FAS Dean’s Academic Priorities—and Financial Constraints
In presenting her annual report to the Faculty of Arts and Sciences (FAS) this afternoon, during the first faculty meeting of the academic year, Dean Claudine Gay outlined her priorities within the context of the FAS’s intellectual and financial resources—which are also reviewed in each annual message. Although the faculty’s current financial situation is good—as one might hope given a relatively favorable economy and the proceeds from The Harvard Campaign—its longer-term outlook may come as a sobering surprise to many members of the community.
Following presentation of her report, the faculty began a discussion on climate change and possible divestment of Harvard’s fossil-fuel investments (look for a separate report), scheduled to continue at the November meeting. Thereafter Dean Gay adjourned the meeting with the dramatic news that a federal judge had upheld Harvard College’s holistic admissions practices, ruling against the plaintiff Students for Fair Admissions; read about the decision here.
“A Year of Discovery”
In personal terms, Gay described her first year in office as “a year of discovery”—as she visited “labs and studios, classrooms and dining halls, [and] bleachers and the darkened seats of the theater.” She found that “what has resonated with me most is our community’s impatience for the future and the deep sense that there are important challenges Harvard must rise to meet.” Gay emphasized her excitement about “all the new ways Harvard is answering the call to lead, both to make the world better and to make our unparalleled institution stronger, more inclusive, and more deeply engaged with the world’s most urgent problems.” As an example, she pointed to Embedded EthiCS, a computer science-philosophy collaboration to embed consideration of the ethical dimensions of technology as “an integral part of the design challenge” in creating new technologies. (“Artificial Intelligence and Ethics,” a January-February 2019 feature, addresses these issues and the development of the collaboration in the classroom context. President Lawrence S. Bacow has also worked on connecting FAS faculty members with technology-industry leaders in Silicon Valley to encourage broad adoption of this approach.)
Internally, Gay focused on “our world-class faculty,” emphasizing further gains in diversifying FAS’s professorial ranks and “building a vibrant work environment grounded in trust and mutual respect.” She also touched on gains in teaching (the new General Education curriculum), and closed by returning to the primacy of the faculty’s intellectual capital, giving a new meaning to her own year of discovery: “Together, we are putting new discovery within reach. I look forward to working alongside each of you to continue our shared pursuit of knowledge that improves the world and to strengthen the vibrant community that makes this extraordinary pursuit possible.” (Her report is available here.)
The section of the report on faculty trends revealed the surprising information that the ranks of ladder faculty members—tenured and tenure-track professors—declined during the past academic year, from 734 to 724 (as of the beginning of this term). This cohort—the core FAS professors—reached 721 in the fall of 2008, reflecting a decade of steady expansion. Since then, at the advent of the financial crisis that imposed huge constraints on Harvard’s and FAS’s resources, the number of ladder faculty members has fluctuated within a narrow range, declining to 713 in 2012 (after retirement incentives and restrained hiring), peaking at 739 in 2017, and now subsiding slightly again.
The report notes that the unintended “decrease in ladder faculty can be attributed to a lower-than-expected number of successful completed searches and a higher-than-expected number of faculty departures (with men and women proportionally represented in the unexpected departures.” Timing is an issue, too: 16 additional appointees have accepted FAS’s offers, but will not arrive until January 2020 or later.
Nonetheless, in the wake of a capital campaign during which FAS raised $3 billion, it is not substantially augmenting its foundational asset: its scholar professors.
During the 2018-2019 academic year, FAS made 34 ladder-faculty offers (down from 47 the prior year); 68 percent were accepted (the rate was 60 percent and 87 percent during the prior two years, but the samples are obviously small). “Of the women who declined AY 2018-2019 offers to date,” the report noted, “the majority cited spousal considerations in their decision.” (The offer-acceptance rate was 56 percent for women and 80 percent for men; Harvard helps spouses find jobs, but does not, as a rule, create positions within the University to accommodate them.
