Endowment Envy

In last 2 weeks, 4 universities announced campaigns to raise at least $3 billion each. Those institutions will gain. Will higher education?
October 12, 2006

When Columbia University announced a $4 billion fund-raising campaign on September 29, the institution was able to say that it was trying to raise more money than any college or university had ever done before. But by Tuesday, the record was history, as Stanford University announced a $4.3 billion campaign. In between, the University of Virginia and Yale University announced campaigns of $3 billion -- which would have been a new record had Columbia and Stanford not announced their efforts.

More mega-campaigns are on the way: Cornell University will announce one within weeks, the University of Pennsylvania in a year, and Harvard University some time after it picks a new president. People familiar with early planning for Harvard's campaign expect its goal to top $5 billion.

The campaigns are being kicked off with much hoopla and excitement and generally positive reactions on campuses and in the press. There is little doubt that the goals will be achieved and that the universities engaged in these mammoth efforts will experience great benefits: more generous financial aid packages, hundreds of endowed chairs, state-of-the-art facilities, new funds for research on pressing topics, and more.

But what of higher education? Will academe broadly benefit -- or will the gains for these already wealthy institutions have costs for the many colleges that will never pull off billion-dollar campaigns?

"I think that universities are in danger of a kind of fiscal arrogance, in which many of them are becoming as much banks and investment companies as institutions of education, research and culture," said Leon Botstein, president of Bard College.

There's nothing wrong with raising money, said Botstein, whose college is about to start a $350 million campaign. But the magnitude of the latest campaigns -- coming from institutions that are already among the wealthiest in American higher education -- creates a false impression that there is a correlation between money and excellence in higher education, Botstein said. "We need to focus on education and culture, not trying to become Fort Knox universities that are repositories of wealth," he added.

While Botstein is unusually outspoken in his criticisms of endowment growth, other experts on fund raising and the economics of higher education also worry about the trends. Some of their worries are just the flip sides of what other experts -- or these same experts -- see as the positive impact of universities being able to have such loyal donors that they can raise this much money.

Mega-campaigns encourage other institutions to get ambitious, which some view as good and which others fear will lead to a distortion of their missions or reaching for more money than they need. Mega-campaigns encourage excellence at the places that can pull them off, but others fear an already enormous gap between wealthier and less wealthy institutions is about to grow. Mega-campaigns draw lots of public attention to universities and their needs -- or, others fear, to universities and their wealth.

Good or bad, there's no doubt that these campaigns are impressive in their scope. As one scholar of fund raising said, "these numbers can make your head spin."

How the Numbers Add Up

The universities launching the campaigns are issuing materials noting tremendous advances in education and research that the funds will support. Financial aid is mentioned repeatedly. Globally relevant research comes up a lot. Interdisciplinary research is another common theme -- Stanford, for example, plans to raise $1.4 billion just for initiatives in such areas as health, environmental sustainability, and international peace and security.

To support those and other initiatives, the universities will be seeking larger and larger shares of their campaign totals from smaller and smaller shares of donors. A longstanding reality of fund raising has been the idea that 80 percent of funds come from the wealthiest 20 percent of donors. Over the last decade, more fund raisers have talked about 90 percent of the funds coming from the wealthiest 10 percent of donors. With these mega-campaigns, and in fund raising generally, the ratios may be changing again.

"We just did a study of 27 universities, and I think we are moving to 97 percent coming from 1 or 2 percent of donors," said Jerold Panas, a fund-raising consultant and author of Mega Gifts: Who Gives Them, Who Gets Them. "That's how skewed it is now," said Panas, who is currently working with a university he declined to name that will be announcing a multibillion dollar campaign this fall. He predicted that "about a dozen" universities will quickly follow those that have launched these mega-campaigns.

When a campaign is looking at actual donors, the numbers can break down in any number of ways. At the University of  Virginia, Bob Sweeney, senior vice president for development and public affairs, said that he expects a total of 500,000 gifts from about 175,000 donors during the course of the campaign. The campaign's plan to reach its targets is based on generating more than 600 gifts of at least $1 million. And of those 600 gifts, 133 will have to be in excess of $5 million and 2 in excess of $100 million. Looking broadly, he predicted that about 1,500 gifts of at least $100,000 will generate 90 percent of the campaign's dollars.

