Supporting the Center

While Harvard’s individual schools can generate income through student tuition, endowment payouts and sponsored research, the Central Administration places a “tax” on each school to support the administrative functioning of the University as a whole.

In fiscal 2000 FAS was forced to pay $20 million to the Central Administration—11 times what it spent on faculty recruitment and 36 percent of all money paid to the Central Administration.

While Murphy says FAS administrators, like any “good red-blooded Americans,” do not enjoy paying the tax, he says they acknowledge that it does serve a valuable purpose.

Similarly, while law school administrators are less than enthusiastic about sending a portion of their funds to Mass. Hall every year, they consider themselves fortunate compared to other law schools, Upson says.

He notes that administrators at some universities consider their law schools “cash cows” and tax them disproportionately.

The Central Administration also generates revenue by paying individual schools a lower interest rate on their cash holdings than the University actually earns on the money.

Challenging Conventional

Wisdom

Even if Harvard actually met its 5 percent endowment payout target, it still might not be spending all that it reasonably could—or should.

Perry G. Mehrling ’81, the chair of the economics department at Barnard College, Columbia University and an expert on the spending practices of private foundations, says university endowments should pay out income at virtually the same rate they make money.