valpopal - borrowing from the endowment sets a dangerous precedent and, more importantly, sends a signal of desperation to all involved. Further, the "borrow and then raise money to repay the endowment" idea, beyond being dangerous financial planning (this is where city and state governments get into trouble), delays raising funds for other needed infrastructure.
1. So, selling your prominent artworks and closing the museum doesn't send "a signal of desperation to all"? A number of articles in national newspapers seem to suggest it does.
2. Borrowing from the endowment actually would have avoided "delays" raising funds for needed infrastructure. The dorms we were told urgently needed updating would have been renovated by this fall semester already. And if the loan is paid back upon the sale of the artworks or through special fundraising earmarked for the dorms and to save the museum, then the money would come from the same source anyway.
Instead of a lose-lose situation, there would have been a win-win outcome.
1. Selling assets that are not tied to the university mission to fund necessary improvements projects fiscal responsibility. I strongly suspect that the catalyst for the newspaper articles that suggest otherwise is the people so vehemently against the sale contacting various media outlets.
2. The problem with borrowing against the endowment is that the people so vehemently against the art sale would just argue, "you paid for it without selling the art...just accept that the endowment is a little less. After all, we and those in the art community - who have no business telling Valpo what it should do - believe that the art has infinite value." It also sends a message this would not be the only time the university would choose to borrow against the endowment.
@vu84v2 You are simply parroting Padilla when you state the artworks “are not tied to the university mission.” I could just as easily respond by citing the Faculty Senate resolution declaring the paintings as core resources tied to the university mission. Also, what you “strongly suspect” has no relevance for readers of damaging articles reported by the New York Times, Chicago Tribune, or elsewhere that negatively portray the university’s actions and reflect “a signal of desperation” in the art sale and museum closure.
In your second paragraph you simply employ a fallacy by posing a false hypothetical premise with insulting projections in your created quotes. The Faculty Senate resolution proposed a loan from the endowment with repayment plus the possibility of a short-term fundraising. The proposals would be contractual; therefore, nobody could avoid the repayment. Indeed, the faculty is willing to abide by the terms in the contract, unlike the administration that is seeking to sidestep the legal stipulations in the Sloan Trust agreement.
Bottom line: Had Padilla followed the recommendations by the Faculty Senate, the desired dorm renovations would have been complete for this fall semester, and all the negative publicity harming VU’s reputation and prestige, resulting in losses of donor contributions and student enrollments, never would have happened.
Pal I understand you are upset that your friend's contributions are being sold, but you cannot deny that dipping into the endowment would effectively send the same message as the slander pieces are attempting to convey.
If the school dips into endowment, articles are still going to be written spewing negativity and doubts about the future of the school. These articles would arguably be worse than the articles currently written as those donors that 84 mentioned being hesitant about donating are going to be a hell of a lot more hesitant to learn that the university is doing soo poorly that a dip into the endowment is warranted. Yes the endowment is high. Yes there is a lot of money in Valpo's endowment and that money is more than other schools in the same boat could ever dream of having, but the fact remains. Institutions who have dipped into their endowment are seen by the public as "dead in the water" barring the grace of God himself providing a miracle to save the institutions. Its the same story over and over again, ABC School dips into their endowment, and then 5 years down the line, you hear they are shutting their doors.
84 has a good point in mentioning that the catalyst could be disgruntled individuals who are perturbed by the sale. All it takes is a few disgruntled voices calling up their buddies at the New York Times, or the Art Newspaper, or the Tribune, ect ect, to start a mass smear campaign over an issue that is, quite frankly, just a business unloading its assets to fund projects. Which is something universities, which are businesses that need to remain in the green, do all the time. Heck, some institutions, such as Purdue, even run their own in house websites dedicated to buying materials directly from the school. Materials which could be viewed as "Great Teachers".
Like it or not, an institution of higher education is also a business and needs to operate as such. A business who holds onto their assets because people might find them sentimental, will fail. End of story. You don't see realtors hanging onto their houses, because they "Have great history and can teach a lot about architecture" they sell the houses and move on with their commission. Valpo has been on a decline for quite some time and drastic measures need to be taken in order to improve the situation. Heck, how would the school expect their new partnerships with Ivy Tech and CCC to go over if their on campus living facilities are in such a dated state?
There are pathways to get butts in seats, and there are people vehemently blocking those pathways because of "The good old days". In fact, I would even argue that this mindset is partially what got VU in this situation in the first place.
