Harvard Kennedy School (HKS) and Harvard Medical School (HMS) have issued internal guidance on reducing costs and budgets in light of current economic circumstances and the sharply decreased value of the University endowment. Both are preparing scenarios with cost reductions of up to 10 percent as a guide to actual budget decisions in late winter. Because their finances differ significantly from those of the Faculty of Arts and Sciences--which relies on endowment-income distributions for 56 percent of its operating revenues this year--these schools' decisions point to the widespread and difficult financial challenges rippling across Harvard.
Kennedy School. In a memorandum to HKS, Dean David T. Ellwood highlighted the irony of intense engagement in politics and public service by young people today, and the demanding public problems around the globe, overlapping with "economic realities" that have "continued to worsen," making it difficult to "take advantage of a perhaps once-in-a-generation moment of opportunity at a time when fiscal realities impose real constraints and some hardship."
HKS derives 25 percent of its operating revenue from endowment distributions (its endowment was valued at $1.1 billion last June 30), 26 percent from tuition and fees, 20 percent from current-use gifts, 17 percent from sponsored-research support, and 12 percent from other sources--in many respects, an enviable mix. Ellwood noted that the school expects applications to rise, tuition to be relatively level, and enrollments to stay the same because of physical constraints on expanding class size. He anticipated weakening executive-education enrollment, as government and nonprofit customers grapple with tight budgets. The sponsored-research outlook "is not very favorable." And prospective donors "are struggling with their own fiscal situations." That adds up to flat or falling revenue, necessitating "both short-term and longer-term structural adjustments."
Beyond expected increases in financial-aid requests, he noted, foreign students are being hit with the strengthening dollar--an effective 20 percent tuition increase--at the time when student loans are very scarce. Along with securing financial aid, he emphasized as priorities protecting junior faculty members and advancing their prospects for success. Across the school, he said, resources might best be used if diverse research centers and programs were aligned around common, urgent problems and issues (such as addressing terrorism). Accordingly, he expects to focus the school's work as closely as possible on markets, business, and government; international development; international and global affairs; democratic institutions and politics; social policy; and leadership and management.
That said, the financial realities dictate:
- a salary freeze for faculty and nonunion staff;
- hiring of faculty only in cases of the highest priority, where funding is already in place (from outside sources or from departures of faculty for extended leaves, such as service in the new administration in Washington);
- hiring of staff only under similar conditions;
- drafting of fiscal year 2010 budgets, beginning July 1, with projected 5 percent and 10 percent expense reductions;
- deferral of capital projects; and
- limitations on visiting faculty, adjunct lecturers, and so on.
Finally, he wrote, "[W]e will need to revisit current expectations regarding teaching loads. Unless we find a way to reduce core costs of faculty, we will be unable to hire new faculty even in the most vital strategic areas."
Medical School. On November 19, Dean Jeffrey Flier released the results of the school's year-long strategic planning process. He wrote about five areas of focus (revitalizing the educational mission; seizing opportunities in biomedical research to increase human well-being; lowering institutional barriers to collaboration; creating a more unified, supportive, and inclusive community; and increasing and coordinating investments in tools and technologies) and noted progress in increasing financial aid; filling leadership positions; and identifying and tackling important new opportunities in biomedical research. At the same time, he noted, "It is perhaps ironic that we present this report just as we face an economic crisis that is unprecedented in recent history."
In the first week of December, Daniel Ennis, HMS executive dean for administration, detailed budget reactions: all departments have been asked to target a 10 percent reduction in expenditures during the next 18 months, without definitely knowing what percent of cut will be effected, nor precisely where they will fall. The budgeting exercise refers to the parts of the school's budget not supported by sponsored funding for research. (In fiscal year 2008, about one-quarter of HMS revenues were from endowment-income distributions--the endowment was valued at $4.3 billion last June 30; but 41 percent came from sponsored support for research; tuition and current-use gifts together contributed 10 percent; and other sources--such as continuing education, royalties, and publishing--the remaining 24 percent.)
Ennis pointed out that the school had substantial fixed costs such as debt service for its capital projects; these are not subject to reduction. Thus, for now, the aim is to identify the options to achieve, and the consequences of implementing, 10 percent reductions in all accounts not paid for by sponsored-research funding, in all academic and administrative departments. When the budget is set in the spring, Ennis indicated, varying cost reductions will be imposed depending on feasibility and the school's academic priorities.
