Like that other big bureaucracy, in Washington, D.C., Harvard has been struggling to balance its budget. According to the most recent Financial Report to the Board of Overseers of Harvard College, prepared by Allen J. Proctor, vice president for finance, and D. Ronald Daniel, treasurer, the Massachusetts crowd is making more headway. In the fiscal year ended June 30,1995, the University's income rose a robust 6.5 percent (nearly $90 million) and expenses 5.7 percent (less than $80 million). So the deficit decreased to $3.3 million, sustaining steady progress since 1991's $42 million of crimson ink.
In an interview, Proctor cited three factors to account for "unexpectedly good" growth in income. First, the faculties were exceptionally successful in securing federal grants for research, perhaps spurred on by anxiety over the increasing scarcity of such funds. (The number of grant applications rose 15 percent, he said, and the average amount applied for declined—good indications that money is harder to find.)
Second, he said, "The generosity of alumni and friends is a tremendous strength." With the University Campaign in full swing, gifts for current use rose by more than one-third, to $106 million, helping to pay operating expenses.
Third, "very successful investment management" enabled income from earnings on endowment and operating funds each to increase by 8 percent (see "Money Matters," November-December, page 76). Endowment income distributed for the year was $307 million—21 percent of Harvard's revenue, and nearly $100 million more than the 1991 total. Harvard Management Company's results in part reflect extensive use of what the financial report calls "diversified arbitrage activities"; a new section details the use of futures, options, exchange agreements, and other instruments to effect the arbitrage strategy. It also reveals that investment positions are balanced and heavily protected with collateral. "We do not try to make money by trying to guess whether stocks or bonds go up or down," Proctor said. "We believe the strategy is prudent, it's carefully monitored, and regularly reviewed."
Turning to expenses, Proctor cited two developments. The cost of employee benefits, which nearly tripled in the last decade, declined slightly in 1995 following the adoption of new benefit plans. As Proctor put it, "The University moved in directions that the rest of the country has: a stronger sense of defined contribution for health benefits, and efforts to take advantage of what's happening in the more competitive health-care market." In addition, the cost of supplies and equipment—$173 million—rose only negligibly, reflecting the move toward "preferred vendor relationships" for office supplies and computers. Spending on scholarships and student stipends edged up only 2.5 percent (in part reflecting lower enrollment and aid funds in the Graduate School of Arts and Sciences)—less than half the rate of growth in tuition and fees, and one-third that for board and lodging costs.
Looking ahead, Proctor worries—as a chief financial officer is supposed to—about several challenges. Harvard scholars have not been able to attract more corporate research funds, which have remained at about $100 million for several years. "There's a quid pro quo on patents and licensing," he explained. Harvard has been "very conservative" in insisting that research be driven by academic priorities and that the results be made widely available. Now, he said, the University is reexamining its policies to determine whether they "needlessly interfere with grants."
Second, Proctor said finding ways "to tamp down tuition growth is a major motivation for cost containment." This year's 2 percent "real" growth in College tuition (5 percent, minus 3 percent for inflation) is "increasingly seen as putting a lot of pressure on the system," implying the need for further restraint.
A third concern is the urgent need to remake Harvard's antiquated computer systems. Proctor reported that an administrative data project, still under design, is intended to automate systems for hiring, purchasing, payroll and benefits, and billing across the University. It should also provide better management data to the deans of each school. This multiyear undertaking is expected to cost several tens of millions of dollars.
Finally, there is the bill due for fixing up the campus. At the end of the fiscal year, Harvard had about $1.2 billion of debt outstanding, up from $750 million five years ago. Servicing those loans costs about $72 million in annual interest payments, and Harvard is beyond its limit for tax-exempt borrowing, so new loans cost more than the old ones. "We need to cast a much more skeptical eye on capital projects," Proctor warned, and to engage in more extensive debt planning and management.
Once those items are addressed, Proctor said, whatever time is left can be devoted to the really long-term issues, among them the financial condition and organization of Harvard's administration. Although he believes the tradition of "every tub on its own bottom" remains at the core of each school's excellence, the academic planning process undertaken before the capital campaign identified many opportunities for interfaculty research and teaching. In addition, he said, the deployment of technology University-wide and the increasing importance of external constituents (such as research sponsors) who see Harvard as a single entity mean that the central administration's "processes have to be brought up to the schools' capabilities."
Beginning this strategic planning now, Proctor said, helps prepare for emerging challenges. For example, he noted, funding for research in the humanities has all but vanished. Donors traditionally pay for buildings, faculty chairs, and financial aid, but neither they nor the University's operating funds support research. So even though "the Campaign will put Harvard on a new level, in terms of expectations and in what it allows the University to do," in Proctor's analysis, the germane question for financial planners has already become, "Where do we go when it's over?"
You might also like
A Harvard series explores South Korean cinema in the years following the Korean War.
A deflating ending fashions a three-way title tie.
A 70,000 square-foot theater and teaching center, plus housing for Harvard affiliates
The Ledecky Fellows provide an undergraduate perspective on life at Harvard.
A Harvard conference on diversity and academic inclusion
From the Missouri Compromise to the 2016 election, Kevin Young's Bunk takes stock of American hoaxes, con men, and race fantasies.
More to explore
Expect massive job losses in industries associated with fossil fuels. The time to get ready is now.
A third-generation French baker on legacy loaves and the "magic" of baking
Generative AI can enhance teaching and learning but augurs a shift to oral forms of student assessment.