When Donors Can't Keep Their Pledges

Wall Street Journal, By Shelly Banjo

As wealthy donors watch their portfolios shrink, a number of philanthropists are finding they may not be able to fulfill a multi-year pledge or continue annual contributions to charities they support.

"We are seeing individuals and families reconsidering amounts they are able to give on both an annual or regular basis," says Robert Seaberg, a managing director at Citi Global Wealth Management, a unit of Citigroup Inc.

Although a pledge is a legally enforceable contract in most states, charities typically don't enforce them. But a donor's ethics and reputation may still be on the line.

If you have been a steady supporter of a charity but have to cut back on your usual gifts this year, get in touch with the charity right away and consider alternative forms of donations.

Donors are likely to put off the uncomfortable or embarrassing situation of telling a charity they are suffering financially and can't meet a promised obligation, but it's important not to "procrastinate communicating with the charity," says Kim Wright-Violich, president of Schwab Charitable, a unit of Charles Schwab Corp.

Charities count on contributions from wealthy donors to help them overcome the financial pressures resulting from the deep decline in donations and dip in endowments. Since organizations typically treat pledges like receivables -- money they can rely on to fund program and operational costs -- the sooner you disclose your financial situation, the sooner they can form contingency plans to make up for the lost funds, Wright-Violich says.

Pledge Deferrals

Once pledge-fulfillment issues are on the table, advisers and charities can approach donors with a grant workout -- a strategy fit to benefit both the donor and charity. It may be helpful to include your lawyer in the discussion.

Most nonprofits will work with donors to restructure pledges and keep donors involved with the organization, says Doug Bauer, senior vice president of Rockefeller Philanthropy Advisors.

The goal is to "figure out what the donor needs to do to make the agreement work for the charity and what the charity can do to make it work for the donor," he says.

For instance, the charity might have earmarked funds from your pledge for a new building or program without having the resources to fully support the initiative. In that case, you may be able to withdraw the pledge and redirect whatever funds you can donate to a more pressing need within the organization.

The most straightforward solution to modify your gift is to reduce the amount of the grant or restructure the payment schedule. You may be able to delay the start of a gift agreement or put a pause on the pledge to resume the next year. You may also be able to spread the pledge out over a longer period of time to give, say, $50,000 over five to seven years instead of the common three-year period.

But be careful not to stretch it out too long, as financial situations and the values of gifts will likely change with time, Wright-Violich says.

If the donation is tied to a specific asset that has declined in value since you made a pledge, such as a vacation house or a stock you intended to sell, you may be able to ask charities if they can accept the equivalent value based on what the asset is worth today.

Explore Alternatives

Instead of an outright charitable gift, consider making a bequest in your will that a specific amount of money, a percentage of your estate or piece of property be given to the charity at death -- this move will show the charity you are still invested in the organization's mission.

If you still want to make the pledge now but want a steady income stream, a charitable gift annuity offers you a fixed monthly or quarterly check for your lifetime, after which the remainder will be given to charity. The annuity payments are considered to be a partial tax-free return of the donor's gift spread over years.

To make up for pledges you are unable to fulfill, offer to help raise money on behalf of the charity by hosting a fundraising event at your home or office. You could also appeal to your firm to provide pro-bono services in such fields as accounting or technology, or donate in-kind donations, such as paper or postage.

Write to Shelly Banjo at shelly.banjo@wsj.com

Harvard, Dartmouth Losses May Increase on Buyouts, Real Estate

Bloomberg

By Gillian Wee

Jan. 27 (Bloomberg) -- North American college endowments lost an average of 22.5 percent on investments from July to November and the declines probably will get bigger after returns on private equity and real estate are calculated.

The funds shed $94.5 billion in asset value in the five months ended Nov. 30, according to a study released today by Commonfund and the National Association of College and University Business Officers. In the same period, the Standard & Poor’s 500 Index fell 29 percent, including reinvested dividends, while non-U.S. stocks dropped 37 percent.

Harvard University, whose $28.8 billion endowment is the biggest in higher education, and Ivy League rival Dartmouth College have yet to disclose the value of alternative investments such as buyout funds and property, which take longer to price because they aren’t traded on exchanges. These assets probably dragged down returns further, meaning less income for schools that are already cutting budgets.

“It’s the real unknown,” John Griswold, executive director of the Commonfund Institute, said in an interview. The Wilton, Connecticut-based center is affiliated with Commonfund, a manager of more than $25 billion, and seeks to improve investment returns by nonprofit organizations. “It’s as bad as it gets.”

Endowment income is a primary source of revenue for colleges and universities, along with tuition, public financing and gifts. Schools use investment earnings to help pay for salaries, scholarships and capital improvements like new buildings.

The losses so far this year surpass those in 1974, the worst year for endowments, according to Commonfund and Brett Hammond, chief investment strategist for New York-based TIAA- CREF Asset Management, which worked on a separate survey with the Washington-based business officers association. Losses may climb to as much as 40 percent by June if the public and private markets don’t recover, Griswold said.

Budget Squeeze

Harvard is freezing salaries at the Kennedy School of Government and the Faculty of Arts and Sciences to offset endowment losses, while the Stanford Graduate School of Business fired 49 staff members, about 12 percent of its non-faculty workforce.

“You can cut expenses, borrow money and increase liquidity in your endowment fund,” said Verne Sedlacek, chief executive officer of Commonfund. “There’s not a lot of other options.”

The percentage of endowment assets in alternative investments rose in the fiscal year ended in June as stock prices fell and colleges and universities shifted cash to support operations, Commonfund said. Endowments had an average of 46 percent of assets in alternative categories as of June 30, the study shows.

At endowments managing more than $1 billion, the allocation increased to 52 percent from 47 percent, according to the study. Those with between $500 million and $1 billion in assets had the biggest increase, moving to 42 percent from 35 percent.

Ivy League Losses

Harvard, in Cambridge, Massachusetts, said its endowment fell 22 percent from July to October and is planning for a 30 percent decline, since its estimate didn’t fully reflect the value of its private equity and real estate.

The university put $1.5 billion of buyout stakes on the market last year. Most of the holdings went unsold because the offers were too low, three people familiar with the matter said last week.

Dartmouth, in Hanover, New Hampshire, lost 18 percent in the second half of 2008. Diana Pearson, a spokeswoman for Dartmouth, the smallest school in the Ivy League, said the college is studying how to value those assets.

Liquidity Paramount

The University of Virginia, which had $3.8 billion in assets as of Nov. 30, lost 25 percent in the first five months of the fiscal year, according to the Web site of its investment management firm.

The Charlottesville school’s private-equity holdings lost 38 percent, resources fell 32 percent and private real estate dropped 27 percent. The school valued those investments at “fair market value,” the site said.

“Liquidity is the biggest priority for endowments,” said Scott Malpass, chief investment officer at the University of Notre Dame, in South Bend, Indiana. “Things are changing so fast in the economy and in the market that one needs to remain vigilant and nimble and be opportunistic in making commitments.”

In the next two years, Notre Dame will focus on buying securities that protect its endowment from inflation and “enhancing our liquidity position to take advantage of select distressed opportunities in all asset classes,” Malpass said.

Malpass declined to say how much the endowment, which had $7 billion on June 30, had lost since then.

