An Endowed Institution Closes Down?

Something fascinating is playing out at Episcopal Divinity School in Cambridge, Massachusetts this year.    Last week, the board of the seminary (a 42-year-old institution created by a merger of two other schools with histories going back 150 years) voted 11-4 to stop awarding degrees in May 2017.

In effect, they are declaring that they are going out of business, at least as a full-time seminary.   They will offer their full menu of classes and programs for two more semesters, with no layoffs; but also with no commitment to continue to offer classes (or employment, presumably) beyond that.

ecusa-aThe surprising twist in this story is that this is an organization with a $53 million endowment.   For the vast majority of us in the non-profit world, the idea of shutting down operations with $53 million in the bank is unimaginable.

However, in this case the Trustees are probably making a sound, if painful, decision.   EDS has been spending over $6 million a year on its operating budget in recent years, and it is probably not realistic to employ a faculty with the range of expertise necessary to provide graduate degrees in ministry and theology for much less than that.

However, last year they only had 43 full- and part-time students, from whom they collected $1 million in tuition.   They raised about $1 million in contributions (and spent $1 million doing it).   Most of the rest of the $4.5 million in “revenue” they needed to cover their expenses came from draws against that $53 million endowment.    That’s a draw rate of 8.5%, in an era when most trustees are moving to reduce the standard of what is considered sustainable from 5% towards 4%.

The school has quietly taken the unusual step of posting, on its website, a full 26-page report that they commissioned from a consultant, outlining what kinds of increases in revenue from tuition and fund-raising, and what kinds of reductions in expenses, would be necessary to balance a budget by 2022.   It’s a remarkably transparent move.

I think the trustees of EDS are taking prudent action in light of larger trends.   The Episcopal Church now has about 1.8 million baptized members in the United States, down from a peak of 3.4 million in the 1960s.     As membership declines, so does the ability of a local congregation to support a full-time priest.   Here in Indiana, 27 of the 47 parishes in the Diocese of Indianapolis have operating budgets of less than $150,000 and most of them have either a less-than-fulltime rector, or share a priest with another parish.

There are currently ten Episcopal seminaries in America, counting EDS; and several of them are struggling and/or contemplating mergers.    Perhaps the Episcopal Church doesn’t need ten, or maybe even seven, different seminaries, to educate the number of priests that the denomination can employ.

In this case, it is possible that the Trustees of EDS are not only making a good decision; it is possible that to have pursued the opposite course of continuing operations in pursuit of some unrealistic future enrollment and fund-raising goals would have been exactly the wrong decision.   That might well have been a decision that put their own pride and the employment of their staff above the mission of the organization and the intentions of their donors.

What happens next will be worth watching, and has all kinds of potential for creating innovative pathways for other struggling organizations to consider.

Quotes from trustees on the school’s website and in the Boston Globe and national church publications indicate that the school will use the coming year to explore a variety of options.   They may pursue yet another merger, pooling their resources with another seminary while reducing redundancies.   They may find another educational partner in the institution-rich Boston area, that allows them to continue to offer theology degrees as well as some other degrees.

But they also may morph out of being a graduate school altogether, because there are other ways to fulfill their mission.    Their published mission statement reads, “The purpose of Episcopal Divinity School is to educate lay and ordained leaders for Christ’s Church and for the world who serve and advance God’s mission of justice, compassion, and reconciliation.”     Nothing in that statement requires issuing doctoral degrees per se; perhaps EDS could fulfill its mission and the evolving needs of the national church by re-launching a program based on lay leadership education that required a different mix of faculty members.

Another path could involve getting out of the business of being a school altogether.   They could evolve into a private foundation that awards scholarships.   In this case, they could sell their property for another $20 million and have almost all of the earnings on a $70 million endowment to use fulfill their mission by “educating lay and ordained leaders” at other institutions.

All of these alternatives might be complicated by the fact that about half of the current endowment is composed of donor-restricted funds.    It will be worth watching to see if and how some of these funds – say, a $2 million gift that was restricted by the donor to endow a chair in Hebrew – can be repurposed.

Again, for most of us, it is hard to imagine having $53 million in the bank, and to be talking about going out of business.   But I don’t think this is an institutional failure.    What it might be is one more cautionary tale about the dangers of having an endowment that provides more than half of one’s income.

Such an endowment can become a crutch, a means of unconsciously avoiding adept responses to societal trends.   I’m often critical of endowed organizations that begin to make protecting their capital their top priority, with fulfilling their missions getting the secondary share of their attention.   I don’t think that’s what is happening in Cambridge, at least not now.   I wish everyone involved the best.




About J. Ronald Newlin

Non-profit consultant, museum developer, historian, Episcopalian, blues/punk bassist
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