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March 17, 2009 - Image 7

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The Michigan Daily - michigandaily.com

Tuesday, March 17, 2009 - 7

The Michigan Daily - michigandailycom Tuesday, March 17, 2009 - 7

ENDOWMENT
From Page 1
In the letter, Baucus and Grass-
ley asked how tax policies, which
exempt endowment funds and
donations to the endowment from
being taxed, have affected the man-
agement and the use of endowment
revenue.
Unlike universities and public
foundations, most private founda-
tions are required to pay out a min-
imum of 5 percent of their assets
each year toward their charitable
missions. At the time the Senate
Finance Committee sent out its
letter, there was much talk about
instituting a similar rule for uni-
versities and public foundations
to make them spend more of their
endowment each year.
THE UNIVERSITY'S
DEFENSE OF CURRENT
SPENDING LEVELS
In response to the Senate
Finance Committee letter, Uni-
versity President Mary Sue Cole-
man sent a 21-page response to the
Finance Committee in February
2008. In the University's response,
which was submitted by University
President Mary Sue Coleman, she
addressed 11 key points of concern
voiced by Baucus and Grassley.
The response said the Univer-
sity's endowment had grown 382
percent over the past 10 years as
of June 30. At the beginning of
1998, the endowment was valued
at $199 billion, but by the end of
the 2008 fiscal year, the endow-
ment had grown to approximately
$7.6 billion. As of December 31, the
endowment had lost 14.4 percent
of its 2008 value, dropping to $6.5
billion.
On the one hand, the University's
response also said total financial
aid awards from the University's
endowment had more than dou-
bled over roughly the same time
period. In the 1998 - 1999 academic
year, the University contributed
approximately $19.7 million to stu-
dent financial aid through grants
and scholarships. By the 2007-
2008 academic year, that figure had
increased to about $52.2 million.
Studenttuitionrates,onthe other
hand, increased during that same
time period as well from $6,098
per term in the 1998-1999 academic
year to $10,447 in the 2007-2008
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ings, Harvard University, Yale
University and Dartmouth Col-
lege announced plans to increase
the amount of endowment money
spent on student financial aid. The
University did not make a similar
announcement.
In a January 2009 interview,
Coleman said at the time she felt
the University was already doing a
good job with supporting students'
financial constraints with endow-

Finance Committee, the University
aims to meet 100 percent of dem-
onstrated financial need for Michi-
gan residents as determined by an
internal formula.
Coleman said in the January
2009 interview that although she
understood what Baucus and Grass-
ley were suggesting, she did not
agree that it was appropriate for the
government to place payout restric-
tions on colleges and universities.

students of tomorrow suffer. I
couldn't do that."
A CONSERVATIVE PAYOUT
Since University leaders don't
think it's appropriate for govern-
ment officials to interfere in deter-
mining the annual payout of the
endowment, the question then
becomes how exactlythe amount of
that payout is decided.
University Chief Investment
Officer Erik Lundberg said the
University uses a seven-year
rolling average to help protect
endowed funds, including those
endowed for scholarships, from
temporary swings of the market.
"We want to insulate the oper-
ations of the University -from
the volatility in the market," he
said, "and the way we do that is
through the averaging process."
Lundberg explained that by
taking the past 28 quarters of
endowment performance bal-
ances, which accounts for the
past seven years, and updating
them each quarter by replacing
the oldest quarter with the new-
est, the University is able to aver-
age its funds over. a long period
of time to stabilize market per-
formance that would otherwise
be unstable.
"By taking the value of the
endowment at multiple peri-
ods of time rather than at just
one, we get a much more stable
value," he said.
Lundberg said payouts from
the endowment are treated the
same for all endowed funds, and
that a formula determines the
annual payout. The payout is 5
Percent annualized over market
average, Lundberg said. This
means that 1.25 percent of earn-
ings on investments as calculat-
ed by the seven-year average are
dispersed from the endowment
each fiscal quarter. By doing this,
the four quarters of payouts will
result in a 5 percent annualized
payout.
INCREASING THE
ENDOWMENT, INCREASING
THE PAYOUT
Despite the recent volatil-
ity in the markets, the University's
recently finished fundraising cam-
paign - the Michigan Difference
- raised an unprecedented $3.2
billion from the time the campaign
went public in 2004.
Through the campaign, approxi-
mately $545 million were raised for
newly endowed scholarship funds.
As of the 2008 fiscal year, the new
funds have generated $10 million in
student support.
"Duringthe Michigan Difference

