University Deficits Are Slight Despite Stagnant Economy

Facing a $25 million deficit, Stanford University implemented a salary freeze for staff and faculty. Duke University made headlines by suggesting that it may cut 50 faculty positions. And public universities have been hit by tremendous budget cuts as states work to close multi-billion dollar deficits.

But so far, the ill effects of the economic downturn have landed a softer blow in Cambridge.

With few exceptions, Harvard will continue its ambitious expansion plans undeterred. Buildings keep springing up and faculties are growing.

And planning for long-term priorities, like the University’s new campus in Allston or biomedical initiatives, has if anything accelerated in the past year.

Dean of the Faculty William C. Kirby has committed to see through all current building projects as well as a spate of other major initiatives currently in the works.

“We aim to do all this, and more, as we enter a period of greater financial constraint,” he wrote in his annual letter to the Faculty. “We must and we will be ambitious.”

All this despite the fact that income from the endowment will remain nearly constant for a second consecutive year and fundraising is down overall.

Most schools are focusing on trimming administrative expenses to weather the storm.

Vice President for Finance Ann E. Berman said schools have implemented measures including “hiring freezes, rebudgeting within programs, delays in new initiatives [and] delays in planned construction projects” to address budgetary concerns.

“I think we will see more of that in the coming year,” she wrote in an e-mail.

So far, the approach has proved successful.

Only a few of Harvard’s smaller schools—including the Kennedy School of Government (KSG) and the Graduate School of Education (GSE)—will run deficits for the current fiscal year. And the KSG, at least, projects a balanced budget for next year.

But without careful oversight, many other schools could soon be on the rocks.

Planning for Prosperity

Many University initiatives and projects are continuing full steam ahead.

Harvard Medical School (HMS) just christened its brand-new facility, the New Medical Research Building. Construction continues on the long-awaited pair of Cambridge Street buildings comprising the new home for the Faculty of Arts and Sciences (FAS) government department, the Center for Government and International Studies.

FAS just committed to building a $100 million Laboratory for Interface Science and Engineering (LISE), a state-of-the-art engineering facility in the North Yard.

“We will expand—as we must—our research faculties in the sciences,” Kirby wrote in his letter to the Faculty.

And multi-million dollar plans continue for converting 90 Mt. Auburn St. into a library administration building.

University planners have also shown little hesitance to purchase new real estate, just last week sealing a deal to pay $75 million for yet another parcel of Allston industrial land.

Meanwhile, University President Lawrence H. Summers continues to promote a series of initiatives in the pipeline for next year that would fulfill his vow to vastly strengthen the state of life science research at the University. While Summers refuses to describe the scope and nature of these initiatives, their price will be in the tens—if not hundreds—of millions of dollars.

“I’m pretty positive [the economy] won’t have any effect on science planning,” said one senior administrator. “You have to keep your ambitions high, and find a way to do it with less money—we wouldn’t be Harvard if we didn’t.”

And Summers this year rolled out an ambitious $14 million graduate student financial aid program. Approximately 85 students were offered Presidential Scholarships through the program, and plans are to fund raise to expand the program in years to come.

Procuring Professors

Meanwhile, at least three faculties have planned expansions of 10 percent or more.

Kirby has committed to expanding the FAS Faculty by 10 percent over 10 years, an average rate of six new professors per year. This year, 21 senior professors have been hired, although FAS officials declined to say how many had departed.

“We seek to add, significantly, to the size of the faculty,” Kirby wrote in his letter to the Faculty.

Within FAS, the Division of Engineering and Applied Sciences (DEAS) is slated to expand from roughly 70 members to around 85 professors. And administrators are considering expanding DEAS to 120 faculty members, according to DEAS Dean Venkatesh “Venky” Narayanamurti.

Now flush with space in its new building, HMS plans to expand its faculty from 100 to 115 members, said HMS Associate Dean of Finance Cynthia Walker.

“Our biggest constraint has been lack of space,” she said.

And even the Divinity School—one of Harvard’s smaller schools—will expand its faculty from 35 to 50 members, according to Associate Dean for Academic Affairs David C. Lamberth.

To fund these ambitious programs in lean times, schools either must make cuts or face deficits. And while every school is attempting to remain in the black, it’s not yet clear what cuts many of them will make to balance the budget.

The Cutbacks

So far, schools not yet facing deficits have committed to some administrative cuts and delayed some projects, but they have done little else.

Berman said she expects schools to trim administrative functions before making academic cuts.

“Administrative areas are usually the first areas where people look for savings, because they are viewed as having the least long-term impact on what we are here to do—teaching and research,” she said. “We would closely question a school that proposed cutting faculty or academic areas rather than administration.”

FAS has implemented a “soft freeze” on administrative hiring and will give out lower raises than last year.

In addition, Kirby has urged department chairs to make better use of restricted funds—those with specific instructions for their use—to free up unrestricted funds and help balance the budget.

But with FAS expenses projected to grow at 4 or 5 percent—a rate well above its projected revenue growth—a budget crunch looms on the horizon.

