Allston Tax Extended To 25 Years

Top University financial officials told the Faculty Council on Wednesday that the central administration will continue to tax all of Harvard’s schools to fund development of the University’s new campus in Allston—a reversal of a previous promise that this assessment would last no more than five years.

Created in early 2001 by a vote of the deans of Harvard’s faculties, the fund annually assesses each faculty one-half of one percent of its endowment.

The tax most hurts the Faculty of Arts and Sciences (FAS), since the school has by far the largest endowment payout. When it was first established, it was projected that FAS would foot 40 percent of the total bill.

Though it was originally slated to last no longer than five years, Vice President for Finance Ann E. Berman and FAS Associate Dean of Finance Cheryl Hoffman-Bray informed the council Wednesday that Harvard’s schools would see their endowments docked for up to 25 years.

“We discussed an extension of the assessment for the first phase of Allston development (25 years),” Berman wrote in an e-mail. “The fund being raised by this assessment is an infrastructure fund, and so will be used for infrastructure: land acquisitions, roads, utilities, site cleanup, buildings, et cetera.”

Berman did not respond to a question about whether the rate of the assessment would change over time.

The initial decision to establish the fund was controversial because of the tremendous disparities in endowment among the schools. While FAS controlled $7.99 billion as of June 30, 2000, the Dental School controlled a mere $124 million.

Therefore, since the tax on endowment is flat, FAS will be forced to put up significantly more cash to clean chemical spills and construct buildings in Allston than will Harvard’s other schools.

Then-dean of the Faculty Jeremy R. Knowles voted against the 2001 proposal to establish the fund.

Current Dean of the Faculty William C. Kirby said last night that he approves of the assessment’s continuation.

“This is, after all, a long-term investment for the University and for the FAS,” Kirby wrote in an e-mail. “As Dean Hoffman noted in her presentation, our budgetary plans have assumed the continuation of such a fund, and its effect on our truly discretionary income is small.”

Arnold Professor of Science William H. Bossert, who spoke against the establishment of the fund in 2001, said in an interview yesterday that Harvard would be paying more than its share to build a campus that will not provide it with equivalent returns.

“Those faculties that benefit from it should pay for it,” said Bossert. “If in fact the FAS is going reap 60 percent of

the benefits then we should pay our fair share.”

He said, however, that as other faculties would benefit more from the Allston campus, FAS would be a loser in the deal.

He added that he felt it was less than honest to use funds that might have been earmarked for other projects to go across the river.

“That’s kind of bothersome because these were monies that were given to particular faculties for particular uses,” he said. “Many of the donors didn’t imagine [their gifts] would go to clean up pollution in Allston.”

Berman said it is not yet known how much the construction of the Allston campus will ultimately cost Harvard, as “the planning process is in early stages, and the cost will depend on decisions about program, what types of buildings, et cetera.”

But the cash flow from the various endowments will not be the sole source of support for the work in Allston—Berman said more money will come from income such as gifts, rents, parking fees and indirect cost reimbursement.

Also at the meeting, the financial officers told the council that FAS would have to continue to judiciously monitor its costs.

“Expenditures were going to have to be controlled and reined in because the money available from the endowment would be down,” council member Everett I. Mendelsohn said.

As far as what in particular would be affected, Mendelsohn said Berman and Hoffman did not go into specifics. However, he pointed to several areas that have recently had to tighten their belts and said the officials gave no sign that relief was in sight.

“Some things are more tightly controlled than others,” he said. “We know that the library’s planning to cut their expenditures. We know that faculty salaries grew at a very modest rate. We knew that department expenditures are being held either at no growth or very modest growth.”

And the soft hiring freeze on staff, implemented last winter will continue indefinitely, Berman and Hoffman told the council.

Kirby said yesterday one of the biggest challenges facing the Faculty will be finding uses for the Faculty’s restricted endowment funds—gifts earmarked for a particular purpose, such as establishing named professorial chairs in specific disciplines.

“The bulk of our discussion of finances dealt with the following issue: the Faculty is hardly poor, but an enormous part of the Faculty’s resources lie in restricted endowments,” Kirby wrote in an e-mail. “Therefore one of our largest challenges is to make the maximal use of all of our resources, not simply our unrestricted accounts.”

Some professors questioned the need for caution in spending.

“At the November Faculty meeting, Dean Kirby warned of spending cutbacks because of shortness of funds in FAS, and we have been told that FAS does not have the money to continue with the planned North Yard science building,” Professor of Physics Daniel S. Fisher wrote in an e-mail, referring to plans for a building in the east section of the North Yard that have been scrapped. “Yet in October, the Dean spoke of ‘wondrous opportunities’ in Allston and the President [has told the Boston Globe that] cost should not be a limiting factor. Larry Summers is an economist, yet he acts as if Allston dollars and Cambridge dollars were different currencies.”

And several professors grilled Summers at the November Faculty meeting about this year’s endowment payout increase. The 4 percent raise pales in comparison to the 37 percent payout of Fiscal Year 2002.

—Staff writer Laura L. Krug can be reached at krug@fas.harvard.edu.