TCU endowment losses less than national average

In the wake of the global economic downturn many universities lost considerable value from their endowments and were forced to make budget cuts.

James Hille, the university’s chief investment officer, said the average university endowment in North Texas fell 22 to 23 percent.

According to The Chronicle of Higher Education, universities with an endowment value more than $1 billion lost an average 20 percent of the total value of their endowments. Harvard lost about 30 percent of the value of its endowment and was forced to make drastic budget cuts.

Hille said TCU’s peak endowment value was worth $1.25 billion, but it is now worth $1.1 billion.

TCU’s losses were less than the average losses for similar universities, Hille said.

“Because we positioned the endowment very conservatively and supplemented our spending from the endowment, we were able to avoid heavy budget and program cuts,” Hille said.

Brian Gutierrez, vice chancellor for finance and administration, said TCU was well positioned and ready for the economic downturn.

“Last year, as the credit crisis hit and the economy went south, we were in the middle of a budgeting process,” he said. “The board of trustees decided (in that budgeting process) to use the endowment as a buffer for our budget.”

The board of trustees authorized $58.5 million out of the endowment, which was the same amount as in previous years, even though the average value of the endowment was down, Gutierrez said. The board wanted to preserve the university’s momentum, he said.

“Because of the university’s momentum, the board of trustees was reluctant to reduce the budget,” Hille said.

Because the budget was subsidized with endowment money, it caused the endowment to shrink, Gutierrez said.

Hille said holding spending constant by augmenting the budget with higher endowment spending helped stabilize the university’s budgetary situation and avoid layoffs.

Don Mills, vice chancellor for student affairs, said TCU cut operating costs because of the recession. This was done as a precaution, not a reaction to loss of revenue, he said.

Gutierrez said the university asked departments to make any reductions in their operating costs that could help offset endowment losses caused by the economic downturn to the $360 million budget.

Cutting operating costs at a university usually means layoffs because employee payroll is the main expense, Mills said. The university didn’t consider any layoffs because “we didn’t want to pass that burden on to the students by cutting programs,” he said.

The operating cost cuts were so modest that students probably did not even see a difference, Mills said. The university cut operating costs by reducing the amount of food served at campus events and choosing to serve water in place of more expensive drinks, he said.

Certain areas were protected from budget cuts like campus security and financial aid, Mills said.

“We actually added a couple of security officers and increased financial aid,” he said.

Gutierrez said the university increased financial aid by 5 percent, raising the total to $3.5 million.

“We even added $300,000 on top of the 5 percent increase to provide additional aid for contingent situations,” he said.

The university uses a tuition-dependent model to determine its budget where more of the budget comes from tuition.

“Our endowment only contributes about 16 to 17 percent of our budget,” Hille said.

This helped insulate the budget from the negative economic climate, he said.

Harvard uses an endowment-dependent model where about 60 percent of its budget comes from the endowment. Endowment losses in an endowment-dependent model budget can result in considerable cuts, he said.

Meeting and exceeding the target enrollment numbers considerably helped the budgetary situation, Hille said. The university increased its freshman numbers this year by 200.

TCU did not cut student programming because of the recession, Mills said.

Construction on campus continued throughout the recession.

“We looked at all capital projects, and funds were well in place, so TCU decided to move ahead as planned,” Hille said.

The university is in a new budgetary fiscal year now.

“Our expectations were for a zero percent return on our endowment, but our return is up around 12 percent,” he said. “We are ahead.”

Because of this, the university was able to pay back $7.2 million to its endowment, Hille said.

“We are still spending in excess, but we will be at a normalized level, with respect to the payout and the budget soon,” he said.