✔✔Fellow Dukies, good day!! FC here!! Please note in the following essay that The Duke Endowment, which holds roughly $2.5 billion, is an independent charity with its own separate Trustees, frequently confused with Duke University because James B. Duke founded both. The University has roughly $5 billion in its own endowment.
With an apology to New Yorker magazine, which used this line to introduce The Ford Foundation a long time ago, The Duke Endowment is a huge amount of money completely surrounded by people wanting some.
In the case of Richard Brodhead and Duke University, the recent headlines said that The Duke Endowment (henceforth referred to as TDE, the insider's lingo) had responded to need and was giving $80 million to gut renovate three of the university's original buildings: the West Union as well as Page and Baldwin Auditoriums. The PR people glowed that this was a double double: the biggest grant in TDE history, the biggest gift in Duke University's history.
Now the story gets complicated and requires a lot of background. By the end of this essay, Loyal Readers will likely believe, as FC does, that this "gift" was more smoke than fire.
TDE is not just one big ocean of money. It is actually many pools of different sizes, each with a purpose that the founder, James B. Duke, specified.
One of the largest pools is reserved for Duke University, which every year, automatically, gets the income from it. (If you want to be technical about it, TDE trustees can withhold this income if the school is falling apart, but aside from mouth flailing, this has never occurred.) According to the last two financial reports from the university, we got $12.5 million each year from this pool. There are smaller pools for three other educational institutions, for the Methodist Church and for its retired preachers who get pension supplements, and large pools reserved for numerous hospitals and child care .
Beyond the pools that have specific beneficiaries, there is a very large pool that TDE trustees can allocate at their discretion. They have decided that Duke University -- as the principal memorial to James B. and his family -- should benefit the most from this, so they lard much our way.
In the 2008-09 academic year, the total the university received from the discretionary pool was $34 million, which was quite typical of recent years. In 2009-10, given the shrinkage in the endowment caused by the world-wide financial meltdown, we got only $26.4 million. (Because of the meltdown, when TDE lost fully one-third of its assets, the endowment put all its beneficiaries on notice that times are tough.)
Duke University applies for these grants, carefully restricting who at the university can apply and tailoring requests so TDE is not overwhelmed. And so Duke University sought the $80 million for renovations.
Brodhead and Duke University got mega-money from TDE's discretionary pool before, most notably $75 million for the Financial Aid Initiative.
✔✔✔✔At the time of this gift, in November, 2005, FC had extensive correspondence with John Burness, then VP for public relations, who stressed that the $75 million was above and beyond the "normal" level of discretionary contributions the University had been getting. Nice!
But a Deputy Fact Checker noticed when TDE announced the $80 million for renovations that there was no such stipulation. So we got suspicious.
✔✔✔✔ After several quick back and forth e-mails, TDE, which has always answered promptly and been totally forthright even when we asked pointed questions, told FC that $80 million was NOT on top of the "normal" level. Rather, it was a multi-year total of appropriations from the discretionary pool. (Brodhead told alumni returning for Reunion Weekend that he had gotten an $80 million check. That was inaccurate; he got a pledge to have money dribbled in.)
For how many years? That's not known yet, because given the meltdown, TDE does not know what is possible. What's for sure, is that during this entire period, the University can forget about other requests.
So, Loyal Readers may be asking what is the importance of this?
Presumably, this would eliminate gifts like the $12 million to the Divinity School for a multi-year study of the health of Methodist ministers. Or the $15 million to kick Duke Engage into high gear. Or $1 million to add to the John Hope Franklin Professorship. Or any resumption of the roughly $750,000 that had been given before the meltdown for Duke Durham Partnership programs.
✔✔✔ The importance? It means that the double double was just puffery. It was not a candid disclosure. In fact, why not loop in a couple more years, and claim that TDE has given Duke University $100 million? That would make an even bigger splash.
As FC asked at the time the gift was announced, is this really something spectacular, or is it a public relations ploy, an amalgamation of smaller annual gifts rolled into one package with a big ribbon?
Answer: more smoke than new fire.
✔✔✔ For some time FC has been concerned about distortion in the way Duke University tallies all of its contributions from any source. The big numbers that the Brodhead Administration's current PR maven Michael Schoenfeld touts every year are compiled using an accounting standard called CASE. This is favored by the development office because it makes them look good.
Every other number in every other Duke University financial report uses Generally Accepted Accounting Principles (GAAP). As executive vice president Tallman Trask admitted in footnotes buried in his last annual report, the CASE method showed $345 million in philanthropy, while GAAP only totalled $174 million. We're talking pledges here, not money received; remember how Peter and Ginny Nicholas reneged on a $72 million pledge that at the time was announced with glee as the largest in the school's history.
Many of the gifts are spent immediately; some pay for longer-range assets like buildings. The most significant number -- the amount contributed for new endowment each year -- is very very hard to come by, and even FC, after multiple attempts, does not have a year-to-year chart. The amount added to endowment, of course, determines the true, long range potential of the university because it will pump money into the annual budget in perpetuity.
Contributions from TDE constitute a large portion of the annual gifts flowing to Duke University -- and just like CASE -- they distort what is actually being raised. Not one of our peer institutions has an outside, captive foundation pumping huge amounts of money into the campus every year.
In his wisdom, James B. Duke decided not to vest the endowment money for his new school with its Trustees. Rather he created a new entity that would handle all his charity, TDE.
But for this anomaly, if the university's own trustees held the loot, the TDE "gifts" would be recognized as earnings on our own endowment. And this is how we should regard them: not as a new strength, but as the result of interest, dividends and capital gains on the founder's original gift.
That TDE provides a crutch for our development staff is clear if you look at the last two big fund-raising efforts. Nan Keohane's wildly successful Campaign for Duke got 17 percent of all its money from TDE. And Brodhead's Financial Aid Initiative fully 25 percent. (The PR department invariably uses the word "successful" every time it mentions the Financial Aid Initiative, even though by the deadline it fell short of its principal goal of raising money for undergraduate scholarships.)
Duke University should straighten out the way it reports TDE money, indicating it is a transfer from one pocket to another, and not a legitimate new strength for the university. And when a huge gift occurs merely because smaller ones that we were destined to get anyway were looped together, we should be so advised.
Thank you for reading FC and for caring about DUKE!