Worst Since 1974

The Commonfund-Nacubo study findings were based on market value estimates by investment professionals at 435 schools.

In fiscal year 2008, funds lost an average of 3 percent, their third decline in eight years, according to the separate study conducted by Nacubo, and TIAA-CREF, which surveyed 796 colleges and universities in the U.S. and Canada.

Endowments had their worst prior performance in the year ended June 1974, when they reported average losses of 11 percent, said TIAA-CREF’s Hammond. The slump occurred during a recession caused by oil embargo triggered by the 1973 Arab- Israeli war.

To contact the reporter on this story: Gillian Wee in New York at gwee3@bloomberg.net.

Last Updated: January 26, 2009 21:17 EST

Market Collapse Weighs Heavily on Endowments

The Chronicle of Higher Education

By Goldie Blumenstyk

College endowments earned an average return of -3 percent for the 2008 fiscal year and an estimated -22.5 percent in the five months after that, two new reports out today show.

The declines are already having an impact. More than a quarter of all institutions said they planned to draw less money from their endowment this year than they had expected to spend.

After a half-decade of soaring returns, it was the first time endowment investments lost money since the early 2000s, when, in the wake of the collapsing technology bubble and the terrorist attacks of September 11, endowments returned a -3.6 percent in 2001 and -6 percent in 2002 (see tables).

The only category of institutions that managed to eke out an average positive return in fiscal 2008 were the 77 with endowments worth more than $1-billion. Even their return—0.6 percent—was a far cry from the 21.3 percent return they posted a year earlier.

As in the previous year, the largest endowments at the end of the fiscal year were those of Harvard ($36.6-billion), Yale ($22.9-billion), Stanford ($17.2-billion), and Princeton ($16.3-billion) Universities. All have subsequently dropped in value by about 20 percent.

The investment declines were hardly a surprise. For the last year, markets have been roiled by a global recession, a credit crisis of unprecedented proportions, and the collapse and near-collapse of several major international banks.

"Things went south just as quickly in the endowment world as they did in the economy," said John Walda, president of the National Association of College and University Business Officers, the organization that conducted the annual survey with TIAA-CREF Asset Management.

For both the fiscal year and the five months that followed, colleges’ returns were better than many of the market-performance indices. The Standard & Poor’s 500 stock index returned a -13.1 percent for the fiscal year; from July 1 to November 30, the S&P fell by 29.9 percent.

Surprising Results

Despite the troubled economy and volatile markets, the 36th annual "Nacubo Endowment Study" found that more than half of all endowments ended their fiscal year in June with larger endowments than they had a year earlier, with an average increase of 0.5 percent. Fifty-five institutions reported overall endowment growth of greater than 10 percent.

The biggest endowment to see a sizable percentage gain was that of Oklahoma State University and its foundation, which grew by nearly 32 percent, bringing the endowment to $617-million at the end of fiscal year. Foundation officials said the gain was propelled by a positive investment return of 4.5 percent and the success of an April-though-June push for endowment gifts to match challenges from the state and a private donor, which brought in $65-million.

The survey included responses from 796 institutions from the United States and Canada. (The accompanying database of changes in endowment value lists 791 institutions because a few university-related foundations respond separately but report their data with the institution.)

Because of the abrupt downturn in the markets since the summer, Nacubo and its new endowment-study partner, the Commonfund Institute, conducted a follow-up study on endowment performance in December. That survey, which included responses from 435 of the survey respondents, found that endowments had fallen in overall value by an estimated average of 22.9 percent. (At least five of the largest 10 endowments did not respond.)

In dollars, that translates to an estimated decline of $94.5-billion in market value for the institutions in the annual survey.

The findings in the follow-up study reflect the two-pronged problem colleges face. Negative returns are eating into endowment values, and philanthropy hasn't been adequate to make up for the losses and endowment spending. After the markets dove, "gifts did not help to hold those values up," said John S. Griswold Jr. executive director of the institute.

Large private colleges depend on their endowment income to cover 15 to 20 percent of their operating costs, and at some of the wealthiest institutions, it provides as much as 45 percent.

(On Tuesday the institute also released its "2009 Commonfund Benchmarks Study of Educational Endowments," which found that 628 schools and colleges earned -2.7 percent on their endowment investments in the 2008 fiscal year. The study included results from 470 colleges and universities, but it does not provide data or analysis separately for each college respondent.)

Spending Plans

With markets not expected to recover quickly, many colleges are taking a cautious spending approach. Faced with substantially smaller endowments, fewer than 4 percent of respondents said they plan to increase the rate of spending from their endowment next year. (Among institutions with endowments greater than $500-million, the proportion was slightly higher, at 7.5 percent.) More than a third of respondents said they still didn't know what they would do or did not respond.

In 2008 the average rate of spending from endowments was 4.6 percent, the same as it was in 2007. The rate of spending is determined by dividing the amount of endowment money spent into the value of the endowment at the beginning of the year. Over the past 18 months, several state and Congressional leaders have criticized wealthy colleges for failing to spend at least 5 percent of their endowment value each year.

One of the most vocal of those critics, U.S. Sen. Charles E. Grassley, a Republican from Iowa, reiterated that message with a written statement timed for release with the reports. “I hope colleges won’t use the recent volatility as an excuse to raise tuition or freeze student aid,” he said. “Colleges’ smart saving and investing could really help students right now. And the right kind of modest payout requirement for endowments above a certain dollar amount might do a lot of good for universities and students regardless of economic conditions.”

Kevin P. Hegarty, chief financial officer at the University of Texas at Austin, said it was disappointing to see some colleges decide to avoid tapping deeper into their endowments now, as they face financial squeezes from declines in state financing and private giving, and increasing demand for student aid.

"Wasn't that the argument for payouts less than the returns" when the gains were stronger? he asked. Austin, part of the giant University of Texas system, which has the fifth-largest endowment in the country ($16.1-billion), plans to increase spending from its share of the endowment by the rate of inflation next year.

Mr. Walda said he sympathized with college trustees and other leaders who are now walking the "tightrope" in deciding how to respond to the severe drop in endowment values. "I'm not surprised that 35 percent just don't know at this point," he said.

Still, as he noted, endowments are designed to be long-term investments, and if you look back over the past decade, "it's still a very positive picture."

For the 10 years ending June 30, 2008, colleges' overall return was a positive 6.5 percent.

Investment Strategies

The diversification that colleges have been pursuing over the past several years has helped them, Mr. Walda and others said.

That trend continued in 2008.

Between the ends of fiscal 2007 and 2008, the proportion of all college endowment assets invested in "alternatives"—private equity, venture capital, hedge funds, real estate, and natural resources—rose from 18.9 percent to 23.5 percent. The proportion of assets invested in stocks fell from 57.6 percent to 51.9 percent.

For some colleges, which have increasingly been shifting assets away from bread-and-butter investments like stock and bonds, and into alternative investments, like hedge funds and natural resources, the worst may yet be to come.

Over the next few months, many credit-squeezed hedge funds and private-equity funds may be calling on investors to fulfill their investment pledges, which could force some colleges into selling other assets at a loss to come up with the money. And colleges that managed to cushion their overall losses in 2008 by investing in oil and natural gas could find themselves with deep losses, if plummeting prices don't recover.

"Everyone is realizing that they need more liquidity than they thought they did," said Kathryn J. Crecelius, chief investment officer at the Johns Hopkins University.

