Regents outline plans for using endowment funds

Debra D. Bass

Thursday, May 8, 1997 | 11:59 a.m.

University system officials are grappling with a financial dilemma they call a win-win situation.

Having socked $78 million away in an endowment fund -- which generates more than $2.5 million in interest annually -- administrators are haggling with the Legislature over how much they can spend and how much they should save.

In addition to the millions in interest, the endowment receives nearly $10 million in estate taxes annually to increase the principal.

States commonly penalize agencies that save money. It's referred to as a spend-it-or-lose-it policy, meaning agencies must justify spending all their allotted budget or Legislature will reduce next year's funding.

The endowment is an odd case in which the Legislature mandated that the university system save money.

As of last year, the system is no longer obligated to keep saving the incoming money, but a technicality keeps it from using the funds to supplement its budget without legislative approval.

During a regents subcommittee meeting Wednesday, Chancellor Richard Jarvis reported on how the system can fund items that did not receive full funding in Gov. Bob Miller's budget.

It's estimated the system has an extra $20 million. If by some chance the Legislature disapproves of its spending plan, the money reverts to the endowment, accruing more interest.

Jarvis said the system will increase the number of full-time professors at the community colleges ($860,000); cover the gap in funding allotted to UNLV's law school ($700,000); provide for gender equity in sports ($2 million); increase campus safety and security ($700,000); and fund various initiatives.

His proposal includes about $3.73 million in technical adjustments to the governor's approved budget. The adjustments are either computation errors or wrong estimations of facility utility fees.

In 1987, the Legislature took advantage of a federal tax credit on estate taxes -- levied on people receiving property from someone's estate after they have died.

This credit yields about $20 million annually. Half goes to the public school system and half to the university system.

Public schools spend their money each year on class-size reduction efforts. But the university system was directed by statute to develop an endowment fund.

Of the nearly $10 million the system receives annually, only $2.5 million could be spent each year, according to the statute. The rest was allocated to the endowment "until the principal in the account is sufficient to yield income of $2.5 million" each year.

That time has arrived.

So regents are hoping to be rewarded by the Legislature for 10 years of complying with the statute.

Last year, regents thought they might lose $10 million in state funding because of the endowment. They thought the Legislature could take the liberty of decreasing their budget by the same amount now available in endowment funds.

Instead, the Legislature asked them to make a proposal to spend an additional $7 million. Initially, the university system had proposed spending only $13 million in endowment funds and trying to garner more state funds to close the gap between what they wanted and what the governor recommended.