Huidekoper says part of the reason Harvard does not meet its target rate of endowment spending is that the Corporation sets the distribution rate in November—10 months before the start of the fiscal year. Thus an amount that seems generous before explosive market growth during the following months may appear unnecessarily small come July.

Yet, even if the endowment had seen no growth during fiscal 2000, the spending rate still would have fallen below the 4.5 to 5 percent target.

Huidekoper says the low distribution rate is also the result of a desire to maintain a reasonable pace of growth in the University.

“You have to balance how much you want the University to grow,” Huidekoper says, noting that even during fiscal 2000, when the spending rate was only 3.97 percent, the University added 700 employees, creating a strain on the University’s infrastructure.

And given the current volatility of financial markets, the Corporation has sought to keep distribution conservative to make sure that future market downturns will not force the University to lower endowment payout—something the Corporation has not had to do in the last 20 years.

“Never does [the Corporation] want to increase the distribution and then have to lower it,” Huidekoper says.

“It’s a debate between spending money now or planning for the future or when economic times are tough,” says Cheryl Hoffman, associate dean for finance in FAS. “We wouldn’t want to have to go through budget cuts.”

In fiscal 2002, endowment payout will increase by 21 percent, but even then the spending rate will likely not approach the 4.5 to 5 percent target. Indeed, a nearly 30 percent increase in the distribution amount in fiscal year 2000 still left the spending rate below 4 percent.

“Even when we are increasing the number of dollars [Dean of FAS] Jeremy [R. Knowles] can have, the [return on the] endowment is so strong that it drives the spending rate down,” Daniel says.

Funding the Yard

Harvard’s individual schools ultimately decide the fate of endowment payouts. In the Faculty of Arts and Sciences—Harvard’s largest school—turning the pot of gold into a currency that students and faculty can use is the job of University Hall, the administrative headquarters of FAS.