An Allston Accounting Adjustment

Harvard’s 2012 financial statements reclassify for this year and last the “administrative assessment” (an annual decapitalization, equal to 0.5 percent of the endowment’s value) from a capital item to operating revenue [corrected from an expense item 12-3-13]—a different way of presenting about $129 million of funds in fiscal 2011, and slightly more in fiscal 2012. That change tells a story about Harvard’s altered financial circumstances, a useful accompaniment to the narrative from chief financial officer Daniel S. Shore and University treasurer James F. Rothenberg.

In 2001, late in his presidency, Neil L. Rudenstine and the Corporation created a “strategic infrastructure fund” (SIF) to prepare for campus development in Allston. Each school’s endowment would be tapped 0.5 percent annually, for five years, to yield $500 million to indirectly reimburse the central administration’s investments in necessary infrastructure and improvements in Allston, on the grounds that all Harvard would benefit as new facilities were funded by their tenant schools and created in coming decades.

President Lawrence H. Summers then advanced a sweeping vision for accelerated Allston development (science labs, new homes for the schools of education and of public health, cultural facilities), and in early 2004 the SIF was extended to 25 years and applied to broader uses, including the renovation of facilities vacated by units relocating to Allston and the cost of new buildings there. Given the endowment value then (about $19 billion), the assessment would yield an additional $2 billion over its extended life, even if the endowment did not appreciate—a sum that could support billions of additional borrowing to build in Allston. Meanwhile, as Shore and Rothenberg note, the University was already increasing its debt financing substantially. Centrally managed liquid funds were invested long term, alongside the endowment, to take advantage of the bull market, and Harvard put in place interest-rate exchange agreements meant to stabilize the costs of the anticipated future borrowings for the Allston work.

Today, none of the assumptions equating the administrative assessment with capital investment in Allston development remain. The University cannot borrow substantially more if it wishes to retain its top-tier credit ratings, and has much higher, continuing debt-service costs. The endowment, one-sixth smaller than at its fiscal 2008 peak, must support a larger faculty, physical plant, and financial-aid budget. After punishing losses on the interest-rate swaps and from lack of liquidity, the University is pursuing a lower-risk strategy for investing all its assets, including the endowment. That more cautious strategy must fund not only past Allston-related costs but also the extra, University-wide debt service. And the new Allston master-planning proposal (see “Economic Realities in Allston”) is vastly reduced from prior schemes. Much of the land is now a blank slate, for potential academic use far in the future.

Thus, treating the SIF as an Allston-related decapitalization item no longer makes sense; rather, it is an operating item—an assessment on endowment assets that defrays central operating expenses. A financial-reporting change thus reflects almost revolutionary upheaval in Harvard’s fiscal assumptions, operations, and position.

You might also like

More Housing in Allston

Toward another apartment complex on Harvard-owned land

General Counsel Diane Lopez to Retire

Stepping down after 30 years of University service

Navigating Changing Careers

Harvard researchers seek to empower individuals to steer their own careers.

Most popular

An Unpredictable Path to Student Unionization

A new election could take place as early as next fall. 

Poetry, Voiced

In the Woodberry Poetry Room, a landmark audio collection waits to be heard.

A Rural Retreat

Lincoln offers rich history, nature trails, local food, and art.

More to explore

Illustration of a box containing a laid-off fossil fuel worker's office belongings

Preparing for the Energy Transition

Expect massive job losses in industries associated with fossil fuels. The time to get ready is now.

Apollonia Poilâne standing in front of rows of fresh-baked loaves at her family's flagship bakery

Her Bread and Butter

A third-generation French baker on legacy loaves and the "magic" of baking

Illustration that plays on the grade A+ and the term Ai

AI in the Academy

Generative AI can enhance teaching and learning but augurs a shift to oral forms of student assessment.