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.

It may be useful to indicate the major decisions made last winter which underlie the budget for the current year, 1970-71. As far as revenue is concerned, full-time tuition was increased $200 bringing the level for the current year to $2600. For the first time the President and Fellows approved the current expenditures of all of the Harvard College Fund, after the expenses of reunion classes, rather than putting $500,000 or $700,000 into endowment as has been done in recent years from this vital annual giving from alumni.

On the expenditure side, the starting salary of the assistant professors was raised from $9,000 to $10,000 with corresponding adjustment in non-tenure Faculty members at higher levels; the individual salary adjustments to tenure members were made as in the past. With tuition, board and room charges increased, the unrestricted contribution to student followships was increased by $600,000 to bring to $3.1 million the amount of unrestricted money going into graduate and undergraduate student aid in addition to $3.9 million in restricted funds. The $3.1 million is a little more than 11 per cent of all unrestricted income. The decision was also made to invest unrestricted funds in expanding loan funds to both graduate and undergraduate students by an amount of $150,000. On these major decisions and many more still to be made in the administration of the budgets of various departments and units, including unknown contingencies, will depend the outcome for the current fiscal year.

The Future 'Strong Measures'

The fiscal years immediately ahead, starting with 1971-72, are cause for great concern. Preliminary estimates on "best-guess" assumptions for 1971-72 suggest an actual unrestricted deficit-not a budgeted deficit-of about $1.5 millions in the absence of some extraordinary measures. That is far too large a deficit and strong measures are required to prevent deficits of that size. particularly in view of the longer term financial outlook.

This "best-guess" estimate was made by Humphrey Doermann, assistant to the dean for financial affairs. Among the assumptions he tentatively used are the following: on the income side, a $200 increase in tuition again with requisite increases in fellowships, except that students would be required to increase their self-help by $100 in the undergraduate scholarship budgets. No change in the composition of the entering classes is contemplated; 530 students in each class in the past three years have received some scholarship aid. All the income of the Harvard College Fund would again be available aside from reunion class expenses and scholarship gifts designated by donors as capital for named funds. Government contract overhead is presumed relatively unchanged. On the expense side individual salary increases were projected as in previous year and other costs were estimated on the best information available. But $1.5 millions is not an acceptable planned deficit.

A number of unfavorable factors also deserve special mention. The tightness in federal research contracts and grants and the decline in foundation support has a tendency to put pressure on the unrestricted income of this Faculty as investigators seek to maintain activities. The problem of the Joint Center for Urban Studies is illustrative. The Harvard College Fund-which produced a steadily rising income over the past decade, from $1.3 million in 1967-62 to $3.5 in 1968-69-showed a decline to $3.3 in 1969-70. Despite dedicated efforts, the Fund may not be able to maintain the past growth. Almost half of any projected increase in tuition income should be plowed back into scholarships and fellowships when account is also taken of higher room and board charges. Thus income for instructional purposes is difficult to raise while rapid cost inflation continues.

There are, moreover, a number of heavy expenses which will fall on this Faculty in the next several years for which there exist no adequate reserves. Sharply rising building maintenance charges will be levied on existing buildings and additional charges will be made for maintenance of new buildings now under construction. The Science Center alone is estimated to require $825,000 a year in maintenance and operation costs. Robinson Hall will come to this Faculty on the completion of Gund Hall; its modernization will require one million in addition to the two million required for the purchase of Robinson and Hunt halls. Funds are not available for the necessary modernizing of older laboratories and the older Houses. It will be most difficult to prevent co-residential living and other relations with Radcliffe from costing this Faculty money in the period ahead. The university assessment which is charged this Faculty for university-wide services was $522,000 the past year and is projected at $821,000 in the current year. This charge may be expected to grow, particularly as a new president of Harvard increases the administrative capacities of the university center. For these and other reasons the outlook for the unrestristed account of this Faculty is black. Moreover, any educational reforms will have to come from a redeployment of our Faculty resources rather than through expanding staff.

If it is any comfort, the financial picture at other institutions, and particularly private universities, is more severe. The press has reported Columbia University had a deficit of $11 million the last fiscal year; Yale was expecting a deficit of $1.5 to $2 millions for 1969-70. A projected deficit of $2 million for 1970-71 led to the announcement in early September of "an immediate restriction on all employment of new or replacement personnel which requires the expense of general funds." Last week Yale announced that $5.25 millions would be cut from the normal rate of increase of its budget for fiscal 1971-72, and over three years a 20 per cent reduction from previously projected budgets is envisaged. Princeton had a deficit last year of almost a million dollars and has projected a deficit of $2.4 million in the current year. In a sense this Faculty will have had a couple of years of lead-time without crippling deficits to consider the hard decisions that our sister institutions are now confronting under considerable pressure. It behooves us to use this year to plan our fiscal affairs well in the face of the severe financial stringency anticipated in 1971-72 and beyond.

The preparation in this Faculty for the 1971-72 budgets has already begun. What shall be appropriate policies in the face of the near-term and longer run outlook? I presented the factual background outlined here to a meeting of all department chairmen and budgetary officers on September 29th and to the Faculty Council on September 30th.

One possible response to the financial difficulties ahead would be to impose a job freeze throughout the Faculty or to require that as a general policy departmental authorized expense budgets for 1971-72 should be no larger than they were in 1970-71. Such a policy would constitute in effect roughly an 8 to 10 per cent cut in personnel. At the present time such gross methods do not appear to me to be appropriate. The needs and opportunities and the state of development of various departments and budgetary units differ greatly. A procrustean formula at this date is a poor tool.

Rather, I have chosen to meet for at least an hour with each chairman of a major department to review the situation for 1971-72 and to give the department some idea of the prospects for staffing appointments, both term and tenure, so that our relatively favorable position may be used to recruit the most able persons to help most effectively those present staff members who leave us in June 1971 to find the best possible jobs. In this cycle of sessions I am interested in the special problems of each department, what each can do to raise additional funds, to use restricted funds for more general purposes, to adjust courses and teaching methods and to eliminate least desirable expenditures in order to achieve higher order priorities.

Several conclusions are already evident with regard to expenditures for 1971-72:

For the departments considered as a whole, it is inescapable that in this labor-intensive industry there be an absolute reduction in the number of term appointments, annual lecturers and visiting appointments and that teaching assistance be carefully reviewed. Only the extent of this reduction through non-replacement of expiring appointments is uncertain.

Each department needs carefully to review its deployment of manpower. Are all courses equally necessary or can some be bracketed? This Faculty appears to spend about $200,000 a year on sophomore tutorial. Is this the best use of that teaching time or would it be better allocated to advising or course assistance?

There is need to scrutinize the substantial expenditures in the building and grounds area and work is in process to seek greater control over these costs.

The complex area of fellowships, scholarships and student loans is related to tuition levels and needs careful discussion.

I hope to have the meetings with department chairmen completed by early November when another overall outlook can be projected. I would then plan to report to the Faculty Council and to the Faculty as a whole before the Christmas recess on salary matters and other issues essential to financial and educational planning for the year 1971-72. I would also hope that members of this Faculty and students will be active in discussions of the basic and longer term financial questions raised in the Governance Committee paper on Harvard and Money.