Some colleges chafe, but restricted gifts prove beneficial

Colleges and universities regularly complain about the growing share of the donations they receive that are "restricted." When alumni or other donors tell a university where they want their money to go -- whether it be to a building or a scholarship or an honorary chair for faculty -- administrators get annoyed. Why not just let us spend it the way we see fit?

One reason is that they may get more money by allowing donors to restrict their gifts. That seems to be one lesson to be learned from Boston's Jewish federation, which has recently embraced the idea of allowing donors to direct their giving, and has reaped significant benefits. According to the Chronicle of Philanthropy:

Oth­er Jew­ish char­i­ties are now con­sid­er­ing wheth­er to fol­low Bos­ton’s lead. Al­low­ing do­nors more say in where their mon­ey goes is a key rea­son the Bos­ton fed­er­a­tion has been thriv­ing in the slow eco­nom­ic re­cov­ery while those else­where con­tin­ue to face a tough time. In Boston, do­na­tions rose more than 80 per­cent last year to $132 mil­lion, help­ing Com­bined Jew­ish Phi­lan­thro­pies rise to No. 163 on the Philanthropy 400, up from No. 256 last year. And in the fis­cal year that wrapped up in June, giv­ing surged an­oth­er 60 per­cent. The fed­er­a­tion is now raising twice as much as it did in 2007, be­fore the re­ces­sion took hold.

Boston is almost alone in its strategy of working with donors to figure out where they want their money to go. The president of the Boston federation, Barry Schrage, says "that what both­ers him a­bout that long-held tra­di­tion [of unrestricted giving] at the fed­er­a­tions is that it fa­vors the same 'en­ti­tled in­sti­tu­tions' year af­ter year and is 'gen­er­al­ly emp­ty of vi­sion and pur­pose.'"

This is a useful observation. When donors give to a general pot, the people in charge will keep directing money to certain places. They will pick the winners and because the winners get more money, they will keep winning. But donors can provide an outsider's perspective. They can say that other causes are valuable, causes that are getting overlooked.

It's not surprising that when people have more say about where their money goes, they're more willing to give. A representative of LDS Philanthropies, an arm of the Mormon church that encourages large charitable donations, told me that they have adopted a similar strategy.

There are other reasons that donors to higher education want to restrict their giving. Namely they have taken to heart the lessons of the past. They have seen the vast amounts of waste on campus, the steady administrative bloat, the slow expansion of recreational facilities, the launching of new programs -- each more bureaucratic than the last, each less related to the core educational mission than the last.

But donors may also have some positive ideas for new programs or changes to old programs that are worth hearing. Their desire to restrict their giving may mean that the same "entitled institutions" or the same entitled departments or programs won't get the support they want. But maybe it's time for universities to pick some new winners on campus anyway.

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