Johns Hopkins had a return of -1.3 percent for 2008, and declines in line with its peers in the months that followed. Between 2007 and 2008, the overall endowment sank in value by nearly 10 percent, to $2.5-billion, but Ms. Crecelius said most of that was attributable to a decision to remove funds the university had been counting as endowment that should not have been classified that way.

Despite the negative return, Ms. Crecelius said, Johns Hopkins is in "a very good position compared to many of our peers" because it has the capital it needs to cover its commitments. Also, it relies on its endowment for only about 5 percent of its operating costs.

By contrast, institutions like Dartmouth College and Harvard, which depend on endowment funds by as much as seven times that, have recently imposed hiring freezes and spending cuts. Dartmouth, which had already announced it won't fill all 70 positions left vacant by its retirement-incentive program, last week said that "some staff layoffs are inevitable" because of the endowment declines. Like many other institutions that pledged last year to increase financial aid, Dartmouth said it planned to maintain that program.

Beating the Market

While few institutions have managed to find market-beating investment strategies for the past several months, some who beat the averages in fiscal 2008 credited their contrarian tactics. For Texas Christian University, that meant beefing up holdings in oil and gas and cutting back on investments in stocks, particularly in stocks of companies in emerging markets (which ended up doing badly), even though for years at investment conferences, "everybody's just thumping the table about international equities," said James R. Hille, chief investment officer.

The result: Texas Christian notched a positive return of 5 percent for 2008. With energy investments accounting for 15 percent of the university's portfolio (much above the average allocation of 2.2 percent), the endowment benefited when prices surged, "Although," Mr. Hille noted, "we're going to pay for that this year."

Christopher L. Bittman, chief investment officer at the University of Colorado Foundation, followed a similar strategy, selling emerging-market stocks and loading up on bonds during the past 18 months. For a while, he said, "we looked pretty foolish," especially when international stocks "screamed ahead." But he said the positions, including an allocation to bonds that has gone from about 5 percent to about 13 percent, seems appropriate now.

Lately, he's been eyeing the kinds of investments that have been battered by the markets, including real estate, high-paying debt issued by companies in financial trouble, and shares of private-equity funds that some cash-strapped investors are unloading at bargain-basement prices.

He's even put a portion of the foundation's endowment into a cattle and sheep farm in Australia. Markets are in turmoil and the foundation, which notched a 1 percent return in 2008, is down notably since then. While few investment experts are predicting a market rally any time soon, Mr. Bittman said he sees cause for optimism. "Honestly, I think there are some opportunities in this mess."

'Score Choice': a Tempest in a Teapot?

Chronicle of Higher Education
By ERIC HOOVER

In some circles, criticizing the College Board has become like sneezing — an automatic response that often proves contagious. The most recent fit of scorn started last summer, when the College Board announced that it would soon allow students to choose which of their SAT scores to report to colleges (admissions offices now receive the results of every SAT a student takes). College Board officials tout the option, called Score Choice, as a way to ease test takers' anxiety. After all, students would know that if they earned higher scores the second time they take the exam, they could — poof! — erase their scores from the first testing date. What's wrong with that?

Everything, say some prominent admissions officials who have publicly described Score Choice as a sales tactic that will encourage more students to take the SAT multiple times, unfairly benefiting those who can afford test-preparation classes. Those dire predictions were echoed in a December 30 New York Times article, which described concerns that Score Choice "will aggravate the testing frenzy and add yet another layer of stress and complexity to applying to college."

Lost amid the brouhaha is the fact that the College Board's rival, ACT Inc., has long allowed students to decide which of their scores to send to colleges. That policy has prompted few, if any, complaints.

Perhaps that's because the controversy involves more than just the intricacies of test-score reporting. For one, it affirms that the College Board has an image problem among some admissions deans and high-school counselors, who assume the worst about its every move. Moreover, the debate reveals fundamental questions about who has control over the admissions process.

That process has evolved into a three-way tug of war among students, colleges, and testing companies. And that's one reason Michael Barron thinks Score Choice is a good idea. "Students should own their scores," says Mr. Barron, associate provost for enrollment services and director of admissions at the University of Iowa. But some colleges, he explains, are used to seeing all SAT scores. "Now that's been taken away, and that's what's caused the hubbub," he says. "Colleges don't want to be the bad guy."

That is, the bad guy who requires students to submit all their scores despite the College Board's new policy, which in no way supersedes the admissions requirements at individual institutions. Georgetown University is among several highly selective colleges that plan to ask students for all their standardized test scores.

Charles A. Deacon, Georgetown's dean of undergraduate admissions, believes colleges can and should get all the information they can, so as to make informed evaluations. "We hope that students trust us to use test scores correctly," says Mr. Deacon, who knows that some students do not.

It's not always clear what variance in an applicant's SAT scores can tell admissions officials. At some private colleges, admissions officials convert all scores into an average for each applicant. In some cases, simply knowing how many times an applicant took the SAT might provide a clue about his or her background. "Asking for all the scores is a philosophical position for us," says Mr. Deacon, whose university encourages students not to take the test more than twice, in the name of their own sanity. Slightly more than half of all SAT takers take the exam a second time, and a majority stop there, according to the College Board.

Some high-school counselors see Score Choice as no big deal. "The new policy will increase the stress level for only about 10 percent of students," says Robert T. Turba, chairman of guidance services at Stanton College Preparatory School, in Jacksonville, Fla., "the ones who are programmed to get into Harvard and are strategizing all the way."

Whatever happens, the College Board is hardly the only player in the debate. After all, colleges have helped create the very dilemma that Score Choice presents. The recent Times story asked what would happen when students tried to use Score Choice to send just some scores to a college that "requires" all of them. The answer: Not much. A "helpful reminder" about that college's policy would pop up on their computer screens, says Laurence Bunin, a senior vice president at the College Board who oversees the SAT.

That said, the College Board has no plans to become the testing police by reporting students who do not comply with colleges' policies. "The trust to send a complete application is between the student and the college," Mr. Bunin says.

Indeed, the onus will be on young adults to decide whether they should ignore a college's rules, just as they already decide whether to write their own admission essays or cheat on tests. And that is a lesson in what "choice" is all about.

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http://chronicle.com
Section: Guide
Volume 55, Issue 20, Page A4

College financial aid system facing stiff test

By DAVE CARPENTER

Associated Press

CHICAGO (AP) — Finding financial aid for college this year promises to be tougher than any final exam.

The quest for money that begins for students and parents every January has taken on new urgency in 2009 amid fears that loans and grants will be scarcer than in the past due to the recession.

"The financing system for college is in real crisis," said Barmak Nassirian, associate executive director of the American Association of College Registrars and Admissions Officers. "Every one of the participants in the system is experiencing hardship — higher education institutions, states, aid donors and families all are cash-strapped."

Federal student loans remain readily available — with some funding even increased recently by Congress. But the prospect that grants and scholarships may be cut at many schools, combined with the shrinking availability of private loans, has fueled widespread angst at a time when more people than ever are seeking help. Applications for federal aid for the current academic year already are running 10 percent above last year's record pace, according to the Department of Education.

Savings held in Section 529 plans — the state-sponsored investment funds for college that are popular for their tax breaks — have been depleted by the worst bear market in decades and home equity values have plummeted. That has sapped two sources most tapped by parents to fund their children's higher education. Colleges' endowments have been similarly walloped.

