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At the close of Fiscal Year 2019, Harvard’s endowment was valued at $40.9 billion, the largest sum in its history. Though administrators fretted about low returns compared to other Ivy League schools and the prospect of a future recession, they basked in their record-setting financial achievement.

Then came the coronavirus pandemic.

Facing a teetering global economy and the threat of a lethal virus, Harvard has invoked austerity measures including salary and hiring freezes and the possibility of furloughs and layoffs, leaving some workers with an uncertain future.

To address these labor concerns, Harvard College Students for Bernie launched its #40BillionForWhat effort.

“Forty billion for what, Harvard?” the campaign statement reads. “What is the point of our University’s hoarded wealth, if not to ensure the well-being and safety of its community during a time of fear, uncertainty, and instability?”

The campaign echoed calls before the pandemic from activists who urged the University to use its endowment to advance social good.

Oya Gursoy ’21— a member of Harvard Out of Occupied Palestine, one of a number of campus divestment movements — said that the pandemic has made the “facade” of the endowment visible.

“If you can't use the endowment during a pandemic, then when can we, in fact, use it? Then what is the endowment for?” Gursoy asked. “If it's not going to be used during a pandemic to support faculty and students and workers, then when is it going to be used?”

The University has said the value of the endowment has likely declined due to the impact of the pandemic on the global markets. Administrators also contend that much of the endowment is made up of restricted assets — which cannot be used for purposes other than those stipulated with the donation — and that the endowment must be preserved for posterity.

So far, Gursoy and other activists have remained unsatisfied with this response.

At the heart of the debate are contrasting perspectives on what the endowment truly is, and who it exists to serve. How the endowment is utilized will play a critical role in shaping the University’s response to the pandemic, and the implications of that decision will influence how affiliates perceive the endowment in the future.

‘A Once Upon a Time Cowyard’

The endowment dates back to 1638, starting with John Harvard’s gift of 400 books and half his estate that made him the University’s namesake, according to University President Lawrence S. Bacow.

Other accounts trace it back to 1649, when four alumni donated a parcel of real estate — “a once upon a time cowyard” — to the College. Today, Widener Library occupies that land. In 1669, a number of lumber merchants pledged to donate 60 pounds to Harvard for each of the next seven years, a commitment they sometimes fulfilled with lumber products.

“This development has been assembled really over hundreds of years, literally hundreds,” Bacow said. “Having been assembled over centuries, we can't just spend it all at once.”

Today, the endowment retains real estate and natural resources as asset classes, but few other relics of the time period exist in the University’s financial strategy. And though funds may have been accumulating for centuries, rapid growth is a much more recent development.

From the 1640s to the mid-20th century, the endowment was managed conservatively and made up of fixed-income investments. When Harvard Management Company was founded in 1974, it was valued at $1.1 billion.

In a video to mark the 40th anniversary of HMC in 2014, Walter M. Cabot ’55 — its first CEO — explained the rationale behind the move to internal management.

“The Corporation, with the endowment up close to $1 billion, wanted more internal control,” Cabot said. “They wanted more to be a part of the governance of the portfolio.”

Former University President Derek C. Bok said the shift was the brainchild of George F. Bennett ’33, a former Treasurer of the University.

Bennett formerly served as the president of State Street Bank, which managed the endowment before the founding of HMC. Upon his retirement, Bennett proposed that the University found an outside company to manage the endowment, as the crucial endeavor of managing Harvard’s funds had become “too big a job.”

Along with the change in management came changes to the endowment’s contents.

Before the founding of HMC, the endowment funds were split between bonds, cash, and shares of major companies with reliable returns, known as “blue chip common stocks.”

Under Cabot, HMC broadened its focus. Its managers shifted assets from a domestic portfolio to a global portfolio, transitioned from public securities to private securities, and established a trade desk to invest in bonds.

“The key to investing is a long term vision, and as long as we could recruit good people and the returns were satisfactory, in the long run, it was both good for the University and cheaper, because we could run the money at a lot cheaper rate than what pension funds charged,” Cabot said.

