Total Assets

Harvard is nearly as rich as God. With almost $11 billion in assets, it is rumored to be rivaled among non-profits only by the Vatican, which keeps its finances a little closer to its robes.

Whether or not this claim is true, it speaks to Harvard's reputation as the wealthy son of 360 years of generous investment, right back to John Harvard's personal library.

"[The endowment] is a mark of distinction and a certain mark of pride and stability," says David C. Johnson, director of University development operations. "Harvard's been around for 400 years, and it's going to be around for another 400 years. Harvard has staying power."

Every year, Harvard attracts a more talented and diverse group of students than it ever has before. Every year, Harvard pulls more of the world's top academics into its synergistic fold. Every year, Harvard acquires more of the nation's dollars for higher education, both in the form of a skyrocketing endowment and in perpetual dominance of the market for outside funds.

Every year, Harvard monopolizes more and more educational resources of every kind, hungrily competing against the pack of other institutions to be the best. And it usually wins.

But what is ironic is that the cause of Harvard's preeminence is also its effect: prestige. The farther ahead of the pack Harvard gets, the more resources it can attract and the more prestige it garners.

Ever-greedy for preeminence, Harvard always strives for more. But is what's good for Harvard always good for the country? Is greed good?

$56,880,101

This is the amount of money Harvard received in 1994-95 from private foundations, making Harvard the largest educational recipient of foundation support.

Though educational institutions often pride themselves on being the ultimate meritocracies, when these same institutions vie for funding from the government, foundations and corporations, success can be determined by factors other than merit. Harvard's age, its mammoth endowment and extensive alumni networks all affect how big a piece of the national pie Harvard calls its own.

And the piece is substantial. In addition to Harvard's top performance with foundations, it also received more money in 1995 from the National Science Foundation than all the institutions in North and South Dakota, Wyoming, Vermont and Idaho combined--more than $31.5 million.

It consistently ranks in the top 15 schools to receive federal funding, a figure which doesn't include funds granted to Harvard's affiliated hospitals such as Mass. General. Were that money included, Harvard would be "way up there," according to one University official.

Decreases in federal funding and more aggressive fundraising by institutions outside of higher education has reduced the amount of money available to any one institution and intensified the competition for funding.

Officials in higher education are quick to point out that merit outweighs any other factor in winning funds, but they also agree that Harvard and other prestigious universities have advantages that other schools--particularly large state institutions--do not.

Reputation is one such asset.

Prestige is a "mixed blessing," says Gene R. Kersey, director of development at Oregon State University.

"If you're a Harvard, it's great. If you're not a Harvard, it makes it pretty competitive. Prestige does play a role, rightly sometimes, and maybe not so rightly sometimes," he says.

Nor is Harvard ashamed of its edge.

"There's an assumed level of quality with Harvard that's extremely important when we're talking to corporations and foundations," Johnson says.

"No one uses its reputation more than Harvard," says Brad B. Barber, director of institutional administration for the University of California system. "Harvard knows how to use its reputation very effectively, better than anyone else."

Combined with supreme name recognition, Harvard's endowment is a mark of stability which gives foundations and corporations confidence in the University's potential to succeed.

Connections also play a role, at least in the all-important first stage of getting the institutional foot in the door.

Johnson describes a recent trip to a midwestern company, the CEO of which is a Harvard alum. He credits that relationship in part with the success of the meeting.

"The more friends you have, the better--but when you're talking with companies and foundations, having a friend will help you get in the door, but it won't sustain the relationship if you're not producing," says Glenn B. Freedman, director of the Institute for the Future of Higher Education.

The process can be frustrating to lesser-known schools.

"If you just do your homework, sometimes the right letter or phone call can get you in the door," says Richard K. Francois, assistant vice president for university relations at Seattle University. "[But] you're swimming against the tide. You realize that your reputation isn't as well-known as others."

These advantages of reputation create an uneven playing field when less-established schools compete with the nation's marquee institutions. Though few have argued that this is unfair in a moral sense, some institutions feel sidelined.

"If I had to go head to head with Stanford, that would be really tough," says Eddie Norton, director of foundational relations at Santa Clara University.

