If the policy was no government funding if you have an endowment the net result would be that endowments would be spent down, and then not only would they need government funding for the things the government now funds, they would also need government funding for the things that are currently funded from the endowment's earnings.
Also, money in endowments is often legally restricted. Donors put conditions on their donations which limit what they can be used for. For example a donor might donate several million dollars to create and pay the salary of a named professorship in a specific department. That money goes into the endowment, but it and its earnings can only be spent on paying whoever currently holds that professorship.
A typical endowments includes hundreds or thousands of such restricted donations.
Agreed on restrictions and would be good to know how large the unrestricted part is.