College endowments feel the sting

When the markets were booming, billionaire colleges like Harvard, MIT, and Stanford tapped their swelling endowments and launched spending binges on faculty, buildings, and scholarships.

Now, they're seeing firsthand the one downside to relying on a huge nest egg: The market crash has them confronting the sharpest budget cuts in memory.

A survey released yesterday reports college endowments fell 3 percent in the fiscal year ending June 30. In a follow-up, a smaller group estimated declines averaging 23 percent in the first five months of fiscal 2009, which began in July.

That decline is nearly twice as large as any full-year return since endowment performance was first tracked in 1974, said Brett Hammond, chief investment strategist at TIAA-CREF, which collected the figures with NACUBO, a college business officers group, and Commonfund Institute.

The survey of 791 colleges accounts for virtually all of the endowed savings of US public and private colleges - some $522 billion last June. But the losses since then would erase nearly $120 billion. Colleges typically spend about 5 percent of their endowments annually.

In recent years, Dartmouth College in New Hampshire spent $1 billion on new facilities and more than doubled its financial aid budget. But with its endowment down $700 million, staff cuts are inevitable. The college needs to slice $60 million from next year's $700 million budget.

"I don't think anybody believes there aren't going to be big consequences," said Adam Keller, who oversees Dartmouth's finance and administration. "At the same time, people have begun to think hard what priorities exist for them."

From 2002 to 2007, college endowments grew 11.5 percent annually.

ASSOCIATED PRESS