Financial Plan - Cornell University Division of Budget & Planning

U.S. Senate Response (continued)Table 14. LTIP – Total PayoutTotal Payout as aTotal % of BeginningYear Payout Market Value1997-98 $75,573,000 3.7%1998-99 $104,186,000 4.3%1999-00 $115,851,000 4.2%2000-01 $142,578,000 4.3%2001-02 $177,487,000 5.8%2002-03 $185,230,000 6.7%2003-04 $173,663,000 6.4%2004-05 $169,653,000 5.5%2005-06 $186,779,000 5.2%2006-07 $205,012,000 4.9%that those payouts were of each corresponding average marketvalue (e.g., $2.63 for 2006-07, which the trustees measuredagainst the twelve-quarter average through June 30, 2006).9c) If either the actual and/or targeted payout is below5%, please explain how this meets the needs of the currentstudent body.Response:While year-to-year total payout rates targeted by Cornell variedfrom a low of 4.4% to a high of 5.5%, they averaged 5.1%over the period. (See Table 15 below.) Actual spending rates(using NACUBO’s definition) also varied over the period(from a low of 3.7% to a high of 6.7%). They also averaged5.1% over the period. (See Table 14 above.)Table 15. LTIP – Total Payout TargetsChangein Total Rolling TotalPayout Average PayoutTotal Per of Unit as a % ofPayout Share Share 12-QuarterPer From Market RollingYear Share Prior Year Values Average1997-98 $1.48 11.9% $33.95 4.4%1998-99 $1.93 30.2% $39.23 4.9%1999-00 $2.05 6.1% $43.56 4.7%2000-01 $2.43 18.5% $49.25 4.9%2001-02 $2.90 19.4% $52.47 5.5%2002-03 $2.90 $52.62 5.5%2003-04 $2.63 (9.4%) $48.49 5.4%2004-05 $2.35 (10.8%) $45.33 5.2%2005-06 $2.48 5.5% $45.29 5.5%2006-07 $2.63 6.1% $49.22 5.3%9d) If there is a material variation between actual andtargeted, please explain.Response:Actual rates varied more than targeted rates because the actualrates are based on a single sampling point for the divisor (thebeginning-year market value) whereas the targeted rates use asmoothing-rule average of a 12-quarter sample for the divisor,which tends to average out peaks and troughs. Cornell’sinvestment portfolio experienced significant swings in valuationduring this particular ten-year period as the dot-com bubblegrew and burst. The university also modified and rebalancedits investment portfolio over this period, which also influencedmarket values. These are differences of timing not substance, asthe payout per share that is declared by the trustees is in fact thepayout per share that is used throughout the fiscal year. And thatpayout rate is shaped not only by earnings to date but what thetrustees expect to happen over the near term. Both tell the samestory that, in fact, Cornell planned and has had an average totalpayout of slightly over 5% of market value during this period.Cornell’s use of a smoothing rule, if left on autopilot, will alwaysresult in lower-than-average distributions during bull marketsand higher-than-average distributions during bear markets. Cornell’strustees do not allow the smoothing rule to run on autopilot,and make step adjustments in the payout rate as circumstancesdictate. For example, the payout rate per share for 2007-08was originally scheduled to increase 5.3% from 2006-07’s rate.In June 2007, based on strong investment performance to date,the trustees adjusted the payout rate for 2007-08 so that it wouldrepresent a 9.9% increase from the prior fiscal year’s level. Thedata in the third column of Table 15 lists the adjustments thatthe trustees made in the payout rate annually in response tochanging market conditions and with a view of maintaining totalpayout at or near the long-term 4.86% target.9e) What were the top 10 major expenditures from theendowment last year?Response:Expenditures made from endowment funds followed, inproportion, the use categorizations of endowment principal.Table 16 (on page 86) provides a list of the major categoriesof Cornell’s endowment, based on the restrictions placed bydonors and the uses to which unrestricted payout has been put.10a) How much of the endowment is subject to permanentspending restrictions or limitations set by the originaldonor?Response:As illustrated in Table 16 (on page 86), $3,462,617,000,or 63.8%, of Cornell’s endowment of $5,424,733,000 wassubject to permanent spending restrictions or limitations setby the original donor as of June 30, 2007.85