University of Rochester

Office of Budgets and Planning

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Endowment Spending Policy


Administration and Finance

Endowment Account Policy

  1. Date of Initiation/Revision
    In effect for Fiscal Year 2009 budget.
  2. Policy Classification
    Office of Budgets and Planning
  3. Policy Summary
    The purpose of this policy is to establish individual endowment account spending rules to ensure that the University's fiduciary responsibility under the New York State Not-For-Profit Corporation Law is met. Pursuant to the law, the value of the assets when given, known as the historic dollar value, may not be expended by the institution. Instead, the assets must be invested and only the "prudently appropriated appreciation above the historic dollar value of a particular endowment fund and the endowment fund income legally available for expenditure" (1) should be expended. The policy statement below outlines the parameters that will be used to set the individual endowment account budget. It is the responsibility of an individual division to ensure spending is in accordance with donor restrictions.
  4. Related Policies
    • Financial Accounting policies
  5. Policy Statement
    Parameters to be used in setting the annual individual account spending budget:

    True Endowment Accounts:
    • If the Market Value is equal to or less than (<) the Historical Dollar Value, then spending would be equal to anticipated income and dividends (2% of Market Value).
    • If the Market Value is greater than (>) the Historical Dollar Value, spending will be allowed up to 5.5% of the five-year moving average but only to the extent that it does not reduce the market value below the historical dollar value.
    Funds Functioning as Endowment:
    • If the Market Value is less than the Historical Dollar Value, then spending would be equal to the anticipated income and dividends (2% of Market Value).
    • If the Market Value is greater than the Historical Dollar Value, then spending would be at the divisional spending rate times the five-year moving average.
    Further Spending Allowances
    If this methodology does not yield enough spending to arrive at the approved endowment spending ceiling, then further spending would be allowed on Funds Functioning as Endowment (FFAE) accounts which have Market Values greater than the Historical Dollar Value.

    Calculation of Five-Year Moving Average
    The calculation of the five-year moving average (20 quarters of actual endowment values) for purposes of setting the next fiscal year budgeted spending ceiling will be as of 12/31.

    If there is a major gift and/or additions (≥ $1.0 million) made subsequent to 12/31 that the division has requested be included for use in the next fiscal year budget, the following guidelines will be followed:

    • If the gift/addition is made after 12/31 but before the budget has been approved by the Board of Trustees (May Board of Trustees Meeting), then the gift will be included in the calculation of the five-year moving average as if the gift had been made in the first of the 20 quarters. Spending parameters of that fund will be set as outlined above depending on whether it is a true or FFAE endowment.
  6. Definitions
    • Historical Dollar Value – The value of the asset when given to the institution as an endowment.
    • Income – Consists of interest, dividends, rents, royalties and accumulated appreciation (real or unrealized).
  7. Responsibilities
    Each divisional financial officer is responsible for ensuring the endowment accounts are budgeted and spent in accordance with this policy.
  8. Procedures
    The Office of Budgets and Planning will prepare annually a listing of divisional endowment accounts by classification (True Endowment and FFAE accounts). This listing will show the historical dollar value, current market value and budget amount for the upcoming year based on the parameters outlined above. It is the division's responsibility to set the budgets within those guidelines and to communicate any issues to the Office of Budgets and Planning. Any exceptions to this policy must be reviewed with the Senior Vice President for Administration and Finance and Chief Financial Officer and Senior Vice President for Institutional Resources.
  9. Policy Review
    Annually.
  10. Audit
    This policy is subject to audit by the Office of University Audit.

(1) Per letter dated April 2003 from New York State Attorney General Eliot Spitzer.

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