Many worry that the nature of competition in this arena will have national repercussions.

"What you want to avoid is the usual suspects program," says L. Steven Zwerling, a senior director at the Ford Foundation, the largest foundation for support of higher education in the nation.

"You could make all your grants to Harvard if you want to make safe bets to places that already have vast resources," he says. "But what's the value added...to other less resource-rich places?"

Zwerling says foundations must make an extra effort to give grants to a variety of institutions because that is the only way to learn what programs work best.

But at present, foundations are drawn to big names, and big differences in reputation stand to create a widening gap between "haves and have-nots," says Theodore J. Cicero, vice chancellor for research at Washington University.

The implications, he says, are national in scope.

"I think in the long term that unless the situation corrects itself, it's probably not a good situation for higher education," he says. "The other schools will begin to trail behind, which is not a good thing for the country...as higher education resources are going to be shrinking."

Many development officials would like to see the wealth spread around more.

"When I was at Berkeley, I would not have hesitated to say you should invest with an organization that has a proven track record of success," Barber says. "But now that I have to look at a broader range of things, I am not sure that's true."

"I think all the great institutions have so much money that they're going to do well. Maybe it's the next tier down that needs more help."

$32,704

This is Harvard's estimate of what the price of attending the College will be in the '97-'98 school year, including tuition, fees and "personal money." It is also about three-fourths of the average family income in America, and about the price of one of the 275,757 Mercedes Benz sedans Harvard could buy with its endowment.

Of course, the expense of attending Harvard College has not always been this high. Only 11 years ago the full cost of attending was half what it is today, $16,300.

Tuition will increase: That's inflation. But comparing tuition increases to the inflation rate over the past 20 years shows that a devalued dollar cannot account for all of this increase.

From 1973 to 1983, tuition and inflation rose hand in hand. Harvard's tuition increases and the inflation rate were almost identical during five of these 10 years.

During the hyperinflation of the late '70s and early '80s, when rates were nearly as high as 14 percent, Harvard at points increased its tuition at half that rate.

Then in the 1980s, the two lines diverged and have only come close to increasing at the same rate again this year, when tuition increased by nearly 4 percent with inflation hovering around 3 percent.

The Wall Street ethos of the '80s was the other cause of drastic tuition increases. Scholars refer to it as the "Chivas Regal effect."

The '80s came to equate price with quality. For universities, this meant that they could raise tuition, and the market--namely parents--would bear it. Parents believed that the high priced education they were purchasing would translate into greater financial success for their children.

"A lot of institutions raised their prices because price was becoming a conduit for quality," says David M. Merkowitz, director of public affairs for the American Council on Education. "That may well have been true for some institutions, particularly private institutions in the top tier."

In short, the theory says that markets set prices even in higher education.

University officials prefer to emphasize the role inflation--not market forces--plays in tuition increases.

Such hikes are related to "the nature of labor intensive production processes," according to Assistant Dean for Undergraduate Education Jeffrey Wolcowitz.

Harvard & Friends

But in 1989 the Justice Department argued that collusion was another cause of the astronomical cost to attend a number of America's most prestigious universities--including Harvard.

For years a consortium of elite American universities including Harvard, MIT, Princeton and Yale exchanged data about their tuition rates, agreed never to grant aid solely on the basis of academic merit and met to negotiate how much need-based financial aid individual students would receive.

Keith Leffler, a University of Washington anti-trust economist who testified for the government, says that the "Overlap Arrangement" stifled competition and allowed the universities to raise their tuition without losing low-income talent that prestigious schools desire.

"The average price of tuition was higher than what would have been expected in the absence of Overlap," Leffler says.

The Overlap Group agreed to equalize what a family would have to contribute for their child's education regardless of which member institution a student would ultimately chose to attend, which in turn determined the universities' financial commitment to that student.

The government also contended that Overlap drove down the aid available to low-income students, who are a valued resource of these universities, which Overlap made easier to attract, Leffler said.

Harvard argued that meeting with the other schools allowed them all to better distribute a scarce resource, a process in keeping with the public good.

