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LSU students navigate campus between classes, Tuesday, Jan. 24, 2017, in Baton Rouge, La.

Advocate staff photo by HILARY SCHEINUK

Louisiana’s $2.3 billion collegiate nest egg is getting smaller because investments made by the endowments of most of the state’s public colleges just aren’t returning the dividends expected.

Nationally, three-fourths of colleges are reporting they are dipping into the base of donations after suffering their first losses since the 2008 recession.

The decline shocked many in the higher education community and led some university-affiliated foundations to alter their management.

In Louisiana, most funds followed the national trend for 2016. But for many state schools, this is the second or third year of poor returns. LSU, for instance, has been quietly adjusting its foundation’s operations after two consecutive years of losses.

“You have to make money,” said Joseph C. Rallo, Louisiana’s commissioner of higher education. “Most of our institutions, for whatever reason, did not grow their endowments.”

Humdrum investment returns are adding to an already challenging budgetary environment for Louisiana’s public colleges and universities. Lawmakers have cut the state’s appropriation 16 times over the past nine years to the point where students now pay about 70 percent of the costs and state taxpayers pitch in 30 percent — a reversal of the ratio a decade ago.

The state’s operating budget for the fiscal year ending June 30 needs to be rebalanced before the end of the month, and next year’s spending plan is starting off in the hole again.

Some Louisiana legislators are taking a cue from Congress, which is looking at endowments as a source of money to lower student costs, and saying that’s an idea that needs to be discussed in this state.

Endowments are where the tax-deductible dollars donated by people and corporations are deposited. The idea is that those donations are invested and the profits are used to help fund scholarships, supplement faculty pay, support construction and other projects. Using only the interest income keeps the base intact and ready to collect more interest next year.

Most colleges and universities expect about a 5 percent to 7 percent return on those investments each year. And they usually get it.

When they don’t, changes are made, as in July at Harvard University, where the investing chief resigned after 18 months of lackluster investment performance.

Nearly three-quarters of the nation’s university-affiliated funds reported dipping into their endowment’s base to cover investment income declines in 2016, according to a recent report by the National Association of College and University Business Officers, a trade association, and Commonfund Inc., a Connecticut money manager.

“In spite of lower returns, colleges and universities continue to raise their endowment spending dollars to fund student financial aid, research and other vital programs,” NACUBO President and Chief Executive Officer John D. Walda told reporters.

The NACUBO review of last year’s investment returns for the funds of 805 colleges and universities nationwide found profits from endowment investments in energy and commodities were down, as were alternative investments like hedge funds and venture capital.

Stock prices on the Standard & Poor 500 index showed a nearly 4 percent gain during the same 12-month period ending June 30.

Endowments for Louisiana Tech, the University of Louisiana at Lafayette, University of Louisiana at Monroe, Northwestern State University and McNeese State University — schools that were not included in the national survey — also posted losses in 2016, a review of Louisiana Legislative Auditor’s Office reports shows.

The latest audits for the University of New Orleans and Nicholls State University have not been completed, but both endowment funds had lost value since 2013, according to earlier audit reports.

Southern University’s foundation is not audited because it doesn’t include government money, according to the Legislative Auditor’s Office.

It’s the second down year in a row for the LSU Foundation. That endowment has slipped from a high of $644.1 million in 2014 to a $616.5 million balance on June 30, 2016, according to the audit.

LSU’s investment income dropped by $10.6 million from 2014 to 2015 and by $22.6 million more from 2015 to 2016, primarily because the endowment’s investments underperformed. “These deficiencies resulted from unfavorable market fluctuations,” the auditor’s analysis stated.

The LSU Foundation, a few years ago, intentionally shifted a portion of its assets from stocks and bonds to investments like real estate and energy, interim LSU Foundation CEO Dan Layzell said in an emailed statement. “Real assets have significant commodity exposure, and commodities have underperformed recently. For example, oil prices are down 61 percent over that time frame,” he wrote.

Layzell, who had overseen LSU’s finances, became interim president of the foundation on Jan. 1. Stephen Moret, the former state economic development chief, had been president and chief operating officer of the LSU Foundation for 18 months before abruptly leaving for another job.

The LSU Board of Supervisors is conducting a nationwide search for a new foundation head whose revamped duties would include working more closely with the university’s other foundations and coordinating fundraising activities.

The LSU Foundation also hired Cambridge Associates to operate as its chief investment officer.

“Endowments, especially during the recession, have been going up and down. Our endowment isn’t where it should be, but we’re working on building it,” said LSU President F. King Alexander, who has repeatedly expressed the need to ramp up fundraising efforts since arriving in 2013.

Other Louisiana university officials blame the fickleness of the stock market and remind people that endowments are long-term investments, so a downward blip isn’t an immediate concern.

“It’s a slow, steady growth investment strategy,” said Joseph Savoie, president of the University of Louisiana at Lafayette, whose foundation’s value dropped 4 percent from $185.2 million in 2015 to $178.3 million in 2016. “The endowment tends to follow the market. It goes up, and it goes down, depending on the overall performance of the market.”

That’s not much solace for some donors.

“I was quite shocked to find this out. It’s disappointing that it has been going so long,” said Janice Evans, of Baton Rouge.

Evans’ family donated money to LSU in her late daughter’s name with the understanding that the earnings on the contribution would be used each year to provide modest help buying art supplies for a deserving student. “Obviously, they’ve been going into the principal,” she said.

She feared that news of the fund’s losses could scare off future donors. “It’s a worthwhile foundation," she said. "They do a lot of good. I hope they can turn it around.”

Follow Mark Ballard on Twitter, @MarkBallardCnb.