Battered Nonprofits Seek to Tap Nest Eggs

The new laws adopted in many states allow nonprofits to use a flexible definition of "prudent" spending that includes factors such as the age of the gift, economic conditions and other available resources.

Among those still looking for a change are the University of North Dakota and North Dakota State University. The schools say they may have to cut scholarships and will face difficulty recruiting top-notch faculty because their endowments are under water. Despite North Dakota State's $100 million endowment, "our hands our really tied" on spending, says executive director Jim Miller.

Andrew Grumet, a New York attorney who specializes in nonprofit law, says many donors and institutions see merit to the old law because philanthropists want to endow operations "in perpetuity" and "there is a real danger that once you dip into principal you aren't going to get it back."

Adam Weinberg, director of the Whitney Museum of American Art in New York, says some of the institution's $120 million endowment is currently below original value and subject to the state's spending restrictions. But Mr. Weinberg says he and his board would resist dipping into principal even though the Whitney recently cut its budget by 15%. "I want to prepare for the future, too," he says.

But Mr. Weinberg, a Brandeis alumnus, wants the school to find an alternative to selling its art collection, and says he sees merit in giving nonprofits some flexibility.

Brandeis is considering cutting 10% of its faculty, along with closing its art museum. Facing an outcry among donors and others over the proposed closing, the school has suggested it would consider alternatives to selling the more than 7,000 works in its collection, including paintings by Willem de Kooning, Jasper Johns, Roy Lichtenstein and Andy Warhol.

Robert Mnuchin, a New York City gallery owner and former Goldman Sachs trader, whose parents gave money to buy 21 artworks for the Rose in the 1960s, supports easing the Massachusetts restriction on endowment spending. He calls the art collection "a treasure" that needs to be preserved. "There are times when society has to be more flexible, and this is such a time," he says.