The slumping economy has hit University endowments hard and will result in a decrease in departmental spending beginning in fiscal year 2003.

Since the early ’90s, endowment returns supplemented departmental budgets by 5.5 percent. Last fall, the Board of Regents approved a decrease in the allotment, allowing departments only 5.25 percent of the endowment returns after Jan. 1, and only 5 percent after July 1.

The cuts mean department spending system-wide could be reduced by as much as $4 million, said University asset management director Sheila Warness at a regents Finance and Operations meeting Thursday.

But she said it’s too early to discern the impact the reduction will have on specific departments.

The endowments produced $36.4 million for spending in 2001, a slight increase from the $30 million created in 2000.

The money was distributed based upon need, Warness said, including $8 million to research and $7 million to scholarships.

Regent Jean Keffeler said reducing the payout might not have been the right decision.

“I have a strong desire to protect our current momentum,” she said.

But Regent Michael O’Keefe said lowering the rate would be better for the University’s long-term economic health.

Warness said overall investments since January are fluctuating, reflecting the economy’s recent ups and downs.

“There is still some negative performance in this fiscal year,” she said.

Warness said January and February brought negative returns, but March has been positive so far.

“There is a lot of volubility on a day-to-day basis,” Warness said. “But it’s especially true now.”

The University Foundation has also reduced its spending payout to 5 percent to reflect market trends.

However, the Minnesota Medical Foundation has decided not to change its spending policy.

Bruce Hutchins, Minneapolis Foundation vice president for finance and administration, said the University’s payout is comparable to his and other foundations, which typically have a 5 percent to 6 percent payout rate.

Historically, 5 percent is the lowest an institution would go, but Hutchins said the recent recession might change this trend.