Violating Donor Intent, Taxpayers Take Warning

A new paper from the John Pope Center for Higher Education by Martin Morse Wooster looks at how universities have used funds or property bequests by large donors in ways that violated the donors’ intent.

The paper, “Games Universities Play: And How Donors Can Avoid Them” proceeds through a series of case studies exploring the several different kinds of mismanagement. Some examples:

— A Yale alumnus gives $20 million to his school for the teaching of Western Civ classes. Faculty resistance waylays the project and eventually the donor pulled his money.

— Boston University hit up to renovate a library named for David Mugar’s grandfather. The university subsequently realizes that the project will cost more and therefore cancels it. Mugar sues and has his money effectively shifted to other non-profit causes.

— The Robertson family creates a foundation to support the training of government foreign policy experts at Princeton. The university uses hundreds of millions of dollars from the endowment on projects other than that specified.

— Art given to Brandeis University for perpetual display may be sold to make up for budget shortfalls elsewhere in the university budget.

When we consider that this is the treatment that is received by major donors who were very specific about how their money should be spent, it seems obvious that money given to public institutions from tax revenue and assigned to nebulous purposes, will often be contrary to the wishes of taxpaying public.


4 Ways to Spend Money and the Wastefulness Inherent in the Current System

Milton Friedman told us there were four ways to spend money:

1. Spend your money on yourself 2. Spend your money on someone else
3. Spend someone else’s money on yourself 4. Spend someone else’s money on somebody else

It seems reasonable to assume that the first way to spend money will be the most efficient — the spender considers his own budget and his own interests in the choosing of a market basket of goods and services. The second kind of spending is less efficient — this is why economists might say that Christmas-gift-giving is inefficient — because the recipient of a good or service might rather spend the money on something she values more highly. The gift-giver necessarily attempts to please the recipient, and succeeds to the degree that he has correctly mentally modeled the recipient. The third kind differs from the first because the spender doesn’t necessarily consider the difficulty of obtaining the money in the first place and therefore doesn’t consider the “replacement” cost of the money (which serves as a sort of intertemporal budget line. The fourth kind combines the paths of inefficiency of both the second and third ways — both in the cost and the benefit the spender is removed from the

Clearly, most bureaucratic actors within public colleges are operating in the third and fourth categories. We question how well motivated the spenders of college funds are to make a correct decision about what projects should be green-lighted. Even those persons with impeccable ethics will inherently be less careful in decisions that do not involve their own money.