Harvard dean details need to slash spending

Projects create annual deficits

By Tracy Jan
Globe Staff / April 15, 2009
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CAMBRIDGE - Harvard University's Faculty of Arts and Sciences faces a projected recurring annual deficit of $220 million within two years if it does not cut spending substantially and reshape its academic ambitions, Michael D. Smith, the group's dean, warned yesterday.

In a first of its kind town hall meeting about the budget, Smith presented the clearest picture yet of how financial woes have hit the largest school of the world's wealthiest university.

If left unaddressed, the looming deficit would more than sap the school's financial reserves, which Smith said stand at about $140 million and will not be replenished because the financial crisis has wiped out a significant chunk of Harvard's endowment.

"We can't sit idly by and hope the economy changes and starts to improve," said Smith, from the stage at Sanders Theatre to about 1,100 faculty, staff, and students. "It is important to think deeply about not just how to resize our activities, but to reshape these activities in ways that . . . maintain the excellence of this institution."

Harvard, whose once $36.9 billion endowment is expected to plummet by at least 30 percent by July, still has the world's largest university endowment. But as Harvard's endowment shot up in recent years, so did the university's ambitions - eventually straining the budget, Smith said.

Since 2005, the Faculty of Arts and Sciences has added 60 faculty members and 230 staff positions, enabling Harvard to start several new programs. It built nearly a million square feet of new space, which was funded by debt instead of donations. And it embarked on an ambitious plan to help middle- and upper-income families afford skyrocketing college costs.

"These are not things we want to go backwards on or that we can go backwards on," Smith said.

But, he said, "we're spending more than we're actually taking in."

The Faculty of Arts and Sciences relies on the endowment to support more than half of its $1.1 billion annual operating budget. This year, it has accumulated a $30 million deficit as the endowment has struggled. By the 2010-11 school year, Smith projected the school's endowment distribution will be down 12 percent to $525 million.

The school will cut $4 million from this year's budget by freezing most hiring, limiting travel, and sponsoring fewer events, Smith said. It plans to cut another $73 million from next year's budget by cutting administration and staff and asking academic departments to limit outside lecturers, among other sacrifices. That still leaves a gap of $143 million, Smith said.

The school has also frozen most salaries and put some plans on hold, including renovating undergraduate housing.

The university also just closed a voluntary early retirement program for 521 eligible staff members, which drew a 30 percent participation rate, Smith said.

During a question-and-answer session following Smith's budget presentation, students requested more input into budget decisions and implored that the lowest paid staff, such as custodians, house security staff, and library workers, be kept. Three students unfurled a banner that read in green paint, "Greed is the new (No layoffs)." They requested that top administration take salary cuts to save jobs.

"We've all taken a real pay cut," Smith responded.

Smith said that in the next two weeks, he plans to create working groups to help identify further large-scale cuts that could include changes to academic programs and other "intellectual activities" that would reshape the faculty.

Staff layoffs may be unavoidable, he said. "I have no desire to do layoffs, but it's increasingly likely . . . that we will not have as much need for faculty or staff as we have today," Smith said.