The WSJ has a good article today on the UMIFA vs UPMIFA endowment debate, although it sensibly avoids even mentioning the acronyms. In case you’re not a non-profit legislation nerd, it basically comes down to when you can spend your endowment and when you can’t: under UMIFA, which is the law in Massachusetts, non-profits are barred from spending endowment funds if they’re worth less than their initial dollar value. Under UPMIFA, which is rapidly being adopted nationwide but hasn’t yet made it into
Massachusetts law, they’re not.
Of course there’s a big Brandeis/Rose angle here. Brandeis’s stated reason for needing to close the Rose and sell off its art is that it’s not allowed, under Massachusetts law, to spend most of the money in its endowment. Therefore, it says, it has no choice but to liquidate its art museum. At the same time, however, it has not joined the group of non-profits, led by the Massachusetts Audubon Society, who are lobbying to get Massachusetts to make the switch.
Last week, Brandeis’s CFO, Peter French, was asked point-blank about this issue, and basically punted; today, in the Journal, a Brandeis spokesman does the same thing.
Joe Baerlein, a Brandeis spokesman, says much of the Brandeis endowment is under water because it was founded in 1948, making it relatively young for a top-tier university. But Mr. Baerlein says the school doesn’t want to spend endowment principal. "You want to deal in a prudent manner with any deficit," he says. Brandeis hasn’t joined the effort to ease endowment restrictions but is reviewing the Massachusetts legislation.
The fact that the Brandeis endowment is young is key — and it’s worth noting too that most of the Brandeis endowment was raised much more recently than 1948. If you have an old endowment, investment gains and inflation will have brought it to well above its original dollar amount, which means you’re not constrained by UMIFA in the way that younger non-profits are.
UMIFA on its face makes little sense. Why should a young endowment which has dropped by 10% be constrained from spending any money, while an old endowment which has dropped by 70% can still spend away merrily, even if the real value of that endowment is a fraction of what it was worth at gift? And in any case, why is the base case that endowments should always exist in perpetuity? Shouldn’t the world have more people like Bill Gates, who want to see their money spent quite quickly?
Meanwhile, Brandeis is saying that although a move to UPMIFA might allow it to spend more of the endowment and keep the Rose intact, it really doesn’t want to do such a thing. That’s a defensible stance to take — but it flies in the face of statements made when the Rose closure was first announced, when university officials basically blamed UMIFA for their decision. It would be great if Brandeis could come out with a definitive statement saying whether or not UMIFA was responsible for the decision to close the Rose. If the answer is no, then there should be a real debate about the relative merits of selling art versus spending down the endowment. If the answer is yes, then Brandeis should embrace the push to adopt UPMIFA much more aggressively.