Surplus Surge

The black ink continues. For the fiscal year ended June 20, 2001, the University recorded an operating surplus of $164.9 million--37 percent larger than in the prior year--as revenues rose more than 10 percent, to $2.23 billion, and expenses increased more than 8 percent, to $2.06 billion. The data, published in the annual Financial Report to the Board of Overseers of Harvard College, released in November, reflect both a continuation of past trends and a surprise.

As planned, Harvard generated a significant surplus in fiscal year 2000, when strong current-use giving and distributions of investment income from the University's working-capital account swelled unrestricted funds, creating a cushion to pay for new academic programs and facilities. At the same time, distributions from the endowment were released to the faculties faster than they could be spent on added professorships, expanding research centers, and so on. The surpluses, in effect, thus began to "prefund" Harvard's growth in future academic years.

In fiscal year 2001, it was much the same story, and then some. The 2001 surplus consisted of a $51.9-million margin in unrestricted funds, comparable to the results of the prior year, and a 65 percent gain in the restricted operating surplus, to $113 million. Distributions from endowment income rose by nearly 11 percent, to $614.9 million. An unexpected surge in gifts (see chart) further swelled the restricted income line as the funds supporting a few large projects--for example, a $25-million grant to the School of Public Health for AIDS prevention in Nigeria--flowed through the year's financial statements. These robust revenues may be timely; the weak economy has begun to slow other sources of income for Harvard, such as the large executive and continuing-education programs in the professional schools.

In light of the Corporation's 21 percent boost in the endowment distribution for fiscal 2002, to nearly $750 million, "This year will be somewhat the same," at least in terms of restricted operating results, says Elizabeth C. Huidekoper, vice president for finance and coauthor of the annual report with D. Ronald Daniel, the University treasurer.

The past fiscal year, Huidekoper and Daniel write, "was the culmination of an extremely successful era for Harvard." The recent surpluses, strength of giving and of sponsored funding for research (the latter rose 17 percent in fiscal year 2001, to just over a half-billion dollars), and endowment distributions made many good things possible during the past decade. From 1991 to 2001, scholarships and student awards nearly doubled, to $187.4 million (increasing 12 percent in the most recent fiscal year). The rate of growth in tuition charges fell steadily, reducing students' share of the University's revenue from 27 percent in fiscal year 1991 to 23 percent last year, as endowment distributions rose from one-fifth to 28 percent of income. And for those with an eye on the bottom line, a decade that began with Harvard troublingly in the red ended, decisively, in the black.

The University's current growth, bolstered by increasing financial strength during the 1990s, reflects its "culture of entrepreneurship," Huidekoper says. That is, as scholars conceive new areas of inquiry, Harvard's structure "rewards individuals for optimizing their own resources and programs." As a central administrator, naturally, she has to worry about the administration's ability to keep up in terms of office space, laboratories, housing, and all the required academic accouterments. Capital outlays in fiscal year 2001, for instance, totaled $606.4 million, for 365 active projects and acquisitions. Even excluding the $315 million expended to buy 48 acres of land in Allston and the Arsenal office complex in Watertown, investments in facilities were up sharply from the prior year. That pace is likely to be sustained by large expansions of scientific research facilities, continuing library renovation, and graduate-student housing projects. Funding will come from the retained surpluses, future gifts, and debt financing.

The challenge, in Huidekoper's view, is to "balance the entrepreneurship with the needs of the institution." That means managing physical and programmatic growth within the capacities of Harvard's people and the desires of its surrounding communities in the near term--years before academic use of the Allston space begins.

In his installation address, President Lawrence H. Summers may have suggested how he will proceed toward that "balancing" when he said, "Renewal does not just mean doing new things and growing larger. It means moving beyond activities that have run their course"--even while pursuing new opportunities. After a decade of expansive, long-term academic planning, propelled by breakthroughs in knowledge (information technology, genomics) and access (the end of the Cold War, democratization in Latin America)--and by the funds to proceed (the $2.6-billion University Campaign, outsized investment returns on the endowment)--a period of consolidation and tradeoffs among priorities may be in the offing.


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