The Board of Trustees approved the College's final operating budget for the 1997-1998 fiscal year at its June 14 meeting. Included in the final budget is a new formula for the endowment payout rate which lets the rate fluctuate with inflation within a certain range, or collar.
Aside from the new payout rate policy, the final operating budget did not differ significantly from the preliminary budget the Board approved in March, according to Vice President of Finance Andy Evans. (see related news brief)
With the new payout rate policy, endowment spending will increase at a constant percentage that is related to an inflation index such as the Consumer Price Index or Higher Education Price Index.
For the 1997-1998 fiscal year this payout rate is 4.5 percent, which was determined by adding one percentage point to the currently reported inflation rate of 3.5 percent.
In order to avoid overspending or underspending of the endowment during economic recessions or booms, the rate will also be constrained by the collar. The collar currently restricts the rate from falling below four or above six percent.
According to Evans the collar will let the College spend more during good economic times, and will reduce the payout in times of high inflation. He also said that although it does give the College more ability to capitalize on good times, it is a conservative policy.
Evans stressed that a major benefit of the new policy is the ability it gives the College to improve planning. He said that because the new policy allows constant growth, it will be easier to anticipate the amount of income coming from the endowment.
In the past, the endowment payout rate was determined each year by the Board of Trustees. In March the Board asked Evans and Robert Knight, financial planning and budget director, to head up a team that would formulate a new endowment spending policy.
The Board plans to evaluate the policy's performance in five years.
Copyright © 1997, The Oberlin Review.
Volume 126, Number 1, September 5, 1997
Contact us with your comments and suggestions.