As Pledges Fall Short, Colleges Face the Music

Being a college student, I think it's important to know where my school is getting money, how much money it is getting, and what it's spending money on. That's why this week I chose this article from the Chronicle of Philanthropy by Kathryn Masterson:

http://philanthropy.com/article/As-Pledges-Fall-Short/124873/

The article describes what happens to colleges when donors fail to contribute all of the money they pledged. In most of these cases, the pledges are large amounts that are intended for building projects. Colleges have a few options when accepting large pledges. They can borrow money to begin the project before the entire pledge is fulfilled and use the donor's contribution to pay off the loan. They can also delay starting the project until a certain percentage of the pledge has been received. I think that, unless the project is of extreme importance, the second option is the better one.

For instance, say an alumnus of a college pledges several million dollars to build a new athletic building on campus. If the college begins the project after only receiving 10% of the pledge, the school can take a huge hit if the donor is unable to contribute any more money. Also, other important project may be pushed back even farther. Let's say that this school's current biggest concern is constructing two new buildings: one athletic and one academic. The donor in question happens to have been on the school's football team and is very interested in seeing the new athletic building become a reality. If the school begins the project and then receives only a small percentage of the pledge, it is forced to reallocate funds to finish the project, funds that might have otherwise gone to the construction of the academic building. The construction of the academic building is then delayed until it can receive further financial support.

However, if the school holds off on the project until 50% of the pledge is received, it faces less of a burden if the donor can't fulfill his committment.

No school is ever going to receive 100% of its pledges 100% of the time. It's a fact of life. But by delaying the beginning of pledge-supported projects, schools can essentially create their own safety nets and decrease potential financial burden on itself. I think this is the smartest option when dealing with large pledges that are supposed to extend over long periods of time.