Scandal at Brandeis

You may have heard that Brandeis is selling off its art collection. That’s not the scandal.

Brandeis is facing a $79 million deficit over the next six years and has run through its reserve fund. That’s not the scandal.

Brandeis can’t turn to its big donors because many of them were heavily invested with Madoff. That’s not the scandal.

No, the scandal is that Brandeis has $550 million in its endowment that it can’t touch. Isn’t this what endowments are for, you may ask? For a rainy day?

But no, Massachusetts law prohibits the university from tapping its endowment. The 1972 Uniform Management of Institutional Funds Act, which Massachusetts has adopted allows spending only “net appreciation” of an endowment over the total of the donations it’s taken in. The endowment is down almost a quarter, wiping out any gains in value that Brandeis could draw upon. The 2006 revision of the Uniform Act drops the net-appreciation rule, with the explanation that it “created numerous problems.” But Massachusetts hasn’t switched to the 2006 version and apparently isn’t likely to.

The Commonwealth of Massachusetts has shut off Brandeis’s access to its own endowment and is looking into blocking the art sales, as well. Granted, Brandeis was guilty of some of the same financial overoptimism that afflicted so many else throughout the country over the last decade. But now it’s in truly dire straits, and to close its budget gap it would have to fire a third of its staff, close two-fifths of its buildings, or fire half its faculty. Under these circumstances, what’s the purpose of making the endowment principal sacrosanct?

Replace its imprudent president and board, perhaps, but let Brandeis spend its endowment!

More interesting notes from Felix Salmon:

Nathan told me that the reason is that selling art which is part of a museum is very difficult indeed. Clearly, Brandeis has come to the conclusion that by shutting down the museum, it can ignore all rules pertaining to deaccessioning, and worry only about the strings attached by donors to individual artworks.

Nathan also said something else which was extremely interesting to me: apparently all of the Rose Art Museum’s artworks are considered to be assets of the university endowment, valued at $1 each. All the proceeds from the sale of any artwork, then, is automatically a desperately-needed capital gain for the endowment.

Once again, the legal framework constraining Brandeis is all but pushing it into doing the worst possible thing.