fees on campus continued to outpace the rate of inflation.

High and rising costs notwithstanding, expanding access to higher education was seen as essential to the economic success of both individuals and the nation as a whole. To that end, the Lumina Foundation for Education and the Bill & Melinda Gates Foundation announced millions of dollars in awards in the fall to support efforts to raise graduation rates, including a joint two-year, $1 million grant to advance development of an accountability system designed to help community colleges improve their programs and graduate more students on time and at lower cost.

The goal of expanding access to higher education depends on having high school graduates who are prepared for college, and how to achieve that was the subject of debate from the moment the Obama administration, early in the year, challenged educators and legislators to fix "an education system that used to be...the best in the world, and no longer is." Accordingly, some $5 billion of the approximately $100 billion earmarked for education in ARRA was designated for states and school districts willing to embrace the administration's ideas for improving the nation's schools.

A cornerstone of that effort, the Race to the Top Fund, required states to meet a series of conditions in order to boost their chances of receiving additional Department of Education funding. In addition, a $650 million Investing in Innovation (i3) Fund was announced in October to support local efforts to start or expand innovative research-based programs with the potential to close the achievement gap and improve outcomes for all students. "We're making an unprecedented investment in cutting-edge ideas that will produce the next generation of school reforms," said Secretary of Education Arne Duncan, a former chief executive of the Chicago Public Schools, in announcing the fund. "The i3 competition will provide seed money for fresh ideas, help grow promising programs with a good track record, and scale up programs with proven results to a national level."

With the reform debate in Washington increasingly focused on innovative data-driven models, the Gates Foundation ramped up its efforts in the education area with a push for teacher effectiveness. In June, a report funded by the Gates, Robertson, and Joyce foundations found that the evaluation systems of most U.S. school districts fail to reward effective teachers or lead to the dismissal of ineffective ones. Subsequently, Gates awarded a total of $290 million to support new methods for recruiting, evaluating, and rewarding teachers at pilot school districts in Florida, Pennsylvania and Tennessee as well as $45 million to the Measures of Effective Teaching project to develop and test an array of reliable indicators.

Given that its focus on teacher effectiveness and accountability dovetailed with the administration's priorities, the Gates Foundation also offered grants to help states apply for the Race to the Top funds for public education reform. But support for linking teacher pay to student test scores proved controversial for both the foundation and the administration, especially among teachers' unions. Others worried that the partnership with the federal government could compromise the foundation's independence. Still, interest in public-private partnerships in the area of education was almost certain to grow as additional stimulus funding made its way through the pipeline in 2010.

Related News:

U.S. Schools Failing to Assess Teacher Effectiveness, Report Finds (6/04/09)

White House Pledges $5 Billion to Encourage Innovations in Education (7/28/09)

Fund to Provide $650 Million in Stimulus Money to Innovative Education Programs (8/25/09)

Community Colleges to Create New Accountability System (10/08/09)

Gates Foundation Awards $335 Million to Improve Student Achievement (11/20/09)

Lumina Foundation Awards $9 Million to Improve Graduation Rates in Seven States (11/27/09)