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Under HMC, the value of the endowment at first grew slowly. In 1984, a decade after its founding, it had doubled, to $2.5 billion. By 1994, it doubled again, to $6 billion. And by 2004, it almost quadrupled, to $22.6 billion.

Though its growth was at times inconsistent, the endowment had ballooned to $36.9 billion in 2008. Then the Great Recession hit, slashing its value by a third. It didn’t recover until 2015, and it didn’t stick — in 2016, its value dropped back below its 2008 value.

Since then, 2017, 2018, and 2019 saw consistent low levels of growth, and the endowment stood at $40.9 billion in June 2019.

The coronavirus pandemic has almost certainly ended that trend. In April, Vice President for Finance and Chief Financial Officer Thomas J. Hollister told The Crimson the endowment had likely declined “substantially” and cited an estimate that put the value in the “mid-30 billion range.”

‘Hard Choices’

As a looming economic downturn became more and more evident, the University has hesitated to depend on endowment funds. Instead, in April, top administrators announced a salary and hiring freeze, the cancellation or deferral of all discretionary spending, and cuts to their own salaries.

To administrators, the endowment is not intended to cover all unexpected expenses, no matter the circumstance. When constructing its annual budget, Harvard often plans to cover roughly a third of its expenses with a five percent endowment payout, leaving the majority of the endowment to generate returns for posterity.

“We have a legal and moral responsibility to maintain the purchasing power of that endowment, so that it sustains future generations,” Bacow said. “There's issues of intergenerational equity that need to be considered.”

Bacow and Hollister both cited the fact that Harvard has experienced financial hardship in the past — like the Spanish Flu Pandemic of 1918, the Great Depression, and World War II, as well as several other recessions.

“Prior generations have had to make hard choices to scale their expenditures in proportion to their revenues, and by making those hard choices they have passed onto future generations the resources which allow them to be supported by the endowment,” Bacow said. “It's our responsibility also to make hard choices. We can't just say that we are exempt from having to do this.”

In her 2008 Commencement Address, former University President Drew G. Faust acknowledged the endowment’s longevity.

“Our endowment represents an accountability that generation after generation of Harvard graduates have voluntarily assumed, acknowledging the value of their own past education and investing in the future of learning,” she said at the time.

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Administrators also point to legal restrictions on the endowment — which is made up of over 13,000 individual funds — that prevent administrators from distributing money at will.

“The vast majority of the endowment is highly restricted, and we cannot redirect funds that are restricted for one purpose to be used for another,” Bacow said. “Legally, we cannot do that. So, our ability to dip into the endowment is limited.”

In a 2016 letter to Congress, Faust explained that just 16 percent of the funds are considered “unrestricted,” though that figure includes funds dedicated to a specific school. Around 80 percent of endowment funds today are dedicated to individual schools.

Bok noted that many of Harvard’s top donors give to a particular cause or initiative that they want the University to pursue. Common restrictions are funds dedicated to professorships and faculty salaries, financial aid, research, specific initiatives, and support for libraries and museums.

Sandy Baum, a senior fellow for the Center on Education Data and Policy at the Urban Institute, said the coronavirus pandemic challenges the assumption that the endowment should not be overspent in the present day.

“If you spend too much of it now, then you won't be able to provide in the future the same quality of education for generations of students to come,” Baum said. “On the other hand, if right now we're in a crisis, and you're not able to provide opportunities to students today like the ones that you want to be able to provide in the future when we're not in a crisis, then you need to think about spending a little bit more today.”

Bacow conceded that within the limited flexibility that they have, administrators will use the endowment “more heavily” than they might have if the coronavirus pandemic had not occurred.

“We will use the endowment more heavily than we have in the past precisely because of the circumstances that we find ourselves,” Bacow said.

‘Can't We Just Save the World?’

The University’s response has left few student activists satisfied.

“They're sort of like, 'Can't we just save the world? We have all this money, let's save the world,’” Baum said.

Baum noted that even given its limitations, the University has access to an undeniably large sum of money. Compared to its peers in higher education, Harvard boasts the largest total endowment in the world.