Private student loans are especially hard hit. Last year, 60 private lenders provided $19 billion to students. Now, 39 of those have stopped lending to students and the remaining firms have made it harder to borrow, according to Finaid.org, a Web site that tracks the industry.

"The stress level is high," said Rod Bugarin, financial aid adviser for the New York-based college consulting firm IvyWise.

Numerous revenue-short states are likely to consider cutting aid in one way or another, and public colleges and universities are expected to raise tuition — in some cases by double digit percentages — as they set rates for next year.

Scholarships from civic groups and local companies across the country also are likely to decline, Bugarin said, although it's too early to know the extent.

What it all means is that families and college counselors are having to hold difficult conversations about reduced savings and the need to take on more debt and lower sights to focus on more affordable schools.

"There are no sure answers because we're in new territory," said Bruce Hammond, a Washington, D.C.-based college admissions consultant and co-author of "The Fiske Guide to Getting into the Right College." "But students with high need and lesser credentials are going to have to brace themselves for less aid."

Jean Kliphuis, 46, of Huntington, N.Y., is concerned about the tightening vise of college costs and how to pay for them as she studies aid prospects for daughter Katie, a high school senior who has applied to six schools. Jean is a librarian and her husband Tim is self-employed in the office equipment business. As middle-income parents of three children, their tab for college could be overwhelming if they didn't do all their homework on aid options.

"There is money out there, but you have to jump through a lot of hoops to get it," Kliphuis said. "So my husband and I are jumping through the hoops."

The key to success in the "convoluted" financial aid process is good information, she said, and there's lots of it available through schools' aid offices and online at such sites as Collegeboard.com and Princetonreview.com.

Indeed, the news isn't all bad. The federal government has authorized some $95 billion in grants, loans and work-study assistance to help almost 11 million students and their families pay for college this year, and its recent commitments mean that total will all but certainly be exceeded next year.

"It's scary, but not as scary as people might think," said Lauren Asher of the California-based Institute for College Access and Success, an independent nonprofit group.

Among the encouraging developments for parents and students:

_ The government broadened student borrowing in the midst of the credit crunch, ensuring the continued flow of federal loans that families depend on ahead of costlier private ones. Among other changes, annual borrowing limits for unsubsidized Stafford loans, which students can take out regardless of income, were raised by $2,000 and parents can now defer repayment of federal loans until after their child leaves school.

Stimulus proposals that would give students more financial aid also are progressing through Congress.

"This certainly has been an unprecedented disruption in the student loan marketplace," said Mark Kantrowitz, publisher of Finaid.org. "But Congress and the Department of Education have acted quickly to avert a crisis."

_ No school is known to have withdrawn pledged financial aid this academic year despite financial setbacks that have prompted them to make cuts elsewhere. A number of top institutions, from Harvard, Yale and Duke to smaller institutions with large endowments, announced expanded aid last year and have insisted they will stick to those commitments.

Aid can make a huge difference in affordability. The average list price of tuition and fees for the current academic year is $6,585 for in-state students at four-year public universities and $25,143 at private colleges, with some costing far more. But grants and tax breaks lower the average net price to about $2,900 at public universities and $14,900 at private schools, according to the College Board.

_ Some students will benefit from the turmoil, especially at colleges with high tuitions and scarce resources.

"These places continue to jack it up," Hammond said of tuition increases, "so if you can pay the full outrageous fee in this economy, as long as you can walk and chew gum you will be admitted. And if you're pretty good — average, even — you might get a $10,000 merit scholarship."

Admissions experts recommend considering a range of fallback options, from lower-cost public schools to community colleges or even waiting a year to save more money. And colleges and parents alike are hedging their bets on next year and beyond.

Administrators at Ohio State University see no big immediate impact on aid from the economy but are concerned about what may happen over the longer term, said Bill Shkurti, chief financial officer. The school's endowment has fallen by as much as 30 percent from $1.5 billion a year ago but accounts for just 2 percent of operating revenue, he said.

The University of North Carolina at Wilmington, with a much smaller enrollment and endowment, similarly has taken a hit. In a scenario likely to be repeated on many campuses, financial aid director Emily Bliss says the school is bracing for unpleasant conversations with parents about next year as it relies more on loans in its aid packages and eliminates some of the "free" money.

"Grants and scholarships won't all come through," she said. "It's difficult for us to tell families that, because our heart is breaking for them knowing what they're going through."

AP Education Writer Justin Pope contributed to this report.

Duke, UNC, NCSU hit with double-digit fundraising dips

Friday, January 23, 2009

Triangle Business Journal - by James Gallagher

RALEIGH – Fundraising is down at the Triangle’s three research universities, and campus leaders are bracing for even more pain in the second half of their fiscal years.

Duke University, North Carolina State University and the University of North Carolina at Chapel Hill each failed in the first half of fiscal year 2009 to match the level of donations they received during the first six months of fiscal year 2008.

Duke collected 21 percent less than it did a year ago. UNC’s take fell 32 percent, while NCSU was down by 49 percent. Universities typically measure their fiscal year from July 1 to June 30.

Both UNC and NCSU completed multibillion-dollar fundraising campaigns at the end of calendar year 2007, and donations typically spike before a campaign ends, explaining some of the drop between fiscal years 2008 and 2009.

NCSU also received a one-time, $35.4 million land donation that boosted its collections during fiscal year 2008 above normal, says Nevin Kessler, NCSU’s vice chancellor for advancement. Excluding that donation, NCSU’s collections were down by 19 percent.

University officials are not surprised by the slow start to the fiscal year. The market downturn has limited what people are able to give.

Changes in philanthropic giving tend to lag behind the economy, says John Glier, president of Grenzebach, Glier and Associates, a Chicago fundraising consulting firm. That factor suggests that donations through the next six months also could fail to match 2008 numbers – and possibly be even worse than in the first six months.

Peter Vaughn, Duke’s executive director of alumni and development communications, says it’s quite possible the university will not raise as much in 2009 as it did in 2008, when it raised about $385 million. But large gifts, which could push Duke’s year-to-date fundraising from a percentage decline to a gain, tend to work on their own timeline, regardless of fundraising campaigns or the economy, he says.

A large gift could still be coming. Since September, single donations of $10 million or more to U.S. universities have totaled about $5 billion, Glier says.

Scott Ragland, UNC’s director of development communications, says there is little reason at this point to worry about the drop in donations, pointing to the results of a Chronicle of Higher Education survey regarding fundraising efforts at 33 universities engaged in multibilion-dollar fundraising campaigns.

According to the survey, 31 of those 33 universities raised a total of $423 million in the month of November. Only Johns Hopkins University raised more than UNC during that month. Johns Hopkins took in $67 million during the month, compared to $40.5 million for UNC.

Universities perpetually are raising money, but none of the Triangle’s big three are in official campaign mode at the moment – though UNC officials last fall mentioned the potential for one in the near future. Ragland says there currently are no plans for another campaign, though any new campaign’s goal would exceed the $2.38 billion raised through the end of 2007.

