By Brent Gustafson, finance director
As we've noted a number of times in previous columns, most of the budget for the College of Liberal Arts comes from tuition and state appropriations. This column will focus on an important and more restricted source of money--donated funds. For CLA, like many higher education and non-profit organizations, donated money from fundraising is an important source of money to meet key priorities and can supplement and enhance the activities from larger sources of funding. In FY 2013, CLA has budgeted $9.3 million of spending from gifts and endowment earnings. At the close of the 2012 fiscal year, the total value of CLA donated funds was $215.9 million. The amount of spending from donated funds is small compared to the total amount of money that has been donated, and the reasons for this are explained below.
Donors and Donations
As the name implies, donated funds are resources that result from the philanthropic gifts of varying sizes from all types of donors (individuals, foundations, etc.). Some donors give sizable sums to CLA and other donors give smaller amounts. The manner in which they give can also vary--some gifts are unrestricted (or discretionary) as to their use, while other gifts have very specific criteria for how the money can be spent by the college.
Types of Donated Funds
Within the University's structure for donated funds, most of the money is held and managed by the University of Minnesota Foundation (UMF). Donated money that came to the University prior to establishment of the Foundation is held by the Treasury Accounting Department, a support unit within the Controller's Office.
Many organizations that raise private money have endowments. These endowments typically have constraints both in terms of what the money can be spent on as well as how much can be spent. The endowment funds within the college or within the University should not be thought of as one large balance, but rather they are a collection of many smaller endowment funds, each with its own intended purpose, as articulated by the donor. The types of funds can also differ:
• "Permanent Endowments" are those funds for which the principal balance cannot be spent, but the spendable payout (4.5% of endowment balance, averaged over the prior 20 quarters) on that endowment creates a revenue stream that can be spent on the fund's intended purpose. At the University of Minnesota Foundation, a gift needs to be at least $25,000 to establish an endowment.
• "Quasi Endowments" are quite similar to permanent endowments, but for these funds, a portion of the principal balance can be spent, in addition to the investment earnings.
Both permanent endowments and quasi endowments are held in longer-term investments and therefore subject to greater market risk. This can significantly affect the earnings and valuation of these funds over time.
• "Demand Funds" are essentially cash accounts that can be drawn upon in full to meet the intended use and do not have provisions to limit the spending. Demand funds are held in short-term instruments with virtually no market risk.
The following table indicates CLA's donated fund balances at the close of FY 2012 by type of fund (click chart to see larger):
The designated purpose of a CLA donated fund is recorded in a Memorandum of Agreement (MOA), which guides how funds are to be spent. These documents blend individual donor preferences with institutional goals and guidelines, and they must be adhered to when funds are allocated. Often, MOAs reflect the college's fundraising priorities. For example, in recent years, CLA has prioritized fund raising activities around undergraduate scholarships and graduate fellowships, and many of our MOAs restrict the use of donated funds to these purposes.
Below is a table indicating the breakdown of CLA's donated funds by types of activities the money supports:
After funds are raised, the college has an important role in ensuring that donors' intentions are met through effective use of these funds. This stewardship function helps keep donors aware of activities associated with their gifts and can also help the college in its efforts to obtain future donations.