The very richest of the major endowed universities do indeed have large
reserves, every bit as large as AH says. This applies not just to the
traditionally well-funded private universities such as mine, but to some
public institutions which have additional large endowments.

At the 10 or 20 in a similar financial position, the typical practice is
that only a fixed small percentage of the endowment will be spent each
year, regardless of the return on investment. In other words, if the
university has an endowment of $5 billion and has adopted a fixed spending
ratio of 5%, then the money available from the endowment will be $250
million, even in a year where the return on the endowment is as high as
20%, as was the case for some in the last few years. The remaining $750
million will be re-invested. It is this $750 million that AH refers to as
"profit."

A university does this for several reasons: to provide for the future
growth of the institution, to protect against inflation, and to protect
against bad years. Let's say that this year the universities return on
investment is 4%, or even -4%. The university will still spend $250
million. (or so it says--these policies have not yet actually been tested
in a really major depression.)

(Please notice that I am deliberately NOT giving my own university's
figures in this; none of the numbers above or to follow are the numbers
for Princeton, or any one real university.)

Now, most such university boards of trustees or the equivalent are
extraordinarily conservative in fixing the spending ratio. Typically the
library, the faculty, and everyone who works at the university thinks the
ration should be set higher. If the university I postulate increased the
ratio merely from 5% to 6%, then the library book funds could be about 10
to 15% higher, everyone's salary could be 10 to 15% higher, and so on.
(Note that it's 10 to 15% not 20% because the university's endowment
income is not its only source of income, and the other sources will be the
same.)

Where AH goes wrong is in thinking that such institutions are typical.
Now, if legislatures funding the tax-supported institutions could be
convinced to provide stable greatly increased support, and all private
universities had very large endowments, then certainly a proposal to
greatly increase library spending would be in order. I agree with AH that
this would be desirable. I think it's absurd to think it likely. Of course
we should work for stable increased funding. I would put the likelihood of
it arriving sufficiently to help the university system as a whole at about
zero. I don't like to say it, but I think rather that the opposite may
prove to be the case.

David Goodman, Princeton University Biology Library
dgoodman@princeton.edu            609-258-3235

On Wed, 19 Sep 2001, Dan Lester wrote:

> ....
> I'm still interested in seeing these great stashes of money that are
> floating around our campuses.  You've shown small numbers of dollars
> that are no more than sensible reserves, the same reserves that I'm
> sure each of us tries to keep in our personal finances and that any
> publisher would also try to keep available for unforseen business
> needs.
>
> dan
>
> --
> Dan Lester, Data Wrangler  dan@RiverOfData.com
> 3577 East Pecan, Boise, Idaho  83716-7115 USA
> www.riverofdata.com  www.gailndan.com  Stop Global Whining!
>