The decision, which affects endowment income for the 2005 Fiscal Year—beginning next July 1—comes despite earlier projections that the Corporation would hold payout steady, which would have resulted in an even larger real revenue loss for schools across the University.
But increasing payout only 2 percent for the third consecutive year will not alleviate much of the existing financial burden on the schools, many of which are staving off deficits.
“This takes a little bit of the pressure off and is extremely welcome, but by no means makes the problem go away,” said Harvard Medical School (HMS) Administrative Dean Eric Buehrens. “It’s going to make our problems less severe than they were before.”
These payout increases mark the Corporation’s most cautious stretch since the early 1980’s, and they pale in comparison to the record 37 percent increase during a booming economy just three years ago.
Vice President for Finance Ann E. Berman wrote in an e-mail that the unexpected increase was prompted mainly by the endowment’s strong fourth-quarter performance last year. The endowment soared 12.5 percent from $17.5 billion last July to a record $19.3 billion this July, but it remains 11 percent short of its real peak at $19.1 billion in the 2000 Fiscal Year.
Berman added that another reason for the increase was the central administration’s concern about the financial state of the schools in light of the recent small increases.
The Corporation also voted last month to use a payout rate of 3 percent as a benchmark for the future. Berman said the move will hopefully allow payout to keep pace with inflation.
“It signals less pessimism [about the economy],” she said. “Three percent is close to estimated Higher Education Inflation, and we would like to be able to make that increase.”
Although the change from no payout growth to 2 percent growth is good news for the schools, Berman said most will have to use the money to alleviate their current situations.
“My guess is that it merely eases pressures,” she said.
HMS faces a budget crunch due to ambitious expansion in its curriculum and research. While it does not face deficits now, they loom on the horizon, according to Buehrens.
Other schools at the University face similar pressures.
The Graduate School of Education is still struggling with a $200,000 deficit this year.
While the Kennedy School of Government just emerged from deficit last year, it must still be “very prudent,” Executive Dean J. Bonnie Newman said in August.
But despite a tight budget, the Faculty of Arts and Sciences (FAS) still plans major expansion, both in its faculty—10 percent growth over 10 years—and in physical space. At yesterday’s Faculty meeting, professors expressed concern about FAS’ endowment income, challenging University President Lawrence H. Summers about the payout rate.
—Staff writer Stephen M. Marks can be reached at marks@fas.harvard.edu.