Harvard Bond Offering Raises Less Money Than Expected
Harvard Bond Offering Raises Less Money Than Expected
Tax-exempt Massachusetts bond sale underperforms announced ambitions
Harvard’s already had a president resign under pressure and seen applications dip amid a crisis over antisemitism at the university. Now, financial markets are imposing their own price, with the university coming up short of its goals in a scramble to borrow money.
In a February 26 regulatory filing, Harvard said it would raise “up to approximately $900 million of tax-exempt fixed rate bonds.” A March 6 article in the Harvard alumni magazine described the tax-exempt bond offering as “perhaps $900 million” and said the size would depend on “market conditions.” A March 12, 2024 public hearing before the Massachusetts Development Finance Agency, at which I testified, mentioned $2 billion in state bonds for Harvard. That $2 billion sum was approved at a March 14, 2024 board meeting of the Massachusetts Development Finance Agency.
Yet the investor appetite for Massachusetts tax-exempt bonds backed by Harvard apparently turns out to be on the low side of what Harvard was aiming for, at least at the non-distressed or non-“junk” yields that Harvard is offering to pay lenders. A document posted with no fanfare on Harvard’s bondholder information website this week after I inquired with the Massachusetts Development Finance Agency about the fate of the bond offering lists the amount of the offering as $734,995,000. That’s a mere 36.7 percent of the $2 billion that the state approved, and it falls more than $165 million short of the $900 million number touted in the regulatory filing and the alumni magazine article.
Even the $734,995,000 sum overstates the amount of new money available to Harvard as a result of the bond offering. Of that, $356 million is being used to buy other Harvard bonds that were issued in 2016. An undisclosed additional amount is also being used to refinance commercial paper—short-term debt. There’s also a $120 million “premium.”
All in, the bond financing document says, Harvard’s “total outstanding principal amount of indebtedness” at the end of the deal will be “approximately $6.8 billion,” up from “approximately $5.9 billion” on June 30, 2023. Harvard also issued $750 million in taxable bonds on March 12, 2024, so the additional principal attributable to the new tax-exempt bond offering doesn’t seem to amount to that much, at least by Harvard standards.
Harvard says the capital projects the tax-exempt bonds will finance include “renovations to undergraduate student housing,” construction of new Harvard affiliate housing in Boston’s Allston neighborhood, and renovation of an administrative building, Gordon Hall, at Harvard Medical School.
Omitted from the list in the bond documents is construction of a new economics department building. That project had been included on the notice for the March 12 public hearing, which raised questions because the university had publicly announced that the building would be financed by a $100 million gift from Penny Pritzker, the Commerce Secretary in the Obama administration who now heads the Harvard Corporation, one of the university’s two governing boards. In addition, the law limits “private business use” in tax-exempt-finance spaces, and many highly skilled Harvard economists spend some of their time on private consulting work.
That the borrowing effort fell short could, paradoxically, reassure some Harvard constituents who are concerned that the debt load would place too high a burden on the university. Harvard offers a once-a-year snapshot of its finances in an annual report and in tax filings, but it hasn’t disclosed how the anti-Israel protests on campus and the abrupt resignation of President Claudine Gay have impacted the university’s bottom line.
One measure of the turmoil at Harvard: Of a list of 13 “principal administrative officers of the University” listed in the tax-exempt bond document, fully three—the interim president, the interim provost, and the interim general counsel—have titles that begin with “interim.”
Precisely how much the campus turmoil, rather than the overall interest-rate environment or the more broad market for Massachusetts municipal bonds, affected the outcome of the Harvard offering is unclear. Harvard mentioned it elliptically in the offering documents, observing that “certain governmental investigations into allegations of bias on campus” have “attracted considerable public attention.” The offering documents say the outcome and consequences of those proceedings “are not determinable,” and assert that “in management’s opinion,” they’d be unlikely to have “a material adverse effect on the University’s ability to meet its commitments related to the Bonds.”
Recent work elsewhere: “Compensation Clawback Might Help Fix Higher Ed” is the headline over my latest for the New York Sun, which considers performance bonuses paid to leaders of institutions that plunged into crisis. “Defenders of Presidents Gutmann, Bollinger, and Bacow might claim that they deserve plenty of pay for staving off the worst problems while they were in office. Critics might contend that they left their successors with grave problems by admitting students and hiring professors who have contributed to the outbreak of campus antisemitism. Call them the après moi, le deluge class of higher education executives.” Check out the full column over at the Sun if you are interested. There are significant sums involved: Penn’s
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I suspect these debt problems will only grow for a long time to come.
I read your article at the Sun. Of course, you are correct about the value of compensation clawback with respect to the salaries of these top university executives. The amounts in general paid out to top administrators of these institutions astound me, let alone the absurdity of some of the bonuses they are given. But what bothers me even more is the obscene administrative bloat in general -- and in particular the portion of it given over to imposing ideological conformity, via DEI, Title IX departments, etc., along with ideologically focused admissions offices as well. The cost of all this helps produce the student debt problems our president seeks to alleviate in exactly the wrong way for crass pandering political purposes.
And the cost, in the monetary sense, is not even as terrible as the cost in terms of moral failure and intellectual deterioration. You hint at these costs by referring to past university presidents as leaving "their successors with grave problems by admitting students and hiring professors who have contributed to the outbreak of campus antisemitism." It seems to me an entire administrative machinery is in place in these institutions shaping them in these destructive ways. I fear it's going to take a second "long march through the institutions " to undo the rot from the first one.