How Colleges Rip Off Donors

(Editor’s note: This article was published by on Nov. 9, 2011.)

I recently wrote a paper for the Pope Center called Games Universities Play. I was not referring to men’s football or women’s volleyball; I was referring to the games university officials play with donors and their money.

Last year alone, colleges and universities raised around $28 billion in private donations. Some colleges and universities seem desperate for money; others are sitting on multi-billion-dollar endowments. Rich and poor alike, many play the same games.

Consider Dartmouth College. Dartmouth in July announced that 19 percent of all gifts meant to support endowed professorships would be used for “associated program costs,” or overhead, unless the donor strictly prohibits such use.  Moreover, the Ivy League college, which sits on a reported $2.8 billion endowment, claims the right to raise the overhead charge at any time for any reason.

At the other end of the spectrum are schools like North Carolina Central University in Durham. Established in 1910, NCCU is the oldest public university in the country created for African-Americans.

Like all other schools in the University of North Carolina system, including the flagship at Chapel Hill, NCCU has seen its state funding cut significantly. Unlike Chapel Hill, however, which can fall back on its $1.9 billion endowment, NCCU’s endowment was just $17.2 million when last reported. So you would think it would appreciate significant gift offers, such as the recent offer by a former state Supreme Court justice and the Pope Foundation [not the Pope Center] to establish a Center for the North Carolina Constitution at the NCCU Law School.

The offer seemed like a no-brainer—and in, fact, the administration wanted it—but faculty and alumni objected because they oppose the political leanings (Republican) of the foundation president offering the financial support. So the former Supreme Court justice shelved the idea and the university lost a valuable project—and donor. So much for pluralism and open-mindedness and the state Constitution; some things are more important, such as political conformity.

Many donors have walked into similar situations elsewhere: ungrateful institutions that refuse gifts because they don’t agree with the politics of the donor; colleges that take gifts meant for one purpose and use the money for another, or skim a large percentage for general operating support. 

Donors who are tired of such games should consider the following:

Don’t give unrestricted gifts. Avoid contributing to the annual fund or any other program or activity where you have no say in how the money is spent. As former Yale provost Frank N. Turner has written, unrestricted funds often are used to solve the administration’s problems, rather than to support educational needs or even acknowledged institutional priorities. “Often the highest priority is one that’s just been established by whoever threw the most recent tantrum in the president’s office,” he notes.

Term-limit gifts. The history of philanthropy teaches that the wishes of donors (what’s known as “donor intent”) are rarely followed 30 years after a donor’s death, when his children are considering their own mortality and his friends and associates also are gone. So don’t give permanent gifts.

Don’t endow chairs. Universities often play tricks with endowed chairs to divert funds away from what the donor intended.  One method is to have donors partially fund a chair and then have the funds sit for years or decades until the university says it has enough money to create a chair.  The noted historian Stephen Ambrose, for example, began raising money for a chair in military history at the University of Wisconsin in 1996.  When he died in 2002, Ambrose had raised $1 million, short of the $1.5 million the university said it needed to create the chair.  The money sat idle until 2006, when the university suddenly announced it was launching a search for a professor for the chair after a national magazine exposed what the university was doing.  Not until 2009—13 years after Ambrose began fundraising—was the chair filled.

Be entrepreneurial. Donors shouldn’t limit their gifts to Ivy League schools or to the schools they attended, but should expand their search to cover all types of schools. Moreover, the most useful gifts aren’t necessarily seven- and eight-figure mega-gifts and don’t necessarily involve paying professors’ salaries. For example, a donor might consider providing struggling graduate students the funds they need to finish their dissertations.  For the same money used to endow a chair for one tenured professor, a donor could support the research of 20 graduate students—and be satisfied that his gifts were used to support ground-breaking scholarship.

Donors who give unrestricted money to colleges in perpetuity are likely to see most or all of their funds diverted to programs, activities, and causes they wouldn’t have supported on their own.  Donors who make term-limited restricted gifts will get far better results.