I really like how @NorthwesternU Northwestern acts as if it has a ton of legal restrictions on the use of the endowment outside the particular strings of some donor gifts. It USED to under an old law, but not anymore, and that's why they can meet the demands of @NorthwesternGW.

This is going to be mainly a thread about endowment law, a fun and magical place where (for example) the distinction between "endowment funds" and "funds that function as endowments" makes perfect sense.

Based on the way Northwestern hoards, you might think they have some sort of obligation to, say, maximize long-term value of the endowment. Nope!

"But Andy, Morty said the endowment can't just be used as a rainy day fund and has to guarantee support for future generations!"

I hear your cry. Universities do have an obligation to manage their endowments "prudently," and that does indeed mean they can't just raid it freely

But good news! Illinois law provides no quantifiable standard for when the university is using its endowment imprudently!

This is where old law comes in. Prior to 2009, Northwestern was governed under the Uniform Management of Institutional Funds Act (UMIFA). Back then, they had to make sure the endowed fund maintained the same historic value as when the university received it. Not anymore!

In 2009, Governor Quinn signed into the Uniform *PRUDENT* Management of Institutional Funds Act (UPMIFA), and with it came some big changes. First of all, Illinois replaced that restrictive historic value requirement with a qualitative test.

What is the standard under which a university uses an endowment? According to section 4, subsection a of the UPMIFA in Illinois, the standard is "The care that an ordinarily prudent person in a like position would exercise under similar circumstances."

What factors would an ordinarily prudent person look at? The UPMIFA tells us: "(1) the duration and preservation of the endowment fund; (2) the purposes of the institution and the endowment fund; (3) general economic conditions; (4) the possible effect of inflation

or deflation; (5) the expected total return from income and the appreciation of investments; (6) other resources of the institution; and (7) the investment policy of the institution."

That's it. That's the tweet (and the standard).

At no point does the UPMIFA specify an amount (either relative or absolute) in what constitutes prudent endowment management. Now, nearly everything I said above basically applies to other universities across the country, as the UPMIFA was passed by virtually every state.

But there is an interesting wrinkle here, just for Northwestern.

Under the UPMIFA, there exists a "presumption of imprudence" for when a university spends more the 7% of their endowment in a year. Northwestern has been spending between 5% - 5.6% of their endowment each year.

Further, in his recent report to the Faculty Senate, Senior VP Craig Johnson notes that the endowment's value will fall by about roughly 10%. Given @NorthwesternGW , @UniteHerelocal1 , and others' demands, that payout rate may come close to 7% for 2020. Yikes!

But here's the thing: that 7% payout limit exists in New York, Oregon, Utah, Tennessee, and Texas, among other states w/ UPMIFA

It does NOT exist in Illinois.

https://www.quarles.com/publications/illinois-adopts-upmifa-historic-dollar-value-rule-for-endowments-eliminated/

Northwestern is totally free to spend above 7% of the endowment in a year if they need to.

This pandemic has wreaked havoc to the research and teaching which has made Northwestern so wealthy and well renowned, and those getting hit most are those workers who do that research and teaching. Northwestern has a duty to pursue its mission of academic advancement.

Shafting your workers will do long term damage to Northwestern's research, revenue, and reputation. Northwestern already struggled to compete for graduate workers against other elite universities; this is what resulted in a 24% increase in my stipend in my first year.

What do they think will happen when these other schools become known as the ones who actually supported their workers (including grad workers), and not Northwestern?
Further, just to provide some perspective on the prudence of this decision:

Even after the drop VP Johnson anticipated, Northwestern still has a $10 billion endowment and over $650 million in lines of credit. Additionally, their credit rating is so good they have been able to issue $300 million in commercial paper over that past 5 years.

Investing in the workers most responsible for the functioning and success of the university is not just "prudent." To do anything less would smack of imprudence, recklessness, and callousness. #universal1yr

Because I'm both messy and bored in quarantine, here's the receipts!

Here's the text the Uniform Prudent Management of Institutional Funds Act as enacted in Illinois (cite: 760 ILCS 51). Yes, it really is that short.

http://www.ilga.gov/legislation/ilcs/ilcs3.asp?ActID=3093&ChapterID=61

And here's the template first drafted by the Uniform Laws Commission. Notice the 7 percent limit section is placed in brackets (Sec 4, sub sec d = p. 20) and the commission says a limit presents big restrictions on flexible spending (pp. 4, 25-26).
https://www.uniformlaws.org/committees/community-home?CommunityKey=043b9067-bc2c-46b7-8436-07c9054064a3

And of course @NorthwesternU 's own financial report, check out pages 5, 22, and 34 for all the info I related above.

https://www.northwestern.edu/financial-operations/annual-financial-reports/

Or tl;dr here's just the graphs and tables straight from those pages of the report. Here's the payout rate on @NorthwesternU's endowment for each of the past ten years:

NOTICE: THE base payout (the lightest bar) is what Northwestern actually uses on the university itself. Let's see what that real rate is (page 4). It's more like 4.6%.

(PS: "strategic investment payout" is code for the little bit they used to pay for the buildings, as a treat)

And here's a breakdown of that endowment along donor restrictions.

Just as a final fun fact about the university's endowment. You know how the UPMIFA was passed in Illinois in *2009* and has governed NU since then?

Turns out, the trustees haven't changed their spending policy since *2006*, back when they had both of those limits on spending!

The trustees can change this, and they have the ability to grant the colleges under @NorthwesternU extraordinary fiscal flexibility to support ALL of their workers. They just don't want to. That's why unions like @NorthwesternGW and @UniteHerelocal1 are so critical.