Avila University wants a court to lift restrictions on donations because it can't fund scholarships
The Catholic liberal arts school in Kansas City is asking a court to remove limitations that donors imposed on money they gave for scholarships. Avila University says that if it can't tap into its endowment, "the University will be challenged to meet its financial obligations."
Last month, Avila University touted its largest-ever incoming class.
Administrators talked about adding housing on the Kansas City campus and predicted they would have the money to expand programs and activities for students.
But just weeks earlier, university leaders had shared a less rosy view of Avila in a petition to a Missouri court to lift restrictions that donors imposed on money they gave for scholarships.
Avila wants to tap into its endowment — money that’s supposed to sit in bank accounts earning income.
Donors’ instructions on using their gifts are generally binding. And some donors instructed the university to only spend the earnings from their gifts. The principal was designed to stay untouched forever.
Avila wants access to part of that principal. It’s arguing that would best honor donors’ intentions that the money go toward scholarships during the next two years.
The Catholic liberal arts and professional studies school is asking the court’s permission to tap into $6.4 million of the principal — more than a third of its total endowment.
If the court says no, Avila administrators argued in their petitions, they may not be able to give any scholarships because “the University will be challenged to meet its financial obligations.”
But draining money from the endowment comes with risks, said Larry Ladd, a senior consultant for AGB Consulting with experience as a financial executive for colleges and universities.
When scholarship donors tell a school not to spend the principal of their gift, it’s because they want the university to benefit from investment income indefinitely, he said. Spending the principal takes away the perpetual nature of the gift and can jeopardize the university’s mission to remain affordable.
“You’re basically basically saying we need the cash to survive,” Ladd said. “But that’s a short-term solution.”
The strategy could be tolerable in the long term if Avila has a solid plan to improve its financial standing and replace the money, he said.
That’s what the university anticipates, said Avila President Jim Burkee.
“Were we only pulling from or accessing endowment funds to cover our needs because we couldn’t meet them with enrollment revenue,” he said, “yeah, there might be a risk.”
But he said Avila isn’t risking its endowment. Rather, he said, the school wants to use the money as an investment that will clear up some ongoing financial shortages and position Avila for growth.
Ladd said he doesn’t think Avila’s petition meets the legal standard needed to dip into the endowment.
Missouri endowment law, which is similar to that of most other states, says courts may consider lifting restrictions when they become wasteful, impossible to carry out or illegal.
For example, if a university historically accepted donations meant only for white students, it could argue those restrictions are immoral and illegal, Ladd said. If a college closes a Latin program, it could ask to interpret the donor’s guidelines more loosely and give restricted funds to a classical languages program.
But asking to spend the principal of a donation is rare, Ladd said, and he’s not aware of a case where the urgency of a college’s need was strong enough justification.
“The donors’ intent takes precedence over the institution’s needs,” he said.
Even if the university were to close, the endowment could still be preserved and used for similar purposes, such as supporting students at other Catholic universities.
Burkee, who took over as president last year, said he’s seen colleges and universities around the U.S. modify endowment restrictions. But he declined to give an example of one that has had success with Avila’s strategy.
“I would distinguish Avila in a very forceful way from other institutions, because this is not a matter of Avila accessing funds or making significant cuts because we’re an institution in some kind of crisis,” he said.
Rather, he said, Avila is trying to invest in its own growth.
In late July, Avila’s board approved the plan to remove the endowment restrictions — if the court system and Missouri’s attorney general approved the change.
Avila’s initial petition, filed Aug. 4 in Jackson County probate court, was denied for lack of jurisdiction. Avila filed a similar petition with the Jackson County Circuit Court Sept. 5. The attorney general deferred to the court’s judgment in both cases.
Avila filed a motion to expedite its hearing, scheduled for January, reiterating that it is “facing critical funding issues.” Burkee hopes for a final resolution within weeks.
In a memo filed to support its petition, Avila says the restrictions are “impractical and may make it impossible for Avila to achieve the purpose (of) the endowed funds — to finance scholarships.”
The petition is framed as an attempt to comply with donors’ intentions by giving more scholarships and helping Avila through financial challenges.
If Burkee were a donor, he said, he’d like to see donations going to his intended purposes, “but also that it’s going to an institution that’s going to be there, and that is growing and succeeding.”
Donors who agree with the university’s changes could approve them without a court process. Those who contributed many years ago may not be reachable.
Burkee said that Avila’s advancement department had done the proper diligence with donors but that he couldn’t say whether donors who gave to the 97 funds in question had been contacted.
University administrators and board members have discussed backup plans if the petition isn’t approved, Burkee said, but he declined to detail them.
How we got here
In its petition, Avila University cites the “current crisis in higher education” for its financial woes.
Nationwide, colleges face financial pressures as they compete for a shrinking pool of incoming freshmen. Small, private colleges have seen enrollment drop the most, a report from Fitch Ratings says.
Avila had faced declining enrollment for about a decade. Then came the COVID-19 pandemic. Burkee said the university was in a “difficult financial situation” when he arrived. He declined to quantify Avila’s money problems.
The situation is starting to improve with the increased enrollment this year, Burkee said. The university has expanded its partnership with the KC Scholars program, a competitive scholarship for low- and moderate-income students. More than 120 students received scholarships through the program this year.
After seeing no new international students join last year, Avila enrolled 160 this fall, Burkee said.
Those changes add up to a record-breaking incoming class this year of about 500 freshman, transfer and international students — compared to about 275 last year — as well as increased enrollment in graduate programs, Burkee said. Overall, enrollment grew from about 1,300 students last year to just over 1,700 full-time students this year.
Increased enrollment is a good sign, Ladd said, even if it’s dependent on students receiving generous scholarships.
“If you’re only getting $2,000 from a student, if you have the excess capacity in your classes, it’s $2,000 you didn’t have before, no extra expense,” he said.
Borrowing from an endowment or spending principal is less ideal, Ladd said, but much depends on Avila’s plan to increase revenue even if the court rejects the petition — as he thinks is likely.
“Universities are very resilient,” he said, and may try several plans before they hit on a successful one. “Most tuition-dependent private colleges and universities are very challenged financially now. But most will survive.”