“They don't have $40 billion that they could use,” she said. “But they do have more resources than certainly most businesses that are trying to figure out how to survive now.”

Thomas D. Parker ’64, a senior fellow at the Institute for Higher Education Policy, said the school still lacks enough money to avoid all consequences of the pandemic.

“I think Harvard can use some of its wealth to try to mitigate the effects of the current crisis,” Parker said. “But it's clear that there's simply not enough money there just to continue business as usual. The arithmetic doesn't work out.”

Another key factor to contextualize the endowment’s value is the annual operating expenses of the University in a normal year. Parker said the endowment would typically constitute “about seven or eight years” of operating expenses, which totalled $5.2 billion in FY19.

But these are not normal times, and the pandemic has led to unexpected expenses and cuts.

Labor activists in Harvard College Students for Bernie and other groups have sought to ensure that the brunt of the financial downturn does not fall on Harvard’s workers. They have called on Harvard to use the endowment to provide their employees with pay while they are unable to work, contract extensions for those who need them, and sufficient paid sick leave.

Ruy Martinez ’22, a member of Harvard for Bernie, said workers’ compensation should be prioritized equally to the needs of faculty and students.

“They are as vital to the Harvard community as professors and students,” Martinez wrote.

Even before the coronavirus pandemic, Harvard’s Graduate Student Union-United Automobile Workers frequently invoked the endowment in their calls for fair pay. During their month-long strike in December 2019, union demonstrators often chanted, “Harvard, pay your worker scholars! You have 40 billion dollars!”

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Olivia Crough, a graduate student and union member, wrote that their demands were not aimed at “liquidating the principal of the endowment.”

“We are asking for endowment growth to be slowed to match inflation and for a higher percentage of returns to be allocated toward fairly compensating the work of graduate students and adjunct faculty,” Crough wrote. “This would not only maintain but advance the endowment’s core mission.”

Crough wrote that she has not been convinced by administrators’ explanation that the endowment must grow for the future.

“The administration leans on platitudes like ‘intergenerational equity’ to justify the cuts it chooses to make,” she wrote.

‘Take That, Harvard!’

While a number of students and faculty activists urged Harvard to aid its workers by engaging its endowment, some conservative politicians demanded Harvard not receive federal aid because of its wealth.

The federal government allocated $8.6 million to the University under the Coronavirus Aid, Relief, and Economic Security Act, which included a Higher Education Emergency Relief Fund.

The allocation triggered uproar from Republican politicians, including Texas Sen. Ted Cruz and President Donald J. Trump. Almost all of them cited the size of the endowment as a reason Harvard should not receive federal funds.

“Well, look, I don’t like when Harvard that has, I think, a $40 billion dollar endowment, or some incredible amount of money, that Harvard gets this money?,” Trump said at a press conference. “Harvard should pay this money back. I want Harvard to pay that money back.”

In reality, Harvard had not yet applied for or received the funds which it was allocated. Though at first a spokesperson for Harvard said the University would dedicate 100 percent of the funds to student aid, they later announced that they would not take the funds at all — a move that Trump lauded.

Bacow attributed the decision not to take the funds to “unattractive” restrictions placed on them.

“We were not allowed to use the money to support our international students, and we are not allowed to use the money to support our undocumented students,” Bacow said. “We thought that, among other things, that if we took the money, we would have to dip into other resources to treat our international students, and undocumented students on an equal basis to all others who would be eligible to receive those funds.”

Baum attributed the controversy over the CARES Act funds to conservative animosity towards colleges and universities.

“The Republicans in particular feel like these are liberal bastions of indoctrination,” Baum said. “They actually are looking for any opportunity they can get to sort of stick it at these places.”

This was not the first time Republicans targeted higher education endowments. The Tax Cuts and Jobs Act of 2017 levies a 1.4 percent excise tax on the endowments of private colleges and universities with at least 500 students and endowment assets that total over $500,000 per student. The tax was estimated to cost Harvard $40 to $50 million.

At the time of its passage, the Cato Institute’s Neal McCluskey wrote that the tax was “little more than a politicized ‘Take That, Harvard!’”

