Endowments at Tennessee Tech at $25 millionTennessee Tech University has roughly $25 million in endowment funds. That seems like plenty of money to cover any shortfalls the university faces in its budget this year due to dwindling state appropriations, right?
All of these millions, made up of hundreds of gifts to the university, are untouchable Ð only the interest this money earns can be spent, and then it can only be spent for specific items, usually scholarships, explained Paul Isbell, vice president for University Advancement.
"What most people don't realize is that this fund was created by gifts from individuals Ð and when people give gifts, they generally give for a specific purpose," he said. In addition to scholarships for students, individuals donate money to be used specifically for such activities as lecture series, operational expenses and faculty development.
Despite the recent 10 percent increase in tuition the Tennessee Board of Regents approved, Tennessee Tech still faces a deficit of more than $2.1 million. While $1.2 million can probably be saved by eliminating funds normally allocated for equipment and systems renewal and replacement, the university will still have to identify about $935,000 in additional savings. But none of that money can come from its endowment funds.
"This $25 million cannot be spent Ð only its earnings can be spent," Isbell stressed.
For example, if someone were to donate $10,000 (the minimum for an endowment at TTU) in the name of a deceased loved one, the university invests this money and then uses a portion of the interest Ð usually $500 a year on a $10,000 endowment Ð to fund a scholarship annually in the memory of the loved one.
By leaving the principle, the $10,000, alone and only spending a portion of the interest, the university ensures that the memorial scholarship will be funded forever.
"An endowment sets something in concrete. The donor knows it is safe," Isbell said. "They know their money will always be there to be awarded in the memory of their loved one. An endowment is a permanent monument."
To further ensure money is available every year for an annual scholarship, TTU has a policy of spending only five percent of interest earned on each individual endowment. By doing so, the university knows there will be enough money each year to award the scholarship, including covering the costs of any rises in inflation or whether or not the stock market does well.
"If we had a $100 scholarship last year, and inflation goes up meaning that $100 is now valued at $108, we know we have the money to cover this increase because we didn't spend the entire earnings that first year," Isbell explained. "We want to spend on a level plane."
"Expenses go up every year, and we have to keep up with inflated costs. That's why we invest our money and try to earn as much as we can," he added.
And as costs continue to rise, but state money continues to dwindle, public universities like Tennessee Tech will rely more on private donations and endowments.
"More and more, there is an emphasis on fundraising in public schools Ð we have to make up the difference," he said.
Currently, TTU is using one-time funds to balance its budget. For example, a piece of equipment amortized over 10 years will have its own fund that money is put into each year for 10 years, so at the end of that 10 years, the money will be there to buy new, updated equipment. However, the financial situation at Tennessee Tech is so dire that it is now taking money from such equipment funds to cover other expenses.
"But the beauty of an endowment is that money is always there; it puts you on a firm footing," Isbell said. "Endowments are for building and setting up a solid foundation for your future."
Tennessee Tech has a long, successful history in investing its endowments, and has the highest investment success of any Tennessee Board of Regents school. In the past decade, TTU has seen its endowment jump from less than $1 million to more than $25 million."We are being good stewards of our funds, and our donors expect that," said Isbell. "We invest wisely, get the best return, and then use it wisely and use it for the donors' purpose. And as our endowment grows, the money we have to use also grows."