The fact of the matter remains:
1. This art museum was under-marketed, and not well know by the general public prior to the bad press. In fact, go poll yourself downtown, I can guarantee that a majority of the people you poll will claim they probably still don't know about the museum, or have heard of the museum, but only from the bad press! If alumni, whom I am close with, spent 4+ years at the institution earning a degree, while being an avid fan of art, didn't even know about this museum, how am I to assume that this is a highly beloved museum? The proof is surely not in the pudding I am eating! Heck even when I attended the art festival in downtown Valparaiso, which I have done on a semi-regular basis since the late 2010s, I have not heard a single lick about this museum. You would think, during the literal celebration of art in the City of Valparaiso, someone would have been advertising an art museum, but no such advertising or even discussion of the Brauer museum was ever graced upon my ears. Especially a museum with a piece from an artist as beloved as O'Keeffe Just like any museum, or business that wants to make money, if there is no demand, why should one spend money on the supply?
2. Yes, art is a great teacher, but clinging onto this art like Gollum and his precious ring is silly given the circumstances the school is in. Computers and books are great teachers as well, but you don't see people crying for the hills when a school decides to unload their stock of textbooks on websites designed to sell off school materials. Why should this artwork be viewed differently than these great teachers as well. Schools unload "teachers" all the time, but no one is going to bat an eye at a school for getting rid of their Windows Vista computers for brand new Windows 11 computers, are they.
3. Dipping into endowments has, in recent years, almost always spelled the imminent death of an institution. An endowment is not a savings account that can be used for your grocery order from Walmart. An endowment is a vast network of donor resources (Which could also have their own restrictions on their usage much like you have mentioned profusely about the art) and are often professionally managed. According to Forbes, "University foundation CEO’s estimate on average more than 90% (and likely more than 95%) of endowment funds are restricted for a specific purpose. This is fully spelled-out in the gift agreement and cannot be changed without the donor’s consent. While such changes are possible, they are rare and generally are neither welcome nor received well by donors." I'm sure this quote sounds quite familiar to all those on the News thread. I highly recommend reading this article from Forbes as it outlines the complexities of endowments and their funds quite extensively and eloquently. It is very likely that Padilla, and the board, cannot touch most of the resources in the endowment for the purposes they want. According to the Forbes article, a Fundraising program (Much like the Uplift Valpo Program) can really only advise Presidents and board members about how flexible the endowment is, and where they can deploy the funds. At the end of the day, there is only so much a school can do to their endowment, "Sending Down" and "selling off" the endowment is usually not one of them, regardless of how dire the situation may be for a school. For more in depth dives into how a school can use their endowment and how these funds are deployed. Click the article in the source section.
As for your comments on the endowment loan, did the Senate get this approved from the donors? Was the Senate aware that this kind of approval would have been a requirement? Did the senate even care to think that endowment resources cannot be spent as petty cash and that donor wishes need to be seen through? These numbers and donor polls would have been quite essential to the process if carried out, so please, inform us of the thoughts about this sacred load from the donors, that is, if the donors were even contacted in the first place. I know you talk about the violation of the trust the art, but there also seems to be greater potential for a violation to occur when dipping into the endowment.
@rezynezy Much of what you say does not stand up to the facts, including your claim that universities cannot dip into their endowments and the following: "If the school dips into endowment, articles are still going to be written spewing negativity and doubts about the future of the school." Proof exists in the simple fact that universities, including Valpo, regularly "dip into their endowments" and you weren't aware of it.
I believe VU has dipped into the endowment every fiscal year since Covid. The administration drew even more from the endowment two years ago to pay for the massive early retirement program to 56 employees. Plus, those various drawdowns were not loans to be repaid, while the Faculty Senate's three-pronged plan required full reimbursement with interest to the university endowment, an accompanying short-term targeted fundraising, as well as a plan to be devised with the assistance of professional museum organizations for alternative revenue solutions, including regularly leasing out artwork.
You and others repeatedly lament the lack of movement on the dorm renovations. Had Padilla followed the guidance of the Faculty Senate, the dorms could have been updated for this upcoming fall semester, and consequent publicity would have been positive instead of negative.
I have been reading the long (and articulate) posts about what the University should do or could do. I would like to add some facts, and commentary on some of those facts based on the recently posted tax returns for VU. The last one available is for FY 2023, which ran from July 1, 2022 through June 30, 2023. A few headlines:
In FY 2023, VU had a net loss of $23.6M. This was more than the $11.6M loss in FY 2022. In 2021, they had a net gain of $8.5M.
