As he moves from television studios to congressional hearing rooms defending proposed cuts in federal aid to college students, Education Secretary William J. Bennett continues to insist that the economic recovery has increased university endowment values enough to offset the cuts.
But a recent survey of 206 universities shows that endowments last year were worth 2.24 percent less than in 1983, with some decreasing by as much as 6 percent.
"There's one primary reason for that," said Norman Herman, investment officer of the University of Michigan in Ann Arbor. "The market for stocks and bonds is down."
Endowments essentially follow the nation's stock and bond markets like a roller coaster; despite a strong showing in 1982, the first year of the economic recovery, endowments dipped again last year, according to the survey by the National Association of College and University Business Officers.
For example, among the nation's 10 best-endowed schools, the value of the University of Texas system's endowment dropped from $2.329 billion to $2.273 billion; Yale's decreased from $1.089 billion to $1.06 billion; Columbia's went from $870 million to $855 million, and the Massachusetts Institute of Technology endowment dropped from $673 million to $645 million.
Interviews with university investment officers suggest that even with the strong 1982 showing, endowments were so battered by inflation during the 1970s that their purchasing power has decreased over a 10- or 15-year period.
"If you look over time, we haven't been able to keep up with inflation," said Edward Hunia, treasurer of Carnegie-Mellon University in Pittsburgh.
"If you look over 10 or 20 years, it's just been a gradual erosion, in comparison with inflation," Hunia said. "If you look at college endowments in 1960 dollars, you'll see endowments are only 60 to 70 percent of what they were then."
"The endowment income provides less for student support than it could 10 or 20 years ago," he added.
Most major university's financial portfolios are divided among stocks, such fixed-income investments as bonds and money-market certificates, and, to a smaller extent, so-called "alternative" investments, such as direct involvement in a housing project.
Last year, Standard & Poor's index of 500 companies showed a 4.73 percent decrease in the value of their stock. At the same time, the value of bonds was down 7.36 percent, according to the Salomon Brothers Bond Index.
Heavy reliance on the markets, which ravaged university endowments for more than a decade, has led to more interest in "alternative" investments and to more financial creativity by investment officers trying to insulate endowments from long-term trends.
In February, for example, Columbia University sold the 11.7 acres of land beneath Rockefeller Center in midtown Manhattan for $400 million in cash -- half of its entire endowment -- to make its assets more liquid.
Some investment officers said that, even if endowments increase in future years, universities may not have flexibility to use the added income for student aid. An endowment typically is held "in perpetuity" -- meaning that only the income it generates, not the endowment itself, can be used. Even then, much of endowment income is earmarked by donors.
"All endowment funds are held in perpetuity," said Joseph E. Cardoza, comptroller of Pomona College, a small private college in Claremont, Calif., with 1,300 students. Its endowment dropped from $114 million in 1983 to $112 million last year.
Like most colleges, Pomona uses interest income on its endowment to absorb some day-to-day operating costs. "It cannot be invaded," Cardoza said. "If you use the endowment, you have to sell off some investments, and then your income goes down. It will all snowball if you violate it."
Even if some endowment income could be used to bolster student aid, financial officers said that reliance on endowments, so closely tied to market performance, would be risky, at best.
"Any investment prospectus will tell you that past performance is no indication of the future," said Thomas Stavovy, Yale's financial analyst. "Anything can happen. Stocks can become the worst investment in the world.
"It's very risky."