Boom Times: Universities Keep Raking in More Cash. How Long Can This Last?

The University of Michigan raised $456 million in 2017. photo:  Ken Wolter/shutterstock

A recent piece in Inside Philanthropy examined the "new normal" facing university fundraisers, which is that campaign fundraising has become a nonstop endeavor that is either "ongoing or about to be initiated." 

The upside to this brutal treadmill is that universities are pulling in mountains of cash. According to the Voluntary Support of Education (VSE) survey conducted annually by the Council for Aid to Education (CAE), colleges and universities raised a staggering $43.6 billion in 2017.

New normal, indeed.

The figure represents a 6.3 percent increase over 2016 and is the highest level reported by the CAE since the survey’s inception in 1957. While I encourage you to read the full executive summary here, I'd also like to briefly hit on three key takeaways.

First, the disproportionate fundraising dominance of the top 20 institutions shows no signs of abating. According to the CAE, these schools—the top three fundraisers were Harvard, Stanford and Cornell—raised 28.1 percent of all 2017 gifts. 

Buoyed by a strong stock market, affluent alumni, many of whom attended one (or more) of these schools, are giving more. According to the CAE, gifts to these 20 institutions grew 10.5 percent in 2017.

These schools, all of which sit on huge endowments, represent less than 1 percent of the nation's colleges.

Their success stands in contrast to ongoing divestment in state universities and community colleges, raising recurring concerns about the issue of funding inequality across the higher ed space. And while the discrepancy is rather stark, it should be viewed within a larger context.

For starters, quite a few of these high-performing institutions are public universities—eight out of the top 20 schools, in fact—and they need all the help they can get. Also, as we've argued in the past, some of the biggest donations that go to wealthy private research universities—like John Paulson’s controversial $400 million gift to Harvard—are earmarked for medical or scientific research and stand to benefit all of us. Meanwhile, it's wrong to imagine that the riches flowing to higher education are going exclusively to elite schools on the coasts. Some heartland universities are raising huge amounts of money thanks to the proliferation of regional philanthropy.

Among the schools making the top 20 list this year are Ohio State University and Indiana University, both of which raised around $400 million. We've reported lately on a rising tempo of large gifts to schools deep in flyover country, including a recent donation of $30 million to Dakota State University. Such donations are part an overall rise in higher ed "mega-gifts" exceeding $10 million. With so much money flowing these days, it's not surprising that it's being spread around in new ways—a reality at odds with a winner-take-all narrative that posits that the money's all being scooped up by a few places like Harvard and Yale. A "winner-take-most" story is more accurate—with the crumbs left over for everyone else amounting to a quite a pile. 

The comprehensive results of the VSE survey will be published in spring 2018, and I'm curious to see if the surge in giving—especially from alumni—was primarily driven by mega-gifts, or if universities were able to broaden the donor pool by engaging younger and less affluent alumni.

Which brings me to the second takeaway.

According to the CAE, gifts from alumni increased 14.5 percent, and gifts from nonalumni individuals grew 4.5 percent. These increases came on the heels of declines of 8.5 and 6 percent, respectively, in 2016.

"The stock market was weaker in 2016 than in 2017, and this is reflected in the smaller increase in gifts from organizations than from individuals," according to the survey's summary.

Alumni giving constituted 26.1 percent of total support, behind foundations (30.1 percent) and ahead of corporations (15.1 percent). Foundation giving was up 5.5 percent while corporate giving remained steady.

The surge in alumni giving also suggests that while "political correctness run amok" may have famously led some alumni to give less, ongoing campus turmoil hasn't adversely affected fundraising across the sector as a whole.

Lastly, the report found that gifts for capital purposes increased 12.3 percent, while current operations gifts inched up 2.6 percent. What explains this jump, beyond the strong stock market?

For some possible answers, we return to the "new normal" that is the world of perpetual fundraising.

Capital campaigns are getting longer, with a median length of 95 months. Similarly, fundraising budgets during a capital campaign increased by an average of 65 percent, with larger institutions upping their budgets by 100 percent or more. 

These increases don't happen in a vacuum. Donors remain convinced that these types of projects will have an impact on the larger university community. Fundraisers set ambitious goals confident they'll reach them, and more often than not, they do, with plenty of time and money to spare. 

Bottom line, here? For the time being, university coffers are flush with cash, and all across the country, new buildings are going up thanks to alumni donors' exploding portfolios. Will the predicted market correction eventually arrive? Economists tell us it's inevitable. The new tax law that reduces the incentives to make charitable gifts is another source of anxiety, with some projections estimating that giving will fall by up to $20 billion. I suspect university fundraisers intend to cross these bridges when they come to them.

In the meantime, the larger takeaway from CAE's finding holds: The fate of universities and colleges will continue to hinge on the benevolence of donors.