The investment horizon of the endowment is perpetuity, and its investment objective is two-fold: (1) to generate steady current income to support spending each year on student scholarships, faculty, staff, facilities and programs; and (2) to generate long-term growth to preserve the purchasing power of the Endowment over that investment horizon ("intergenerational equity"). Under Maryland UPMIFA, USMF is authorized to expend "so much of an endowment fund as the institution determines is prudent for the uses, benefits, purposes, and duration for which the endowment fund is established." The USM Foundation determines how much of the endowment to spend each year under the terms of its Spending Policy.
A copy of the USMF Spending Policy is available on Freshdesk under USMF policies, Link: Helpdesk : USMFoundation (freshdesk.com)
The available spendable income on endowment accounts is governed first by the Memorandum of Understanding (MOU). If the MOU outlines specific spending guidelines those spending guidelines must be followed to set the annual spendable income amount. If the MOU is silent as to the spending formula or defers to the USM Foundation policy, then the spending policy governs the calculation of the annual spending amount.
The spendable income rate for the upcoming fiscal year (July1-June 30) is set in February each year by our Spending Committee and approved by the Board. That rate is applied to the prior Dec. 31 market values to determine the spendable income for those endowments covered by the spending policy. Those calculations are completed in late April /early May and communicated to the individual campus administrators, budget officers, and deans at that time for planning purposes for the upcoming fiscal year. The spendable income becomes available for spending on July 1.
A newly created individual endowment fund, in order to have annual Spendable Income, must be invested for at least six months, must not be underwater as of the start of the first fiscal year for which spendable income is allocated, and must have a minimum value per Foundation Policy.
Unspent money in the current year can be “carried over” to the next year automatically to be spent (i.e. if a school has $1,000 to spend in the current year, but only spends $900 – an additional $100 will be available in its spendable income the following year). Carryover spendable income calculations are not available until after the fiscal year has been closed. These calculations will be completed in early August. A second year of carryover is also available but is not automatic and requires the “Two-Year Carryforward” form to be completed and reviewed by USMF management for approval.
With the enactment of Maryland UPMIFA, the concept of historic dollar value has been eliminated. Spending from endowments is now subject to a rule of prudence, keeping the following guidelines in mind: (UPMIFA Guidelines)
- The duration and preservation of the endowment fund
- The purposes of the Institution and the endowment fund
- The general economic conditions
- The possible effect of inflation or deflation
- The expected total return from income and the appreciation of investments
- Other resources of the Institution
- The USMF investment policy
While spending from funds previously considered underwater (the fair market value is less than the historic dollar value) is not prohibited under UPMIFA as it was under previous law, USMF is nonetheless required to adopt a prudent spending policy, keeping the UPMIFA Guidelines in mind. To that end, there should be no funds appropriated for expenditure from underwater funds except where the institution makes a specific request and that request is supported by an acceptable justification and documentation using the UPMIFA Guidelines, an attempt has been made to secure the donor’s consent to the expenditure, and the President of the institution benefitting from the fund requests the expenditure in writing.
Requests must be submitted first to the Spending Policy Committee, which will make a recommendation to the Executive Committee. The Executive Committee will, in making its determination, include all documentation submitted in support of the request as an attachment to the minutes. In no event will funds be appropriated for expenditure from an underwater fund where the donor has expressed a contrary intent in the gift agreement or other relevant documents.
Unrestricted assets of USMF will not be used to supplement spendable income from underwater funds.
Operating accounts are current use accounts, and all monies are available for spending at any time. Quasi-endowments are current use accounts invested in the endowment pool and are given an annual spendable income amount but are not limited to spending that calculated amount unless specifically stated in the Memorandum of Understanding.
The Spending Policy is reviewed annually by the Spending Policy Committee to consider if appropriate adjustment is necessary. The annual spend rate and any changes to the policy are then approved by the Board of Directors.