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The business of running a law school: What you know - or don't - about endowments

This year Emory University’s endowment was named the 17th largest among a survey of 812 colleges in the United States. Reading that, you may assume the law school’s finances run parallel to the University’s.

Although Emory Law’s $43 million endowment is pooled with the University’s for investment purposes, the law school’s own endowment earnings inform its annual budget and fundraising targets. 

Despite four years of rising enrollment, the law school had an operating deficit until its finances returned to the black in fiscal year (FY) 2015. The deficit was due largely to a sea change in legal education during the past decade, during which juris doctor program applications declined nationally by 46 percent.

However, Emory Law also closed FY 2015 with record-breaking fundraising, securing gifts of more than $7 million. That is why, in part, endowment earnings for FY 2016 are anticipated to be roughly $600,000 higher than three years prior. 

Where does it go?

You may be surprised to learn Emory Law’s biggest annual budget line item is for scholarships. More than 90 percent of Emory Law students benefit from financial support. That flexibility in funding also helps keep Emory Law’s historic commitment to a bright and diverse student body.

“Scholarship endowments help us attract and retain the best students in the nation, and the 3.77 median GPA of our current first-year students ranks above that of our peer schools,” Dean Robert Schapiro says. Endowment funds devoted to faculty also allow the law school to recruit and retain world-class scholars and instructors. 

“Essentially, endowed gifts help maintain educational excellence and enable us to invest operating funds in new projects that reflect changes in the broader legal community,” he adds.

The law school adapted to a changing landscape with the expansion of two degree programs — the master of laws (LLM) and juris master (JM). This year, those enrollees were 13 percent of students. For comparison, as recently as FY 2011, 98 percent of Emory Law students were seeking a JD.

Earnings from the endowment affect most aspects of programming and planning for the future. “Endowment income provides support for signature programs in transactional law, advocacy, and technological innovation,” Schapiro says. “These funds allow us to expand on strategic priorities, like health law and international and comparative law, and explore new programs such as law and development.” 

During FY 2015, $1.7 million from endowment earnings was distributed as follows:

57%—scholarships, fellowships, and awards

23%—research, chairs, professorships

13%—budget and operational support

7%— other program support

Making endowment funds last

An endowment cannot be drawn upon at will — it is designed to provide a continuing source of income. Emory’s spending rate is approximately 4.75 percent of the endowment’s market value, says Eric Baca, director of Donor Fund Reporting for Emory University. Spending more may solve immediate needs, but flies in the face of the principle, which is to provide continuing income for current and future missions. Emory’s spending policy incorporates both weighted- and moving-average components to mitigate the effect of market volatility, “which keeps distribution amounts smoother from year to year than if we simply used a simple percentage,” Baca says. (Because the calculation includes market values from earlier periods, the distribution amount of $1.7 million does not equate to 4.75 percent.) An endowment usually has hundreds of sources — gifts from individuals, foundations, and corporations. However, endowed gifts often include legally binding restrictions for their use, which limit what the earnings can be spent on. Gifts may also include securities, mutual funds, or stocks, rather than cash. 

In Emory Law’s case, 88 percent of the endowment’s 121 funds contain donor-initiated restrictions on their use, Baca said. Of those 107 funds, only nine allow general budget support, he said, which led to distribution of $222,000 from those sources in FY 2015. 

While 2015 was a testament to donors’ faith in the law school, the endowment still needs to grow. “Compared to other top 20 schools, Emory Law’s endowment is quite modest,” Schapiro says. Emory Law’s $43 million endowment is dwarfed by Northwestern Law’s $299 million. Vanderbilt Law’s stands at $150 million, and Boston University Law’s is $69 million. (All amounts are from FY 2014.)

A larger endowment increases a school’s ability to continue to create a forward-looking academic program and avoid large tuition hikes. (Emory Law’s current tuition is $50,900 and has increased about 3 percent annually.) 

A healthy endowment can also help weather the impact of a harsh market year — for instance, the past year. The National Association of College and University Business Officers (NACUBO) reported a sharp national decline in endowment returns, an average of 2.4 percent for FY 2015, down from 15.5 percent the previous year.

The 10-year average annual return declined to 6.3 percent. According to NACUBO, most endowments report they need a 7.5 percent return “in order to maintain their purchasing power after spending, inflation, and investment management costs.

Which leads to another crucial part of a balance sheet — unrestricted gifts. The Law School Fund for Excellence, the Wise Heart Society, and the Emory @ Work campaign are examples of annual gifts that can be used for any purpose. They create the readily available funds that organizations need to function well.

In FY 2015, expendable gifts contributed nearly $650,000 to the school’s bottom line. Gifts large and small touch all aspects of student life—from providing competitive financial aid to funding summer work grants. Annual giving helps build new programs such as the Center for Transactional Law and Practice, and support longstanding ones such as the Barton Child Law and Policy Center.

To make a one-time or recurring gift to the Law School Fund for Excellence, go to

This story first appeared in Emory Lawyer magazine.