Harvard CFO Discusses University-Wide Recession Planning

Despite what he characterized as healthy financial results in fiscal year 2019, University Chief Financial Officer and Vice President for Finance Thomas J. Hollister said in an interview Monday that Harvard has been preparing for a potential recession that could affect some of its fastest-growing revenue streams.

Harvard’s continuing and executive education programs have formed a steadily growing revenue stream in recent years, but demand for such programs may be vulnerable to a recession, Hollister said.

“I think I would say that Harvard is in a healthy condition but wary, for a number of reasons, about the economic outlook, the trends in the pressures in higher education, as well as other burdens, like the endowment tax, so there are reasons to be pretty cautious,” Hollister said.

The University relies heavily on both public and private research funding, though federal funding has stagnated, leading to a shift toward non-federal funding. Both have historically declined in recessionary periods, according to Hollister.

“A lot of the executive education programs are paid for by sponsoring organizations,” Hollister said. “It might be a company, might be a foreign government, might be a local school district.”

“And if they have less money, which they usually do, the economy will affect matriculation of those programs also,” he added.

Hollister said that each of Harvard’s schools engage in “scenario planning” for a possible recession, a lesson taken from the 2008 recession that erased $11 billion from Harvard’s endowment, which is currently valued at $40.9 billion.

If a recession hits, each individual school decides what to cut first, though Hollister said it “usually” involves slowing down investments.

“The philosophy of scenario planning is to make sure you have your principles in place. And I think we've heard from most of the schools, it's about teaching and research, which translates quickly to students and to faculty,” Hollister said. “So it's those things that support students and faculty that are central. And so anything else is generally fair game for, you know, when necessary, when reductions have to occur.”

In addition to the threat of a recession, Harvard has also taken on an additional financial responsibility in the past fiscal year — a Republican-passed tax on its endowment returns.

The endowment tax, effective for the first time in fiscal year 2019 despite extensive lobbying on Harvard’s part, has also contributed to a bleaker economic outlook. Though officially a 1.4 percent investment income tax, the levy may amount to even more, depending on the final rule from the U.S. Department of the Treasury, Hollister said.

Harvard has already paid close to $30 million under the endowment tax, with more to be sent in the coming months, but the University is still hoping for a repeal or revision of the tax, Hollister said.

“We for lots of reasons think it's misguided that at a public goods place like Harvard, which is hopefully creating new knowledge and educating good leaders and providing financial aid, that's the last thing we should be taxing,” Hollister said.

University President Lawrence S. Bacow previously said that financial aid would be the “last thing” he would cut to pay for the endowment tax. Financial aid at Harvard, however, is not fully endowed and a recession could increase financial need, according to Hollister.

“If people lose jobs or get paid less, those families will need more financial aid,” Hollister said. “So that's the trick: It’s to be ready to help and that's the aim to make sure we have enough to help our students.”

—Staff writer Cindy H. Zhang can be reached at cindy.zhang@thecrimson.com.​​​​