Lighting Bolt Philanthropy: Unpacking a Historic Unrestricted Alumni Gift

photo:  Gino Santa Maria/shutterstock

It's nearly an iron law of higher ed philanthropy that huge alumni gifts are preceded by a series of smaller gifts. The biggest campus donors have typically been giving to an institution over years or decades before they make the kinds of pledges that are unveiled at news conferences. 

A case in point: The Hellen Diller Foundation provided roughly $150 million to the University of California, San Francisco over the past two decades. That incremental giving culminated earlier this year with a massive $500 million mega-gift to the school. Was it a huge leap? Sure. Was it completely unexpected? Given the foundation's history, no, not really.

Sometimes, though, a step-up in funding can be far more dramatic. Consider Kenneth Ricci's recent $100 million unrestricted gift to his alma mater, the University of Notre Dame.

No Strings Attached

Given the fact that Ricci's gift is the single largest unrestricted guaranteed gift ever committed to the university—no small feat, given the school's impressive fundraising prowess—three salient questions emerge.

First, did Ricci's previous giving signal his bold intentions? Yes and no.

Yes, in that as a current member of the board of trustees, Ricci has been involved with Notre Dame for more than 25 years and had given to the school in the past. No, in that his past giving, like last year's $5 million gift to the school's marching band and its RecSports program, was nothing on the scale of his latest move. He also gave previous gifts to the Ricci Band Rehearsal Hall, the Ricci Band Musical Excellence fund, and scholarships.

They're all understandable—Ricci was a member of the marching band, after all—but $5 million to $100 million within 18 months is a pretty staggering jump.

But there's more. Not only is Ricci's gift a quantum leap in his philanthropy, it's also, as noted, an unrestricted gift. Unrestricted gifts remain relatively rare in higher education philanthropy. Unrestricted gifts of $100 million are as rare as a tuition reduction (more on that later).

"There aren't many people who give this much unrestricted," said Greg Dugard, Notre Dame's associate vice president. "I'm not aware of it anywhere in higher ed." (Dugard can be forgiven for missing a recent unrestricted $140 million gift from an anonymous donor to the Massachusetts Institute of Technology supporting the school's educational and research mission.)

Alma Mater Love (and a Philanthropic Succession Partnership)

Which brings me to the second big question. What explains the massive uptick in Ricci's philanthropy?

Benevolence and a deep concern for his alma mater, most certainly. But according to Liz Moyer writing at CNBC, Ricci, who made his fortune in the aviation services industry, made the gift "in part to resolve some trickier issues he had encountered in planning for the future of his privately held businesses."

Notre Dame spelled out the mechanics of the gift accordingly:

Upon Ricci’s death, Notre Dame will receive beneficial rights to a limited partnership interest and become the partnership’s successor general partner. The university will hold the controlling interest and have responsibility for the valuation, liquidation and distribution of the partnership’s assets, providing incentive to maximize their value. The proceeds will fulfill any outstanding portion of the Riccis’ $100 million commitment.

According to Moyer, "the donation is a way to set aside some money for his family and their foundation while also resolving the transfer of ownership in his business after his death at the best possible terms, assuming none of his three children is interested in stepping up to run them."

Ricci touted this approach and said he hopes other wealthy families facing succession management challenges will follow his lead. He also stressed the importance of unrestricted gifts. 

"Our goal was not only to support the university's mission, but also to inspire more strategic philanthropic engagement between donors and nonprofit recipients, raise awareness of the value of unrestricted giving and encourage increased donations of unrestricted gifts regardless of the vehicle," he said.

Funds Will Likely Flow Towards Financial Aid

As for the third question, I'd like to take you back in time to a piece I wrote earlier this year, titled, appropriately enough, "Mega-Donors to the Rescue." In it, I cited a New York Times article, which looked at the exorbitant price tag for an education at the University of Notre Dame and asked, "Does God Want You to Spend $300,000 for College?"

"God couldn't be reached for comment," I noted at the time, "but then again, God needn't worry about worldly matters like prioritizing college savings over retirement accounts." Nor, it seems, should Norte Dame administrators worry about self-inflicted pay cuts, thanks to Ricci's largesse.

According to Greg Dugard, the most likely use of Ricci's money will be for financial aid. The university is currently aiming to raise $1 billion for financial aid in a capital campaign that has so far raised $3.5 billion.

This is all well and good, but one could argue that gifts like Ricci's simply reward schools unwilling to cut tuition, and while more financial aid is all well and good, what about the students who are still expected to pay full-freight or something close to it?  

Let's look at the numbers, shall we?

In February, Notre Dame, sitting on an endowment of $11.8 billion, announced that undergraduate tuition and fees will go up by 3.7 percent for the 2017-2018 academic year, bringing the total cost of attendance to $66,395. The tuition increase matches that of the previous two years. (The current inflation rate for the United States is 2.2 percent for the 12 months ended September 2017.)

Half of first-year Notre Dame students receive "university gift aid," while 75 percent of the undergraduate student body receives financial aid in some form. That sounds nice, but even if a student's tuition is cut by 50 percent, she's still looking at a total pre-interest bill of $132,790. And the 25 percent of Notre Dame students not receiving aid are staring at a pre-interest bill of approximately $265,580.

No wonder that lawmakers in Congress have their knives out for fat university endowments at a moment when there's $1.2 trillion in outstanding student loan debt. 

But why aren't big donors like Ricci also leaning on schools? That's what we don't understand. 

We constantly hear that donors want the most bang for their buck. Donors like Ricci made millions in the private sector by demanding efficiency and sound financial planning, incentivizing performance, and the occasional round of painful cost cutting.

Wouldn't his gift help more students if he demanded that Notre Dame freeze its tuition or increase it in line with inflation? Or is that too much to ask?