The Harvard Kennedy School has laid off 18 employees to help it close a $2 million budget gap that persisted after less drastic spending cuts, Dean David T. Ellwood '75 announced in a letter to the School's faculty and staff last Tuesday.

"[The] budget challenges caused by the decline in the endowment payout have forced us to take this action," Ellwood wrote, noting that a projected 20 percent reduction in the payout over the next two years, combined with other revenue declines, created a $9 million shortfall in the School's budget.

University officials had originally stated in March that the payout would decrease by 8 percent this coming year and by at least the same amount the following year. Spokesman John D. Longbrake said they have since revised their guidance to suggest a 12 percent decrease for fiscal year 2011, which begins a year from this July.

Ellwood said that the School has frozen salaries for faculty and exempt staff, implemented a "hiring frost," reduced the faculty budget, and trimmed expenses for travel, food, rent, and outside services. But a roughly $2 million "long-term structural gap" remained, he said, forcing the School to cut staff.

HKS spokeswoman Melodie Jackson said that while faculty and staff hiring has been roughly flat at HKS over the past five years, compensation and benefits still make up 59 percent of the School's operating budget. Prior to last week's layoffs, 498 staff worked at HKS, she said.

To cut other non-personnel costs, the Kennedy School has also indefinitely postponed many of its capital projects, sought new sources of revenue through donors and research grants, and participated in the University's voluntary early retirement incentive program, Ellwood wrote in his e-mail.

According to a recent University human resources report, 19 staff members out of 59 eligible employees accepted buyout packages at HKS. University spokesman Kevin Galvin has said in the past that the average participant in the University's buyout program had an annual salary of $67,000 and that the reductions were split half-and-half between hourly employees and administrative and professional staff.

As a result of these cost-cutting measures and the recent layoffs, "we believe our long-term budget is now sound," Ellwood wrote. He added that "barring any unexpected developments" and excluding normal staff attrition, he does not anticipate the need for further School-wide layoffs.

In 2008, the Kennedy School drew a quarter of its operating budget from its endowment—roughly the same fraction seen at the Medical School but only half of that seen at the Faculty of Arts and Sciences. As of June 30 last year, the Kennedy School's endowment stood at $1.1 billion, although University administrators have for months projected a 30 percent decline in Harvard's total endowment over the course of this fiscal year. Current use gifts compose another 20 percent of the Kennedy School's budget—the largest amount at all of Harvard's schools, with the Law School next highest at 12 percent.

While Ellwood wrote that "this is certainly the most heart-wrenching period our close-knit community has faced in many years," similar budgetary turmoil plagued the Kennedy School earlier in the decade and prompted staff reductions then as well.

In 2002, the Kennedy School eliminated 30 administrative positions and 17 adjunct faculty positions, half through staff attrition and half through direct layoffs, to help close a $5.6 million deficit exposed during the bear market.

HKS had increased its number of faculty positions in the late 1990s and early 2000s by almost 40 percent, and new programs such as the Center for Public Leadership and the Carr Center for Human Rights Policy were launched largely through deficit spending. These initiatives had been paid for during economic booms by the growing endowment, but when the national economy slumped early in the decade, the expenditures coalesced into a deficit and forced HKS officials to take steps to eliminate the budget gap. Overhead costs, for everything from electricity bills to equipment, were furthermore magnified by the School's expansion.

By slashing its full-time faculty by 11 percent over two years, hiking tuition, stepping up fundraising efforts, and slicing administrative budgets by 5 to 15 percent, HKS managed to dramatically eliminate its deficit in a short amount of time. By 2004, the School had achieved a $1.1 million surplus, and in 2005, it recorded a $3.6 million surplus.

In his letter, Ellwood emphasized that the University would "do everything possible to help and support those who are laid off" by providing 60 days of full pay and benefits, other severance benefits, continued medical and dental benefits for a year and a half, and job placement support. He also noted that HKS would "pay special attention" to those affected by layoffs in filling new job positions.

—Staff writer Peter F. Zhu can be reached at pzhu@fas.harvard.edu.