Payout from the endowment, Harvard’s greatest source of income, will see just a meager increase next fiscal year as the University continues to hold its schools to lean budgets even as its investment returns surge.

The payout will increase by 4 percent across the University, with additional modest upticks likely for high-priority programs. The decision, approved by the Corporation on Monday and announced to the deans yesterday, comes even as the endowment continues to rise at extraordinary levels, including a 21.1 percent return last fiscal year that put the fund at a record $22.6 billion.

“What I think is important, at a time when we have had some good fortune, is to make sure we allocate resources to our most important priorities,” University President Lawrence H. Summers said in an interview last night.

In what appeared to be an unprecedented arrangement, the Corporation, Harvard’s highest governing body, voted to allow an additional 4-percent increase in endowment payout for certain programs identified as priorities by top administrators. Summers said they were likely to include physical renovations, financial aid and new academic programs and research—areas he has long highlighted as top priorities—but he would not say how extensive the additional funding would be.

The University’s forthcoming expansion into Allston has weighed heavily on the central administration’s fiscal outlook, and recent meager payout increases seem part of a long-term strategy of maintaining the value of the endowment, which will be critical to funding major projects looming over the horizon—or in the case of Allston, over the river.

The 4-percent bump for fiscal year 2006 will mark the fourth straight year of slim payout increases that have generally fallen short of the higher-education inflation rate. Payout increases at the beginning of the decade were far higher, topping out at a 37-percent hike in 2002.

“There are undoubtedly particular people with particular projects who are focused on their particular budget and want more money to be paid out,” Summers said last month. “But my sense is that the academic leadership of the schools shares the same view that the Corporation has—that we need to set payout in a way that maximizes what we are able to do on a sustainable basis.”

Summers has repeatedly said the Allston expansion will cost “billions of dollars,” and in an interview last month he said budgets at individual schools need to take future endeavors into consideration.

Still, Summers said yesterday that slim payout increases in recent years should not be construed as a concerted effort to save for particular future projects.

BANKING ON THE BANK

The University has increasingly relied on payout to fund its annual budget. Ten years ago, endowment income accounted for just 21 percent of Harvard’s revenue, but by last fiscal year, that number had grown to 31 percent.

And at the Faculty of Arts and Sciences (FAS), where endowment payout now funds nearly half of the budget, the shift has been even more dramatic.

“Anytime a school is largely dependent on one source of income, it’s a concern,” Ann E. Berman, vice president for finance, said in an interview last month.

Still, as the endowment’s value has ballooned over the past decade—outpacing other sources of revenue, including tuition and federal research grants—the increasing reliance on payout has been seemingly inevitable. And with major capital projects on the horizon, the trend has little chance of abating.

Before the recent string of small bumps, the University issued a series of large payout increases—18 percent in fiscal year 1998, a drop to 6.5 percent in 1999, 20 percent in 2000, 11 percent in 2001 and 37 percent in 2002.