Harvard Will Cut Endowment Payout, Draw on Restricted Funds in FY2021 to Mitigate Revenue Shortfall


The Harvard Corporation — the University’s highest governing body — moved to reduce the endowment payout for Fiscal Year 2021 by 2 percent and to make a special assessment of restricted assets as it projects a $750 million revenue shortfall.

In a standard year, the University draws around 5 percent of its endowment funds to cover roughly a third of its operating expenses. But given the 2 percent reduction, the payout is likely to total roughly 3 percent for FY21, which begins July 1.

The endowment was last valued at $40.9 billion in June 2019, though administrators have said its value has declined “substantially” due to the financial impact of the coronavirus pandemic.

Around 80 percent of the endowment — which is made up of over 13,000 individual funds — is typically restricted to a specific program, activity, or school by its donor. Harvard administrators have argued that they cannot reallocate restricted endowment funds to cover unexpected expenses.


“The vast majority of the endowment is highly restricted, and we cannot redirect funds that are restricted for one purpose to be used for another,” Bacow said in a May 22 interview with The Crimson. “Legally, we cannot do that. So, our ability to dip into the endowment is limited.”

But in FY21, the Harvard Corporation will take 3 percent of all restricted funds in the endowment and make them available for immediate use.

“The Corporation has decided to implement a one-time special assessment, an extraordinary step, taken in recognition of the urgent need for unrestricted funds to meet immediate challenges,” Dean of the Faculty of Arts and Sciences Claudine Gay wrote in an email to FAS affiliates Tuesday.

That assessment will be applied across all Harvard’s schools.

Jonathan L. Swain, a spokesperson for the University, wrote in an emailed statement that the University will continue to use restricted funds for their restricted purposes, though the one-time assessment will provide extra funds. Swain listed room and board rebates, increased financial aid, and the protective supplies that will be needed to ensure the safe reopening of labs and campus as three potential areas where those funds may be spent.

“Similar to other institutions, Harvard’s endowed funds are subject to an annual assessment that provides financial resources for the general operations needed to support the programs or activities that are funded by the restricted funds,” Swain wrote. “Given the economic challenges of the public health crisis, the Corporation approved a one-time, additional assessment on all restricted funds to provide the University greater flexibility, through unrestricted current-use funds, in managing the financial impacts of the COVID-19 pandemic.”

This is not the first time the University has drawn from restricted endowment funds, according to Swain. The Corporation took a similar step in connection to a shortfall in the cost of employee benefits in 1997.

Harvard faces an uncertain financial future after the onset of the coronavirus pandemic. Market volatility will likely decrease the endowment's value, and revenue streams like executive and continuing education have dried up.

The University has invoked a number of austerity measures to try and mitigate the financial consequences of COVID-19, including salary and hiring freezes, cancelations and deferrals of capital projects, and the possibility of furloughs and layoffs.

Vice President for Finance and Chief Financial Officer Thomas J. Hollister told the Harvard Gazette, a University-run publication, that the University estimates it will lose $415 million in revenue in the current fiscal year and experience a $750 million revenue shortfall in FY21.

Hollister told the Gazette that although the endowment payout in FY21 will be less than this year’s, other factors may effectively render it one of the “largest in many years,” depending on how the stock market behaves, as a percentage of the endowment’s market value.

“So, although the endowment distribution across Harvard for FY21 will be 2 percent less than in FY20, the net effect is effectively 6 percent less to underlying fund beneficiaries, as the special assessment is about a 4 percent charge to begin to cover the pandemic-related costs,” he told the Gazette.

Thomas D. Parker ’64 — a senior associate at the Institute for Higher Education Policy — wrote in an email that reducing the payout by 2 percent seems “low.”

“Given the losses in the endowment, I would have thought that it would be more,” he wrote. “They look to be going out of their way to minimize the effect on the Schools’ budgets.”

—Staff writer Ellen M. Burstein can be reached at Follow her on Twitter @ellenburstein.

—Staff writer Camille G. Caldera can be reached at Follow her on Twitter @camille_caldera.