Reporter e-mail: jgallagher@bizjournals.com

Colleges strive to hold line on tuition

Boston Business Journal
Friday, January 23, 2009
Modified: Monday, January 26, 2009, 5:55am

Boston Business Journal - by Jesse Noyes

With private colleges and universities worried about cash-strapped families not being able to foot next year’s tuition bills, many schools said they will issue smaller tuition and fee hikes in the next academic year.

From Boston to Worcester, tuition-driven institutions are planning tuition and fee increases by percentages below what they issued last year. Increases of tuition and fees at some schools will dip lower than 3 percent — if they are indeed raised at all — as presidents and finance officers focus on keeping retention stable in the midst of economic chaos.

“We’re experiencing, like a lot of schools, the pressure of this economy on our students,” said Jack Calareso, president of Anna Maria College in Paxton. Anna Maria typically raises its tuition, fees and housing by 6 percent to 8 percent, he said, but this year the increase will be set under 3 percent.

Thomas McGovern, president of Fisher College in Boston, said the college’s pricing scheme this year will be more complex, with commuter students seeing a 5.27 percent increase in tuition and fees and on-campus students seeing a 4.4 percent increase. In either case, that’s a smaller percentage than the previous year’s 6 percent increase.

Housing costs will rise 2.9 percent, to $12,600 from $12,250.

“We’re primarily concerned with enrollment,” McGovern said. “Without students, we’re not in business.”

Some colleges are taking even more drastic measures. Merrimack College announced last month it would freeze tuition, fees and housing costs for the next academic year. “The pressure, from a simple business point of view, is to keep your costs at zero as much as possible next year,” said Merrimack President Ronald Champagne.

Most colleges set their increases to tuition and fees between February and March, but several said expectations are that a large number of private institutions will try to keep tuition and fees costs as low as possible due to the uncertainty in the marketplace.

Many families have seen cuts to income and investments, while at the same time the student lending market has contracted, making it harder to pay for college educations, experts said.

“(Colleges) are going to try to hold the line for recruitment purposes,” said John Dysart, president of higher education consulting firm The Dysart Group Inc. in Charlotte, N.C. While 5 percent to 7 percent hikes to tuition and fees have been common of late, Dysart said 3 percent to 5 percent increases will likely be more common in 2009.

Typically, when colleges set annual tuition and fee increases, administrators calculate the rate of inflation along with other costs particular to higher education organizations, such as faculty salaries and utilities. The Commonfund Institute, which calculates the Higher Education Price Index, set the average increase of operational costs for private colleges in 2008 at 3.9 percent. The increase to the Consumer Price Index for the year was 3.7 percent.

Nationally, the average increase to tuition and fees for this past academic year was 5.9 percent, according to the College Board, which collects data on college pricing. In Massachusetts, where schools are competing in a densely packed college climate, costs can be steeper than elsewhere.

But in the coming academic year, the mantra will be less is more.

“Everyone is tightening their belts, biting the bullet,” said John Heinstadt, vice president of business and finance at Wentworth Institute of Technology in Boston. Wentworth has raised its tuition by an average of 4.47 percent over the past three years, but this year expects to increase it by less than 4 percent. Controlling costs, like salary increases, is one way of making smaller hikes possible, Heinstadt said.

Another area of concern for many private colleges and universities is competition from public institutions with often charge much less, particularly for in-state students.

The Massachusetts Board of Higher Education — which sets tuition for all University of Massachusetts campuses, state and community colleges — has kept a static tuition rate since 2000, said spokeswoman Eileen O’Connor. Individual schools set their own fees, however, and for this past year the weighted average increase at major UMass campuses was 3.6 percent.

That means the total average costs for in-state undergraduate students at UMass last year was $9,585. The average costs of tuition and fees for private four-year colleges in Massachusetts last year was $32,592 before scholarships Those costs don’t include housing.

Nevertheless, most private college administrators said they believe smaller class sizes and speciality focuses will continue to woo students. “If you are going to charge more you better have a better story,” Champagne said.

Whose Rules Are These, Anyway?

New York Times
December 28, 2008

Art

By JORI FINKEL

THE director of the art-rich yet cash-poor National Academy Museum in New York expected a backlash when its board decided to sell two Hudson River School paintings for around $15 million.

The director, Carmine Branagan, had already approached leaders of two groups to which the academy belonged about the prospect. She knew that both the American Association of Museums and Association of Art Museum Directors had firm policies against museums’ selling off artworks because of financial hardship and were not going to make an exception.

Even so, she said, she was not prepared for the directors group’s “immediate and punitive” response to the sale. In an e-mail message on Dec. 5 to its 190 members, it denounced the academy, founded in 1825, for “breaching one of the most basic and important of A.A.M.D.’s principles” and called on members “to suspend any loans of works of art to and any collaborations on exhibitions with the National Academy.”

Ms. Branagan, who had by that time withdrawn her membership from both groups, said she “was shocked by the tone of the letter, like we had committed some egregious crime.”

She called the withdrawal of loans “a death knell” for the museum, adding, “What the A.A.M.D. have done is basically shoot us while we’re wounded.”

Beyond shaping the fate of any one museum, this exchange has sparked larger questions over a principle that has long seemed sacred. Why, several experts ask, is it so wrong for a museum to sell art from its collection to raise badly needed funds? And now that many institutions are facing financial hardship, should the ban on selling art to cover operating costs be eased?

Lending urgency to the discussion are the travails of the Museum of Contemporary Art in Los Angeles, which has one of the world’s best collections of contemporary art but whose endowment is said to have shriveled to $6 million from more than $40 million over the last nine years. Wouldn’t it be preferable, some people asked this month, to sell a Mark Rothko painting or a couple of Robert Rauschenberg’s legendary “combines” — the museum owns 11 — than to risk closing its doors? (Ultimately the museum announced a $30 million bailout by the billionaire Eli Broad on Tuesday that would preclude the sales of any artworks.)

Yet defenders of the prohibition warn that such sales can irreparably damage a institution. “Selling an object is a knee-jerk act, and it undermines core principles of a museum,” said Michael Conforti, president of the directors’ association and director of the Clark Art Institute in Williamstown, Mass. “There are always other options.”

The sale of artwork from a museum’s permanent collection, known as deaccessioning, is not illegal in the United States, provided that any terms accompanying the original donation of artwork are respected. In Europe, by contrast, many museums are state-financed and prevented by national law from deaccessioning.

But under the code of ethics of the American Association of Museums, the proceeds should be “used only for the acquisition, preservation, protection or care of collections.” The code of the Association of Art Museum Directors is even stricter, specifying that funds should not be used “for purposes other than acquisitions of works of art for the collection.”

Donn Zaretsky, a New York lawyer who specializes in art cases, has sympathized with the National Academy at theartlawblog.blogspot.com, asking why a museum can sell art to buy more art but not to cover overhead costs or a much-needed education center. “Why should we automatically assume that buying art always justifies a deaccessioning, but that no other use of proceeds — no matter how important to an institution’s mission — ever can?” he wrote.

Michael O’Hare, a cultural policy professor at the University of California, Berkeley, who has also broached the issue on samefacts.com, said in a telephone interview, “I see no reason for strict rules about deaccessioning, other than telling the truth to the public and not selling to international trafficking mafias.

