For trustees and other University officials, the decision to break Princeton's endowment piggy bank is a natural result of several economically bullish years.
The exact size of the possible spending hike will depend largely on the perceived strength of the University's investment portfolio, according to trustee Paul Wythes '55.
Going into January, if University investments continue to perform well, Wythes said the push to spend more of the already mammoth endowment — now topping $8 billion — would be almost irresistible.
In recent years, because of a thriving economy, the University's savings have grown far faster than officials have spent it. Typically, the endowment spending rate — also known as the spending rule — has been held steady at about 5 percent.
But with so much money holed up in savings and with several capital-consuming projects looming on the horizon, the trustees are increasingly tempted to pull out some of the stops on endowment spending.
Nevertheless, Wythes warned there is a delicate balance to be struck when modifying the spending rule.
"If you get too high, you're punishing the future by spending too much now," he said. "If you're too low, you're punishing the present by saving too much."
The University's endowment comprises investments that are expected to produce sizeable monetary returns over the long-term, explained Vice President for Finance and Administration Richard Spies GS '72.
"If you can assume a 9- to 10-percent return on investment — and you need to reinvest about 5 percent to keep up with inflation — you are left with about 4 or 5 percent for current spending," he said.
The trustees' objective in altering the spending rule is to free up cash while maintaining endowment stability and growth in order to keep pace with inflation.
The trustees' spending rule originally was crafted to ensure an element of fiscal security for the University, even during times of economic adversity.
"The rule is for stability," Wythes said. "You don't do anything haphazardly. We don't want to be irresponsible with the endowment."
University administrators and trustees were hesitant yesterday to discuss in detail how the extra funds from the endowment would be spent. Nevertheless, they have said much of the funds would be spent to reduce University debt and cover other capital expenses.
A piece of the pie
As endowment spending increases at an annual rate of 5 percent — reaching $214 million this year — the total percentage of the endowment spent varies with the University's investment returns.
During the past 20 years, the University's endowment spending has varied from 4.75 percent of the total endowment to its current level of 3.25 percent, according to Spies.
"The spending rate, as a percentage, will move up or down. It's a blended percent based on a three-year endowment average," Wythes explained, adding that higher investment returns have caused the percentage spent to reach record lows.
It is during these especially profitable years when the University ends up spending exceptionally low percentages of the endowment that the trustees consider lifting the spending rule. The rule is usually lifted for only one year.
"We've lifted the spending rule six or seven times in the last 20 years," Spies said. "If it happens now, it would be only two years since the last time — which is very unusual."
Most universities typically spend about 4 percent of their endowment in an average year, according to a survey conducted by The Chronicle of Higher Education.
Spies said he expects Princeton will aim to spend closer to the 4-percent rate in the year to come. "The trustees have said that their objective — based on the type of circumstances that affect the endowment — is to keep spending at 4 to 5 percent," he said.
No decision on the fate of this year's spending rule is expected to be made until at least the January trustee meeting.
"There is a built-in wait and see principle to it," Spies said. "Their eye is on the long-term."
Read More
Day nine of ‘Gaza Solidarity Encampment’ at Princeton
Daily Princetonian StaffThe “Gaza Solidarity Encampment” enters its ninth day after a quiet night in Cannon Green — follow for live updates.
The “Gaza Solidarity Encampment” enters its ninth day after a quiet night in Cannon Green — follow for live updates.
Annual May Day March stops at ‘Gaza Solidarity Encampment’
Justus Wilhoit and Isabella DailOn May 1, campus and local organizations came together to organize the annual May Day March, to celebrate workers and advocate for labor rights and social justice.
On May 1, campus and local organizations came together to organize the annual May Day March, to celebrate workers and advocate for labor rights and social justice.
Princeton faculty member dies in traffic accident
Caitlyn TabladaOn April 29, Dr. William Noel, the John T. Maltsberger III ’55 Associate University Librarian for Special Collections in the Princeton University Library, died from injuries sustained in a traffic accident in Edinburgh, Scotland. The ‘Prince’ spoke with colleagues of Noel to learn about his contributions to Medieval Studies and his lasting legacy.
On April 29, Dr. William Noel, the John T. Maltsberger III ’55 Associate University Librarian for Special Collections in the Princeton University Library, died from injuries sustained in a traffic accident in Edinburgh, Scotland. The ‘Prince’ spoke with colleagues of Noel to learn about his contributions to Medieval Studies and his lasting legacy.