But Harvard ultimately capitulated to the challenge, agreeing to disband the Overlap Group. Within a year, Harvard helped push a bill through Congress which superseded its agreement with the Justice Department and allowed it to again exchange tuition data and to agree not to offer merit based aid.

"Your school is very well represented in Congress," Leffler says.

$1,217,391

This is the amount of money Harvard must raise every day to keep pace in its five year, $2.1 billion capital campaign. When one considers that the University has completed nearly 80 percent of the Campaign in only three years, Harvard's phenomenal ability to raise money becomes apparent.

Last year, Harvard received more private support than any other university in the United States and placed seventh among all non-profits.

"Harvard is blessed with generous alumni," says Vice President for Alumni Affairs and Development Thomas M. Reardon.

This fundraising quest was at least partially responsible for Rudenstine's bout with exhaustion in 1994. Rudenstine, a master fundraiser, is reported to have expended Herculean amounts of energy wooing potential big donors and giving them more personal attention than one person--himself included--could endure.

The intensity of Harvard's campaign has also caused some to question which comes first--Harvard's academic priorities or its money.

For instance, during the Campaign the University has emphasized international fund raising. Provost Albert Carnesale has made four trips to Asia in recent years, many of the deans have traveled to Latin America and Rudenstine will go to Europe this summer.

And soon the University will construct a new center for international studies. Campaign brochures are replete with references to Harvard's desire "to extend and enrich the University-wide agenda in international and regional studies."

When asked if these developments were coincidental, Carnesale says, "We're very conscious of this and we always ask ourselves the question, 'Would we do this if there was no money involved?' If the answer is 'no,' we don't do it--finding the means to the ends and not transforming the ends."

But others aren't so convinced.

"We all engage in mirroring," says Ronald D. Margolin, an assistant vice president for development at Brown University. "I think ultimately we aren't doing the community a lot of service by running after every grant that comes along. I think you need to have the courage to say that isn't what we need."

$332.3 Million

During the last fiscal year, Harvard used this much of its $9.1 billion endowment to pay for operating expenses. While the endowment earned a 26 percent return, its best performance since 1986, the payout was only 3.65 percent, one of the lowest during the past 25 years.

There are some sound financial principles to support so low a payout, but some financial analysts--and top-ranking Harvard officials--say the University could spend more and still be good stewards of the endowment.

D. Ronald Daniel, treasurer to the Harvard Corporation, says the University's highest governing board uses two guidelines when determining each year's payout.

It aims to keep inflation from eroding the endowment while providing a reliable and steady stream of income for operations.

"Intergenerational equity, I think, is the key issue," Daniel says. "Are we making an appropriate balance of supporting today's faculty and students and the faculty and students that will be here in 10 or 20 years?"

Traditionally, Harvard has spent between 4.5 and 5 percent of its endowment to provide a steady 20 percent of the operating budget. But financial markets have been so strong in recent years that the University, in attempting to keep income level steady, has spent roughly one point below that.

Last year, for example, only 3.65 percent of the endowment was spent. That means Harvard could have spent almost $90 million more without violating its own standards of accounting for inflation. That's approximately two-thirds of the money Harvard took in from undergraduate tuition last year.

According to Vice President for Finance Elizabeth C. "Beppie" Huidekoper, the rationale has been that financial markets should not dictate year-to-year income because of their instability. During good times the University has tried to grow the endowment by not taking full advantage of the market's upswings.

"Harvard's conservative on this, but it's provided enormous strength to the institution," she says.

All the same, Huidekoper says that the University should be spending more of the endowment and is planning to increase the percentage payout.

Students agree that Harvard should spend more.

"There are a lot of student concerns that are being ignored. I think a lot of money could be used to lower tuition costs and to make Harvard accessible to more people," says Frank J. Gorke '99, a campus activist and a representative on the Undergraduate Council.

Though undergraduates are not experts, some financial gurus say the University could be spending more of its endowment while still maintaining its value.

A report by the National Association of College and University Business Officers shows that Harvard spent 1.1 percent less last year than institutions with similarly large endowments.

