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November-December 2007
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Getting and SpendingThe University’s annual financial accounting—usually a forbidding and retrospective document—this year sports a new look and abounds with news about important matters fiscal, academic, and strategic. The new title (the fusty Financial Report to the Board of Overseers of Harvard College has given way to a more modern, matter-of-fact Harvard University Financial Report for fiscal year 2007) introduces a streamlined text and colorful graphics. (The report is available at http://vpf-web.harvard.edu/annualfinancial.) Among the highlights within: 
• Federal funding for research—a critical source of revenue—declined 1 percent, to $515 million, a clear indication of the multiyear leveling-off of the National Institutes of Health’s (NIH) appropriations. NIH is the principal source of support for biomedical research, and, overwhelmingly, Harvard’s single most important provider of research funding. (The National Science Foundation reported in late September that during fiscal year 2006, federal funding of academic research grew less than the rate of inflation for the first time in a quarter-century.) • The endowment continued to grow rapidly, totaling $34.9 billion as of June 30—a gain of $9 billion, or 35 percent, in the past two fiscal years (see “The Endowment: Up, and Upheaval”). Accordingly, the Corporation has become more ambitious about using the funds. It has changed the policy from the prior target of distributing 4.5 percent to 5.0 percent of the endowment’s market value annually in support of University operations, to a new targeted aggregate spending rate of 5.0 percent to 5.5 percent (see discussion below). Given the endowment’s size, that seemingly modest adjustment means a great deal to the schools. • During fiscal year 2007, a previously undisclosed $100-million “decapitalization” from the Faculty of Arts and Sciences (FAS) endowment was used “primarily to fund construction and other facilities costs.” FAS has been investing heavily in buildings—several hundred million dollars for new science laboratories alone—and faces large deficits resulting from the debt incurred for those projects and the subsequent costs of operating them. This decapitalization (a one-time disbursement of accumulated funds within endowment accounts for discrete purposes) begins to relieve FAS’s problem—and may be a harbinger of more systematic, wider-ranging efforts to meet other faculties’ most pressing priorities when, as is now the case, the endowment has appreciated, but a capital campaign has been deferred. Characterizing the year, vice president for finance Elizabeth Mora, the University’s chief financial officer, said, “The picture looks very positive.” Revenue rose 7 percent, to $3.21 billion, roughly the same pace as in fiscal year 2006. The 12 percent increase in endowment income distributed for operations, to $1.04 billion from $933 million in the prior year, was a principal factor. The $23.2-million rise in revenue from continuing and executive education programs (a 14 percent gain, to $193.2 million) also stood out. 1 | 2 | continued >  
 
 
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