Poorly endowed: Higher ed suffering from inconsistent markets

In a time of tightening budgets, higher tuition and rising student debt, many large universities are looking to their foundations to provide resources to pad institution budgets and offer some financial help to students. But volatile markets have meant many are unable to do more than they could before the recession, based on annual endowment figures from the National Association of College and University Business Officers (NACUBO) and the Commonfund Institute.

Ninth District states, including the Upper Peninsula of Michigan, are home to more than 40 higher education endowments with over $5 million in assets, and 18 with over $100 million in assets in 2012 (and the subject of this post). The two largest endowments—by far—are those attached to the University of Minnesota and the University of Wisconsin, with $2.4 billion and $1.8 billion in assets, respectively. But a small majority of all endowments—including among this subset of larger endowments—lie with private colleges and universities.

Like anyone else invested in equity markets, the large majority of these 18 larger endowments at Ninth District higher education institutions have had a rough go of late. Among the group, two-thirds saw asset levels decrease in 2012 (see table, first data column); of the six that increased, only two saw a rise of more than 2 percent.

However, there might be more than immediately meets the eye here, because changes in endowment assets are the result of more than investment returns (which were not reported by NACUBO). Endowments are not static accounts; they regularly seek contributions from alumni and others, and are typically required to distribute up to 5 percent of their assets annually (and neither variable is reported by NACUBO).

Suffice to say that endowments are not in the business of getting smaller, and investment gains plus contributions have not been high enough to offset annual distributions at many higher education endowments. In fact, more than half of the endowments have lower asset values now than in 2007 (see second data column in table; asset values for three endowments in 2007 were not available). And it can happen to the best. Even Harvard University’s endowment—easily the nation’s largest at $30.4 billion—has struggled. Last year the fund’s assets shrank by 4 percent and stood well below the fund’s 2008 peak of $36.5 billion.

But endowment performance since 2007 among the 18 large endowments has varied wildly—from a 16 percent loss for Lawrence University, a small liberal arts college in Appleton, Wis., to a 33 percent gain for the University of South Dakota Foundation, whose success must lie outside of its investment prowess. While investment returns for the USD Foundation have consistently outperformed market benchmarks, according to foundation records, neither are they high enough to explain its outlier performance.

Some oil for the kids, too

Oil has meant many things to North Dakota over the past decade. Along with reversing the state’s population decline, it has pumped new life—students, workers and revenue—into many of the state’s K-12 schools.

The state’s K-12 population has risen from 94,000 in 2007-08 to 99,000 in the current school year, according to the state Department of Public Instruction. Some of the strongest growth has occurred in the 17 western counties in or near the Bakken oil patch. The school district of Williston, the heart of the Bakken, has seen its enrollment rise from 2,100 to 2,800 students over this period.

As a result, school districts are hiring more teachers and other staff. A fedgazette survey of North Dakota school district administrators (with 65 respondents out of about 180 districts statewide) found that more than half added staff last year (see left chart). Employment gains were realized in every quadrant of the state, but were more prevalent in the west. Among 18 respondents in the northwest part of the state, 15 reported employment gains and three reported no change.

School officials have more modest employment expectations for this year—about one-quarter believed they will add school workers (see right chart).

But regardless of location, the large majority are expecting higher revenues. That comes, in part, from higher enrollments, which are part of the education funding formula. But it’s also due to a state education trust that, thanks to fast-growing taxes on oil activity, has grown from $1 billion to $2 billion over the past three years. This after it took more than 100 years to earn the first billion dollars, according to a state source.

The so-called Common Schools Trust Fund distributed about $92 million to school districts in the 2011-13 biennium—about 5 percent of statewide education expenditures—and trust fund officials have said they expect that figure to go up considerably in the next biennium.

Smarty pants: College attainment, bachelor's degrees conferred mostly growing in Ninth District

It’s widely accepted that a college education is a prerequisite to a better (financial) life. But that sentiment is embraced differently across the country.

