Since 2007, U.S. Sen. Charles E. Grassley, an Iowa Republican, has used Congressional hearings and other means to raise questions about endowment spending by colleges. While he’s not now pressing for legislation for a mandatory payout, in an interview last week with The Chronicle, Senator Grassley made clear that even in a recession, he still expects universities to stick with an ethic of responsible spending for the benefit of students. Following are edited excerpts from that interview.
Q. Has the state of the economy and the fact that endowments saw their worst investment performance in 40 years last year given you any reason to reconsider your interest in this topic?
A. Oh yes. The needs of students are greater during a recession. So you would expect endowments to pay out more.
It doesn’t detract from my three- or four-year interest in the issue—basically that we want to make sure that universities don’t consider themselves storehouses for money.
I’m not prepared to say we’ll legislate or we’ll not legislate. I just expect universities to use the tax exemptions, [which are] provided because we want Americans to be giving, and higher education is a good reason to give. But we want it handled responsibly.
Q. I know Grinnell College’s Russell Osgood, from your home state, has spoken to you about this issue and probably others in higher ed as well. Has anything he or others have said changed your position on this at all? Softened it or hardened it?
A. I would say that it’s softened it. When I first started looking into this, they were paying out maybe less than 1 percent for helping students. Almost immediately as a result of my hearing, and also having presidents of Harvard, Yale, Stanford, and Princeton come to my office, as well as the president of Grinnell, I got the opinion—a very positive opinion, let me say, so I don’t want to denigrate the conversations in any way—that they read what I said and they started looking at what they were doing and they immediately came to the conclusion that they weren’t meeting their societal obligations. And they started paying out more.
So my initial reaction, and I don’t have any reason right now to say that it’s not the same, was very positive. So, they, probably by their actions, made me reconsider. Until I find figures that detract from what I have just said, I guess I still have that positive feeling.
But they need to know that 1-percent payout is not very satisfactory. The extent to which some other figure is satisfactory—what higher figure? Should you legislate a payout like we have for foundations? I kind of question whether that’s a good thing to do because sometimes, you see, we put a floor in, and it eventually becomes a ceiling. If we put some arbitrary percentage in there, well, maybe they’ll say, “Well, we’ve met the law. That’s enough, we don’t need to do anymore.” Then that might hurt students.
So I want to encourage the sort of continued positive reaction to what we’ve been seeing, and just encourage to do all you can. And to do all you can even in light of the fact that the values of their endowments have gone down. Because in some universities, they’re still very, very enormous.
Q. The Nacubo-Commonfund Institute endowment survey shows that 54 percent of the colleges have increased their actual spending from endowments, but a lot of it is still just driven by the spending formula. Only 152 colleges actually made a special appropriation out of their endowments last year, and only 22 of those 152 were colleges with endowments of over $500-million. So even though they are spending more, it doesn’t seem like they’ve dug deeply into their endowments in this difficult time. I’m wondering, is that the kind of spending policy that still concerns you?
A. If I say, I’m not satisfied with that, it might leave the opinion that they shouldn’t have any reserve and that they ought to spend out everything they raised.
Again, I’m looking for an ethic as much as anything on their part, that they aren’t in the business of raising money for the sole purpose of accumulating it and not having any social regard about it, as evidenced by the low payout. And I expect them to pay out more and I expect them to be vigorous enough so we don’t have to legislate something.
Q. People wonder, Why pick on colleges? We’ve been an era where we’ve certainly seen a lot of questions about the kinds of things banks have been doing, for example.
A. Well, I’m an equal-opportunity overseer. I’m into everything nonprofit and everything profit. If you would look at what I’m doing on oversight of Wall Street, AIG, what the Fed is doing with TARP money, as well as nonprofits of all kinds— nonprofit organizations, foundations, colleges, hospitals— I’m into all of it. They may say that we ought to be doing more here, but if they’re trying to say that we’re picking on them, they don’t have any basis for that whatsoever.
Q. What’s next? I know you are very preoccupied right now with issues about health care, with jobs, the economy, and all the oversight matters that you’ve just mentioned. At what point should we expect to see this endowment thing back on the front burner?
A. Well, it’s on the front burner right now and always has been.