The Faculty of Arts and Sciences still faces a projected $75 million deficit for Fiscal Year 2010, interim FAS Dean Jeremy R. Knowles said yesterday, despite assurances from Knowles’ predecessor last year that the school would be running a surplus at the end of the decade.

Knowles told professors in a 24-page letter that FAS will be "house-poor"—cash-strapped because its wealth is tied up in recent facilities expenditures—"for quite a while."

In an interview yesterday, Knowles said that the school must brace for more cost-cutting. "Any number of things that we are currently spending money on might have to be constrained," he said.

But with a $13.2 billion endowment—45 percent of the University’s total—FAS isn’t headed toward pauperism.

"Am I worried about the long-term health of the Faculty of Arts and Sciences? No," Knowles said. "How could I be? We are fortunate to be so strongly endowed and the operation is, fundamentally, very strong indeed."

A STRUCTURAL DEFICIT

It’s not the first time that FAS has warned of looming red ink. But Knowles’ statement yesterday was the administration’s first acknowledgment that Harvard’s flagship school faces a "structural deficit."

A deficit can occur when a temporary cost—such as a new construction initiative—pushes expenditures above current income. Reserve funds can cover that gap. But, as Knowles wrote, "a structural deficit where we have incurred permanently-committed expenses (e.g., for the salaries of faculty) that are not permanently funded, is serious."

The FAS deficit is partly the result of a $740 million building boom, which has included the $140-million Center for Government and International Studies as well as science labs north of the Yard.

"[J]ust as when any of us buys a new house and our mortgage payments seem high in the early years, the cost of the Faculty’s current capital investments will necessarily constrain our choices for some time," Knowles wrote.

The shortfall is also the result of a hiring surge that has boosted the size of FAS from 635 professors in 2002 to 719 this year. Even after the recent construction costs are covered, the new professors’ paychecks and the new buildings’ upkeep will continue to weigh on University Hall’s balance sheet.

A BREAK FROM PAST PROJECTIONS

While administrators have acknowledged these looming costs for more than a year, Knowles’ statement contrasts with former Dean of the Faculty William C. Kirby’s more optimistic predictions.

"From discussions that I have had, I feel very, very confident that with the endowment, with support also from the central part of the University...I would absolutely expect that rather than face a deficit in Fiscal Year 2009, we will have a surplus," Kirby told The Crimson in December 2005.

At a full Faculty meeting the following month, the FAS Resources Committee—of which Kirby was a member—warned professors of a potential $100 million deficit by the end of the decade.

But at that meeting, Resources Committee members described a plan to close the budget gap through intensive fundraising, increased income from the endowment, creative money management, and central administration support. Kirby later wrote that the four-part plan, "which stabilizes our budget for the coming years, is now in place."

Yesterday, Knowles pledged to pursue that plan. And he added that Fiscal Year 2006, which ended on June 30, actually produced rosier results than the Resources Committee predicted.

A bright spot in Knowles’ report was his revelation that FAS ended the most recent fiscal year with a $4.9 million surplus. The resources panel predicted in January that the school would face a $40.7 million shortfall in FY 2006.

But that black ink might be a red herring—the surplus appears to stem from stalled initiatives rather than the Faculty’s fiscal fortunes. "[S]everal major projects were delayed or deferred and a number of new faculty recruitments were not completed," Knowles wrote.

Reached at his home last night, Kirby said he hadn’t yet read yesterday’s report and declined to comment.

A ‘FOUND OPPORTUNITY’

It remains to be seen how the Faculty will deal with the structural deficit, which will require a long-term fix, Knowles said.

He said that tapping the $13.2 billion endowment more aggressively won’t solve the problem on its own.

The dean wrote that decapitalization—withdrawing more money from the endowment—would lead to an infusion of funds that are a "short-term solution to a long-term need."

For all his words of caution, Knowles insisted that the benefits of more professors and expanded facilities were worth the deficits on the horizon.

And he said that his 12-month term amounts to a "found opportunity for open and sustained discussion about the Faculty’s future." He said he will leave most major financial decisions to his "less impermanent successor."

Much of Knowles’ letter was akin to a tutorial on the Faculty’s finances, laying out information that, he said, professors have lacked in past debates over financial priorities.

"We’re talking but not understanding each other," he said. "What I’ve hoped to do is to improve the recognition and understanding of the discussions that will necessarily go on in the coming months and years."

—Staff writer Evan H. Jacobs can be reached at ehjacobs@fas.harvard.edu.
—Staff writer Anton S. Troianovski can be reached at atroian@fas.harvard.edu.