The economic downturn has dipped into university budgets nationwide and spawned controversial education spending legislation, squeezing families and financial aid offices to make ends meet and siphoning money out of long term endowments.

Here at the University of Chicago, day-to-day operations?including undergraduate financial aid packages?have not felt the brunt of the economic hardship, but the University?s long-term endowment has suffered.

The University?s 2002 annual report stated that the drop in the endowment had reached $260 million, or 7.4 percent, by the end of the 2001-2002 fiscal year. However, according to Philip Halpern, chief investment officer, the University has yet to feel the effect of the decrease, because the endowment, which is composed of money withdrawn from invested funds, ?lags? behind the current economy by about two years.

Last year, in fact, after the endowment had decreased for the second straight year for the first time since 1974, the payout grew by 26 percent, according to the report.

?You don?t get the pain right away,? Halpern said, adding that the University has positioned its investment portfolio defensively. ?I don?t think anybody anticipated the length or the degree of the decline.?

The 2002 endowment dropped 7.4 percent, exceeding an estimated national average 6.0 percent drop among institutions of higher education, according to a recent report by the National Association of College and University Business Officers. According to the statistics, schools with larger endowments tend to perform better than the average. The University of Chicago had the 14th largest endowment in the survey of 556 institutions.

Donald Reaves, chief financial officer for the University, maintained that the financial troubles in the University are similar to those at all other elite institutions. He left open the possibility, though, that darker times lay ahead, predicting that next year ?the growth in income will not be as great.?

?If the markets continue to decline, at some point, even using a lag, you could experience negative growth [in the payout],? Reaves said. ?If we have problems, it won?t be until fiscal year ?05.?

In the meantime, tuitions nationwide continue to rise. This year tuition for the College will jump 5.1 percent for the second straight year. Last year?s tuition increase generated an extra $16.9 million.

Tuition increases are necessary to maintain the school?s competitiveness, Reaves said, adding that other comparable schools, including many in the Ivy League, are increasing their tuition fees by 5.2 percent.

?We?re one of the top schools in the nation academically,? he said. ?We want to provide a top-notch education and that?s expensive.?

With the rate of rising tuition double that of inflation over the last decade, higher education finance reform has become a central legislative issue.

Colleges and universities across the country responded angrily to Rep. Howard McKeon?s (R-CA) recent proposed tuition increase cap.

The American Council on Education called the proposal ?irresponsible,? and the National Association of Independent Colleges and Universities agreed, arguing that the cap would only hurt low-income students by taking away their financial aid.

A report by the National Center for Public Policy and Higher Education described the increases in public college and university tuitions, which averaged 10 percent nationally in 2002. According to the report, Illinois increased its tuitions by nine percent, while some states saw increases of 20 percent.

Illinois families wrung by the increased state tuition found no help from the state, the report said. While tuitions rose, the overall amount of student aid given by Illinois decreased by 10 percent.

At the University of Chicago, financial aid packages have increased alongside the tuition hikes. Between 2001 and 2002, as the University?s net tuition income increased by $16.9 million, student aid across the University increased by $7.4 million, to $138.4 million.

Alicia Reyes, director of College aid, has seen the weakening economy intensify angst among students and their families?including those who have lost jobs, become ?underemployed,? and even those not directly affected by the economy.

?There are concerns, more than last year and the year before,? Reyes said, adding, however, that the percentage of applications for admission that included aid applications is about the same as last year and that the number of applications each year has been relatively steady.

Reyes said she had heard no discussion of the possibility of altering the university?s need-blind admissions policy over the next few years.

?There is a great emphasis being put on raising money for financial aid in the Chicago Initiative,? Reyes said. The Chicago Initiative is the University?s five-year campaign to raise $2 billion, $290 million of which will go toward protecting the University?s need-blind admission policy.

According to Reyes, approximately 45 percent of college students are now receiving need-based financial aid.

Like all other university operations, financial aid is partly paid for by charitable giving. In 2002, private gifts to American colleges and universities dropped 1.2 percent, to $23.9 billion, according to a recent report by the RAND Corporation Council for Aid to Education.

The RAND report stated that last year saw the first average decrease in gifts in over fifteen years, attributing the drop to the poor economy and stock market.

Though the national program has lost steam, the relative success of the Chicago Initiative has helped ensure the University?s financial security, Reaves said.

?Over time, as the markets recover, we think that we?ll be just fine,? he said.