Battered Nonprofits Seek to Tap Nest Eggs

Feb. 11, 2009, The Wall Street Journal — Universities, museums and other nonprofits battered by investment losses are pushing states to ease legal limits on spending so they can tap their endowments to avoid imminent layoffs and deep cuts to programs.

For colleges, in particular, the effort marks a startling turnaround, yet another example of the impact of the financial meltdown. Only a year ago, universities, with their $400 billion in endowment money, faced a congressional inquiry because of widespread concern they needed to spend more of their savings on financial aid for students. Now, colleges are finding that state laws aren't letting them spend enough.

The laws passed decades ago to keep charitable gifts from disappearing too rapidly have suddenly started hamstringing institutions from the Audubon Society to Brandeis University, which are taking a beating from the recession and the collapse in stock prices. The laws restrict spending from endowment funds, which invest heavily in stocks and other assets that have taken a hit amid the financial turmoil.

The growing movement is sparking a debate about the value of freeing up emergency cash versus the danger of further depleting key financial reserves, potentially shortchanging future generations.

In Massachusetts, one of several states with pending legislation to remove spending restrictions, some cash-strapped nonprofits are pleading for or quietly supporting a change.

The state's repeal effort is being led by the Massachusetts Audubon Society, whose endowment lost 28% in 2008, ending the year at $85 million. More than a third of the 265 gift funds that make up the endowment can't be tapped for spending. The conservation group, the largest in New England, has furloughed naturalists at its sanctuaries and science centers.

The Massachusetts Society for the Prevention of Cruelty to Animals plans to close three of its seven animal shelters over the next eight months. The society, which took in about 28,000 animals last year and seeks new homes for them, says the closures will trim that by about 11,000. The organization blames "devastating" endowment losses of $11 million last year. State law now restricts the organization's spending unless the endowment recovers.