Overall, of the 724 ladder-faculty members, 227 are women (up from 225 in the prior year)—31 percent of the total; and 176 are minorities (up from 171)—24 percent of the total. Underrepresented minorities comprise 10 percent of the ladder faculty.
Given the relative stability in the ranks overall, it is unsurprising that there was little shift in the disciplinary composition of FAS during the year (see the discussion of the gradual shift toward the sciences and engineering during the past decade here). Data provided by the office of faculty affairs show these divisional affiliations among the ladder faculty:
- Arts & Humanities: 195 (versus 200 in AY 2018)
- Social Science: 243 (versus 245)
- Science: 197 (versus 201)
- Engineering and Applied Sciences: 89 (versus 88)
…and the Finances
The financial report understandably celebrates FAS’s second consecutive financial surplus for fiscal year 2019, ended last June 30: $13.6 million in a nearly $1.6-billion budget. (The dean’s report contains a financial narrative, but FAS’s financial statements and exhibits are not published until the University annual financial report is released in late October.)
The narrative rewards further reading. Among the highlights:
•FAS’s revenues rose 4.7 percent, to $1.57 billion, in fiscal 2019. The endowment distribution, 49 percent of revenues (down from 51 percent in the prior year), increased 4.6 percent, to $764 million. Net tuition and fees increased 5.4 percent. Research sponsored by foundations, corporations, and other non-federal sources increased by 21 percent, a particular bright spot, and royalty income, which can be volatile, soared 150 percent. But with the capital campaign concluded, current-use giving, a vital source of cash in recent years, decreased 14.1 percent ($16.3 million).
•Expenses increased 4.5 percent, to $1.49 billion. Salaries, wages, and benefits increased 4.8 percent ($33 million), with benefits costs reasonably well controlled (up 3.7 percent). Full-time equivalent faculty members and instructional staff increased nominally (1,068 versus 1,061 in the prior year). On the same basis, the number of staff members rose to 2,726 from 2,682; 94 percent of the incremental positions were term-limited, reflecting the nature of the funding (such as research projects or one-time gifts) supporting them.
•Undergraduate financial aid totaled $200.9 million, up from $192.5 million the prior year. It is unknown to what extent, if any, the increase is driven by enrollment of a larger proportion of students who qualify for more aid. The annual increase in the term bill (3 percent this year, to $69,607) of course drives up the amount of funding provided to students who receive aid: 54 percent of College students received some scholarship support in fiscal 2019.
•On a cash basis (rather than Generally Accepted Accounting Principles—GAAP—accounting), FAS recorded a surplus of $65.7 million—but this favorable result reflects the restructuring of debt the faculty negotiated with the University in the spring of 2017. In effect, this levels the payments FAS owes to service its debt, over 20 years, at the University’s blended interest rate of 4 percent; that reduces the scheduled payments during the first 10 years, thus increasing the amount of cash available for FAS operations now, but effectively increases the payments compared to the prior schedule in the second half of the agreement. Absent the restructuring, FAS’s unrestricted operating results—the fungible cash that enables the dean to invest in new opportunities and meet unanticipated challenges—would have been in deficit.
•The building boom continues, with $22.4 million spent on projects to fit up space and equip research facilities for faculty members. There were additional, myriad renovation and renewal projects, from Science Center lecture halls to building systems and controls. And, looming over all, the continuing House Renewal program, with Lowell House completed and work on the three-phase, four-year Adams House project under way. All told, FAS spent $99 million on House renewal during the year, primarily for construction and planning ($91.5 million). As of this past June, the Corporation has authorized FAS to spend $960 million on the program—a sum that includes part of the Adams House renovation. Through the end of fiscal 2019, including Lowell, 791,000 gross square feet of House space had been renewed. Those costs include detailed planning and permitting, construction (which has included some expansion, and repurposing basement and underused spaces for classrooms, theaters, and performing-arts practice spaces), and swing spaces for the displaced students during construction. Such enhancements aside, the work—with meticulous renewal of historic buildings and materials, wholesale reconfiguration of student rooms and internal circulation, and the insertion of new mechanical systems, all within confined quarters, and all at high standards of quality and operating efficiency—comes at a very high price.
