Harvard has reduced its debt by about $1 billion and increased its reserves in anticipation of a potential future recession, the university’s chief financial officer and vice president of finance Thomas J. Hollister said in an interview on Wednesday.
Hollister said the debt reduction was part of an effort to soften the blow from a potential future recession. During the 2008 recession, Harvard didn’t lose its AAA rating — the highest possible credit rating — but the financial meltdown prompted the school to focus more on planning for the future.
“The number of changes in financial planning, preparation, discipline, and focus are radically different,” Hollister said. “In this regard, the crisis has not been in vain.
Harvard’s total bonds and notes payable grew from $6.28 billion in 2010 to $5.30 billion in 2018, according to the University’s financial statements each year. This category is the largest component of the University’s debts, which also include other liabilities, such as pension obligations.
Hollister also said most Harvard schools have been able to use budget surpluses in recent years to build “rainy day funds and reserves” for future downturns. The two Faculty of Arts and Sciences and Harvard Medical School have struggled financially in recent years, with the The medical school in deficit in nine of the last ten years.
When the 2008 financial crisis hit, Harvard’s endowment has taken a substantial hit, dropping from $37 billion to $26 billion, a negative return of 27.3%. The endowment, currently valued at over $39 billiondid not fully recover from this loss until 2017.
Former university president Drew G. Faust said in a May 2017 interview that the crisis was a tumultuous time to oversee the finances of the University.
“Within just a few hours, you watched the markets crash, and you felt this urgent emergency unfold before your eyes, and you didn’t know if by the end of the next day, the endowment would have dropped another 10 % or 15% — when was it going to stop? Was there going to be no more endowment at all? Faust said.
The University also postponed its fundraising campaign for several years and cut staff across the University in order to keep its finances in order. Certain cuts, such as nixing hot breakfast in upper-class homes, have not been restored since.
In the event of a future recession, Hollister said the Harvard schools have plans in place to ensure operations will not be significantly limited.
“From a planning perspective. . .I give full credit to schools and units. They go through scenario planning of what we would do in 18 months if we had a recession, and how do we act or prepare in case that happens,” he said. “So I’d like to think that the University is consistently doing all the right kinds of thinking and in case of the inevitable downturn.”
University President Lawrence S. Bacow said in a September 2018 interview that he had “challenged” all schools to conduct this scenario planning in anticipation of a possible recession.
“What are we going to do when we have a recession – not if – I guarantee you there will be a recession, I don’t know when it will come, but it’s important to think about it in advance,” said said Bacow.
Still, Hollister said a future recession could have negative effects despite the University’s planning.
“What I can’t say is that it won’t be painful,” he said. “What I can say is that we hope not to be unnecessarily surprised.”
Correction: April 18, 2019
A previous version of this article incorrectly stated that Tom Hollister said the University may have to make cuts in a future recession. In fact, he didn’t mention the cuts during the interview.
—Editor Luke W. Vrotsos can be reached at [email protected]
—Editor Cindy H. Zhang can be reached at [email protected]