President Faust’s inauguration was greeted with banners in Tercentenary Theatre. The mood at Harvard is no longer so festive.

As global markets continued their precipitous decline, Harvard University, long known for its tight-lipped secrecy regarding finances, is facing an unprecedented decline in endowment returns and fundraising, President Drew Faust stated in a letter issued to the University community on Monday. The strong statement by Faust comes merely weeks after Dean Elena Kagan ’86 celebrated the “Setting the Standard” campaign, which raised over $475 million, by far the most successful fundraising campaign in the history of legal education. Based on the turmoil on Wall Street, the campaign is likely to retain that title for quite some time.

It is unclear how the Law School itself will parse its budget due to the crisis.

Harvard’s professional schools each exercise autonomous control over their own portion of the University endowment. As of March, the Law School enjoyed a $1.7 billion endowment, which has led to an expansion of HLS faculty, increased financial aid, including the Public Service Initiative launched this term, and the construction of the Northwest Corner Project at the corner of Massachusetts Avenue and Everett Street.

Faust insisted that financial aid would continue at current levels or higher. “Across our graduate and professional schools we will maintain financial aid budgets at least at their current levels,” she wrote, “and ensure that our students still have access to needed loans, even though many banks are making them less readily available.”

Further excerpts from President Faust’s letter to the University community appear below:

“For all the challenges such circumstances present, we are fortunate to be part of an institution remarkable for its resilience. Over centuries, Harvard has weathered many storms and sustained its strength through difficult times. We have done so by staying true to our academic values and our long-term ambitions, by carefully stewarding our resources and thoughtfully adapting to change. We will do so again.

But we must recognize that Harvard is not invulnerable to the seismic financial shocks in the larger world. Our own economic landscape has been significantly altered. We will need to plan and act in ways that reflect that reality, to assure that we continue to advance our priorities for teaching, research, and service.

Our principal sources of revenue are all likely to be affected by these new economic forces. Consider, first, the endowment. As a result of strong returns and the generosity of our alumni and friends, endowment income has come to fund more than a third of the University’s annual operating budget. Our investments have often outperformed familiar market indexes, thanks to skillful management and broad diversification across asset classes. But given the breadth and the depth of the present downturn, even well-diversified portfolios are experiencing major losses. Moody’s, a leading financial research and ratings service, recently projected a 30 percent decline in the value of college and university endowments in the current fiscal year. While we can hope that markets will improve, we need to be prepared to absorb unprecedented endowment losses and plan for a period of greater financial constraint.

The economic downturn also puts pressure on other revenues that fuel our annual budgets. Donors and foundations will be harder pressed to support our activities. Federal grants and contracts for sponsored research will be subject to the intensified stress on the federal budget. Tuition remains an important source of revenue, but in times like these we want to keep increases moderate, mindful that many students and families are facing economic strain…

Each School will face its own particular challenges. But we must at the same time join together to address these new circumstances with creativity and a spirit of common enterprise.

Today, perhaps as never before, we need to work collectively to develop approaches and efficiencies that will allow every part of Harvard to thrive in the years to come. Together, we must continue to advance the priorities that define us.”

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