•Driven principally by the construction program, FAS’s long-term debt increased by $114.7 million. The debt outstanding was $1.06 billion at the end of fiscal 2018, and $912 million the year before that—so it has risen by more than a quarter-billion dollars during the past two years.
•Finally, the School of Engineering and Applied Sciences (SEAS), within FAS, continues to operate at a deficit on a GAAP basis. This poses interesting challenges. SEAS can expect to benefit from the $400-million naming gift announced in 2015, fulfillment of which over a multiyear period should bolster its endowment and the resulting annual cash distributions for operations. But at the same time, it is preparing to move perhaps half of its operations into its huge, and likely expensive, new campus facility in Allston, scheduled to open by next fall (see recent construction photos here). How this expanding faculty juggles its new facility and operating costs, holds on to or transitions from facilities currently occupied in Cambridge, and makes the finances work, remains opaque.
During the past decade and more—from financial crisis to stunningly successful capital campaign—FAS has largely kept its belt tightened. The size of the faculty has, essentially, remained unchanged. Lots of money has been invested in facilities renewal and maintenance. Financial aid has been increased, and the College has restrained increases in its term bill, versus peers. Other spending is up, as faculty members and programs benefit from the campaign largess and additional sources of research support.
But the financial officers—a cautious lot, by profession and nature—remain wary. The per-unit distribution from the endowment, held to a 2.5 percent increase for fiscal 2019, appears likely to remain at that relatively restrained level of growth, given Corporation guidance and recent investment performance—and it may well be held flat after the current planning period, which runs through fiscal 2021. Given the new federal excise tax on endowment investment earnings, which took effect for fiscal 2019, the funds available for distribution may be further affected; FAS was assessed about $10 million during the year for partial payment of this obligation. There is obvious pressure on the federal budget, given trillion-dollar deficits, so federally sponsored research funds are likely to be constrained, too. Harvard is unlikely to become more aggressive about raising the tuition sticker price. So any growth from all the principal sources of revenue seems limited—and as noted, current-use giving, totaling $115 million at the end of the campaign in fiscal 2018, has declined.
Against that prospect, costs seem likely to rise. SEAS and its new facilities may be one factor. Whatever agreement emerges from the protracted negotiations with the Graduate Students’ Union is another—potentially a large item. Even without explicitly providing for such unknowns, FAS is budgeting a GAAP deficit this fiscal year, and a reduced cash surplus.
Longer term, much larger costs loom. One might be repurposing and fitting up whatever facilities SEAS leaves in Cambridge; if the scientists turn out to need updated wet labs to do their work, that would seem to be on the agenda for a future capital campaign. After Adams House comes back on line, FAS will have to find many hundreds of millions of additional dollars if it wants to renovate Eliot and Kirkland—implying further fundraising and debt financing on a daunting scale (especially as the costs of servicing existing debt are locked in under the terms of the 2017 restructuring).
As a new dean sets out on a robust agenda of discovery, FAS faces a sobering set of circumstances, described this way at the conclusion of the financial narrative (emphasis added):
The challenges inherent in higher education finance remain and deepen despite the better results reported here. The University has issued planning guidance which incorporates very constrained endowment results for an extended number of years, and further is leading an exercise to plan recession scenarios and potential responses. Having experienced over a decade of revenue constraints, and achieving low expense growth despite making significant needed investments, the FAS now has more limited options and much smaller flexible reserves than at the outset of the 2008 recession. The ability of the FAS to maintain its breadth of excellence and affordability for students and families will continue to face headwinds.
Extending the nautical metaphor, FAS financial officers are trying to prepare the faculty to navigate difficult conditions in the years ahead.