The Faculty of Arts and Sciences ended fiscal year 2012 with a balanced budget for the first time since the 2008 financial crisis, successfully meeting the timeline set by FAS Dean Michael D. Smith when he laid out his fiscal recovery plan three years ago.

Dean of Administration and Finance Leslie A. Kirwan ’79 presented the financial report to administrators and faculty at this month’s faculty meeting, announcing a $73,000 budget surplus for FY2012.

“[It was] admittedly a squeaker on a budget our size,” Kirwan said. The entire FAS budget for FY2012 totaled $1.2 billion.

In the financial segment in the 2012 FAS Annual Report, Kirwan cited Harvard’s 4 percent increase in endowment payout and 6.7 increase in total revenue last year, as well as “the faculty’s success in continuing on a path of fiscal discipline” as factors that contributed to the new fiscal balance.

When the financial crisis hit in 2008, Harvard’s endowment suffered a 30 percent decrease in value, at the time a crippling loss for FAS, which relies on the endowment for close to half of its funding. Smith announced a multi-year plan of action for FY2009-2011 to close a projected two-year deficit of $220 million.

Despite reaching the three-year target, Kirwan sounded a note of caution.

“Over 60 percent of the endowment losses have not yet been restored,” she said.

Ongoing investments also pose a challenge to the school’s fiscal discipline. This year’s announced surplus for FAS’s unrestricted core operations—which consists of the Faculty, the College, and the Graduate School of Arts and Sciences—did not include investments in edX and House Renewal, which when taken into account bring the budget balance down to a $9.7 million deficit.

The complete unrestricted FAS budget—which includes other major affiliates of FAS such as the athletic department and the School of Engineering and Applied Sciences—came in at a deficit of $34.9 million.

In the annual report, Kirwan cautioned faculty members on the financial outlook for FY2013 and onward.

“Ongoing upward pressure on some of our expense categories, coupled with, at best, modest increases to our key revenue sources for the foreseeable future, suggest that sustained fiscal balance will require our continued focus and innovation,” Kirwan wrote.

The FY2012 return on the endowment was more disappointing than the prior year’s results which boosted the balanced budget. The endowment dropped slightly in value, the first time it did not show positive gains since FY2009.

Kirwan named the loss of sponsored revenue, meaning federal funding, as one of the biggest factors likely to constrain the budget. Sponsored revenue currently represents 18 percent of the FAS budget, a “bright spot” during FAS’ financial hardships in the last four years, she said at last month’s Faculty Meeting. But Kirwan said that “the likelihood of meaningful declines in federal funding is high.” FAS faces the new threat of sequestration—across-the-board federal spending cuts that are automatically triggered if Congress fails to produce a balanced budget by the end of this calendar year.

To cope with the possible cuts, FAS has hired two new staff members in Research Administration Services to help faculty­—in the arts, humanities, and social sciences as well as sciences—find and apply for more grants from private foundations and corporate sponsors, in addition to a few untapped federal grants.

The second of these two new employees began work on Monday, according to Associate Dean for Research Administration Patrick W. Fitzgerald.