FAS Reduces Deficit, but Gap Remains “Huge”

The Faculty of Arts and Sciences lessens its budget problem, but an $80-million financial shortfall remains.

At the regularly scheduled meeting of the Faculty of Arts and Sciences (FAS) on February 2, Dean Michael D. Smith made an extended presentation on “Recommendations and Next Steps” for the continuing effort to “bring annual expenses in line with the current financial situation we find ourselves in,” while putting the faculty in a position to pursue future academic priorities.

He was able to put that effort into an encouraging context: FAS is near a goal of reducing its unrestricted deficit for the current fiscal year (ending June 30) from $20 million to essentially break-even results. Further, it expects to reduce the gap looming over the next fiscal year from $110 million to an unrestricted deficit now estimated at $80 million. (Smith last updated these projections in September.) The most significant factor lessening the deficits is a revenue item: following a change in Massachusetts law last year, institutions can now avail themselves of income from “underwater” endowments (those whose principal has declined below the gift amount as a result of investment losses, like those sustained by Harvard’s endowment last year). And of course, any extra income received in the current year and further savings realized now have a positive effect on subsequent years’ results.

Nonetheless, Smith said, the remaining prospective deficit is “huge,” and will not be wholly covered by actions being taken now or envisioned in the near term. His goal by the end of this fiscal year is to put FAS on a budgetary path that enables it to operate in a sustainable (non-deficit) way by fiscal year 2012. Driving that imperative is the limit of FAS’s unrestricted reserve funds, which he forecast would bridge the remaining excess of expenses over available income in fiscal year 2011 and part of the succeeding year before being exhausted.

Smith summarized in a general way—without any associated dollar figures—the ideas for further efficiencies and improvements in FAS operations generated by the six “priorities working groups” he established last year (to examine the arts and humanities; social sciences; sciences; engineering and applied sciences; College academic life; and College student services). Their work was complemented by suggestions from the community at large posted at an online “idea bank.”

Among the kinds of suggestions Smith said merited close inspection and implementation soon are:

• tools to better gauge students’ likely course selections, perhaps some form of preregistration, so hiring of teaching fellows can better, and more economically, be matched to real demand;

• broader curricular committees, like the one that coordinates among the many life-sciences concentrations, so very small, specialized courses in different departments might be reconfigured into more intellectually engaging, interdisciplinary, and somewhat larger offerings (with obvious implications for instructional savings);

• better enforcement of current sabbatical policies, and more flexible faculty use of their sabbatical leaves, in ways that might, for example, stagger terms of leave so that course offerings could be maintained intact (lessening the need for visiting teachers, whose ranks are being sharply limited in any event); and

• where possible and appropriate, using funds from sponsored-research grants to pay faculty members’ salaries during the academic year (instead of only during the summer  months), freeing the Harvard-paid salary funds for research.

Other initiatives may require the availability of additional resources, which are not now in prospect. Smith mentioned additional “green” initiatives, which promise financial and environmental savings if investments can be made, and an overhaul of the registrar’s antiquated information systems (which would cost in the tens of millions of dollars).

Details about various proposals, including implementing committees, are to be posted on the FAS planning website beginning Thursday, February 4.

During the next few months, the dean and  leaders of FAS's departments and academic centers will engage in an iterative form of financial poker, advancing and reviewing proposals for the fiscal year 2011 budget. At this point, Smith is keeping close to the vest what information he has on the size of FAS’s reserves, how large a deficit he expects in the final budget, and even how he will allocate those funds under decanal control that are annually distributed to support academic operations.

In the meantime, he must lead the budgeting process while FAS continues to face large financial uncertainties. For one thing, the Corporation has not yet announced the endowment distribution—by far the faculty’s largest source of revenue—for fiscal year 2012 (it has been reduced 8 percent for the current fiscal year, and a further 12 percent for fiscal year 2011--a reduction of some $70 million for FAS next year alone). For another, University Hall administrators will not know until the end of the academic year how senior faculty members have responded to the retirement-incentive program offered to them last year; those individual decisions, taken together, will have a significant bearing on the size and cost of the professoriate in future years.

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