New York could lift restrictions on endowment spending

Posted on: June 30, 2010

Reporting on an issue that could be relevant to many orchestras, Erica Orden writes in Wednesday’s (6/30) Wall Street Journal, “Nonprofits would be allowed to spend certain endowment funds without court approval under a bill expected to pass the state Legislature this week. The issue has prompted discussion about the value of permitting cash-strapped institutions to draw from their reserves. Current not-for-profit corporation law forbids organizations such as museums and universities from spending the principal of an endowment fund when it falls below its original value, or ‘underwater,’ a situation that occurs typically as a result of investment losses. The bill, virtually identical versions of which have been introduced in the Assembly and Senate, would permit ‘underwater’ fund principal to be used without approval from the State Supreme Court or New York State Attorney General’s office. The Assembly passed the bill on Tuesday. Proponents argue that its provisions would allow organizations to more easily avoid cost-cutting measures, such as layoffs. … The bill’s sponsors emphasized that they haven’t faced any significant resistance, but some supporters have expressed concern about the new guidelines and worry it would open the door to short-sighted decision-making.” The full article can be read here but a subscription is required.

Posted June 30, 2010