The challenge facing Sweeney and others is how to focus the kind of attention expected by those who are capable of large gifts without ignoring those who can write a check for $50 a year -- or making it clear why they should bother to give when their donations seem so small in the context of such a large campaign. And experts say that matters a lot -- and not just for symbolic reasons. Sweeney said that when Virginia studied the results of its last campaign, it found that its million-dollar donors were people who had been giving steadily -- even if only small gifts for much of the time. A person who hasn't established that habit is much less likely to make a big gift, even if the person becomes wealthy, he said.

"If institutions, in pursuing major donors, take their eye off the small donor, they may enjoy great success in the short run, but they will do at their peril in the long run," said John Lippincott, president of the Council for Advancement and Support of Education. "What you can't know is who that 10 percent [of major donors] is going to be from the recent graduating classes, and if you are not stewarding the alumni who are out five years and encouraging them to make those $25 gifts, you are less likely to see them emerge" later as major donors, should they become wealthy, he said.

At Penn, about a quarter of the gifts in the last year came form 125,000 donors who gave up to $100,000. John H. Zeller, vice president for development and alumni relations, said balance is always on his mind.

"To get the numbers you are talking about" in these major campaigns, "you need transformational gifts," he said. But the funds provided by smaller gifts are significant too, and can't be lost, he said. "It's very important that donors understand why those gifts matter," he said. "The smaller gift, multiplied, really does have an impact. But it's hard for people to see that sometimes, when those things get lost in the announcements of seven, eight and nine-figure gifts," he said.

While alumni giving (in dollars) has been increasing, the percentage of alumni giving has declined slightly in recent years, raising concerns among fund raisers. Lippincott said it was unclear why the numbers were moving in that direction, and some of the possible explanations may not have to do with how alumni view colleges. For example, colleges have become better at tracking their alumni, and they include all alumni they can locate in totals for the alumni base. But he said it was important to find out why some aren't giving.

John P. Butler III, president of Barnes & Roche, a fund-raising consulting group, said he thinks the group of donors getting ignored now are those giving five- or six-figure gifts. Presidents and vice presidents go after the million-dollar donations, alumni volunteers nurture the small donors, and "institutions suffer in the middle," he said.

The Messages Sent by Big Campaigns

Butler -- whose consulting practice includes campaigns in excess of $1 billion -- said he also worried about the messages these large campaigns are sending to colleges.

"I think size has become something of a game -- a competition that I'm not sure is healthy," he said, speaking generally and not of those that just announced huge campaigns. He said that he is seeing campaigns of various sizes in which "the announced goals are not a reflection of need, but of the fact that the Joneses did X so we need to do X plus." Butler said that this attitude can be present among trustees, who read about the mega-campaigns and then "arbitrarily" want to increase the size of goals past what is appropriate.

A decade ago, he said, the president of a "highly regarded university" was presented with a plan for what would have at the time been seen as a huge campaign goal. "The president said that this could influence higher education negatively because it will be perceived as greed rather than need," and the campaign was adjusted, Butler said.

Now he said, administrators and trustees are so worried about size that the "integrity of campaign goals is not always what it should be," with things being counted that shouldn't.

Competition can be great, he said. "But what is really important is to be sure that the campaigns really address the mission and direction of an institution," he said.

Lippincott of CASE said that the pressure for bigger numbers comes up all the time. This week he was meeting with a group of administrators to talk about fund raising and one of those present introduced a question by saying, "we're in a campaign, but it's only a $40 million campaign." Said Lippincott of the comment: "These large campaigns cause them to feel that they need to apologize for that lower number, but to raise $40 million may be every bit as difficult for one institution as raising $4 billion for Stanford."

The institutions that are raising billions are very careful to mix pride in their targets with a sense of philosophy about their institutions and the money being raised. Sweeney of Virginia noted that his institution is the only public in the mix so far, even though his institution is much smaller than other large, prestigious publics. But it's not just about being No. 1 among publics, he said. The campaign was built around other goals that Virginia has pursued -- such as more autonomy from state government, and significantly enhanced financial aid for low-income students.

The campaign, he said, reflected the need to create "a private university-caliber philanthropy program that would allow us the extraordinary hybrid of a privately financed public university that maintains its public mandate."

