A booming stock market last year meant big gains for endowments at Kansas colleges and universities.
But declines in the long-term performance of endowments and changes to the tax code make many financial officers nervous.
A study, conducted by the National Association of College and University Business Officers, found that endowments across the country saw a 12.2 percent return in fiscal year 2017. That’s a significant improvement over the loss of 1.9 percent the year before. Kansas schools saw similar returns.
However, analysts warn against counting on continued momentum in those markets.
“Bull markets end,” said Kenneth Redd, senior director of research and policy analysis for NACUBO. “If you’re an investor — especially of an endowment — you have to plan for that.”
Colleges and universities use endowments — invested assets valued in the billions for the largest universities — to create a stable financial base to draw upon over the long-term.
In good financial times, a portion of those returns pays for or student financial aid and a range of things from new buildings to research. In bad years, spending from endowments can minimize tuition hikes and maintain services that would otherwise face cuts. Years of declining state higher education spending in Kansas have caused a growing reliance on endowments at public universities.
Fort Hays State University saw the largest proportional increase of the ten Kansas institutions included in the study. The market value of its endowments increased by more than 30 percent to $91 million. Much of the increase was driven by large, one-time gifts.
“Our future is very bright,” said Jason Williby, president of the Fort Hays State University Foundation.
Long-term returns have not proven so encouraging. But Williby waves away those concerns.
“If the stock market stays strong I don’t think double digit growth is out of the norm for the next couple years,” said Williby.
The University of Kansas saw the market value of its endowment increase by 9.3 percent to 1.6 billion dollars, even after spending some of the returns rather than reinvesting that money. The first six months of the current fiscal year have seen a comparable performance, according to KU. But those in charge of the university’s endowment are bracing for a rockier future.
“A run of good performances raises everyone’s collective blood pressure,” said James Clarke, a senior vice president for the KU Endowment Association. “We’ve run pretty far, pretty fast. And markets tend to reserve at some point.”
There’s also concern about how new changes to federal tax law will affect endowments. The law adds a 1.4 percent excise tax on some private college endowments, though it would only affect a small number of institutions with large endowments compared to the size of their student body. There are also worries that a higher standard deduction will give taxpayers less of an incentive to donate to charities.
Clarke said the school will have to wait to see what impact the tax changes will have and that most donors to KU give because they want to support the university — not for a tax deduction. But others in charge of university endowments are nervously uncertain.
“With a heavy accent on the nervous,” said Kenneth Redd with NACUBO. “If there are fewer incentives for people to donate to charities that’s going to really affect all nonprofits but certainly university endowments."
Stephan Bisaha, based at KMUW in Wichita, is an education reporter for the Kansas News Service, a collaboration of KMUW, Kansas Public Radio, KCUR and High Plains Public Radio covering health, education and politics. Follow him on Twitter @SteveBisaha. Kansas News Service stories and photos may be republished at no cost with proper attribution and a link back to the original post.