campaign, donors created 2,045
newendowedfunds for financialaid
in addition to providing expendable
funds for scholarships," University
spokeswoman Kelly Cunningham
wrote in an e-mail.
Despite the University's success-
ful Michigan Difference campaign,
Coleman said in the January 2009
interview that the University will
likely start another capital cam-
paign in the near future.
"(This) doesn't mean we stop
fundraising," she said. "There'll be
another campaign in a few years."
Coleman said private fundrais-
ing efforts are essential to the Uni-
versity's success and contribute to a
successful, growing endowment.
"We'll start another capital
campaign because getting that
philanthropic support is critical to
keeping the University at the high
level that it is," she said.
Coleman said that although the
University places a large emphasis
on fund development for student
support, it is often the donors who
ultimately decide for what their
donations should be used.
"Now a lot of (our fund develop-
ment) isdependent on what donors
want," she said. "Fortunately, in the
capital campaign that we just fin-
ished, we had put a huge emphasis
on financial aid."
Of the Michigan Difference cam-
paign's final fundraising total, Cole-
man said the University "got way
over our targets on the money we
had wanted to raise f'or financial
aid."
NEW DONATIONS CAN
CREATE NEW RESTRICTIONS
When a donor gives money to the
University, that person often has an
intended use in mind for that dona-
tion.
A donor interested in giving a
large gift to the University must
first enter into a gift agreement
with the University, said Gordon
Beeman, a University assistant gen-
eral counsel.
"The purpose of the gift agree-
ment is to document the purpose,
restriction and intended use of the
donor's gift .. so that there is no
confusion or ambiguity at a later
time," he said.
Beeman said the gift agreement
also outlines that the donor's gift
will be subject to the University's
bylaws and policies and establishes
a payment schedule for the gift. Pay-
ment schedules are used to outline
how much donors will give over
what period of time, if they choose
not to donate the gift all at once.
More importantly, Beeman said
donors typically have a specific
purpose in mind for their gift.
"Certainly with larger gifts, the

donors typically have a specific
purpose in mind," he said. "Obvi-
ously so long as it's furthering the
University's mission, we're delight-
ed to document and apply the gift
funds in that way."
Outlining the purpose of the
gift can be more involved than it
sounds, as it is sometimes the case
that a gift may need secondary
specifications, if the primary need
cannot be met.
Beeman used a scholarship
fund at the School of Education to
explain why a secondary purpose
may be needed.
"The real purpose (of the gift)
was to benefit students from her
particular county, which is located
in central Illinois," he said, point-
ing out that it is very likely that at
any given year a student from that
county may not be enrolled in the
School of Education.
There is a tiered policy so stu-
dents from Illinois get the next pri-
ority, he said. Then, if no one from
Illinois qualifies for the scholarship,
then the studentbody at large in the
School of Education is eligible for
the scholarship, he said.
Additionally, a donor could also
specify a gift for cancer research,
but may put a secondary purpose in
the gift agreement in case a cure for
cancer is found, so that the money
does not go to waste, Beeman said.
Although donors can specify
some purposes or restrictions on
their gift, there are certain things
the University is not legally allowed
to distinguish, Beeman said.
"The University of course is sub-
ject to both federal and state law,"
he said. "As such we cannot dis-
criminate based on race or gender,
and we don't."
However, Beeman mentioned
a certain concept - the matching
pool concept - that does allow a
donor to specify some criteria indi-
rectly. Beeman used the example of
a donor wanting to benefit a certain
gender to illustrate the concept.
"It's possible for the Univer-
sity to go through its financial
aid process, determine the recipi-
ents - which of course would be
in my example would be male and
female - and then from that pool
match the donor's gift to someone
who is the gender the donor spec-
ified," he said. "So in that sense,
we can accommodate a donor
request."
Beeman said it would also be
possible for a donor who wanted to
benefit underprivileged students to
specify a preference for students
from an inner city for a scholar-
ship.
"In that way we're not selecting
based on an impermissible class
and yet we may capture what the
donor truly has in mind," he said.