“The National Academy is absolutely within their right to say, ‘We’re going to go broke or we’re going to sell off two paintings, what do you think?’ ”

Even Patty Gerstenblith, a law professor at DePaul University in Chicago known for her strong stance on protecting cultural patrimony, said her position had softened over the years. “If it’s really a life-or-death situation, if it’s a choice between selling a Rauschenberg and keeping the museum doors open, I think there’s some justification for selling the painting,” she said.

But several directors drew a much harder line, noting that museums get tax-deductible donations of art and cash to safeguard art collections for the public. Selling off any holdings for profit would thus betray that trust, they say, not to mention rob a community of art, so no exceptions for financial hardships should be allowed.

Dan Monroe, a board member of the directors’ group and the director of the Peabody Essex Museum in Salem, Mass., said that almost any museum can claim financial hardship, especially now that endowments are suffering. “It’s wrong to look at the situation from the standpoint of a single institution,” he said. “You have to look at what would happen if every institution went this route.”

It’s a classic slippery slope, this thinking goes: Letting one museum sell off two paintings paves the way for dozens of museums to sell off thousands of artworks, perhaps routinely. “The fact is as soon as you breach this principle, everybody’s got a hardship case” Mr. Monroe said. “It would be impossible to control the outcome.”

Graham Beal, another member of the directors’ group, is the director of the Detroit Institute of Arts, which has had operating shortfalls of more than $10 million a year for several years now. He suggested another reason directors feel the stakes are so high: the pressure to raise money, he said, is intense.

Mr. Beal said he often fields questions from new trustees about selling artworks: “Since we have four van Goghs, people say why don’t we sell one of the van Goghs?”

“It makes perfect sense in the business world, where they’re looking for assets to sell the way Ford sold Jaguar,” he said.

Many museum trustees are themselves collectors and may have been tempted during the recent art-market boom to think of art as a commodity to be bought and sold at will. That attitude may explain why so many museum directors are using their trade group to build a strong firewall around the idea of a permanent collection. They are speaking not just to each other but to their own trustees.

“If it were suddenly legitimate to sell artworks and use the proceeds for anything other than acquisitions,” Mr. Beal contended, “there would be a wholesale cannibalization of many museums.”

Historically the most vulnerable collections have belonged to university museums, where the core values of the university can trump those of the museum. In 2005 the financially strapped Fisk University in Nashville moved to sell paintings by Georgia O’Keeffe and Marsden Hartley, until the courts found this would violate the terms of O’Keeffe’s gift of the two works to the institution. In 2006 Thomas Jefferson University in Philadelphia struck a deal to sell Thomas Eakins’s “Gross Clinic,” from 1875, for $68 million. Philadelphia museums matched the price to keep the work in town.

And last year the president of Randolph College in Virginia oversaw the removal of four paintings, including George Bellows’s 1912 “Men of the Docks,” from the campus art museum before dispatching them to Christie’s. The museum’s director, Karol Lawson, who compared the experience to a mugging, promptly resigned and is now researching a book on deaccessioning.

Ms. Lawson suggests that deaccessioning controversies reflect nothing less than two competing visions of art: commodity versus educational tool. At Randolph, she said, “the people who wanted to sell the art were saying it’s the same thing as a truck or computer or a chair.” (Make that a very nice truck — Randolph’s 1945 Rufino Tamayo painting, “Troubadour,” sold at Christie’s in April for $7.2 million. The Bellows is sitting in a Christie’s warehouse, pending a rebound in the art market.)

Stand-alone museums have more safeguards against this kind of decision — or more safekeepers, in curators invested in the idea of art’s intrinsic value. But deaccessioning has proven thorny for museums even when the money is directed into accepted channels like acquisitions.

Sometimes the controversy centers on the irreplaceable nature of the object for sale, as when Thomas Hoving, then the director of the Metropolitan Museum of Art, began aggressively pruning its collection in the early 1970s, selling high-profile paintings like van Gogh’s “Olive Pickers” and Rousseau’s “Tropics.” The Metropolitan owned only one other painting by Rousseau, and the backlash was fierce.

At other times the outrage arises when curators seem to refocus the collection. The Albright-Knox Art Gallery in Buffalo became a magnet for this kind of dispute when it decided to sell more than 200 older artworks to bolster its strengths in modern and contemporary art. The sales netted $67 million last year, but local residents decried the loss of art in the area.

Yet critics of strict deaccessioning rules make a public-access argument as well. “Most big museums can’t show 90 percent of the objects they own — it’s all in storage,” said Mr. O’Hare at Berkeley. “What’s wrong with selling these objects to smaller museums or even private collectors, who are more likely to put them on display?”

At the National Academy Ms. Branagan said that the two paintings already sold (there are plans to sell two more) went to a foundation — she said she did not know which one; the sale was arranged privately — that has agreed to display them publicly. She said that some proceeds would be used to create permanent exhibition galleries to bring more of the academy’s 7,300-piece collection out of storage.

Yet she did call this kind of deaccessioning an act of last resort, one that she would not have considered without a “long-range financial and programmatic” plan. Ms. Branagan said she told her members as much before they voted for the sale — 181 to 2 in favor — in November:

“I remember saying: Unless you believe you can support sweeping change, then do not vote for deaccessioning. The tragedy isn’t that we’re going to sell these four pieces. That’s not a tragedy. The tragedy would be if in 10 or 15 years we were back here having the same conversation.”

Colleges Looking to Close Books on Debt

By John Hechinger, The Wall Street Journal

Last update: 4:51 a.m. EST Jan. 20, 2009

U.S. colleges have been scrambling to refinance often heavy debt loads that have left some uncomfortably exposed to the vagaries of the credit markets.

In a report early this month, bond rater Moody's Investors Service said the outlook for the higher-education sector was negative. In part, analysts cited colleges' reliance on "volatile" debt markets. Last year, the ratings agency downgraded or changed the ratings outlook on 29 colleges.

Simmons College in Boston took on $100 million in variable-rate debt over the past decade, and now is finalizing a deal to sell about $39 million of fixed-rate bonds to replace some of that debt.

A key area of concern: most schools' reliance on variable-rate demand bonds, whose payments are tied to prevailing interest rates. The bonds often bear lower rates than plain-vanilla, fixed-rate debt. That is why they are so popular among colleges, which have used them since the 1980s.

Moody's said the 300 private colleges it rates have sold $25 billion in variable-rate debt, or about 39% of their borrowing outstanding. Almost three-quarters of the colleges sell variable-rate debt. Among the schools that have used the instruments are Harvard and Princeton universities, which recently replaced variable-rate debt with fixed-income borrowing while retaining their top AAA bond ratings.

Variable-rate debt has a big catch. Although the bonds have maturities as long as 30 years, investors can demand repayment in full with little notice. Colleges typically secured a guarantee from a bank to be a buyer of last resort to protect them. But the terms of that credit typically call on schools to repay the banks in three to five years.

Complicating matters, many colleges entered into arrangements that let them, in effect, pay fixed rates on their variable-rate bonds. They achieved that by entering into interest-rate swaps with big banks. In many cases, colleges would face hefty fees if they ended those swap arrangements.

Analysts at Moody's and Standard & Poor's said most colleges should be able to weather the debt storm through budget cuts and fund raising. But Mary Peloquin-Dodd, a managing director at Standard & Poor's, said a few could face "severe circumstances" if they can't find financing to repay a bank quickly.