“We must and we will be careful,” Kirby wrote in his letter. “Our long-term aspirations will require difficult choices in the near term.”

Some of these choices will have repercussions for the College.

“We have ambitious plans for developing the faculty and the physical plant,” said Associate Dean of the College Georgene Herschbach. “These issues will cost a lot of money, and if you go down three, four, five years, you can see how we get in a bind.”

A number of College projects will be delayed or put on hold, she said. Student life and activities funding is “in a holding pattern,” she said, and the maintenance budget—half of the College’s overall expenditures—will be cut 5 percent.

“We had more ambitious thoughts about what we’d like to do,” she said. “But we’re in a period of belt-tightening, so that’s what we’ll do.”

Herschbach said the last-minute planning for the $250,000 implementation of the Leaning committee recommendations on sexual assault will complicate next year’s College budget.

The development of the new HERS-2 system—the computerized registrar system that is being put in place—will likely be delayed. The registrar’s office had requested four additional full-time employees to help with the system next year, but that has not been approved and the hiring of all four is unlikely, Herschbach said.

The planned $7.5 million renovation of Dunster and Mather dining halls will continue to be postponed until sufficient funds surface, she said. Quincy dining hall’s $3.5 million renovation should proceed as scheduled for the summer of 2004.

Planned renovations of the Hasty Pudding building and the Malkin Athletic Center will also be put on hold, Herschbach said.

At the GSE, the discovery of $2 million of previously unknown debt in its Programs in Professional Education upset a tightly-planned budget that had reduced this year’s anticipated deficit from $800,000 to just over $200,000. It now projects a deficit of $500,000 for this fiscal year, and a deficit of $150,000 for next year.

“Dealing with that has been a major blow for the school,” said acting GSE Administrative Dean Richard Pagett.

As a result, the GSE laid off 13 administrative staffers in the program.

Pagett said the GSE will also keep faculty positions vacant to cut costs.

“There’s going to have to be serious justification for filling positions as they empty,” he said.

And the KSG has reduced its real estate holdings in the Square to further its deficit reduction plan. The school has sold five parcels of land, retaining three others, according to KSG Executive Dean J. Bonnie Newman.

This comes one year after the school eliminated 52 positions and closed its Washington office in response to a $5.9 million deficit. This year’s deficit is projected to be $500,000—well below the original projection of approximately $3 million—and the school anticipates a balanced budget next year, Newman said.

“What life has taught us in the last couple of years is that the unexpected happens,” she said. "And we need to learn how to manage around those events.”

Harvard Law School (HLS) Dean Richard C. Clark sent an e-mail to students informing them that the school would not have to make cuts despite the tough economy.

He said the school would dip into “rainy day” funds to continue implementing smaller 1-L sections and improvements to the First-Year Lawyering Program.

“While [next year’s] budget will not contain the array of new initiatives and expanded programs that have been the headline events of recent years, we are able to fund current program well without the need for cutbacks,” he wrote.

HMS has only needed to “trim a little bit” to maintain a balanced budget during expansion, Walker said. But she said the school would be “careful” about staff vacancies in an attempt to lower expenses.

Harvard Business School (HBS) will also hold open some staff vacancies in an attempt to downsize staffing in areas of the school experiencing less demand, according to HBS Dean of Finances Donella M. Rapier. It will also try to hold next year’s spending at this year’s level and will fund less fewer projects than it historically has.

The central administration projects growth of 5.9 percent on its entire budget, while the President and Provost’s funds will increase by 10.4 percent. Berman said the presidential growth is primarily due to the new office of the University ombudsperson, while central administration growth is fueled by that and the need for staff to support new administrative systems.

She pointed to the new emphasis on bulk-buying programs—a measure recommended by a McKinsey study released last year—as one way the central administration is helping to cut costs across the University. The study found that the University could save up to $100 million a year through its combined purchasing power.

And in December, Summers put into effect a new policy aimed at stemming the proliferation of costly, and at times extraneous, University research centers.

Capital Concern

While careful fiscal management will help Harvard muddle through the current downturn, its ambitious plans will require skeptical donors to open their checkbooks during lean times.

Two schools are in the midst of major capital campaigns.

HLS will announce the public phase of its $400 million capital campaign on June 14.

Planners hope to announce over $100 million already raised at the kickoff, according to Michael A. Armini, HLS director of communications.

HBS is conducting a $500 million capital campaign that went public last September with about $250 million. The school has currently raised $347 million and hopes to conclude in 2005, Rapier said.

And late last year, University administrators were talking about the possibility of a targeted University-wide fund drive, aimed at supporting some of Summers’ top priorities.

On the whole, fundraising is down, but there have been some bright spots.

DEAS has raised $6 million in the last month alone, Narayanamurti said.

“When I first came here it was much easier,” he said. “In this climate, we’re doing extremely well.”

Pagett said giving to GSE has risen.

And KSG has actually exceeded fundraising expectations, and will probably hit a target 88 percent higher than last year’s, according to Newman.

—Staff writer Stephen M. Marks can be reached at marks@fas.harvard.edu