The ailing economy has caused UF to take new risks with its $1.25 billion endowment.
After absorbing an 8.3 percent decrease in investment returns from July 1 to Sept. 30 - the first quarter of the 2008-2009 fiscal year - the UF Foundation has decided for the first time to go against its policy and maintain the amount of money UF can spend from its endowment funds instead of reducing it.
Leslie Bram, associate vice president of the foundation, said the foundation decided not to reduce spending in response to a request from UF President Bernie Machen.
According to a policy established in 2004, the foundation was supposed to reduce its spending base by about 7 percent, which would have meant a decrease in spending of $3.3 million over the remainder of the 2008-2009 fiscal year, Bram said.
A spending base is the percentage of a donation that can be drawn from for spending. When donations come in, the spending base is set at 90 percent. From this 90 percent, 5 percent is spent every year.
Bram said the move posed a risk for UF funds, but the foundation wouldn't have gone against the policy if it felt it was too risky.
Paul Robell, head of the foundation, wrote in a Thursday memo to UF administrators that the endowment's spending rates would be reassessed at the end of this year. Robell advised the memo's recipients to keep in mind the possibility of future spending cuts when managing endowment funds.
While endowment investments have not done well in recent months, the endowment's growth slowed to a crawl over the last fiscal year. The total value of the endowment grew about 22 percent in the 2006-2007 fiscal year, but it increased by about 3 percent in the 2007-2008 fiscal year, which ended June 30.
Bram said the lack of growth is unfortunate but not unexpected in the volatile economic climate. Bram said endowments are managed with times like these in mind.
About 70 percent of UF's endowment, which is composed of private donations of cash or property that are sometimes matched by state dollars, is invested in the stock market, and the rest is put in fixed-income securities, such as bonds, Bram said.
The donations are usually donor-restricted, which means donors decide how they want their money spent. Donors could choose to pay for initiatives such as student scholarships, research or construction projects, or naming a building, Bram said.
"It's limited only by your imagination," she said.
UF spent $42.7 million from its endowment last year, she wrote in an e-mail.
Currently, 26 percent of endowment funds are designated for student financial aid, she said. That means scholarships could be cut if endowment spending decreases.
Karen Fooks, director of UF Student Financial Affairs, said most student financial aid comes from federal or state sources, so most students getting aid would not be impacted by a decrease in endowment spending.
Still, she said the sliding economy could spell trouble for students. The economic situation might lead more students to seek aid, and the government may not be able to accommodate them, she said.
"It's a ripple effect all down the line," Fooks said.
In spring, when scholarship funding is determined again, she said she will know if endowment-funded scholarships will be cut.
Paul D'Anieri, dean of UF's College of Liberal Arts and Sciences, said while endowment troubles are serious, there are more pressing issues.
"Frankly, the students have much more to worry about with what's happening with the state budget," D'Anieri said. "Those are the funds we use to run our classes."