New Law Lets Non-Profits Tap Into Their Endowments’ Original Principal

Wisconsin State Governor Jim Doyle signed Senate Bill 31 into law on Monday and opened the door for non-profits to access funds that have previously been off limits.  The Milwaukee Journal Sentinel reports the Bill adopts new national standards for the prudent investment and management of institutional funds and allows charitable organizations that manage endowments to withdraw from, and therefore reduce, an endowment’s original principal. 

Until now, organizations in Wisconsin typically  have been barred from spending from an endowment fund when the value of the fund dipped below the amount of the fund’s original principal.  However, the historical losses incurred in the current economic downturn have led organizations and the legislature to look for more flexibility in the use of endowment funds.

The change was backed by institutions such as the University of Wisconsin Foundation and Marquette University, among others.  Although there is concern about over spending and severe drops in foundation levels, the Bill will permit groups to access  endowments funds during a recession, when the need is greatest and the earnings from such funds’ investments  are  severely reduced. 

Variations on the measure have been passed in 41 states in the past three years.

SS