Thomas O'Brien, a former vice president of finance at Harvard who invented the model for spending the endowment back in 1971, questions how little the University is now spending.

Using historical data he says that the University could be spending anywhere between 4 and 6 percent on average. Harvard's average payout for the past 26 years is only 4.6 percent.

"The judgment is that 3.65 percent is on the low side," O'Brien says.

But he is concerned about smoothly injecting this increase into the operating budget. "But would you jump from 3.65 percent to 5 percent in one year? I don't think so, that's too much."

$7.4 Billion

This is the value of Harvard's endowment at the end of fiscal year 1995. By 1996, the endowment's value had risen 26 percent to $9.1 billion, due mainly to the bull market, but just as important to this increase has been Harvard's frugal management of its precious nest egg.

So even if Harvard isn't paying out all of the endowment that it could, one perspective is that at worst the money goes right back into the endowment--for Harvard's many future generations.

Plus it's difficult to argue that Harvard doesn't allocate its operating budget wisely, the vast majority of which--49.5 percent--goes for faculty and staff compensation.

Harvard's faculty are also some of the best paid in the business. On average they make $107,000 a year, more than at any other Ivy League school.

Of course, the endowment provides extra funding to make these high salaries possible which, in turn, allows Harvard to recruit the most prestigious faculty.

Endowment and prestige then become chicken and egg, according to many officials.

"I think there's prestige associated with having a big endowment, and there's endowment associated with prestige," says one development officer.

$4.7 Million

The top fund manager at Harvard Management Corporation (HMC), was paid this much in bonuses and compensation in 1996, according to federal tax returns. Others in the top five received between $1 and $2 million in compensation.

HMC is a University-managed, not-for-profit corporation that invests Harvard's endowment. HMC officials defend the income levels of their money managers, arguing that Harvard must pay top dollar for top yield.

"For anybody to earn anywhere close to what these managers are, performance has to be excellent," says Jack R. Meyer, president of the HMC.

Compared with other schools, most of whom hire outside management firms, Harvard's endowment fared well in 1996, with its 26 percent growth rate beating the average university's by 9 percent.

Meyer adds that Harvard pays less than half of what it would if it contracted to external managers as most universities do.

Shareholder Responsibility

But campus activists are critical of multi-million dollar HMC compensations, particularly at a not-for-profit institution where the president's salary is approximately $250,000 and the average tenured faculty member receives less than half that.

"I find it amazing that they can pay that much and then say that they don't have the money to tenure new professors, especially minorities and women," says Megan L. Peimer '97, former co-president of the Radcliffe Union of Students. "It substantiates my view that Harvard sees itself as an organization that grows for the sake of growth."

Campus activists also point to the benefits scuffles between the administration and the Harvard Union of Clerical and Technical Workers as well as the recent hiring of UNICCO, an outside custodial contractor, as what they consider to be the University's misguided financial priorities.

"It's that and the failure to treat investment as a political and moral issue...that's really upsetting," says Jedediah S. Purdy '97, former president of Perspective, Harvard's liberal monthly.

Over the course of the year, campus activists criticized the Corporation Committee for Shareholder Responsibility for failing to recommend divestment from corporations that do business in Nigeria and Burma, countries with known track records of human rights abuses.

"There are a lot of ways to make money without stripping forests and investing in Indonesian factories that are paying 50 cents a day," Purdy says.

But it's investment that grows Harvard's endowment, which the Advisory Committee for Shareholder Responsibility, advisors to the CCSR, tacitly acknowledges in the principles it uses to determine its stance on issues of social responsibility.

"One [guideline] is the University's investment, which has a return it wants to maximize," which is balanced with the desire "as shareholders to express yourself contrary to management when they are leading the corporation into an area which would not be socially responsible," says Bernard Wolfman, chair of the ACSR and Fessenden professor of law.

$0

This is the amount Harvard pays in property taxes on Harvard Yard, Widener Library, Sever Hall and, for that matter, all properties devoted to fulfilling the educational mission of the College. Massachusetts law shelters all educational institutions from such burdens.

