The Catholic University of America

Finance:                                                                                                                             Endowment Spending Policy 

Approved by: Board of Trustees
History: Issued   -- December 28, 1999  
  Revised -- March 24, 2015  
Related Policies: Investment Policy
Additional References:  
Responsible Official: Treasury Services Director, tel. 202-319-6445
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I.          Introduction 
The endowment spending policy determines the annual flow of funds from the endowment to the operating budget. A well designed spending policy takes for its conceptual framework the two principal goals of endowment management: providing a significant and stable flow of funds to the operating budget over the short-term to provide resources to this generation of scholars, while at the same time maintaining the purchasing power of the endowment over the long term, thus ensuring the University will be able to provide adequate resources to future generations of scholars.  All uses of the endowment distribution must be strictly in accordance with the original donor agreement and/or Board of Trustees resolution regarding quasi endowments.   
II.         Definitions
A.   Permanent Endowment means a fund established in accordance with donor restrictions to exist in perpetuity. 
B.   Quasi Endowment (sometimes called “board designated”) means a fund that functions like an endowment, but without any legal or donor restriction to hold the fund permanently. Thus, net appreciation, reinvested income and/or principal may be appropriated and expended in full.  There are two types of quasi-endowments. 
1.     University-Directed: The President, Provost, Vice Presidents, or Board of Trustees may designate certain gifts or excess funds to be held as quasi-endowments. However, Board approval is required to remove funds from this designation.    
2.     Donor- Directed: Donors may direct that their gifts be held as quasi-endowments, either because they envision the spending of principal at some point in time (or under certain conditions), or because they want to give the University that flexibility. The corpus of donor-established quasi-endowment accounts may be expended in accordance with donor terms and restrictions.  
C.   Calculation Date means April 30th for purposes of spending. 
D.   Historic Dollar Value means the value of the donor’s original gift to an Endowed Fund and any subsequent donations thereto.
E.   Unitized Market Value means fair value of the investment assets within the long-term pooled investment portfolio divided by the number of units in such pool. 
F.   The Uniform Prudent Management of Institutional Funds Act (“UPMIFA”) regulates endowment investment management, spending rules and financial reporting.  The Board of Trustees interpreted UPMIFA as requiring the preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary.  As a result of this interpretation, the University classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) income accumulations, if specified by the applicable donor gift instrument. The remaining portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the organization in a manner consistent with the standard of prudence prescribed by UPMIFA. 
III.         Gift Acceptance 
A.   Prior to soliciting or accepting any gift that establishes an endowment fund, the responsible parties within each School or Department must understand the proposed terms of the endowment fund and the restrictions on spending and use, and have confidence that the school or department will be able to administer and spend in accordance with those terms and restrictions. 
B.   The Division of University Advancement requires the use of its standardized endowed gift agreement for new gifts, other than bequests. These standardized agreements include provisions that facilitate the proper management and administration of the endowed funds.  Exceptions to this requirement require the approval of the Division of University Advancement and the Office of the Vice President for Finance and Treasurer.   
C.   Prior to acceptance, all gift agreements must be approved by the Vice President for Finance and Treasurer or their designee, the Controller and Assistant Treasurer, and the Director of Treasury Services.   
IV.        Minimum Dollar Thresholds 
Due to the investment management and administrative costs involved with managing an endowed fund, the following minimums are required for all non-bequest endowments: 
A.   The minimum level of cash on hand needed to create an endowed fund is $50,000. 
V.         Calculation of Endowment Payout 
A.   The University utilizes total return (income plus capital appreciation) on its assets in the determination of the rate of spending from the Endowment fund.  The long term average spending must be kept to no greater than the expected long-term real total return of the fund. 
B.   The amount distributed to each fund is calculated first by averaging the quarter-end per share value of the twelve fiscal quarters for the previous three fiscal years.  That per share average is then multiplied by the total number of shares of the specific endowment fund at the time of the endowment distribution calculation.  This average value of the fund from the calculation above is then multiplied by 4.5 percent to obtain the annual endowment distribution. 
Example: If endowment X has 2,000 shares of the endowment pool, and the average value per share from April 30, 2010-2013 was $400/per share, then the average value of endowment fund X is 2,000 shares X $400/per share =$800,000. The endowment distribution is then calculated as $800,000 X 4.5% = $36,000. 
VI.        Spending from an Endowment 
A.   Endowment distribution is allocated to each endowment fund on the 1st day of the new fiscal year, or May 1st. 
B.   Endowments are intended to be held in perpetuity; therefore spending typically comes from accumulated earnings derived from investment performance.  Consequently, spending from new endowments will not occur immediately.  Spending will not commence on a newly established endowment for at least a 12-month period to allow earnings accumulation. 
C.   Endowment distribution can be carried forward to subsequent fiscal years; however, departments cannot overspend the endowment distribution.  If a department awards or spends more than the allocated distribution, it will be required to reimburse the fund from other departmental sources for the amount overspent. If the endowed fund is not reimbursed from other departmental sources within the fiscal year, then the distribution for the next fiscal year(s) will be used and no further spending will be allowed until the deficit is recovered. 
D.   The Vice President for Finance and Treasurer has the authority to suspend spending distributions on endowments whose market values fall below the historical cost. 
VII.       Use of Endowment Payout       
A.   All uses of the endowment distribution must be in accordance to the restrictions detailed in the original donor agreement (permanent endowments) or the restrictions set forth by any resolution of the University Board of Directors (quasi-endowments). 
B.   Any decisions to add unspent distribution back into the corpus of an endowment shall be made on a case by case basis by the Vice President for Finance and Treasurer.  For a permanent endowment that approval will require the review of the original donor documentation and the applicable accounting guidelines.