A new survey released Friday made clear that declining support from state legislatures and slow growth in endowments means colleges and universities will need to find new streams of revenue or drastically scale back their operations.
The annual National Association of College and University Business Officers-Commonfund survey found college endowments on average remained essentially flat for FY 2012, declining .3 percent. The sluggish performance follows a banner year of fundraising in FY 2011. Then, endowments grew 19.2 percent.
Most schools own equities outside the U.S., so volatility in Europe and China created drag on schools' endowment growth, the survey concluded. Foreign returns declined 11.9 percent.
Although endowments are outperforming the S&P500 over a 10-year period, growing at 6.2 percent a over a decade, they aren't expanding at the rate colleges need. Colleges need their endowments to grow by 7.4 percent over 10 years to match inflation and repay money withdrawn from endowments. The study raises alarm since participants reported that an average of 8.7 percent of their operating budget was funded by their endowment, a growth from the typical four to five percent.
"The ways that universities have been able to add to revenues have been changing," Verne Sedlacek, president and CEO of Commonfund, said at a press briefing.
Endowments are used to help fund scholarships, repairs or improvements to campuses and professorships, but they've struggled to simply reach the level they were at before the stock market crash of 2008, the recent NACUBO-Commonfund surveys show.
“Universities are still not back to where they need to be," Sedlacek said.
At the same time, colleges are facing pressure to add spending from endowments to replace state funding and restrain growth in tuition, Commonfund Institute executive director John S. Griswold noted in a press briefing. Griswold predicted many schools will increasingly look for ways to develop revenue streams from Massive Open Online Courses.
The same problems -- net tuition revenue, consistent state budget cuts -- led Moody's Investors Service to downgrade 34 institutions in 2012.
Check out the slideshow below to see biggest endowments in the country: