Rudenstine Says FAS Criticisms Are Justified

Faculty of Arts and Sciences' (FAS) officials are correct in their concerns and criticisms of the central administration's funding model, President Neil L. Rudenstine said in a recent interview.

"I think quite honestly that the kinds of issues that the [FAS] was interested in clarifying are very much the kinds of issues that we are interested in clarifying," he said. "We will have to know a lot more before we will know what to do, but [the review] was a constructive exercise."

FAS officials leveled a series of objections to the central administration's financial structure in a report issued last week after an 18-month study by the FAS Resources Committee. Discussion of the report is on the agenda for today's meeting of the full Faculty.

The committee's central concern was with the University's General Operating Account (GOA), an internal bank of sorts where Harvard requires its nine schools to deposit their working capital--a total of $1.676 billion in fiscal year '96. The central administration, in turn, invests the funds which are not immediately needed and uses these profits to cover about 47 percent of its budget, by far its largest income source.

When Vice President of Finance Elizabeth C. "Beppie" Huidekoper took office two years ago, she also had concerns about the account and hired Cambridge Associates, a local consulting firm, to analyze the GOA. The firm recently issued a three volume report which Harvard officials are reviewing.

The Resources Committee report raises the issue of whether the central administration should fund itself by investing schools' money--without returning at least some profits to them.

But administration officials said that the funding must come from somewhere in the University--it's a question of direct verses indirect taxation.

About $32.3 million of the central administration's budget comes from direct assessments on the faculties--a fee equal to 6.75 percent of a given faculties' salaries and a portion of their research overhead--while $39 million comes from investment of the GOA.

Committee members said their concern with having the GOA fund most of the center's activities is that it lessens its accountability to the faculties because the center does not have to justify the extra money it spends to the faculties.

Faculty members said that account-ability may prove to be the most controversial topic at today's meeting.

But Rudenstine defends his administration's record on this account.

"We've taken a fair number of steps to try to insure that there's a pretty thorough and careful review of all financial investments," he said. "I can't speak about the past, but certainly any of the investments of any consequence that we've made centrally have [been presented to the deans and faculties]."

The report also questions whether the GOA might benefit some schools more than others, an issue Huidekoper said new financial systems will help to answer. The University is currently implementing Project ADAPT, a $50 million initiative to upgrade and coordinate financial record-keeping across the University.

Huidekoper said that within the next two years, ADAPT should make it possible to better report the GOA's intricate finances and that the University can then ask more complex questions about the equatability of the GOA to the different schools.

Ultimately this is Rudenstine's aim.

"So I think that the crux of the matter then is what is the way to fund the central administration so that people feel it's equitable," he said.

The report also questions the risk involved in investing the working capital of the University and asks how prudent it is to have 47 percent of the center's budget based upon this income source.

Huidekoper acknowledges this is a concern. Cambridge Associates' report analyzes various market events--from boom to bust years--on the fund and its ability to support the center.

"This is one of the things we've already looked into," she said. "If there's a sustained downturn in the market, this current model could be problematic."

Despite previous reports that the University did not begin investing the GOA until the 1980s, Huidekoper said the University began investing the funds around the time the account was started in the 1970s.

Administration officials said they are committed to working with the faculties to improve the funding structure. "We've clearly tried in the past, but we've probably not achieved the right balance and we're going to work at it," Huidekoper said

Huidekoper said that within the next two years, ADAPT should make it possible to better report the GOA's intricate finances and that the University can then ask more complex questions about the equatability of the GOA to the different schools.

Ultimately this is Rudenstine's aim.

"So I think that the crux of the matter then is what is the way to fund the central administration so that people feel it's equitable," he said.

The report also questions the risk involved in investing the working capital of the University and asks how prudent it is to have 47 percent of the center's budget based upon this income source.

Huidekoper acknowledges this is a concern. Cambridge Associates' report analyzes various market events--from boom to bust years--on the fund and its ability to support the center.

"This is one of the things we've already looked into," she said. "If there's a sustained downturn in the market, this current model could be problematic."

Despite previous reports that the University did not begin investing the GOA until the 1980s, Huidekoper said the University began investing the funds around the time the account was started in the 1970s.

Administration officials said they are committed to working with the faculties to improve the funding structure. "We've clearly tried in the past, but we've probably not achieved the right balance and we're going to work at it," Huidekoper said