About six months ago, Mayor of Cambridge Sheila Doyle Russell and members of the Cambridge School Committee met with Rudenstine in the posh Faculty Club. They left with a baseball cap especially designed for the meeting: It had a veritas shield right above the word "Cambridge," symbolizing the teamwork between the city and the University.

Indeed, relations between the city and the University, particularly in the area of housing, are at a marked high. (Please see related story, page F-17)

But beyond the meetings, public relations photographs and reports--of which there have been many--some area residents think that Cambridge gets the short end of Harvard's big financial stick.

Harvard is the third-largest taxpayer in the city, contributing more than $8.1 million in taxes, voluntary payments, fees and services in 1996.

But real estate taxes are paid on only 17 percent of Harvard's 7.2 million square feet. The rest is tax exempt.

Some residents see a discrepancy between the University's wealth, it's corporate-sponsored research and it's not-for-profit status.

"It is the world's most fabulously rich university," says R. Philip Dowds, former president of Cambridge's Civic Association and founder and former president of Cambridge Citizens for Livable Neighborhoods.

"I guess I have some misgivings about supporting that kind of extravagance in the educational system," he says.

"If you're researching a drug for a major pharmaceutical company, is that really a tax exempt activity?" he asks, referring to corporate-funded research performed on not-for-profit land.

Between taxable and exempt property lies a gray area of affiliated housing, which includes properties like Peabody Terrace where staff and students lease apartments.

In the 1960s Cambridge proposed to tax the property. Harvard resisted initially but then compromised with the city to make "payments in lieu of taxes" (PILOT), voluntary contributions to the city which at the time were "essentially" what the University would have paid were the properties taxed, says James P. Maloney, assistant city manager for finance.

A 1989 renewal of the PILOT agreement fixed the University's payments, which consequently have not kept up with inflation, leading residents to argue that the voluntary payments should be higher.

Officials at Harvard's Office of Government, Community and Public Affairs are quick to point to the hundreds of millions of dollars that the University generates in the local economy through payroll, purchasing and fees, as well as services the University provides to some extent for itself, such as garbage collection and police protection.

Beyond the financial, University officials also point to a host of non-financial programs through which Harvard contributes to the community, for example the involvement of Harvard students in Cambridge schools and the opportunities for local residents to partake in the academy's cultural mecca.

These contributions cannot be quantified monetarily, but University officials say they more than make up for any losses to the city in taxes. They also note that Harvard's tax-exempt status is critical to fulfilling its mission.

But critics say the University contributes to the economy more as an accident than out of benevolence. And community leaders, like John Pitkin, president of the mid-Cambridge neighborhood association, say the comparison between taxes and teachers is one of "apples and oranges."

"Volunteers going to the schools doesn't make it any cheaper to build storm sewers," he says.

Priscilla J. McMillan, a local civic activist, says Harvard's physical size and enormous wealth create an imbalance in the city.

"I think it's unhealthy if one organization is so much larger than any other. Imagine the deliberations in the city manager's office when Harvard comes up."

"It just has to bend the priorities of the city government," she says.

Residents also express special concern about long-term development in the area, which places properties like North Hall, 51 Brattle St. and 8 Story St. under the protective mantle of the University's tax exempt status, increasing the burden on area residents.

Vice President for Government, Community and Public Affairs James H. Rowe III '73 says residents need not worry.

"We have no expansion plans of any great magnitude. We are not about to spring a major expansion without viable outreach to the affected community," he says.

But Rowe's words do not convince McMillan, a local resident watchdog of the University's development.

"The University has a status like a China in international affairs," she says. "What is a long time to us is a short time to them. They can sit and let memories fade about what commitments were made and come back another day."

$42,902

That is the amount the Faculty of Arts and Sciences spent on each student last year, according to U.S. News and World Report, which ranks Harvard--the richest University in the country--sixth in expenditures per student.

There is no question that the students, the city and the nation benefit from Harvard's money. Students are well educated, inventions are conceived and new ideas are created. But to some the lengths Harvard goes to raise its funds make the institution seem less like a not-for-profit and more like a corporation.

