Setting the Rate

Each year, the Corporation sets the endowment distribution, for which the “targeted spending rate” is between 4.5 and 5 percent of the endowment’s market value, according to official University policy.

But University Treasurer and Corporation member D. Ronald Daniel says that percentage is actually not the starting point in determining the distribution.

Instead, the Corporation indirectly arrives at its own percentage through consideration of the previous year’s distribution and decision on how much that distribution should increase.

And while Daniel says the Corporation makes efforts to keep the endowment payout within the 4.5 to 5 percent range, in recent years the distribution has consistently fallen well below that mark.

For fiscal 2001, the spending rate was only 3.34 percent. The University has not met its payout goal since 1995, and has not exceeded it since 1983, prompting concern from its schools that they are being denied funds.

“I think all of the schools would say that they would like the payment to be at the target,” says Paul W. Upson, assistant dean for finance and operations at Harvard Law School.

Had the Corporation met the 4.5 percent goal for fiscal year 2001, distribution from the endowment would have grown by $200 million—an increase of nearly a third.

Moreover, despite having the largest endowment of any university in the nation, Harvard’s distribution rate is below the average of other universities.

According to data collected by the National Association of College and University Business Officers (NACUBO), the average university endowment payout rate was 4.2 percent in fiscal 1999—a year in which Harvard’s rate was 3.32 percent.

The study also determined that 72 percent of universities use a rigid formula to determine endowment distribution. But Harvard’s system allows for much more discretion, which can result in a lower endowment payout.

The Rationale