A nearly empty Physical Sciences Building on March 20, 2020. Cornell expects the COVID-19 pandemic to cause hundreds of millions in losses.

Boris Tsang / Sun Photography Editor

A nearly empty Physical Sciences Building on March 20, 2020. Cornell expects the COVID-19 pandemic to cause hundreds of millions in losses.

April 24, 2020

Cornell Can’t Use Its $7.2 Billion Endowment to Help Mitigate COVID-19 Losses. Here’s Why.

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While Cornell anticipates losses of more than $100 million due to COVID-19, 100 percent of its $12.8 million in federal relief will be directed toward student support — going beyond the federal requirement that half the funds go toward financial assistance — and its endowment spending will remain constant.

Universities with significant endowments who received COVID-19 relief money have attracted controversy on the national stage. Facing public criticism from politicians, including President Donald Trump, Harvard decided that it wouldn’t accept the $8.7 million allocated to it. Yale, Princeton, Penn and Stanford also announced they won’t take CARES Act aid.

“Schools with large endowments should not apply for funds so more can be given to students who need support the most,” Betsy DeVos, United States Secretary of Education, said in a statement released on Wednesday.

However, Cornell accepted the $12.8 million in aid  — the second-most among Ivy League schools, just behind Columbia — to support its students. The funding levels were based on both the total student population and the number of students receiving Pell Grants, a federal government subsidy that helps students pay for college.

Joanne M. DeStefano, the University’s chief financial officer, explained in a statement emailed to The Sun that even with a $7.2 billion endowment, there are significant legal restrictions imposed on a majority of the assets by New York State that “prevent overspending from endowments (anything greater than 7%).” Donations “can only be used for the purposes specified in the gift agreement,” preventing the allocation of these funds to compensate for massive revenue loss or provide emergency student aid.

Twenty-two percent of Cornell’s endowment is for professorships, as of 2019, according to a University financial report. Twenty-nine percent is earmarked for academic programs and research, 26 percent is for financial aid and another 20 percent goes toward “general purpose and facilities support.”

“It is not a cash reserve [emergency fund] that can be drawn on at will, but is the University’s permanently invested capital — a perpetual and self-sustaining source of support for the University and its mission,” DeStefano wrote.

Despite the scrutiny, universities should not be blamed for receiving federal aid, said Prof. Ronald Ehrenberg, industrial and labor relations. Ehrenberg is the director of the Cornell Higher Education Research Institute and teaches a class called Economic Analysis of the University.

“Cornell received more money than Yale or Princeton or Harvard or Stanford not because we have less wealth but because we have more students receiving Pell Grants,” Ehrenberg said. “It’s not the fault of the universities, it is the fault of Congress that rich universities got the money.”

The value of the endowment is not a completely accurate indicator of a university’s wealth, Ehrenberg added.

“Princeton has 10 times as much money per student than Cornell does,” Ehrenberg said. “When you are comparing endowments across universities, you should not look at the absolute value of the endowment, but you should try to standardize by some measure. The most common measure is the number of students.”

Despite current financial challenges and a possible reduction in the value of the endowment, spending from the endowment remains constant for now, as it is not a yearly decision.

“The impact on spending from the change in value from any one year is relatively small because spending is based on the seven-year average,” Ehrenberg said. “The administration has said that the decline in the endowment to date is not a major factor in the losses that Cornell has suffered so far.”

This policy intends to limit fluctuations in spending on day-to-day operations which might disrupt University finances.

“If endowment spending drops a lot, the University is up a creek. [For example], if I am a professor whose salary is covered by endowment spending, and endowment spending drops, the University has to come up with salary money elsewhere,” Ehrenberg said. “Rather than have wild fluctuations in endowments, it is better to have a smooth path.”

The endowment, initially created with a $500,000 gift from Ezra Cornell, has grown to $7.2 billion over a 150-year period. Consisting of more than 8,000 accounts, about half of the endowment’s “permanent nature” is due to legal obligations to donors, who specify areas in which their donations must be spent.

“Each year, a portion of the endowment’s earnings are paid out as an annual distribution — enough to cover less than 10 percent of the operating budget,” DeStefano wrote. Earnings on the endowment that aren’t used for the operating budget are either kept and reinvested or saved “for use at times when the return is less than the payout, and to promote growth over time.”

Cornell is expected to incur hundreds of millions of dollars in lost revenue in Ithaca and at Cornell Tech, most of which will come from anticipated increased student need for financial aid.

At Weill Cornell Medicine, the suspension of most procedures not related to the coronavirus has already led to a loss of nearly $200 million, Pollack wrote in an email to the Cornell community on Wednesday.

Ehrenberg is concerned about the state of finances across higher education, describing the situation as a “total disaster.”

While the possibility of reduced government spending on higher education and a diminished endowment value is a pressing issue, Ehrenberg was most worried for students and families with increasing financial needs.

“The most important concern is financial need for students and families — need will be dramatically higher than in past years,” Ehrenberg said.

During this economic turmoil, Cornell still promised to meet 100 percent of demonstrated financial need.

“Even as our Ithaca campus faces an anticipated COVID-related budget shortfall of over $100 million for the coming fiscal year, we aim to guarantee that every single one, currently enrolled or newly admitted, has the financial resources to complete their Cornell education,” DeStefano wrote.