In Ninth District states, the percent of population with a bachelor’s degree continues to increase overall. But individual states are performing differently against the national average. For example, Minnesota ranks 11th in the nation for the percent of population age 25 and older with a bachelor’s degree at 34 percent in 2011 (see Chart 1). But its college attainment levels have stagnated a bit in recent years, and its advantage over the national average has shrunk slightly (see Chart 2). 

 

In contrast, Montana, North Dakota and Wisconsin have historically been below the national average, but that gap has been closing for all three states of late. Each also ranks in the top half of states in college attainment (partially a function of high-population, well-educated coastal states pulling up the national average). South Dakota is the outlier; college attainment has been below the national average. It ranks in the bottom half of states and its achievement gap has widened slightly.

In concert with this trend, the number of bachelor’s degrees conferred also has been rising. But the rate of increase at district colleges and universities in recent years has lagged the U.S. benchmark by a considerable amount (see Chart 3), according to the National Center for Education Statistics. During the 1990s, growth in the production of bachelor’s degrees in Montana and South Dakota surpassed the United States, while other district states posted slower growth. During the past decade, growth slowed in Montana and South Dakota, but picked up in Minnesota. Some of the recent gains in Minnesota’s college degree production are likely due to growth in Minnesota’s private online universities, such as Cappella University and Walden University.

In 2010, Wisconsin colleges and universities conferred 34,110 college degrees, ranking 17th in the nation (see Chart 4). Meanwhile, Minnesota colleges and universities produced 31,952 bachelor’s degrees, ranking 18th. North Dakota, Montana and South Dakota, ranked 44th, 47th and 48th, respectively.

Among district states, North Dakota has the highest number of degrees conferred by colleges and universities relative to the 20-year-old state population (see Chart 4). This suggests that North Dakota has a relatively large capacity to produce college graduates relative to the primary college-age population in the state. All district states have a higher ratio of bachelor’s degrees conferred relative to the 20-year-old population than the nation, demonstrating a relatively strong presence of higher education in the region.

 

Grads finding a tough labor market

Plenty has been written about the difficulty younger folks are having in the job market of late. The unemployment rate for workers ages 16 to 24 peaked close to 20 percent during the recession and has declined only marginally since.

Those recently graduating from college are supposed to have a better time of it, thanks to higher-level skills that help them compete for job openings. But traditional government data on employment do not specifically track these freshly minted workers, so a person has to look to other data sources to see how this population has fared during and since the recession.

One nontraditional source in Minnesota is a survey administered to all 31 higher education institutions by the Minnesota System of Colleges and Universities, which surveys its graduates every year to see if they are gainfully employed during the subsequent year in a job related to the program or major they studied in school. Survey data across these institutions show that graduates were having a tougher time landing a job in their field of study. Rates were holding steady for graduates through 2007, but the following two years have proven difficult for graduates from both 4-year universities and 2-year colleges (see chart).

As with any survey, overall results mask a lot of variance among institutions. Three colleges had placement rates above 90 percent in 2009, while seven institutions (including one university) had rates below 70 percent.

There are some additional qualifiers to keep in mind for context. Unemployment rates have been improving of late, and this survey suffers a bit of a time lag; the survey for 2010 grads (conducted last year) has not yet been published. This survey also depends on self-reports from graduates and response rates vary among institutions, both of which can induce some measurement error. Responses include, but do not distinguish between, those working part time or full time, and this composition possibly shifted as well during the recession given a slack job market. Neither does the survey publish responses from graduates employed in a field unrelated to their course of study, though a few institutions reported total employment on an anecdotal basis. The Inver Hills Community College, for example, reported that 68 percent of 2009 grads were employed in a related field during the following year and that 89 percent of all graduates found employment of some sort.

Despite caveats, this survey has the benefit of longevity and relative consistency over time, which makes it an interesting trend barometer. The ramifications for this labor decline are many. For example, difficulty in the labor market is one of the reasons why student loan defaults are on the rise, which is the subject of an upcoming article in the April fedgazette.