The returns from the endowment are used to support university programs. The endowment itself is not spent - it's a long-term investment which produces dividends, not a spending fund.

Universities will dip into endowment funds if the returns are worse than expected. They will pretty much never make plans to dip into endowment funds, though.

Yeah, $500M (a 5% return) is still a lot of money.

To add, money is fungible. $100 for one department just means that $100 is freed up for a different department.

Money in university budgets is most certainly not fungible. Endowments are for the most part directed for specific uses and cannot be used outside of the restrictions. Education and General (E&G, terminology varies between institutions) includes tuition (only part of the yearly budget) and cannot be used for research. Unrestricted funds are as rare as hens teeth and doubly so outside upper admin.

The “color of money” is perhaps the most misunderstood aspect of university admin but explains so much about how things operate.

It only matters if the restricted money covers more than what it's intended for.

If you have 500M allowed to cover education and require 700M total for it, then the restriction doesn't matter at all.