Macalester in the clear after Senate endowment regulation defeated

By Tressa Versteeg

A mandate that would force Macalester to spend more of its endowment was defeated in Congress earlier this month. The House of Representatives proposed an amendment during the reauthorization of the Higher Education Act that would require the 136 schools with the largest endowments in the nation, all topping $500 million, to spend five percent of their endowment each year. Despite the rejection of the amendment, the Senate Finance Committee, led by Senators Max Baucus and Chuck Grassley, is still on a mission to collect data about how much money colleges have, how much they spend and how they spend it.

“Tuition has gone up, college presidents’ salaries have gone up and endowments continue to go up and up,” Grassley wrote in a press release. “We need to start seeing tuition relief for families go up just as fast. It’s fair to ask whether a college kid should have to wash dishes in the dining hall to pay his tuition when his college has a billion dollars in the bank.”

One of the major reasons the amendment was defeated was the backlash from major lobbying organizations for higher education.

“There was a lot of negative feedback and it generated a lot of concern from the colleges because it would have severely damaged any college’s ability to manage the ups and downs of its endowment,” President Brian Rosenberg said.

Rosenberg was out of town the week the House announced the proposed ammendment, and said he “didn’t have the opportunity” to voice his own concern on the matter.

While Rosenberg did not have a firm number of how much additional money the ammendment would have caused Macalester to spend each year, he approximated that the college would have had to part with at least “several more million than we would have been spending.”

On Jan. 24, Baucus and Grassley sent notices to the top 136 endowed schools instructing them to collect data about how their endowments are spent. Chief Investment Officer Craig Aase ’70 had the task of filling out the Senate’s “fact-finding” paperwork, which was to have been completed in 30 days’ time.

“Government mandating spending is unwise… In the end I hope that Congress better understand why we spend as we do and that the spending is put to good use, providing instructional quality and access for needy students,” he said.

As of last June, Macalester’s endowment reached $676 million. It ranks relatively low compared to schools of similar stature, at 109 on the list of 136, below institutions such as Amherst, Grinnell, Williams and The University of Chicago, but higher than Carleton. Columbia, Northwestern and the University of Chicago, are among the top 15 wealthiest in the nation.

Currently, Macalester is spending 4.2 percent of the endowment each year. This value is determined by five percent of the market value of the endowment over the most recent 16 quarters. This number also fluctuates from year to year with the stock market values, but Macalester typically ends up spending between 4 and 6 percent, which according to Aase, is common. He also mentioned that Macalester would end up spending $3 to $4 million more per year with the percentage increase.

Aase said that he believed the potential increased percentage could have negatively affect Macalester.

“If a five percent mandatory spending law is adopted, the result will primarily be a more volatile level of spending,” Aase said. “Much of the college’s cost structure is fixed-we have to pay faculty and staff salaries regardless of market direction-so more variable spending would be a real problem.”

Macalester’s endowment money is spent primarially on faculty salaries and financial aid. The rest supports general operating costs of Macalester. According to Vice President for Advancement Development Thomas Bonner, with the increased percentage, the additional money would have gone toward underfunded areas such as need-based financial aid, endowed faculty chairs, the endowment for the Institute for Global Citizenship, study abroad and research and curricular enhancements.

The Senate’s intention for the amendment was to make schools provide more financial aid because of rising tuition. However, Aase believes this would not work.

“It would probably result in more financial aid for current students, but possibly less for future students,” he said.

Rosenberg also feels mandating extra spending is not the correct solution, especially considering the inconsistent stock market.

“If the market is worse at the start of the year- all of a sudden we would have spent all that money and we would have had to cut stuff. And often stuff means people,” he said.