Critics call on endowment fund to help university through state cuts

The YSU Foundation should be doing more to help the university in difficult economic times, they say.
YOUNGSTOWN -- For the most part, the Youngstown State University Foundation quietly operates outside the spotlight -- investing, growing, raking in donations and providing scholarships to hundreds of students.
That's what foundation President Reid Schmutz prefers.
But when financial times get tough for YSU, the beam often shines on Schmutz and the $132.1 million endowment fund he manages.
As YSU faces the loss of $3 million in state funds this year and even more uncertain budget challenges in the months ahead, the heat again is turning up on the foundation to step up and swing open its coffers.
"The foundation seems to be insensitive to the current condition of the university where we have begun to burn the furniture to heat the house," said Dr. John Russo, labor studies professor and president of the YSU faculty union.
Russo said the foundation should give YSU $3 million to make up the unexpected drop in state appropriations, preventing deep budget cuts and a midyear tuition increase.
Response: That's not going to happen, Schmutz said.
Though the foundation hopes to aid students if a tuition increase is needed, just writing out a check to YSU would be financially unwise and morally wrong, he said.
The foundation must keep focused on its commitment to donors and the long-term needs of YSU -- not the short-term economic bumps, Schmutz said.
"Anyway, they still have a lot of furniture to burn over there," he added.
Former YSU President Howard Jones started the foundation in 1966 with $9 million to support, expand and develop education programs at YSU.
Unlike endowments at many other universities, the foundation remains privately operated and legally separate from YSU. It even pays YSU about $12,000 a year in rent for its campus offices.
Fund skyrocketed: The foundation's 39-member board, which reads like a who's who of local business leaders, oversees an endowment fund that has skyrocketed from $82.7 million to $132.1 million in the last five years, due mostly to increased donors and a rising stock market.
The fund ranks sixth-highest among Ohio's public universities, besting those at Kent State, Toledo and Bowling Green State, according to a recent national survey.
With the growth in principal, the amount of money contributed to the university also has grown, foundation records show.
The foundation annually gives to YSU the dividends and interest it earns on the endowment, minus foundation expenses, Schmutz said. That amount has gone from $2.87 million in 1996 to $4.75 million this year, according to foundation records.
Traditionally, the money has gone mostly to student scholarships. Schmutz said about 2,600 YSU students received scholarships ranging from $500 to full tuition this year.
Some money also is designated for specific programs. For example, a local trust recently gave the foundation $1 million to fund a faculty position in accounting.
In 1996, the foundation provided $2.5 million for the university's new mainframe computer. It also is considering underwriting YSU's proposed $18 million student apartment complex.
Critics, like Russo, acknowledge the foundation's work but say it should be doing more.
"To have a foundation that has over $130 million in assets that gives less than 5 percent of that annually is a disgrace," Russo said.
This year's $4.75 million allocation to YSU amounts to about 3.6 percent of the foundation's $132.1 million value, based on calculations using foundation records. In 2000 and 1999, the payout rate was less than 3 percent.
Comparison: That's low compared to other Ohio universities.
The University of Akron's endowment paid about $7 million this year, 5.6 percent of the fund's $125 million value, according to Tim DuFore, UA's development director.
At Kent State University, the foundation allocated $1.96 million of it's $43.4 million endowment, or 4.5 percent, said Geetha Thomas, director of financial affairs for the KSU Foundation.
University of Toledo Foundation officials paid out about $4.1 million or 5.25 percent of its $78.2 million endowment this year, a foundation spokeswoman estimated.
Officials at Akron, Kent and Toledo say payouts generally are calculated as 5 percent of the three-year average of each endowment's market value.
"That's a national standard," DuFore said.
Not at YSU: The YSU Foundation, however, does not use the method. Instead, money paid to YSU is restricted to dividends and interest earned, Schmutz said.
If the YSU Foundation used a method similar to Kent, Toledo and Akron, the endowment would have paid out about $6.67 million to YSU this year, nearly $2 million more than the $4.75 million it actually contributed, according to calculations using foundation records.
"We realize that we are in the minority of college foundations that use this spending rule, but we are also in Youngstown, Ohio, which is a very conservative financial community," Schmutz said.
"Our job is to provide a steady, reliable source of income for this university, and that's why we do it the way we do it."
Grabbing money out of the endowment's principal would only mean fewer student scholarships in the years ahead, he said.
"When you're growing as fast as we grew in some of those years, people want to say, 'Well, you won't miss $1 million or so,'" Schmutz said.
"The problem is, you may be right, but even the Bible talks about seven fat years and seven lean years."
If top YSU officials are looking to the foundation to get them out of the current fiscal dilemma, they aren't saying so.
President's view: YSU President David Sweet said universities always want their endowments to spend more, and he said the YSU Foundation is "clearly on the conservative side."
On the other hand, financial crises come and go in Ohio and the foundation can't be expected to fill in for the state's lackluster funding of higher education, he said.
"I personally would not urge the foundation to seek to be a bail-out agent for the state," Sweet said.
Bill Knecht, a YSU trustee and newly appointed YSU Foundation trustee, agreed.
"We have to live within our means no matter how tough it gets," he said. "You can't just go to the well because old Uncle Harry has a lot of money."
Dr. Jim Morrison, chairman of the YSU Academic Senate, said he thinks the foundation could be more imaginative in devising ways to free up more money.
"But I appreciate the fact that they probably should not want to go down that slippery slope of bailing out particular aspects of the university in terms of operating expenditures," he said.
"I mean what's next? Underwriting faculty salary increases?"
Ways to help: Russo said the foundation can help YSU without directly giving money for university operations. The foundation, for example, could put money into YSU's reserve funds, freeing up money that YSU could use to prevent budget cuts and a tuition increase, he said.
Russo and Morrison also said it would be to YSU's great advantage if the foundation was part of the university, rather than a separate entity. If the foundation's $132.1 million coffers were part of YSU, the university wouldn't need to fret about building up reserves, Morrison said.
Sweet said that's a debate he's not going to get into.

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