Comparing headline numbers (from 2023, 2022, 2021), the three biggest differences were contributions and grants going down ($21.9M, $30.1M, $29.6M), program service revenues ($139.4M, $145.5M, $154.9M), and lower investment income ($4.1M, $19.0M, $13.3M). So, in FY2023, VU received smaller net donations, less tuition revenue and had lower investment returns.
On the balance sheet, the total assets of the University declined as well ($612.5M, $643.4M, $674.3M). Note these asset this includes the endowment, plus all of the real estate, equipment, equipment, etc.; the latter have a net book value of $228.2M in 2023. Fortunately, the total liabilities have declined some as well ($162.8M, $176.5M, $167.5M); it is hard to tell here, yet it appears to me that VU has made paid down some of the construction loans per the agreement. Also noteworthy, in 2023, VU paid $4.7M in interest expenses, which was up from $4.3M in 2022. VU still has drawn $21M on a line of credit, which was unchanged between 2022 and 2023. The interest charges on the line of credit have surely gone up since this line of credit was initially tapped.
What does all of this mean?
As some of the posters have noted, VU has been drawing some on its endowment to pay ongoing expenses, though not as much as some universities. VU still has a reasonable though modest endowment, and the endowment is very important for funding the ongoing activity of the university. It seems unlikely to me that VU has much more borrowing capacity - probably the current loans and lines of credit (which together total $162.M) are secured at least in part by covenant restrictions on the endowment. The annual interest expenses of $4.7M are large, so it is very unlikely that VU could somehow 'borrow from the endowment and pay it back with interest' as was suggested.
The other item I would add to the ongoing discussion is that it is not clear to me to what extent the endowment can be drawn to pay for certain items. Some of the endowment is restricted for certain purposes (such as student scholarships, endowed professorships, and the like).
Pal all schools use their endowment in some form or other. Otherwise certain scholarships would not exist at private institutions. In the case of VU, the interest accrued from the endowment is used to pay for scholarships for students and such is listed on student financial aid packages. What I am referring to, is the news of schools dipping heavily into their endowments in order to fund expenses. Those cases are bad looks and have proven to be bad looks in the past and even more modernly with Marymount. Draining 1/3 of the endowment in an effort to attract students does not keep donors satisfied that their donations are going to pan out into successful ventures for the institution.
While VU has dipped into the endowment, they have done so with the funds which are available from the endowment to do so and have not made efforts to take out significant portions of the endowment in order to fund projects. Doing so would require the school to reach out to donors about approval for funds to be used for non-intended purposes, which leads to news stories of schools like Marymount getting to the press and the faith in the institution dropping.
You reiterated the recommendations from the senate, but failed to answer my questions as to how donors would have felt about the loan. I am going to reiterate what 84 said earlier in that donors would likely be hard pressed to agree with the schools decisions while sitting on assets such as prized artworks. Art may be a great teacher, but to 7/10 donors, that art is an asset. Please see my previous questions as you seem to be avoiding them.
While 95 did do some digging on the financials, he could not find the exact number of the endowment that is "open funds". Therefore we must go off of the average of 90% of those funds being unavailable without asking donors. This leaves 20 million in assumed funds that are open to use.
It is quite hypocritical to hold the agreement with the art in such high regard, while also saying that the school should dip into the endowment, when endowments have the same agreements with how the money can be spent
I join in thanking VU95 for the numbers, which I trust and accept without review. If we put those stats in perspective, we see that the university's assets total more than $600M. The annual interest expense is less than 1% of that figure. If we limit our scope to the university's endowment of over $300M, the annual interest expense is close to 1.5%. Even increasing any interest that would be added due to a temporary loan for the dorm upgrade, the annual interest expense would still be about 1.5% of the endowment.
Members of the Faculty Senate include individuals from Accounting, Economics, Mathematics and Statistics with access to the university's financial statements. The Faculty Senate's three-pronged plan outlined new sources of revenue income along with the short-term loan. In addition to the Faculty Senate plan to pay back the loan with interest, according to Pres. Padilla, the dorm renovation would actually also be an investment leading to expanded revenue income for the university.
What I am referring to, is the news of schools dipping heavily into their endowments in order to fund expenses. Those cases are bad looks and have proven to be bad looks in the past and even more modernly with Marymount. Draining 1/3 of the endowment in an effort to attract students does not keep donors satisfied that their donations are going to pan out into successful ventures for the institution.
