Washington and Lee Responds to Congressional Endowment Inquiry
Introduction
In February 2016, Washington and Lee University was one of 56 private colleges and university throughout the nation that received a joint letter from the Senate Committee on Finance and the House Committee on Ways and Means requesting information about endowments. This letter, sent to the institutions with endowments of $1 billion or more, requested wide ranging information about how the colleges manage their endowments and spend their endowment funds.
On March 31, 2016, Washington and Lee submitted its response to the committees' questions about the University's endowment and finances. In addition to an introductory letter from President Kenneth P. Ruscio, the response includes a Preamble from Steve McAllister, W&L's treasurer and vice president for finance, along with 64-page document providing the specific responses but also including numerous attachments. The complete contents of the response follows.
Letter from President Ruscio
Office of the President
March 31, 2016
Senator Orrin G. Hatch
Representative Kevin Brady
Representative Peter J. Roskam
United States Senate and House of Representatives
Committee on Finance, House Committee on Ways and Means and
House Committee on Ways and Means Oversight Subcommittee
Washington, DC 20515
Dear Senator Hatch and Congressmen Brady and Roskam:
In response to your letter of February 8, 2016 requesting information on our endowment policies and practices, spending and financial aid, we submit the enclosed document with our answers to the questions you have posed. We understand the nature of the inquiry and the reasons behind it. Washington and Lee University is mindful of its obligation to responsibly manage its resources, not only for the benefit of students who currently attend the university and their parents but also to fulfill the trust of donors who have supported the University and to ensure equal or better educational opportunities for future generations of students.
In addition to the data and explanations we provide in the document, I would offer the following comments about our broad approach and guiding principles.
Philanthropy, especially through endowment payout, underwrites nearly 50% of a student's education at Washington and Lee - the single largest revenue source within the University's operating budget. The endowment thus supports every student's education at Washington and Lee, at least indirectly. We are mindful that the costs of higher education are a concern for many families, and we have taken several steps over the years, and especially in the last few years, to be sure that qualified students can attend the University regardless of their family's financial circumstances. Approximately 50% of our undergraduate students directly receive financial aid from the University. Within the overall profile of financial aid, for example, we have created the Johnson Scholars program; it provides packages to approximately 10% of each class with full tuition, room and board scholarships. In addition, the University implemented the W&L Promise which guarantees any family with an income of $75,000 or less, a minimum of a full-tuition scholarship to attend the University. Finally, we were among the first schools which eliminated loans as a required part of the financial aid package to students.
The preamble in the enclosed documents provides an overview of the University's endowment components as well as some history on the endowment at Washington and Lee. You will note as well in the document that 45% of the endowment under the University's control is dedicated to student financial aid and scholarships. Within the campaign completed June 30, 2015, the University raised $156.6 million in support for student financial aid. It was the single highest priority within that campaign.
In short, we are sympathetic to the topic you are addressing and the concerns you have expressed. We believe W&L's financial model and use of our endowment to support student financial aid is both the best for students and their families and also the most sustainable for the institution. We are willing to provide the committees with additional information or explain any of our answers in the document. You may contact me directly (president@wlu.edu) or our Vice President for Finance, Steve McAllister (smcallister@wlu.edu).
Sincerely,
Kenneth P. Ruscio
Preamble to Responses to Congressional Questions
Washington and Lee University's roots date back to 1749, and early in its history the institution began to benefit from endowments. In fact, in 1796 a gift of James River Canal stock valued at $20,000 from George Washington was one of the first endowment gifts that have helped to sustain the University over its 267-year history. Today, the University's aggregate endowment is complex and includes funds that have been established by individual donors, often with specific purposes for and uses of the payout; funds held in trusts by others that are structured to remain managed by external trustees in perpetuity and those that have certain restrictions to be met before being fully distributed to the University as an individual endowment fund; and endowments created through Board action which are typically established in response to a significant estate gift which and are often purposed for a particular use by the Board of Trustees.
In all, the University has direct oversight and management of well over 1,300 individual endowments. Of these, over 1,200 are true endowments (restricted by the donor in its creation) and approximately 100 are quasi-endowments (designated by the Board). These endowments had a market value of $1.047 billion as of June 30, 2015. Beyond these funds, the University benefits from a number of Trusts Held by Others. For purposes of measuring and valuing resources supporting the University, these beneficial interests are also considered as a part of the University's endowment. These instruments are best described as funds that do or will benefit the University through their generation of income or payout but that are managed each individually and separately from the University, which has no oversight, investment responsibility or payout policy for the underlying fund. There were 46 of these funds on record as of June 30, 2015, and the aggregate value of these instruments was $423.5 million.
For purposes of accounting, the endowment under the University's control is unitized and managed within a single commingled pool of funds. This allows for consistency in treatment of individual endowments and ease of calculating market values and spending allocations. The University's endowment fund has more than 230,000 units invested within the over 1,300 individual funds. To calculate spending allocations, the University derives a spending rate on a per unit basis, and each individual endowment is allocated that calculated amount multiplied by the number of endowment units owned by that individual endowment. For purposes of reporting spending calculations, the payout rates are based on this unitized approach.
The University takes seriously its responsibility for the management, oversight and establishment of payout from the endowment with the clear purpose of preserving the real purchasing power of the underlying funds over multiple generations and into perpetuity. As an institution that is older than the United States of America, it is our belief that we and our predecessors have developed over time strong policies and sophisticated strategies to meet this unique approach to sustainable business. The funds within the endowment that are controlled by the University are subject to UPMIFA rules and guidelines as well as an internally developed Investment Policy and Statement and a Spending Policy formula that is geared to moderate payout during periods of strong investment returns but that must not be overly constricted during periods in which investment markets stagnate or decline.
As you review the materials that follow and the responses to your individual questions, I would hope that you are cognizant of the efforts taken to be true to our donors over the years by exercising appropriate due diligence and discipline while also aiding succeeding generations of students through our 267 year history in underwriting the costs associated with the highest quality of education. It is not a simple balancing act to be achieved, but we sit with pride over the nearly three centuries of accomplishments of this institution and its graduates and look forward to a future that ensures another three centuries of equal or better success.
Steve McAllister
Treasurer and Vice President for Finance
Washington and Lee University
Responses and Attachments
The 64-page document that has Washington and Lee's specific responses to the questions from the Congressional committees and supporting documents is currently available in pdf format:
Response to Congressional Committees on Endowment