Faculty Prepares For $100M Deficit

In a sobering report on the finances of the Faculty of Arts and Sciences (FAS), a committee of professors yesterday raised the spectre of budget deficits of over $100 million by 2010 and outlined special measures to dampen the impact of the Faculty’s recent high-cost initiatives.

At a meeting of the full Faculty, the three professors, members of the FAS Resources Committee, said the Faculty would begin dipping directly into its endowment by 2010 in order to pay for part of the deficit. Their presentation outlined a plan to “decapitalize” part of the Faculty’s endowment—a rare measure that transfers additional endowment money into the budget on top of the normal annual payout.

In addition to decapitalization, the committee’s plan emphasized a more concerted and aggressive fundraising effort, which they said would raise an extra $15–$19 million in 2010. Increased financial support from the University, in the realm of $18–$23 million, would also help pay for the deficit.

At the meeting, top administrators were quick to tie the budget deficits—which could exhaust the Faculty’s reserves by 2008, according to the committee report—to a period of rapid expansion for FAS. Dean of the Faculty William C. Kirby referred to recent years as “a time of truly historic investment,” and University President Lawrence H. Summers reiterated that it has been a “period of extraordinary investment.”

“Our mild-mannered dean, more than most, pushes big, expensive projects,” said committee member and Florence Professor of Government Gary King, referring to Kirby’s ambitious proposals to grow the Faculty and construct new, state-of-the-art buildings.

The committee stressed that the Faculty would stay the course with these existing initiatives, but said the administration would strategically use restricted endowment funds to shave $15-$20 million off the deficit.

Committee member Caroline M. Hoxby, the Freed professor of economics, said construction projects will place the most pressure on the budget—$71.6 million in expenses in 2010. But Kirby’s initiative to grow FAS to 750 professors by 2010 is stretching the budget as well, she said, to the tune of $28.5 million by the end of the decade.

Nevertheless, the three committee members who presented the report on finances only offered praise of the FAS administration’s judgment in raising its spending.

“The reason we have a deficit now is that we chose a few years ago to undertake a few initiatives we felt were critically needed,” said committee member John Y. Campbell, the Olshan professor of economics.

While FAS ran a $9.6 million surplus in fiscal year 2005, the committee projected a $40.7 million deficit this fiscal year and warned of deep deficits continuing into the next decade.

The committee projected a deficit of $78.7 million by 2010, though Campbell said that number will more likely total over $100 million once rising utility costs and a “margin for error” are taken into account. The total is more than 10 percent of the Faculty’s approximately $1 billion operating budget this fiscal year.

“We can’t let the future look as bad as this,” Campbell added, referring to the projected deficits. “We have to make changes.”

But even as they offered sobering statistics, the committee members called the deficits, which come on the heels of at least four years of surpluses, part of a “natural cycle.” Hoxby said that increased, visible expenditures serve as crucial encouragement for potential donors and create “linkage” between donations and FAS initiatives.

Hoxby also said fundraising concerns were a key reason for University Hall’s sudden, unexpected halt to faculty growth this summer.

“We’re having a bit of a breather this year so the development office can catch up with us,” Hoxby said.

But professors who rose to speak after hearing the committee’s report were markedly skeptical of the Faculty’s financial direction.

Anthropology Department Chair Arthur Kleinman called for closer cooperation between the separate administrations of FAS and the University.

“There is a sense within the Faculty that the relationship between the center and the deanery is not as robustly effective as it should be,” he said.

Kirby, also an East Asian Studies scholar, replied with a Chinese proverb: the financial relationship between FAS and the University “is as close as lips and teeth,” he said.

James Engell, chair of the Department of English and American Literature and Language, asked about the committee’s “degree of confidence” in whether FAS would be able to pay for a $100 million deficit.

“It’s very exhilarating to ski downhill, but one wants to be assured that the chairlift works,” Engell said.

Before King, Hoxby, and Campbell took the floor to discuss finances, FAS Diversity Advisor Lisa L. Martin issued a report on her efforts this semester. She outlined her hope to accommodate female junior professors, noting a study that found that 45 percent of tenured women at American universities do not have children.

Kirby also dipped into his trove of Chinese lore when he opened the meeting, simultaneously wishing his colleagues a happy Chinese New Year—2006 is the Year of the Dog—and foreshadowing the discussion to come.

“It seems that Harvard was conceived, if not quite born, in the Year of the Dog,” Kirby quipped, before launching a comprehensive description of those born in that year. “It’s said they care little for wealth, but somehow they have a lot of money—we’ll find out.”

—Staff writer William C. Marra can be reached at wmarra@fas.harvard.edu.

—Staff writer Anton S. Troianovski can be reached at atroian@fas.harvard.edu.