Summers said that after those large payouts, which coincided with weaker investment performance at the beginning of the decade, the endowment—adjusted for inflation—is only now returning to its previous levels.
“We make the payout decision far ahead of time, and we don’t have a crystal ball,” said Berman, who had yet to assume her position when those large increases were authorized. “Based on everything we knew at the time, it wasn’t a terrible decision.”
Still, she said the University would prefer to see more consistent increases over time.
“If you look at the history of our endowment payouts, we had a couple of years with very big payout increases,” Berman said, “and that disrupts budget planning, even from the deans’ perspective.”
Dean of the Faculty William C. Kirby concurred with that assessment in an interview before yesterday’s announcement.
“The Corporation has a responsibility to have over a period of years a range of payouts in which there are ideally not dramatic ups and downs,” Kirby said. He did not respond to a request for comment yesterday.
DIVIDING THE CASH
Setting the payout is an ongoing process for the central administration, and culminates with a final recommendation to the Corporation, which must approve the decision.
In 1998, the University solicited a study from the Harvard Management Company, which invests the endowment, to assess how payout should be determined.
Jack R. Meyer, the management company president, said the study placed considerable weight on the Higher Education Price Index. The index stood at 4.6 percent in fiscal year 2004, which ended June 30, 2004.
But both Berman and Meyer characterized the study as merely a guideline.
“It doesn’t take into account anything specific that’s happening within the University that you might want to consider when making a payout decision,” Berman said.
Last year, for example, the Corporation voted to up the payout increase to 4 percent after initially threatening a 0- and then 2-percent jump.
An unexpected rise in benefits costs necessitated the extra bump, Berman said.
PREPARING FOR ALLSTON
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