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The Lilly Endowment, the nation's seventh-largest foundation, may be backing away from its decade-long commitment to national K-12 school reform.

Insiders suggest that Lilly will focus its resources in its home state of Indiana and shift its attention to private colleges.

"That's probably a fair statement," said Gretchen Wolfram, a spokeswoman for Lilly, when asked to confirm reports that began spreading in the foundation world this fall.

"We are going to be looking more at our traditional private higher-education work," she said last month. "That is not to say we are not going to be looking at K-12 public education. I just think right now the field of public education is complex."

In discussing the reasons for the shift, many people familiar with Lilly point to a conservative board of trustees that they say is averse to any negative publicity over its grants or grantees.

"Even in the state of Indiana, elementary and secondary education is very controversial," said one Lilly insider who asked not to be named. "You can't give money there if you are going to reform anything and still avoid being in the paper."

"It's such a shame," another source said. "Risk-taking is definitely not the mind-set."

While there had always been conflicts between the foundation's staff and its board over how much money to devote to large-scale, national school-reform efforts, the staff had prevailed for a number of years, said one source, because it had "good ideas and was getting good feedback" about the projects it was supporting.

Since last year, however, five K-12 education staff members have resigned. Most recently, C. Kent McGuire, an education program officer, left for a similar job at the Pew Charitable Trusts in Philadelphia; Joan Lipsitz, another education program officer, retired in September. All but one of the positions remain unfilled.

In its heyday, the foundation, which was incorporated in 1937, gave about $40 million a year to K-12 education. Its assets are closely tied to the stock performance of the Eli Lilly pharmaceutical company. In 1992, the assets' value dropped from $4 billion to $2.8 billion.

Despite a recent upturn in the company's stock, though, the future for the foundation's support of K-12 education projects remains uncertain.

The endowment announced last month a $2.4 million grant program for Indiana's 32 private colleges and universities, and a $1.5 million program for 46 historically black colleges around the nation. It announced no new grants for K-12 public school projects.

--Meg Sommerfeld

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