And Berman said she has asked departments in the University’s central administration to draw up budgets for zero growth and a 5 percent expenditure cut in the next fiscal year, a move she calls the first step towards a goal of holding their expenditures steady in lean financial times.

“The president has told a lot of people that that’s what we’re going to do,” Berman said. “So I hope we get there.”

Time for Trimming

The release of Harvard’s annual financial report—approved by the Board of Overseers during their monthly meeting on Sunday—underscored the financial constraints facing the University. Expenses rose 8 percent last year to $2.4 billion, outpacing revenue growth.

The result was that the University’s annual surplus shrank from $87 million for FY02 to $40 million for FY03.

Berman expressed concern that the University’s main revenue sources may wane, compounding the fiscal squeeze already facing Harvard. She said last year’s stellar endowment returns had helped to offset increased expenses. “Nobody likes to count on something like that,” she added, however.

Other major revenue sources are also unlikely to perform as well in the future, according to Berman. She said that despite a 6 percent jump this year, outside funding will likely decline in the coming years.

Berman noted, for instance, that much lower projected increases in the budget of the National Institutes of Health—which accounts for 65 percent of the University’s federal funding—will likely mean smaller increases in the amount the University receives from outside grants.

And the immense public pressure to limit tuition upticks will likely preclude Harvard from mitigating increased expenses with higher student fees, she said.

“What we’re seeing for other income streams is concerning,” Berman said.

At the same time as the University is seeing its revenue sources drying up, spending increases of over 10 percent in certain cardinal budget areas—student aid, compensation and costs associated with maintaining the physical plant—drove expenditures higher in FY03.

Total University-wide compensation costs rose 12 percent to $1.3 billion in FY03, largely the result of the 36 percent jump in benefits to faculty and staff.

Further implementation of the Wage and Benefits Parity Policy—adopted as part of the recommendations of the committee convened in the aftermath of the 2001 Living Wage sit-in—has also cost the University a great deal, although Berman said the exact amount was hard to estimate.

At the same time, Harvard’s space and occupancy costs rose 22 percent, largely due to the University’s larger-than-ever land holdings and high utility expenditures over the cold winter of last fiscal year.

Spending on major renovations, new construction and land purchases are also causing a drain on John Harvard’s wallet.