This is no simple irony. Harvard's governing body is called "the Corporation," and it is composed of some of the leading lawyers and business executives in the nation including Daniel, who is the director of McKinsey & Company, and Richard A. Smith '46 who is chair of Harcourt General. Like any board of directors, the Corporation handles major decisions concerning revenue and investments.

The University's endowment could buy more than 250 million Harvard sweatshirts--after the 10 percent discount for Harvard students--which is enough to emblazon Veritas across the chest of every man, woman and child in America.

But while Harvard spends in great magnitudes, it has been criticized for being frugal with its assets, both externally and internally--just like any good company would be.

Its students and research are its products; its faculty are its engineers and designers; its staff are its laborers. The Development Office is sales and marketing; the Office of Community, Government and Public Affairs are the publicists.

Welcome to Harvard, Incorporated, where it's never enough. Outlay/Student Robert J. Coolbrith Crimson Harvard is ranked sixth in per student spending. School  Spending per student Cal. Tech.  $73,967 Johns Hopkins U.  $61,704 Washington U.  $54,020 Wake Forest U.  $49,051 Yale U.  $45,507 Harvard U.  $42,902 U. of Chicago  $40,686 Allegheny U  $33,270 Columbia U.  $32,738 U. of Pennsylvania  $32,022 Source: 1996 U.S. News and World Report College Rankings

Lucky Seven Robert J. Coolbrith Crimson The only university to make the top ten in private income of not-for-profit organizations in the U.S. is Harvard. Only a handful of other educational institutions made the top 50. Rank  Non-profit organization  FY96 Private Income 1  Salvation Army  644,267,026 2  American Red Cross  465,632,246 3  Catholic Charities USA  419,389,526 4  American Cancer Society  381,674,000 5  Second Harvest  369,123,575 6  United Jewish Appeal  346,649,213 7  Harvard University  323,406,242 8  Boys and Girls Clubs of America  294,892,216 9  YWCA of the USA  283,755,099 10  American Heart Association  256,512,000 12  Stanford University  240,832,287 19  Yale University  199,646,606 20  Cornell University  198,736,229 26  University of Wisconsin Madison  164,349,458 27  Duke University  155,164,009 28  Columbia University  151,800,682 30  University of Michigan  145,757,642 32  University of Southern Cal  138,366,230 34  University of Pennsylvania  135,324,761 36  University of Minnesota  131,638,509 37  University of Washington  127,774,167 41  University of Illinois  116,578,975 43  Indiana University  109,654,739 44  University of Califaornia San Fransisco  108,127,887 45  MIT  107,937,812 49  Princeton University  103,826,392 50  University of California Berkely  103,048,670 51  Brown University  102,513,437 Source: Chronicle of Philanthropy

Lucky Seven Robert J. Coolbrith Crimson The only university to make the top ten in private income of not-for-profit organizations in the U.S. is Harvard. Only a handful of other educational institutions made the top 50. Rank  Non-profit organization  FY96 Private Income 1  Salvation Army  644,267,026 2  American Red Cross  465,632,246 3  Catholic Charities USA  419,389,526 4  American Cancer Society  381,674,000 5  Second Harvest  369,123,575 6  United Jewish Appeal  346,649,213 7  Harvard University  323,406,242 8  Boys and Girls Clubs of America  294,892,216 9  YWCA of the USA  283,755,099 10  American Heart Association  256,512,000 12  Stanford University  240,832,287 19  Yale University  199,646,606 20  Cornell University  198,736,229 26  University of Wisconsin Madison  164,349,458 27  Duke University  155,164,009 28  Columbia University  151,800,682 30  University of Michigan  145,757,642 32  University of Southern Cal  138,366,230 34  University of Pennsylvania  135,324,761 36  University of Minnesota  131,638,509 37  University of Washington  127,774,167 41  University of Illinois  116,578,975 43  Indiana University  109,654,739 44  University of Califaornia San Fransisco  108,127,887 45  MIT  107,937,812 49  Princeton University  103,826,392 50  University of California Berkely  103,048,670 51  Brown University  102,513,437 Source: Chronicle of Philanthropy