In November, Moody's downgraded the debt of Simmons College, a women's school in Boston, to Baa1 from A3, citing risks associated with variable-rate debt. Standard & Poor's made a similar downgrade.

Simmons took on $100 million in variable-rate debt over the past decade for various campus projects. In a recent report, Moody's said the school has only $52 million in unrestricted funds that it could use to repay that debt. Were investors to demand early payment, it could result "in rapid credit deterioration for the college," Moody's wrote.

Simmons is finalizing a deal to sell about $39 million of fixed-rate debt to replace a batch of variable-rate bonds recently trading at distressed levels -- with interest rates of almost 10%.

Helen Drinan, Simmons's president, said it's unlikely that investors would demand repayment on the rest of the bonds, which have long-term bank backing. But she said that, over time, Simmons plans to replace those bonds with fixed-rate debt, as well. "Without a doubt, no institution wants to face an acceleration of its debt, which can be crushing," she said.

To shore up its finances, the college cut about 5% from its budget, now about $100 million, and froze hiring.

In September, investors redeemed $235 million in variable-rate debt issued by the University of Pittsburgh because of concern about the credit-worthiness of the bank that provided a backstop for the bonds. The University of Pittsburgh, which has a high investment-grade credit rating, was able to restructure its bonds so that its own financial resources now back the bonds.

Write to John Hechinger at john.hechinger@wsj.com

IRS Eyes Status of Hospitals

Bloomberg

WASHINGTON - The Internal Revenue Service will use the information that tax-exempt hospitals submit to it under the new Form 990 to determine if they provide enough community benefits to remain tax-exempt, a top IRS official said this week.

The agency also is considering overhauling its community benefit standard, which dates back to 1969 and has not kept up with major changes in the hospital sector, Steven T. Miller, the IRS tax-exempt and government entities commissioner, said in a speech before the Texas attorney general's office in Austin on Monday.

Miller's comments come as IRS officials and members of Congress have increasingly become concerned in recent years that tax-exempt organizations are not acting enough like nonprofit, charitable organizations to warrant their tax-exempt status and their access to the municipal bond market.

"This is part of the IRS looking into increased compliance and accountability for various nonprofits," said Vicky Tsilas, an attorney with Ballard Spahr Andrews & Ingersoll LLP here. "I think the IRS is focusing in on this, and really trying to draw a distinction between a for-profit hospital and a not-for-profit hospital."

Miller said the IRS' new Form 990, and particularly its hospital-specific Schedule H, should provide the agency with much more detailed information about the benefits nonprofit hospitals provide to the community.

The new form and schedule were published by the IRS earlier this year, and hospitals will have to respond to them beginning in connection with tax returns they file for fiscal 2009.

Before the IRS revised the form, "the determination and measurement of community benefit was, as a practical matter, largely a matter of individual discretion," Miller said. "Every hospital had its own way of measuring community benefit - its own view of what counted and how to report it."

"To the extent we have had any community benefit reporting ... in the past, it has been inadequate, at best, and more fairly could be characterized as uneven and haphazard," he said.

The IRS had no way of analyzing and comparing hospitals and their benefits to their communities, according to Miller.

But the new Schedule H addresses the problem by requesting uniform and more detailed information from hospitals, particularly, "the what, the how, and the by whom aspects of community benefit," he said.

For example, the new form will provide some clear standards on what types of activities qualify as beneficial to the community, Miller said.

"I believe the data from the new Schedule H will allow us, and other observers, to analyze how - and how much - hospitals around the country are benefitting their communities," he said.

The new Form 990 is the latest attempt by the IRS to better determine which organizations deserve their tax-exempt status, according to Tsilas.

"It is asking nonprofits for an incredible amount of information, and that all goes with the general trend of revisiting nonprofits and making sure they're spending the money for what they said they're going to be doing," she said.

However, Miller emphasized that the schedule will not "provide a bright-line standard against which the reported data can be assessed to determine whether the reporting hospital should be tax-exempt or should be taxed .... The Schedule H simply was not built to do all these things. It was built to enhance transparency and compliance in this area."

Miller explained the problem with the current 40-year-old community benefit standard, which was established by a 1969 IRS revenue ruling.

Under the ruling, the extent to which a hospital provides community benefit is based on whether it has a community board, an open medical staff, a full-time emergency room open to everyone regardless of their ability to pay, and an open admission policy. Another important factor is how hospitals use their excess funds.

But these factors "no longer meaningfully distinguish one type of hospital from another," Miller said, adding the standard "may need a tune-up; it may need a new engine; we may need a new vehicle."

An update would have "a significant impact on certain hospitals," he said, citing a recent IRS survey of hospitals. "Any significant changes to the community benefit standard would almost certainly benefit some hospitals and adversely affect others - there will be winners and losers."

Results from the 2006 survey sent to over 500 nonprofit hospitals showed that hospitals varied widely in terms of how much charitable and other uncompensated care they provided, Miller said. The varied responses suggest that some hospitals would have trouble meeting a new standard while others would have no problem, he suggested.

The interim results of the survey were released in 2007, and the IRS hopes to release the final results in the near future.

Miller noted that increasingly, hospitals have to comply with state standards that may be tougher than the federal standards for tax exemption. He cited Provena Covenant Medical Center, which is battling the Illinois Department of Revenue in the state Supreme Court to regain its property-tax-exempt status after the department revoked it two years ago, arguing the hospital spent less than 1% of its revenues for charity care. The outcome of the case could affect the millions of dollars of the hospital's bonds that are still outstanding.

"It increasingly appears that federal tax exemption is no longer always dispositive of how a state or local government will regard a hospital," he said.

University Leaders From Around the World Discuss Fund Raising in Troubled Times

By AISHA LABI

New York

The worldwide economic crisis is creating unprecedented challenges for fund raisers, but the new philanthropic landscape could also yield unexpected opportunities for higher-education institutions, university leaders from around the world were told at a three-day meeting here last week. The Global Conference on Fundraising and Grantmaking for Universities, held at New York University's George H. Heyman Jr. Center for Philanthropy and Fundraising, attracted top officials from universities in Asia, Canada, Europe, and South Africa.

"This is a deep crisis, and there is a temptation to consider it a crisis that can be overcome quickly, through a pickup of consumption, which is wrong," L. Jay Oliva, a former president of New York University, told the gathering. At the same time, the innovative thinking needed to produce the deep structural reforms that will help end the crisis will allow universities to showcase what they do best, he said.

Neil R. Grabois, a former president of Colgate University, reminded listeners that economic trends in higher education are in many ways countercyclical. For example, as jobs are cut and the broader economy stalls, some people decide to return to college to pursue additional studies, and the higher-education sector expands as other areas contract. With building costs and real-estate costs plummeting, he said, it might even be the moment for some institutions to think about beginning building projects that have been deferred.

At a presentation on "Fund Raising in Times of Financial Crisis," Richard A. Marker, a senior fellow at the Heyman Center and a leading philanthropic adviser, told attendees that universities already were confronting a generational shift in how individuals donate, with an older "noblesse oblige" model of philanthropy giving way to a more targeted, project-based style motivated by donors' desire to make a concrete difference. The bureaucratic structure of many universities is unappealing to younger people accustomed to a venture-capital-style economic model of hands-on involvement, Mr. Marker said.

American Example

The conference attendees represented a range of countries and systems for supporting higher education, but all were eager to learn from the American model.

