The University’s Board of Regents voted 5-2 to reduce the University’s endowment payout rate from 5 percent to 4.5 percent at their monthly meeting Thursday.
University officials say they believe that reinvestment of the extra one-half percent will increase the net worth of the endowment and result in payouts that are larger, or equal, to current payouts.
In a letter to the regents, Tim Slottow, the University’s executive vice president and chief financial officer, said the change in the endowment payout rate would be implemented gradually to keep current payouts at or above current levels.
“The distribution rate would be implemented gradually over a number of years in a flexible manner that would keep the dollar amount of distributions per share constant during the implementation,” Slottow wrote.
Regents Julia Darlow (D–Ann Arbor) and Denise Ilitch (D–Bingham Farms) voted against the proposal.
Before voting, several regents explained their position on the measure. Darlow said she thought decreasing the endowment payout rate would send the wrong message to the public.
“Proponents of decreased spending say they’re preserving the endowment for perpetuity,” Darlow said. “I suspect that for many people struggling under the economic conditions prevailing in this country and state today, perpetuity sounds like an awfully long time.”
Regent Olivia Maynard (D–Goodrich) said she believes the lower distribution rate will help ensure the long-term stability of the University’s endowment.
“This is a way to maintain, with minimal net damage, the value of the University,” Maynard said. “Perpetuity is a large word, but on the other hand, we believe in public higher education and we want to make sure it thrives, no matter what the situation is.”
In an interview following the regents meeting, University President Mary Sue Coleman said she appreciated the debate the regents had over changing the payout.
“Obviously I was very much in favor of it because my administration made the recommendation, but I understand that people have legitimate differences,” Coleman said. “I have faith that our folks will be very careful; they want to make sure that nobody gets less money from one year to the next. I felt like it was the prudent thing to do and I appreciated the discussion.”
Currently, the total endowment value is determined using a seven-year rolling average, which is recalculated at the end of each fiscal quarter. The spending policy replaced a three-year rolling average in 2006 to help stabilize payouts in volatile markets.
Regents approve construction schematics
The regents also unanimously approved designs for the renovations of Crisler Arena, the new golf practice facility and the addition to the Institute of Social Research building.
The $20 million renovations to Crisler Arena will make the building compliant with the American with Disabilities Act by increasing the number of handicapped accessible seating, replacing the seats in the lower bowl and widening the aisles in the lower bowl.
The renovations will also improve the arena’s emergency systems with new fire detection and suppression systems, smoke evacuation system and emergency lighting.
A proposed schematic design for the Athletic Department’s new golf practice facility, to be located on South Main Street near the University Golf Course, was also approved at the meeting. The new facility will allow the men’s and women’s golf teams to train year-round with indoor driving bays, putting greens and chipping areas. Additionally, the facility will include office space, meeting rooms and locker rooms.
Women’s golf coach Cheryl Stacy said in a statement that the $2.5 million facility will enhance the competitiveness of the University’s golf program.
“This facility will enhance our program’s ability to practice during the winter months, providing an environment for our players to continually work on their technique,” Stacy said.
Regents also approved a design proposal for the ISR addition, which will consist of a four level, 44,700 gross square foot addition to the current ISR building and renovations of 7,200 gross square feet of the current building.
The $23 million project will create new office, research and meeting spaces as well as state-of-the-art bio-specimen and data storage.
— Daily News Editor Kyle Swanson contributed to this report.