With the new internship stipend program and a smaller endowment due to the funding structure of the Student Assembly’s (SA) proposed Student-Run Grocery Store, the emergency financial aid fund Students Helping Students (SHS) could have to start making tough decisions very quickly.
The constant refrain of Matthew Stefanko ‘16, SA Vice President and co-sponsor of the grocery store resolution, is that SHS is underutilized and will be able to easily meet need even if $360,000 of its principal is used to fund the grocery store, as is currently proposed.
At first glance, the above might look nice; we can have our cake and eat it, too! Unfortunately, the devil is in the details: $10,250 in annual interest isn’t enough to protect a ~$1.2 million dollar endowment against inflation given its yearly payout obligations . Rather than just assume that everything would work out, I did the diligent thing by reaching out to the Financial Aid Office to ask how the fund actually works.
From the Financial Aid Office:
“Interest will fluctuate as the market and Cornell’s investments in the market fluctuate, so yes, the interest actually earned on the shares that the SHS fund has may be greater or less than the percentage that Cornell sets as the payout percentage. [. . .]”
In short, the SHS fund’s payout can reasonably serve as a conservative proxy for interest. In consultation from the Financial Aid Office, I built a rudimentary model to show how Students Helping Student might behave facing a reduced endowment. Using the payout rate given by Financial Aid (4.5%), the endowment would have to start cutting back in as few as 6 years:
This model projects endowment growth of 4.5% per year, which includes inflation. It also projects payout growth tied to inflation.
This isn’t a perfect model, but it is the only one that seriously looks at what will happen to SHS if the student grocery store resolution is passed as currently proposed.
The Financial Aid Office had the following to say about the model:
“We have looked over your spreadsheet summarily and don’t see any inherent problems with it. The one caution I would give is that the account that holds the interest that we can spend is separate from the endowment account that is invested in the current market. The university determines our payout and the payout is placed into the spending account.”
This model raises grave concerns regarding the use of SHS funds for the grocery store. Removing $360,000 from SHS’s principal could render the financial aid fund unsustainable in just six short years.
This analysis doesn’t begin to explore other concerns about using SHS funds for the grocery store: Is it even possible to take money out of SHS and hand it over to an unaffiliated 501(c)3? Will removing funds harm SHS’s core functionality? Is it alright to spend SHS funds on renovations, refrigerators, and tablets in support of an inherently risky venture?
Furthermore, if this project can only survive with a cash infusion of $360,000, we should really question the problem-solving ability of the team’s leadership. This project could be funded in other, more democratic and meritorious ways. For example, why not crowdfund $20 “bonds” to get $20,000-50,000 in seed money, and then ask alumni for bridge funding? Or start smaller, like other schools have, by selling fewer, higher margin items like yogurt and Coca-Cola?
You can see the data here, or you can email me at msw242 for a copy of the Excel workbook or proof of any conversations.
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