"America is criticized for everything, but the one thing the rest of the world applauds us for is our philanthropy," said Naomi Levine, chair and executive director of the Heyman Center.

One recurring theme of the conference was that although endowments and public subsidies are shrinking, universities are uniquely placed to take advantage of some aspects of the economic crisis.

Sir Timothy O'Shea, head of the University of Edinburgh, said that the discussions at the conference underscored that "there is a real debate among universities about how to proceed." University leaders are being forced to decide whether they should lower expectations or raise them. Graduate applications at Edinburgh, which is seeking to raise £350-million, are up 50 percent over this period last year, Sir Timothy said, demonstrating concretely that "the need for what we do is more real, more urgent than ever."

At the same time, Sir Timothy is being forced to confront difficulties similar to those many universities are facing. At a panel on "Corporations and Global Philanthropy," he asked the speakers how he should deal with the forthcoming disappearance of support from a bank in Scotland that is about to be subsumed into a larger bank. What could he do to maintain that relationship or create a new one with the acquiring bank?, he wondered. In the current economic climate, the panelists told him, there is not much he could do beyond continuing the relationship with those responsible for giving at the bank as best he can.

Low-Key Strategies

Ms. Levine told the gathering that universities should tailor their fund-raising activities to the economic climate. "Universities should not have capital campaigns now," she said. "They should have fund-raising studies, meet with their donors, and use this period for silent strategy. They wouldn't want to have very glamorous events. It just doesn't look right, when people are losing jobs. They need to tone it down."

Ms. Levine also said the downturn presented an opportunity for administrators to "look at the ways in which universities are run" and to make some difficult decisions—such as examining the role of the faculty and the number of courses professors teach. University leaders, she said, will have to "find ways in which you can run more efficiently that won't make you more popular."

Ralf Hemmingsen, rector of the University of Copenhagen, said his university still had much to learn about successful fund raising. The university established an alumni organization just two years ago and is setting up a development office. Mr. Hemmingsen said that the most valuable aspect of the conference for him, in addition to making new contacts, had been simply hearing of the experiences of the many seasoned fund raisers on the various panels. "Learning about the pitfalls has been very, very helpful," he said.

MSRB Calls For Fed Action

Bloomberg

WASHINGTON - The Municipal Securities Rulemaking Board strongly urged President-elect Barack Obama, his advisers, and the new Congress Friday to consider federally regulating brokers of guaranteed investment contracts and financial advisers in the municipal market that are not currently subject to regulation.

The board said in a statement that it was taking the action because of concern that ongoing federal investigations and investment advisers and other muni market participants had created "widespread confusion over how the market is regulated."

"Specifically, we believe that these currently unregulated participants - such as Guaranteed Investment Contracts (GICs) brokers and the various financial advisors - should be brought under federal regulation in order that all segments, and not only broker-dealers, meet the high standards a fair municipal market that protects investors requires," the board said, adding it "would be pleased to work with appropriate federal officials in discussing options and developing an appropriate regulatory scheme."

Securities Industry and Financial Markets Association and Regional Bond Dealers Association officials applauded the MSRB statement, saying broker-dealers are virtually the only regulated party in the muni market.

But former MSRB chairman Christopher Taylor, currently a consultant on financial markets and regulatory policy, said the board missed the mark by not calling for the regulation of interest-rate swaps, which have become a huge part of the muni market and are at the center of the Justice Department's antitrust and bid-rigging investigation in the municipal market.

"I was disappointed that they were unwilling to address swaps," he said. "There's not one word in that statement about interest-rate swaps, which are a major, major problem and a focus of the price-fixing inquiry. They were central to the [political corruption] probe in Philadelphia and they are central to the scandal in Jefferson County, Alabama."

Taylor was referring to a Justice Department political corruption and pay-to-play probe in Philadelphia several years ago that centered on bond and swap deals and resulted in the conviction of former Treasurer Corey Kemp, as well as Jefferson County's many swap deals and recent financial troubles.

"They are trying to divert the attention by focusing on GICs when, in fact, it's swaps," said Taylor. "The industry doesn't want to do away with the pot of money that's made through interest rate swaps. Many bond deals that done since the year 2000 have had swaps associated with them and that's where the profits are, that's why firms have been willing to do bond deals for little money and that's where the political corruption is."

Taylor said he warned about swaps and rumors of political corruption during the past several years and that he feels certain that this was one of the reasons he was pushed out of the MSRB.

"It was made clear to me in the final two or three years that some board members were upset with my speaking out on the whole question of interest rate swaps and derivatives and possible problems in the industry," he said.

The board announced in August 2006 that it would not renew Taylor's contract as executive director, saying it wanted "next generation leadership" to "help guide the organization into the future." He left the MSRB in mid-2007 and was replaced by Lynnette Hotchkiss, who had been SIFMA's managing director and associate general counsel.

Taylor said also that he met with officials at the Federal Reserve in 2002 to talk about swaps but "got blown off."

But Hotchkiss and Ronald Stack, the MSRB's chairman, said yesterday that the issue is not swaps, it is the fact that some muni market participants are unregulated.

"It is a patchwork of regulation, or lack of regulation, or state versus federal, that is just not working and one area that illustrates why it isn't working is the pay-to-play investigations that we've seen for years," said Hotchkiss. "G-37, at least with respect to broker-dealers, has definitely stopped pay-to-play, also the appearance of pay-to-play - but if you want to have a comprehensive effect on the overall municipal securities market, you have to have a consistent framework of prohibitions on pay-to-play" that covers all parties, she said.

"This is not about derivatives," said Stack, managing director and head of public finance at Barclays Capital. He had been head of public finance at Lehman Brothers, which was acquired by Barclays last year. "This is about financial advisers who, whether they offer advice on GICs or whether they offer advice on swaps, or whatever ... are totally unregulated. As a broker-dealer, I have to take a Series 7 exam, I have to take continuing education, I have lots of compliance rules from the MSRB on political contributions, rules on my conduct."

Asked why the MSRB chose Friday to issue the statement, Hotchkiss said, "We have consistently had conversations with fellow regulators, Capitol Hill, and others privately about the regulatory patchwork in our market and we have encouraged them to look at it and do things. It just never gets to the top of the agenda."

The Justice Department, Securities and Exchange Commission, and Internal Revenue Service have been conducting parallel criminal and civil investigations of anticompetitive behavior associated with derivatives and investments in the muni market since November 2006.

Those investigations began when the Federal Bureau of Investigation raided the offices of CDR Financial Products, Inc., in Beverly Hills, Calif., Investment Management Avisory Group Inc. in Pottstown, Pa., and Sound Capital Management in Eden Prairie, Minn.

Since then the Justice Department and SEC have subpoenaed dozens of firms and informed a number of them, as well as individual broker-dealers that they are either targets of the criminal investigation or that the SEC staff is considering recommending the commission take enforcement action against them.

In August, the New Mexico Finance Authority announced that it was cooperating with U.S. attorneys who were investigating CDR Financial Products. That investigation is focusing on whether CDR earmed more than $1.5 million for advising the authority and other issuers in the state on interest rate swaps and restructuring escrow funds because of political contributions it made to the political action committees of Gov. Bill Richardson.

The governor recently withdraw from being considered for head of the Commerce Department after Obama nominated him for the post.