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Brandeis University's Community Newspaper — Waltham, Mass.

Nonprofits push to change state endowment law

Published: February 6, 2009
Section: Front Page

The university’s counsel is evaluating the possibility of changing the Massachusetts state laws governing endowment spending, Executive Vice President and Chief Operating Officer Peter French said at a student press conference yesterday.

Questions about the Uniform Prudent Management of Institutional Funds Act (UPMIFA) arose at last week’s student forum with university President Jehuda Reinharz.

“Our counsel is looking at it,” French said. “Prudent is the important word here,” he said. “Is it prudent?”

UPMIFA was approved by The Uniform Law Commission (ULC), an organization comprised of lawyers, judges, and academics charged with drafting proposals for model laws, in 2006 in an effort to afford not for profit organizations greater flexibility in managing their funds. The law, which has been enacted in 26 states and the District of Columbia, would eliminate restrictions on the spending of principal.

Under UPMIFA, “Subject to the intent of a donor expressed in the gift instrument…an institution may appropriate for expenditure or accumulate 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 act continues, “In making a determination to appropriate or accumulate, the institution shall act in good faith, with the care that an ordinarily prudent person in a like position would exercise under similar circumstances.”

Unlike UPMIFA, the Uniform Management of Institutional Funds Act (UMIFA), the law which has governed not for profit endowment management in Massachusetts since 1975, directly prohibits the spending of endowment principal.

According to the text of the act, “the governing board” of an organization “may appropriate for expenditure for the uses and purposes for which an endowment fund is established so much of the net appreciation, realized and unrealized, in the fair value of the assets of the endowment fund over the historic dollar value of the fund as is prudent.”

Under UMIFA, organizations may only spend the gains the endowment accrues.

Massachusetts State Senator Robert O’Leary introduced UPMIFA during the current legislative session because many organizations, Brandeis included, have seen their endowment gains evaporate in the last six months, leaving them unable to lean on their endowments in tough economic times.

A change in state law could allow the university to spend the endowment funds it is now legally unable to touch.

“As the economy has gotten worse, a lot of folks have been looking at this,” Kieran Marion, Legislative Counsel at the ULC, explained in a telephone interview. At the end of 2008, the ULC, “started getting lots of calls from Massachusetts,” he said.

He added that organizations seeing their endowments suffer are looking to the act for greater financial “flexibility” when considering how to fulfill their institutional missions in a harsh economic climate.

Reflecting this sentiment, Marion explained that there are seven UPMIFA bills active in state legislatures presently. “We’re expecting to see 13 more this session,” he added.

Leading the way in Massachusetts is Legal Director of the Massachusetts Audubon Society Jennifer Ryan. Adopting UPMIFA “is something that we’re very supportive of” she explained in a phone interview. “Our goal is to get [UPMIFA] adopted as soon as possible” by the State Legislature, she added.

“Our organization is in the process of putting together a coalition” is support of UPMIFA, Ryan explained. “The more people that get behind it earlier, the greater chance there is” of passing.

While Ryan and others in the state support the adoption of UPMIFA as a measure to help not for profit organizations, French expressed reservations. “If you take that money today,” he warned, “you’re not going to have that money in the future.”