Harvard Does Not Have a $41 Billion Cayman Islands Account

Harvard and its peer institutions recently came under fire for being eligible to receive millions in federal aid under the Coronavirus Aid, Relief, and Economic Security Act. Members of Congress, President Donald Trump, and many others framed the discussion as a choice between the financial health of Harvard’s $41 billion endowment on the one hand and the jobs and lives of fellow Americans on the other.

But it is dangerous to argue that because Harvard is rich, it should not be worrying about its finances. As Harvard’s financial health deteriorates, the jobs and livelihoods of thousands of taxpaying Americans will also be harmed over the next few years. Although the short-term benefits of prioritizing more vulnerable institutions and individuals outweigh the long-term costs, these costs are real and need to be included in the discussion.

Even the $41 billion number, made public in June 2019, is misleading. There are serious legal and logistical hurdles involved in redirecting the more than 13,000 separate funds that make up the endowment for pandemic assistance. The vast majority of the endowment is restricted, and each fund must be individually renegotiated with the donor if the funds are to be repurposed. More importantly, Harvard’s financial health has taken a serious hit in the last few weeks. If the current economic downturn is “directly comparable” to the Great Recession, Harvard’s endowment may be posed to lose more than $10 billion.

But tens of billions of dollars is still a lot of money. That’s why more than a third of Harvard’s annual operating budget comes from endowment returns. For example, endowment returns funded 87 and 74 percent of the Radcliffe Institute and Harvard Divinity School operating budgets for 2019. At the same time that the endowment is plummeting, operating costs are increasing. Harvard’s Faculty of Arts and Sciences is already unable to cover its budget for Fiscal Year 2020 due to $30 million in “unforeseen expenses and lost revenue.”

Therefore, like any other business still operating, the University will be forced to make drastic budget cuts across the board. Although the University is already cutting non-essential spending, there will almost certainly be hiring freezes and mass layoffs. For comparison, in the aftermath of the 2009 recession, Harvard reduced food services staffing, tabled faculty salary increases, froze hiring, and laid off hundreds of employees. These cuts over the next few years will threaten the jobs and livelihoods of thousands of Americans. The most vulnerable populations on campus — staff workers, graduate students trying to negotiate insurance benefits, and the 55 percent of undergraduates who depend on financial aid to afford tuition — will be the ones harmed the most. Every dollar Harvard loses today is two dollars it cannot spend to hire workers or fund scholarships down the line. And while costs will return to normal and Harvard’s endowment will eventually recover, it will take time — Harvard’s endowment didn’t recover to pre-2008 levels until 2017.

This doesn’t mean that we should prioritize wealthy corporations over struggling small businesses and communities. In fact, I completely agree with Harvard’s decision not to accept federal aid. But we need to recognize that Harvard’s decision will, without a doubt, hurt its ability to help its employees and students stay safe and put food on the table in five years.

The CARES Act won’t be the last time that we have to choose between the long-term financial health of wealthy institutions and the short-term wellbeing of fellow Americans. While it seems absurd to be thinking about how much money a nameless investment management company is making during a pandemic, we need to remember that the long-term financial health of universities such as Harvard directly affects the livelihoods of thousands of individuals — even if the consequences will not be apparent until later. This doesn’t mean we should bail out every wealthy company. Rather, we need to avoid knee-jerk reactions that equate wealth with excess and include the long-term costs of reduced financial health in our decision-making.

Maxwell L. Zhu ’21 is a Chemistry and Physics concentrator living in Pforzheimer House.