Public universities are beginning to rely more heavily on endowments — a practice once more common at private universities — as state funding for higher education dwindles nationwide.

With the University of Iowa’s endowment now topping $1 billion, officials said the stability of the invested gift fund has become increasingly important as a complement to unstable public funding.

“Obviously, if the state decreases its support for the university, it has to look elsewhere to make up for those shortfalls, and private support is one of those things,” said Tiffani Shaw, the chief operation officer for the UI Foundation, which handles most private donations to the university.

Experts say that’s a change from previous years, when endowments were considered vital only for smaller, private universities that didn’t receive support from state appropriations.

But Gov. Terry Branstad’s proposed 6 percent cut to higher education funding is putting the university closer to that situation.

“At times when state appropriations represent a smaller percentage of the overall UI budget, all other sources of revenue such as tuition, federal and other grants, and private gifts, become increasingly important,” said Forrest Meyer, the executive director of strategic communications at the UI Foundation. But direct gifts are still necessary, he said.

Unlike direct gifts, money donated to an endowment is invested in the stock market, and the university spends only what is collected annually in returns. At the UI, average return is roughly 5 percent, or $50 million.

While endowments nationwide dipped for several years during the recession, the UI’s has steadily increased over the past decade, from approximately $534 million in 2000 to $1 billion this year.

Of 380 universities participating in a 2010 National Association of College and University Business Officers Commonfund Study of Educational Endowments Earned, only 60 had endowments larger than $1 billion.

And forecasts show large universities’ dependence on endowments will continue to increase.

“This is really the direction that state universities are moving to going forward because this withdrawal of legislative support from the university budgets … is probably a permanent factor,” said Bill Jarvis, the managing director of the Commonfund Institute, which conduced the study. “This is in fact a phenomenon that is occurring all over the nation.”

Meyer said endowments are important, both at the UI and other like-sized schools, as a permanent resource.

“I think it helps the university to plan a little better,” Meyer said. “If a portion is for student scholarships, they know that’s there, and they can count on it.”

Most endowments are designated for a specific purpose, experts said. About 99 percent of the endowment handled by the UI Foundation is restricted, meaning it must be spent the way the donor requested.

Relying on invested money in a shaky economy is a slight risk, Meyer said, but the university’s goal is to maintain a “steady payout.”

Don Szeszycki, a UI associate vice president in the Provost’s Office, said the university’s focus on increasing private investment is included in the strategic plan and is part of the university’s upcoming comprehensive fundraising campaign.

But even with a $1 billion endowment, state appropriations are key to public universities’ success, who said.

“It helps, but it doesn’t replace,” he said.