Knox Receives $10 Million. Now What?
Now what? That's been the question on many people's minds since Knox received the largest gift in its history -- $10.3 million from the estate of Walter Blair Hobbs '25 (pictured at left) -- in February 2006. Will the money be used to renovate Alumni Hall or student dormitories? Raise faculty salaries?
At its June 2006 meeting, the Knox College Board of Trustees approved President Roger Taylor's recommendation to invest the entire Hobbs gift in Knox's endowment. Putting this gift in the endowment might not sound as exciting as completing Alumni Hall or renovating student housing, but, according to President Taylor, "it's the most responsible thing Knox can do with the money."
One of President Taylor's long-term goals has been to chart a course toward financial impregnability, and the Hobbs Endowment, as the gift is now known, puts Knox one step closer to achieving this goal.
"The reason we put the Hobbs money into the endowment is because the endowment is intended to support Knox College in perpetuity," says President Taylor. "Future generations of Knox students, faculty, and staff will reap the benefits of sound financial planning today."
According to Tom Axtell, vice president for finance and administrative services, the Hobbs Endowment will remain invested with the College's other endowment assets and will generate a stream of annual returns. The principal will grow from reinvested earnings and future gifts and will be used primarily to secure the College's long-term debt obligations. In the meantime, a portion of the endowment's earnings will be used to finance facilities projects.
So how does the Hobbs Endowment affect the Knox of today?
In two primary ways -- first, it enables the College to address important facilities issues; and, second, it insulates the College's annual operating budget from incurring additional expenses for facilities and debt service. These expenses would ultimately compete with other institutional priorities, such as salary increases.
"When Knox gets a $10.3 million gift -- the largest gift in College history -- people ought to feel it," says Axtell. "The question is how can we best use that money in the long-run but in a way that people can feel it now?"
A $2.3 million energy conservation project -- the first project to be financed through the Hobbs Endowment -- will be completed in summer 2006. The project will finish the installation of energy efficient lights across campus, recommission heating and cooling systems, and implement building control systems, among other things. If energy prices remain stable, the project has the potential to create yearly energy savings of several hundred thousand dollars.
Knox hoped to begin the project three years ago but could not secure favorable financing with its bank. Because Knox would have had to borrow money and incur debt service fees of upwards of $300,000, which would be paid from the operating budget -- eating into energy savings -- it waited to implement the project. Today, the Hobbs Endowment is being used to secure financing for the project.
When the Energy Conservation Project is complete in fall 2006, Knox students, faculty, and staff will literally feel the immediate effects. Not only will the temperatures in campus buildings be better regulated, but cost savings will help the operating budget fund other institutional priorities, such as improved faculty and staff compensation.
How has the Knox community reacted to this plan?
"Once I point out that putting the Hobbs money into the endowment can improve both our facilities and our operating resources, people get excited," says Axtell. "It's a terrific scenario."
Thanks to the philanthropy of Walter Hobbs, who graduated from Knox more than 80 years ago, Knox's endowment will grow from $57 million in March 2006 to nearly $70 million within the next year, giving Knox the financial flexibility and security needed to continue to chart a course toward financial impregnability.
Who was Walter Hobbs?
Walter Hobbs (pictured at top left) was born in Nauvoo, Illinois, in 1904. After graduating from Knox in 1925, he attended Northwestern University School of Law, where he graduated in 1928. Hobbs practiced law in Evanston, Illinois, for many years, eventually becoming a partner in the law firm of Shanesy Hobbs. While at Knox, Hobbs was a member of the Student Council, the Spanish Club, the student newspaper, the local fraternity Alpha Theta Alpha, the Knox Athletic Association, and the "K" Council (athletic letter winners). In 1929, Hobbs married Eugenia Maxwell of Seattle, Washington, who attended Knox from 1921-1923. During World War II, he served in the United States Army from 1942-1945. Eugenia Maxwell Hobbs died in 1977, and Hobbs later married Ruth M. Hobbs, who died on January 9, 2006.
Operating Budget vs. Endowment
So what's the difference between Knox's annual operating budget and its endowment?
Think of it this way: Knox's annual operating budget is the College's checkbook. Monies from tuition, the Knox Fund, other gifts, and endowment earnings feed the checkbook, which, in turn, must be balanced at the end of each fiscal year. Knox's endowment is the College's savings account. Monies from bequests, such as the Hobbs gift, donations, and other income sources feed the endowment each year, and that money is managed by professional money managers. Knox uses a portion of endowment earnings to support the operating budget each year and, since 2001, has systematically moved towards an endowment spending rate of five percent, which will allow both the endowment and the annual endowment support of the budget to grow over time.
In short, the operating budget serves Knox's immediate needs; the endowment serves both current and future needs.