Alaska has a really big one. So do Harvard and many other public and private American colleges and universities. The same is true of untold numbers of foundations, charities and other community organizations in America.
I am, of course, talking about various iterations of endowments, future funds and other means of creating financial nest eggs and long term security for those things deemed most important and worthy of perpetuating. These investments allow us to build financial bridges that transmit our values and messages well into a future that we will never see and will benefit generations to come.
Whether it is education, the arts, conservation, healthcare, ongoing operations or any other important purpose, funding and inflation-proofing income through endowments has been going on for many years. All are designed to provide virtually perpetual income without ever touching the principal.
Endowments can also serve to stabilize the financial situations of their organizations and smooth some of the vagaries of financial exigencies they might otherwise suffer. This can only be accomplished if the principal of the endowment is protected from invasion; no mean task when politicians are involved. Just as nature abhors a vacuum, politicians can seldom tolerate a budget surplus.
There are, though, some exceptions. In Alaska over the last 40 years or so, excess oil revenues have been channeled into the state's future fund for prudent investment with strong statutory protections. About half of the fund's annual income is usually reinvested to protect the buying power and expand the fund corpus. The good news for Alaskans is that over that same period, the other half has been divided equally among all residents in the state on an annual payment basis. Last year, each of the 640,000 resident men, women and children received a check for just under $1,000. Those revenues will continue long after the oil is gone.
In higher education, Harvard has about $27 billion generating revenue to help sustain the school, while dozens of other American colleges and universities each have more than a billion dollars of endowment principal. Just behind Harvard is Yale, followed by Princeton, Stanford and MIT, all with more than $10 billion in the kitty. Last year, most generated about 15 percent return on their investments.
As a comparison, The Ohio State University has just more than $2 billion and ranks 31st among its peers. This is more than the West Virginia University system, but just behind the University of Pittsburgh. Both the University of Cincinnati and Case Western Reserve University are not far behind with more than a billion dollars each.
Beyond exhibiting good stewardship, these are prudent people working assiduously to generate even more money for the things they and their donors deem important, valuable and mission-essential to their institutions and donors.
It occurs to me that the various units of local government - school districts, towns, townships, counties - might well consider establishing their own endowments or future funds if they have not already done so. People tend to know and trust small government much more than state or federal.
Though these endowments should not be funded by taxes, "windfall" income from leases and royalties could serve as a growing source of perpetual revenue for generations to come if they are retained, protected and invested using well-established endowment models. It makes no sense to spend oil, gas and other natural resource revenues on depreciating assets, and projects with finite lifetimes, leaving communities with little or nothing after depletion occurs.
Special purposes for endowment revenue, including rebates or reductions to property tax payers, parks and recreation development or other important community services could be supported in perpetuity with no new or additional taxes.
Just as important, the accumulating principal in each of these funds adds an economic stimulus impact by increasing available investment funds for business and industry. Alaska's $50 billion future fund is invested and working to support broad economic growth. The diverse spread of prudent endowment investing cuts across virtually all sectors of the economy and benefits everyone.
During my years of raising money and overseeing a major health care endowment, a wise old Quaker friend of mine not only preached the benefits of expanding and protecting our endowment, but imprinted a mantra in my frontal lobe that I have always remembered: Never, never, never touch the principal!
Maybe our elected officials should keep this in mind when they talk about investing windfall revenues.
Dr. Terry Wallace is a member of the graduate faculty at Muskingum University, a board member at the West Virginia Access Center for Higher Education and a former health care executive.