I was also referring to dipping into the endowment to fund operating expenses, which VU has done a number of years for larger amounts than the proposed loan. However, nobody is suggesting anything near draining 33% of the endowment. That is a straw man fallacy. The short-term loan recommended by the Faculty Senate, which would be reimbursed, would amount to about 2% of the endowment, and according to Pres. Padilla would benefit the university as an investment providing new revenue to the university.
That is not a straw man. If I were to claim that heavy endowment dipping directly led to closures then it would be a straw man, but my claim was based in the bad press generated from endowment dipping, and the potential hesitancy from donors. My claim about how negative press can be generated from dipping heavily into endowments still stands. There are various articles online about the increased dipping into endowments from institutions. These articles are largely negatory towards this practice. The example chosen was the example provided for discussion by board members. As other members mentioned, VUs situation is vastly different from Marymount's and in no way should Marymount's example be followed as the current situation of VU. As for the 2% dip to cover costs, that could end up being successful, or it could not. It is by no means a bad plan, but as with all loans, there is some semblance of repayment required at some point. There is a real possibility that with taking out a loan, the school could not see the return on investment on the dorms. As outlined by 95, the school is paying off current construction loans and there is still an outstanding line of credit that needs to be paid down. Taking out another loan just seems like a bad business decision when there are assets that can provide capital now without ant financial strings attached. There are still strings attached (Which have been outline profusely) but, there is not the risk of default with the artwork.
This is the first I am hearing of new income generation plans from the senate, by all means, implement them. There is little harm in finding new ways to make money.
As for VUIndiana's comments on the endowment, I feel as if it could be easy to convince the Christians to allow for their funds to be repurposed. Christians are all for improving the access to Christ and an argument can certainly be spun about better dorms attracting students who would then have greater access to Christ and Christianity. As for sports people, with the state of Valpo sports, your argument is definitely a good one. Considering that a new stadium can be subsidized with the sale of naming rights and advertising space. I already assumed that if a new arena was built, it would most likely be something along the lines of Family Express Forum rather than ARC 2. I don't think that legal battles are right format to do so. The current legal battle is already drumming up negative press, whether it be caused by disgruntled art fans or not, the last thing VU needs is to directly attack the donors and their money.
I am not aware that a university can directly draw on restricted funds in an endowment to cover any losses in a fiscal year, though I surmise that it can draw on unrestricted funds. The value of any endowed fund can increase or decrease based on return on investment. To my knowledge, universities can increase or decrease the amount drawn from an endowed fund in a given year, but don't draw from an endowed fund to the extent that it falls below its original principle. So, for example, if an endowed fund were used to cover part of the salary for a theology professor, more could be used in a given year (and thus less of his or her salary would come from operating funds). Thus, the endowment could, to a limited extent, be used to offset losses - but I doubt it could be used to cover $23.6M in losses for a single year.
From my experience with Valpo, the terms of a targeted donation, whether it is for endowment or immediate use, is that the money cannot be used for a different purpose unless the designated purpose no longer exists. For example, if a scholarship was created for nurses, the funds must be used for nursing scholarships unless Valpo discontinued its nursing program (unless the donor agrees to an alternative use). A university can declare exigency, which suspends many rules (such as tenure) - but I have no idea how this applies to endowed funds. Further, declaring exigency sends a strong signal that the university may not be able to survive...so that is an unrealistic and unnecessary scenario for Valpo.
A university can certainly ask donors to repurpose endowed funds, but any legal action or leveraging with potential legal action would be incredibly foolish. If that were pursused, I doubt any of the donors would ever donate to the university again - and most large donations come from established donors who have already made substantial donations.
From my understanding of other endowments, I doubt that 90% of Valpo's endowment is restricted. Probably more like 75%.
As the S&P500 is up over 15% YTD, I would expect that this has helped the total endowment (probably an 8-10% increase or ~$25M YTD). Again, this does not become a usable fund (other than the part from unrestricted funds) as it increases the balance of each endowed fund.
To valpopal's comments about Faculty Senate developing a list of new revenue sources, I would love to see that list and the business plans for each source (with projected revenues, costs, resources required, etc.). I am very dubious that they could come up with significant new revenue sources that had not already been considered. And remember, to be successful such initiatives need to generate margin, not just revenue. Further, they cannot risk or reduce margin from existing sources in the university.
