Your independent source for Harvard news since 1898

Your independent source for Harvard news since 1898

John Harvard's Journal

"Two Radically Different Worlds"

January-February 2010

In his annual dean’s report, released for the year’s second Faculty of Arts and Sciences (FAS) meeting on October 27, Michael D. Smith necessarily found himself covering “a time that straddles two radically different worlds”—before and after the global financial crisis. The period under review, from early 2008 through the fiscal year ending on June 30, 2009, brought a “seismic change” in FAS’s finances, Smith wrote, but not its goals: renewing the undergraduate experience; supporting “existing and emerging intellectual communities”; and strengthening teaching and learning. Aspirations to “reshape our physical environment” to support academic aims, he acknowledged, will perforce be slowed given the financial reality of Harvard’s shrunken endowment. (He spelled out the financial prospects in a briefing on September 15; see “FAS’s Progress—and Prognosis,” November-December 2009, page 58.)

Smith used the report (available at to initiate much more detailed, and revealing, disclosure of FAS finances, discussed below; as is customary, he first reviewed accomplishments and goals—beginning with thorough changes in management meant to enhance information and better tie academic plans to budgets. Those changes, he emphasized, helped FAS respond to the endowment losses and resulting drop in its own operating funds by $50 million this year and still more next year.

On matters academic, Smith pointed to the launch of the undergraduate General Education curriculum. He also highlighted efforts to make pedagogy more active in both the arts and humanities and the social sciences, with art-making present in 25 courses, and “activity-based learning” tying classwork to extracurricular work in anthropology, government, history of science, and sociology.

In the Graduate School of Arts and Sciences, he noted, new enrollments declined, as planned: 665 master’s and doctoral candidates entered this fall, 15 percent fewer than in the prior year. Stipends were increased modestly, maintaining prior years’ gains in support for graduate students. Meanwhile, the School of Engineering and Applied Sciences (SEAS), which has expanded its faculty rapidly, is now constrained by limited physical facilities—a problem worsened by slowed plans for Allston development and the resulting need to locate stem-cell researchers and part of a new bioengineering program in Cambridge. (For more on SEAS, see “Critical Mass, and World-Class,” November-December 2009, page 62.)

Smith described the Harvard College Library (HCL) starkly, as suffering from the “increase in publishing output” and the pressures on purchasing given the “diminished strength of the dollar”—even before recent belt-tightening (see “Libraries on the Edge”). The major goal, he said “will be to rebuild HCL with a dramatically smaller base of resources,” which will require “bold, innovative, and creative initiatives, rather than modest, incremental changes” and likely produce “a vastly different organization.”


One visible fruit of Smith’s efforts to improve management is an expanded discussion of FAS’s income and expenses. The published details usefully complement the broad financial trends sketched during his September 15 briefing. 

Cost reductions and two nonrecurring items boosted the faculty’s flexible, unrestricted reserves by $58.6 million during the past fiscal year, a valuable cushion for the future. First, FAS received two unrestricted gifts totaling $32 million. Second, Smith disclosed that as part of a fiscal year 2008 “strategic” payout of endowment capital, FAS was able to spend $20 million in fiscal 2009 to defray the increased costs of the financial-aid initiative for middle-income undergraduates unveiled in December 2007 (see “Boosting College Financial Aid,” March-April 2008, page 54). This year and in the future, those extra costs must be covered by FAS’s regular, unrestricted operating budget. (Undergraduate financial aid increased from $106.8 million in fiscal 2008 to $137.2 million last year; the cost is expected to rise some $10 million more this year.)

A footnote partially discloses other uses of that special, $95.3-million “decapitalization” from fiscal 2008—most of which was applied to the 2008 and 2009 budgets: part funded capital projects (the principal use of a similar, $100-million decapitalization in fiscal year 2007, according to Smith’s May 2008 annual report) and one-time expenses. But part was applied “to fund the FAS core unrestricted deficit” (neither amounts nor affected fiscal years are specified).

FAS’s construction-related debt rose to $994.5 million at the end of fiscal 2009, from $938 million a year earlier. Debt service totaled $86.4 million, up 28 percent from the prior year. In the future, given constraints on University debt issuance and on FAS’s ability to service its existing construction-related debt (in light of other expenses and constrained revenues), it is difficult to imagine sustaining comparable levels of capital investment.

Two final items illuminate the relationship between FAS—and by proxy, other Harvard schools and academic units—and the central administration. In fiscal 2009, FAS reported an endowment decapitalization of $81.8 million for “central administrative overhead”—its share of the half-percent assessment for the “strategic infrastructure fund” (SIF) used to defray Allston-related development expenses (a total of $176 million University-wide for the fiscal year). A separate footnote spells out FAS’s “University Assessment,” a levy of 2.6 percent on the faculty’s total operating expenses to pay for legal, accounting, information-technology, and other services provided by the central administration. That assessment, at the same rate for all schools, is based on their expenses of two years earlier; for fiscal 2009, FAS paid $28.9 million.

From the central administration’s perspective, these formulas signal leaner years to come. The SIF distribution will fall sharply, reflecting the much-reduced value of the endowment; and the University Assessment may come under pressure to the extent that schools’ expenses flatten or decline in the future as their operating distributions from the endowment are reduced.