Perceptions and Realities of Wealth

Mega-campaigns -- with their steady stream of announcements of $50 million gifts -- also affect both the public image and economic realities of higher education. "This is going to be a significant communications challenge," said Lippincott of CASE. "Both at the federal level and at the state level, when these kinds of numbers of floating around, there is a natural tendency by legislators to say, 'It sounds like they've got plenty of money.'" Colleges will need to constantly educate government officials that the need for public funds hasn't gone away -- and that the publicity surrounding the latest record gift for Harvard or Stanford has nothing to do with the economic realities of 99 percent of American higher education.

The new round of campaigns "is going to greatly increase the divide," said Ronald G. Ehrenberg, director of the Cornell Higher Education Research Institute. "The people who are raising this money are the people who have the most money. The Harvards and Stanfords and Yales of the world can raise lots of money," he said. Ehrenberg has written of the rising gaps not only between rich and poor institutions, but between the very wealthiest universities and the slightly less wealthy. And his research points to gaps in faculty salaries, ability to pay for laboratories, student aid and more.

Richard Ekman, president of the Council of Independent Colleges, said that the increasing gap in endowments is what translates into ever increasing wealth gaps -- more than actual funds raised. The $50 million gift Stanford gets isn't going to otherwise go to a small liberal arts college like those in his association, Ekman said. But all those gifts give Stanford opportunities his members don't have.

"In terms of endowment management and investment management, size really does matter," he said. "So the money already raised by a Harvard or Yale benefits from scale and expertise, and access to certain kinds of rates that you just don't have with smaller endowments," he said. "So it's worrisome that the largest invested funds will grow at a higher rate."

In terms of societal impact, however, Ehrenberg said it was also important to look at what the wealthiest universities are doing with the money they are raising. He said he is struck by the increased attention to financial aid in all of the announced mega-campaigns. "I think that there's a lot more talk about the social purpose of what they do," he said. "Lots of the campaigns are directing money for financial aid, and that's a very, very positive thing," he said.

Ehrenberg has concerns about the gap between rich and poor institutions, and he noted that all of the financial aid being created will help only a small fraction of the low-income students nationally who need aid. But he said that he's not going to criticize when institutions are "doing good things, socially important things with the money."

Botstein of Bard has no such reluctance.

"I think -- with some exceptions -- this all shows how desperately conservative philanthropy is," he said. "These institutions are not short of money." He said he realizes that his comments will be dismissed by some as "sour grapes because I am at a relatively small institution." But Botstein added that he's getting donors whose alma maters are Ivy League institutions, but who are attracted to his college because it makes better use of money. Why, he asked, is Bard -- with a $170 million endowment -- able to offer strong undergraduate programs, a high school in New York City, acclaimed arts programs -- and even an expanding number of courses to prison inmates as part of an effort to help those least able to find an education.

"There's this confusion between wealth and quality," he said, and the mega-campaigns are going to add to it. And what the campaigns will create, he added is "a more enormous mal-distribution of resources."

What the latest campaigns amount to, he said, are "four giant country clubs raking in huge dues from a sense of social entitlement." The wealthy universities should start spending the money they have, he said, and they would do much more good. "They are just making walls of wealth around them, amidst a crumbling educational and cultural landscape."

Some of those who advocate more scrutiny of giving patterns, however, think that close look might result in an analysis that it's the logical thing to donate to the wealthiest institutions. Charles Clotfelter, director of Duke University's Center for the Study of Philanthropy and Voluntarism, said that there should be no assumption that a $100,000 gift is better spent at a prestigious wealthy institution or a struggling, less prestigious institution.

"For the well being of society at large, the marginal benefit per dollar ought to be the same in all areas of expenditure," he said.

So wouldn't that mean that giving $100,000 to a poor institution would do more good -- since the money would be needed more and might make a greater difference? Not necessarily, Clotfelter said. The gift might have more of an impact at a wealthy institution, where the infrastructure already exists to make the best use of the funds.

"The notion of wealthy universities receiving large gifts might offend the sensibilities of some people, but the question that an analyst would want to act is: What's the social payoff from another $100,000 in these various activities, and that's a question I can't answer," he said. "The answer to that is not obvious. And one should be prepared to accept the possibility, if the facts point to it, that a Scroogelike conclusion might be correct: It might well be that society benefits more from another million to Stanford than it does to a beleaguered institution. That is possible."


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