In April, Harvard University CFO Thomas J. Hollister said, despite the school's $40.9 billion endowment and receiving nearly $9 million in aid under the CARES Act, the school still had to focus its funds on teaching and research, eschewing all non-essential spending.
"The philosophy so far on spending is to stop — apply the tourniquet — and make sure we're not spending anything for expansion or for discretionary reasons," Hollister told student newspaper The Crimson at the time.
Last month, Harvard reopened campus for the fall semester to a limited number of community members, and has forecasted significant revenue shortfalls for fiscal years 2020 and 2021.
In a Q&A with the Harvard Gazette, Hollister said Harvard has focused on three main guiding principles since deciding to pivot to virtual learning in March: ensuring community members' safety, delivering on its teaching and research missions, and supporting its people.
To continue following these principles, Hollister said, the university has had to make significant investments and increase spending in targeted areas, including COVID-19 testing and tracing, which alone will cost tens of millions of dollars, reconfiguring classrooms and dorms, procuring personal protective equipment, and investing in remote and hybrid learning technology.
But how can Harvard invest more when revenues are declining? "Doing so requires a careful examination of priorities, tough choices, and a reallocation of resources," Hollister said. "We have made cuts in discretionary spending, frozen new hires and salaries, and offered a voluntary early retirement program. All of these moves have helped."
In deciding where to cut costs, Harvard prioritizes teaching, research and financial aid. Nonetheless, Hollister said, "every part of Harvard has felt, or will feel, the impact of either declining or reallocated resources."
Harvard's revenues this year were "down substantially" from FY 2019, Hollister said, which is only the university's second revenue decline since World War II, the other time being the 2007-08 recession.
"The staggering part about the losses of revenue ... was that it all occurred in a little over three months in the spring," Hollister said.
Going into FY 2021, Hollister's most recent forecasts indicate revenues will likely be down a second year in a row, which the university hasn't seen since the 1930s.
"The key point is the uncertainty," Hollister said. "We face extraordinary, in some ways unprecedented, challenges related to the pandemic and ones that extend beyond it, including the economy, politics, societal inequities, and pressures in higher education. Each of these forces could have an effect, in varying degrees, on the University's financial outlook for the year."
Given the uncertainty, the university must be as flexible and adroit as possible, he said.
Working through a committee it assembled in the spring, Harvard has established three overriding financial principles to maintain during the pandemic. The first, Hollister said, is to remain liquid; the second, to reduce spending in line with declining revenues; and the third, to be on the lookout for investment opportunities that will strengthen its mission.
Hollister said the school won't treat all expenditures the same. "We cannot take a ‘spreading peanut butter' approach," he said.
He also addressed the perception of Harvard having unlimited resources.
"Harvard is well-resourced and has [leveraged] and will continue to leverage those resources during this unprecedented time," he said. "We cannot, however, continue to deficit spend on an operating basis, or spend irresponsibly or unsustainably from the endowment. Like all organizations, we have to find a way to live within our means, and we cannot do everything everyone wants."
Nonetheless, Harvard's decentralization affords it "an enormous advantage" during these times, Hollister said. "Resources are often managed locally by those people who are the most involved in both the academic and other activities of the schools."