When Princeton University announced in February that it would pursue “more targeted, and in some cases deeper, reductions over a multiyear period,” the news landed with the force of a paradox. Here was an institution sitting atop a $35.7 billion endowment — the fifth largest in the nation, telling its campus community it needed to cut.
Princeton President Dr. Christopher Eisgruber had asked units across the university to make 5 to 7 percent cuts to their budgets, citing an increase in the endowment tax the institution faces and federal threats to research funding. Within months, all departments and university units were asked to prepare separate plans for 5 percent and 10 percent permanent budget cuts to be phased in over three years.
To the average observer — and to many lawmakers — the question was obvious: How can a university worth tens of billions of dollars plead poverty?
As elite institutions announce layoffs, hiring freezes, and program cuts, a closer look at the difference between what institutions own and what they can actually spend reveals a more complicated financial picture than headline numbers suggest.
The answer lies not in the size of an endowment, but in what portion of it any institution can actually touch.
The Restricted Reality
Most people imagine an endowment as a vast reservoir of cash, available to be drawn upon at will. The reality is closer to a gallery of locked rooms, each with a donor's name above the door and a specific purpose written into the deed.
According to Ken Redd, senior director of research and policy analysis at the National Association of College and University Business Officers, endowment funds account for about 15 percent of institutions' operating budgets on average, a figure that varies considerably by institutional type. Private colleges average around 13 percent, as do public university systems. But public colleges and universities with institutionally related foundations draw roughly 24 percent of their operating funds from their endowments — a dependency that makes them especially vulnerable when investment returns soften or federal policy tightens.
