Harvard to reduce dependence on drawing from endowment
Harvard University will reduce the amount it draws from its endowment to cover operating costs by 8 percent next fiscal year, a university spokesman said yesterday, in another sign of the toll the market collapse is taking on the school.
The university also expects to continue cutting by at least that amount two years from now in response to the precipitous drop in the value of its endowment, said spokesman John Longbrake.
Harvard's endowment, which stood at $36.9 billion last June, plummeted by at least 22 percent in the fall and is expected to end the fiscal year with a 30 percent drop, a figure many other universities are planning for as well.
But because Harvard has the largest endowment in the world and relies on it to support more than a third of its operating costs, a similar percentage decrease represents a higher dollar value, resulting in steeper cuts.
Each of Harvard's 10 schools will determine how much they will need to cut from their budgets to account for the reductions, Longbrake said.
"Our strong sense is that an eventual recovery will take longer, and that we must therefore begin to accommodate a new economic reality for the university," he said in a written statement. "It inevitably will require our schools to consider profound changes in how they operate."
The university has announced plans to possibly halt construction of a science complex, which is at the heart of its expansion plans in Allston, and it is seeking voluntary early retirement from 1,600 eligible employees.
Last year, Harvard drew $1.6 billion from its endowment to subsidize its $3.5 billion in operating costs. Harvard will not release how much it has drawn from its endowment for this fiscal year until its financial report comes out in the fall.
Because of the decreased endowment payout, the Faculty of Arts and Sciences, Harvard largest academic body, will take a $52 million hit next year, Michael D. Smith, dean of the FAS, said in a letter to faculty and staff Wednesday. It had already planned on cutting $105 million to $125 million from its $1.2 billion operating budget.
Since the Faculty of Arts and Sciences has already been planning for a range of aggressive scenarios for cutting the budget, faculty will not be asked to come up with further reductions, Smith said in his letter. He did not specify what the recommended cuts would be as they "navigate uncharted terrain."
The Faculty of Arts and Sciences has frozen salaries and much hiring of tenure-track professors. A Harvard official familiar with its financial picture had previously told the Globe that Harvard could not make up the gap without significant personnel cuts and program reductions, but Longbrake said the university has not announced layoffs.
The Faculty of Arts and Sciences draws on the endowment to support more than half its operating budget. Ten years ago, it relied on the endowment to support only a third of its budget but its dependence on the endowment grew as the funds' returns outpaced other sources of income and its operating budget grew as well.
Tracy Jan can be reached at tjan@globe.com. 