Fiscal yez
soucE: E IVERSITY OF MICHIGAN RESPONSE TO
UNITEDSTATESSENATE COMMITTEEtONFINANCE

ment support.
"We always felt like we were
pretty exemplary when it came to
both the payout that we did and
the amount of money we had com-
mitted to financial aid," she said. "I
understand the Grassley criticism,
but I think the University of Michi-
gan was already in a position where
we were doing extremely well."
According to the University's
response last year to the Senate

She explained that if the University
were to provide a larger amount of
financial aid to current students,
then students in the future would
likely suffer.
"What we objected to is the
notion that some government-run
agency should dictate what we do,"
she said. "We've got to plan forever,
and I didn't agree that it was appro-
priate to somehow spend down our
endowment for the today to make

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DEBATE
FUNDRAISE FOR THE U! $9.25- From Page 1.
+/Hr. at Michigan Telefund. On cam-
pus, flexible hrs. Students, apply @ Baydoun agreed that tuition is
telefund.umich.edu or 763.4400. too high, but he said that in light of
PARTICIPANTS FOR A psychology the current economy, the Universi-
experiment on simple perceptual judg- ty should freeze tuition to ensure as
ments at U of M. One 2-hour 15 min. many students as possible are able
session, pays $25. To qualify, must be to have the "Michigan experience".
18+, a native English speaker, and have
vision correctable to 20/20. IRB #: "in the short-term, this is what
HUM00020435. Email Natasha at we have to do in the troubled econ-
nkalaida@med.umich.edu omy; we have to take on tuition," he
said. "And we should not be scared
tial, Age 18+ ok. No exp. necessary, about a repercussion that we don't
training provided. 800-965-6520 x 125. know."
Stenvig echoed each of the
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knowledge required. Stonebridge Golf She said that students should take
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increase financial aid and to freeze
SEASONAL GROUNDS CREW tuition.
workers needed for Stonebridge Golf .
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323-8790. now for a tuition freeze," she said.
"How do we get that? We don't get
-m - 0y that just by having wide support for
it; we get it by organizing students'
power."
The vice presidential candidates
from each party began the evening:
WORK ON MACKINAC Island this Defend Affirmative Action Party's
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www.theislandhouse.com vice presidential candidates debut-

ed for about half an hour.
Because not all representative
candidates were able to debate,
packetswere distributedtotheaudi-
ence outlining the platforms of each
representative running for MSA.
Among other questions, Page
asked the vice presidential candi-
dates whatdistinguishedeachparty
from the others, what their primary
goals as vice president would be if
elected and how strong they think
their party's slate of candidates is.
Rorro said MVP's emphasis on
quality rather than quantity when
choosing candidates. makes it
unique from other parties. He also
said the party's commitment to.
making MSA more transparent and
accountable makes it different.
"I think that our party is distin-
guished specifically because of the
goals we set out to accomplish from
the beginning," he said. "The way
we're approaching student govern-
ment is different from the way any-
one hasin the past."
DAAP's Owagbemi said she
would want to make herself and her
party more available to students
than other parties.
"I see myself being an aid for stu-
dents," she said. "I want students to
actually be able to come to me and
to know that I'm listening and that
our party is actually listening to
everything they are saying."

Caplan said the diversity of
reMichigan's candidates makes its
slate especially strong.
"Every (reMichigan candidate)
that I have spent time with on this
campaign, which is all of them,
have truly impressed me," he said.
"They come from all parts of this
campus; they are the most diverse
group of people I've ever done any-
thing with."
After the event, Election Direc-
tor Emily Winter, an LSA junior,
said she thought the debate went
well.
"I think the candidates did a
really great job. They answered the
questions. They touched on a lot of
issues, a very broad range of top-
ics," she said. "And I think they did
a good job of answering the ques-
tions fully and giving their honest
opinions."
MSA Vice President Arvind
Sohoni said he thought the debate
was positive for MSA, but that he
wished more students not involved
in student government had attend-
ed. He also said the debate was not
as heated as he expected.
"I wish we had more students at
large; you know, naturally you have
a lot of candidates show up,"he said.
"And it's great; everyone did pretty
well. I expected some fireworks,
but we didn't really get a whole lot
of those."

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