Dean Dunlop Reports on Faculty Finances

(John T. Dunlop is Dean of the Faculty of Arts and Scrences and Wells Professor of Political Economy. This article is adapted from his financial report to the Faculty October 20.)

The presentation of financial information to this University community confronts the enigma that it is impossible to provide each person with the amount of detail each desires. Some would like a great deal more information than made available today and others have little interest in financial numbers. I should accordingly welcome-beyond questions or comments at this meeting-any written reactions and suggestions.

At the outset, mention should also be made of an important issues and options paper entitled Harvard and Money to be released by the University-wide Committee on Governance. I hope that paper will be generally available in about two weeks. It reviews the complex question of money raising, money spending and portfolio management.

The Past 'Seven Fat Years'

During the period 1960-67, this Faculty enjoyed a period of financial surplus in its unrestricted accounts and its deans, particularly Dean Ford, prudently built up a capitalized balance in the Faculty of Arts and Sciences Instructional Fund, an account this Faculty keeps with the University, that amounted to more than $9 million in 1967. (The account receives the same rate of return as endowment.)

The fiscal year ended June 30, 1969, however, ushered in a new era of financial stringency. The actual deficit in unrestricted income in the main budget for 1968-69 was $960,000. Any dean of this Faculty would today rejoice if some prophet could assure him that the seven fat years of the 1960's would be followed by no more than seven lean years in the 1970's.

The fiscal year that just ended on June 30, 1970 showed an actual deficit in the same account of $344,000. When consideration is taken of the surplus in the summer school activity and the offsetting transfers to the Faculty loan funds, it was necessary to eat into the Instructional Fund balance on June 30, 1970 by no more than $184,000. Its present principal is now $8,369,000.

It might be appropriate to pause to explain for those unfamiliar with them two terms that have been used-the main budget, as distinct from other accounts, and unrestricted income as distinct from restricted endowment restricted gift income.

The total expenditures of the Faculty of Arts and Sciences for the year ending June 30, 1970 were just over $70 million out of the more than $188 million for the University as a whole. This Faculty of Arts and Sciences figure omits the associated institutions and museums and the food, House and dormitory accounts whose budgets are presented to the President and Fellows through the office of the dean of this Faculty. Aside from government contracts and grants, which came to $21.6 millions in the last fiscal year, the accounts of the Faculty are five: the main budget, the Division of Engineering and Applied Physics, the Summer School, Harvard College Library, and the Committee on Athletic Sports. The main budget account, which is our principal concern, excludes these other accounts except for the contribution of $1.7 million to the library and $1.4 million to the Committee on Athletic Sports. The main budget of this Faculty had income and expenditures of the order of magnitude of $42 million last fiscal year, including the contribution to the library and athletics.

The distinction between restricted and unrestricted income is perhaps more familiar to people. Restricted income is that which may be used only for specified purposes such as a gift for a research project, scholarships or a doctoral candidate support. Unrestricted income is that such as tuition or endowment income which is at the disposal of the dean to meet any legitimate expense within the Faculty. The unrestricted income of this Faculty in the past year was about $25 million out of the $42.5 million in the main budget. It is the balance from year to year in the unrestricted account which is the major focus of attention of budget making and is the best single index of the financial condition of this Faculty.

Even a quick backward look requires reports on three other financial aspects of the Faculty:

There were loans outstanding on June 30, 1970 of almost a million dollars to Faculty members under the mortgage loan and educational loan plans and there was another million in loans to undergraduate and graduate students. These funds have been expanded significantly in recent years. These loans, net of repayments, are charged against the unrestricted departmental balance of the Faculty.

The account of the House and college dormitories, Department 91 in the language of the Comptroller, had a disastrous year in 1969-70. This account is a separate budget relating to care and maintenance of these facilities and includes House libraries, tutors suites, certain discretionary funds for the masters, but does not include tutors' meals which are a separate items in the unrestricted budget. This Department 91 account is supposed to break even over the years, rentals to students covering expenses. On July 1, 1969 this account had a deficit of $348,000. Last year, he deficit in this account increased by $332,000 to approximately $680,000. The unrestricted resources of this Faculty must stand behind any such continuing deficit if it cannot be recouped. A number of measures have been taken to try to prevent an increase in this deficit this year, and to pay for the interest charges on this deficit.

The past year with the drop in the stock market and student dislocations was not a good one in the major capital fund drives of this Faculty. The Program for Science in Harvard College only raised $2.4 million and remains almost $18 million short of its goal. The Harvard College Library Building Fund (for the Widener Library addition) raised $1 million-barely keeping up with the added costs of construction. The International Studies Building Fund raised virtually nothing.

The Current Year 'Small Deficit'

So much for the past. The current fiscal year which ends June 30, 1971, according to my present best estimates, should actually come out about the same as last year with a small unrestricted deficit of $200,000 or less, although it would be very helpful to break even. The main budget actually provides for an unrestricted income deficit of $964,000 for the current year and there is little prospect of a significant summer school surplus from the operations of this last summer when enrollment was down 14 per cent.

The fact that financial results in the past have frequently been better than projects budgets has led some members of the Faculty to believe that its deans have persistently cried "wolf," without real cause. The fact is rather that it is Harvard's policy that once a Faculty budget has been approved by the President and Fellows, the budget becomes a ceiling not to be exceeded without prior approval. Responsible department chairmen and administrators understandably seek to stay below the level. Since it usually is impossible to hit a precise target, responsible budget officers will run below this target except when confronted with special difficulties during the year which they typically discuss with the dean. Thus a $964,000 projected deficit is about three per cent of expenses from unrestricted accounts and an actual deficit of $200,000 would be little more than one-half per cent. These margins are very small, and the dean continues to count on the cooperation, good judgment and sense of economy of department chairmen and budgetary officers. I look forward to a small deficit this year in the absence of major changes in the assumptions on which the budget was submitted and approved by the President and Fellows.