Earlier this semester, Interim President Carl Kohrt announced that Furman is running a projected budget deficit of $6.4 million for the upcoming fiscal year and would need to find ways to cut costs in order to fill the gap, a surprising announcement that once again raised questions about how the university can achieve financial stability during a turbulent time in higher education.
As it turns out though, Furman is sitting on a significant sum of money — a nearly $600 million endowment — more than enough to erase the deficit, if only it could be used for that purpose.
It’s not something many faculty and students give much thought to, or perhaps even know about, but Furman’s endowment, which was about $593 million at the end of the last fiscal year, is the financial foundation of the university, the sum total of the financial assets donated to the university and invested to support the institution’s mission.
But there are limitations to how the Furman can use the endowment, and understanding why provides an illuminating look at the financial model behind the university.
Furman funds its endowment through donations, but those donations can be given in many different ways. For one, donors can give money to the university’s annual fund, which means it must be spent that year, or they can give to the general endowment fund, which means Furman will invest the money with the rest of the endowment.
But while donors can choose to donate to the general endowment fund, in most cases they specify how they would like the money to be used, creating hundreds of endowment line items — for scholarships, departments, programs — dictating what the money can support.
These line items are one of the main reasons the university can’t use the endowment for just any project or purpose. The university must adhere to the donor’s instructions for how to use the money.
The money Furman spends on large projects like the Trone Center renovations comes from separate gifts to the school that are not part of the endowment. In the past, maintaining these projects was a large expense for the university as inflation caused costs to increase during the course of the project, but now when planning a new project, the university factors future construction and maintenance costs into the projected total costs from the outset.
Even within particular line items, the university only uses a small percentage of the endowment every year, spending a portion of the investment returns. Instead the university primarily covers operating costs with the money received from tuition and other fees.
“Furman is a very tuition and fees dependent institution, much like other small private liberal arts schools,” said Kris Kapoor, Furman’s Chief Investment Officer.
Furman’s endowment only covers about 14% of the money the school needs to operate. Tuition and room and board make up the majority, while athletics, the golf course, and other revenue sources also contribute.
Kapoor said three major variables determine how much the endowment grows: the amount of donations that come in, the amount the university spends from endowment, and the return on investments.
“Amount spent off is known, we can predict it; we can’t predict what comes in,” he said.
Furman has what Kapoor calls a “spending rule,” set by the Board of Trustees, that governs how much money can be spent from Furman’s endowment. The university uses formulas that adjust with inflation to determine this amount so neither too much nor too little is spent. Over $100 million has come out of endowment in the last five years.
Since the 2008 recession, the endowment has been growing steadily. Furman’s endowment was about $444 million at the end of the fiscal year in 2009 but is now nearly $600 million.
At one of the Presidential Search Committee’s faculty listening sessions two weeks ago, a couple faculty, while discussing the university’s financial model, suggested that Furman’s endowment was smaller than the endowments at peer institutions.
But Kapoor said the reality is more complicated and that Furman measures up well with peer institutions when comparing per-student endowments, or the total endowment divided by the number of students.
Furman’s per-student endowment is currently about $200,000 while Davidson’s is about $280,000 per student, Wofford’s $100,000 per student, and Wake Forest’s about $213,000 per student, according to data from US News and World Report.
Decisions about how to invest the university’s endowment are made by the Investment Committee, which includes a student representative and is headed by Kapoor.
“We’re pretty transparent to anyone who wants to come in and ask questions about how we’re investing now,” Kapoor said.