Former University President Lawrence H. Summers said he sees the endowment tax as a politically-motivated “act of revenge.”

"I both think it was motivated in a fake way, and I think it doesn't correspond to any principled kind of tax policy,” Summers said.

Mae C. Quinn, a professor at the University of Florida, said labelling the endowment tax and the controversy over the CARES Act funds as part of the conservative political agenda is a scapegoat for universities like Harvard to avoid engaging with genuine concern about their level of wealth.

The idea of an endowment tax had liberals supporters, too, like former Massachusetts Democratic gubernatorial candidate Jay Gonzalez, who wanted Harvard to pay $500 million in taxes.

“Folks are concerned about universities being able to stockpile this money, and not utilizing it in ways that could advance the public good,” Quinn said.

Joshua Humphreys, a senior fellow at the Croatan Institute and former Harvard lecturer, wrote that large endowments are a symptom of an “academic arms race.”

"It [is] not clear why an institution of higher learning continues to strive to increase the size of the endowment, rather than to use it in different ways to maintain stability of mission and to reinvest in the university,” he wrote.

‘Bridging These Gaps’

Harvard administrators maintain that a growing endowment is vital to its mission.

In her letter to Congress in 2016, Faust explained that tuition and grants do not cover the full cost of education and research, respectively.

“Increasingly, endowments play a significant role in bridging these gaps and making it possible for Harvard to pursue its mission,” she wrote.

Without an endowment, Harvard would likely experience greater year-to-year financial instability and have less autonomy, since it would be more beholden to donors, Parker said.

“In terms of private universities, it's pretty difficult to think of being truly great without having a substantial amount of money in the bank,” Parker said.

Jay Mathews ’67 — an education columnist for the Washington Post and a former editor of The Crimson — wrote that he does not think that endowment size correlates to a university’s greatness.

“I don't think it says anything important about the quality of the school,” Mathews wrote in an email. Still, he conceded there are benefits to the school’s endowment, which has grown from less than $1 billion in his time at Harvard to $40 billion today.

“I think it gives the school great room to be creative and innovative, and in some ways it has done that,” Mathews wrote. “It supports some important research.”

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Mathews noted that as the size of the endowment grew, so too did its prominence in campus conversation.

Today, it’s a frequent topic of debate. There are at least four divestment groups on campus: Fossil Fuel Divest Harvard, Harvard Prison Divestment Campaign, Harvard Puerto Rican Debt Divestment Campaign, and Harvard Out of Occupied Palestine. All four recently formed the Endowment Justice Coalition, with the sole focus of pushing “for a new vision of Harvard’s obligations as a moral actor.”

Gursoy said that because it is an educational institution, Harvard should focus on social good, “rather than adding more zeros to the endowment.”

Bacow has previously said that the endowment should not be used “as an instrument of social policy.”

“I think there are far more effective ways for us to influence social policy, public policy, as well, through our research, our scholarship, through our actions and through our teaching,” he said in 2018.

Likewise, Parker said he believes that if the University wants to continue to grow, “in terms of its ability to address important issues of the day,” it will need its endowment funds.

“Those issues are not going to diminish over time, and there's no reason you should think that you would need less money to address those issues over time, and not more,” he said.

“I think that across the ideological spectrum there's a tendency to to overestimate the way in which the endowment can be a kind of all purpose rescue fund. It really can't,” Parker added. “People misunderstand — both on the left and right — the availability and the extent that the endowment can be a kind of deus ex machina, which comes in at the end of the day and saves everybody.”

As the pandemic alters almost every aspect of life on campus, the calls for Harvard to reconsider its traditional approach to the endowment have grown louder: if not now, when? How the University chooses to answer this question in the midst of a crisis remains to be seen, and might set a precedent for decades to come.

—Staff writer Ellen M. Burstein can be reached at ellen.burstein@thecrimson.com. Follow her on Twitter @ellenburstein.

—Staff writer Camille G. Caldera can be reached at camille.caldera@thecrimson.com. Follow her on Twitter @camille_caldera.