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Underlying financial weaknesses set Harvard’s Faculty of Arts and Sciences on the path toward its estimated $365 million structural deficit, even before the Trump administration pushed its finances to a breaking point, according to projections presented by a faculty committee on Tuesday.

Administrators have sounded warnings in the FAS’s annual budget report every November for years, but the committee’s projections put a number to mounting problems in the school’s finances, which FAS Dean Hopi E. Hoekstra described at a monthly meeting of the faculty on Tuesday.

“To state it bluntly, the way we have operated today has left us exposed,” Hoekstra said.

The Resources Committee — composed of FAS professors and assisted by administrators — delivered its projections during Tuesday’s meeting, more than six months after Hoekstra reconvened the group for the first time since the 2008 financial crisis.

Economics professor Jeremy C. Stein, who presented the findings, said this summer’s hike in the federal endowment tax would contribute approximately $98 million to the structural deficit. Endowment income accounts for 52 percent of the FAS’s annual revenue.

The committee also concluded that the FAS’s annual accounting methods tend to underestimate the costs of maintaining the school’s more than 250 buildings. The group’s projections put the annual capital expenditure costs at $400 million, nearly three times the $138 million suggested by the FAS’s usual depreciation estimates.

The committee explained its projections just hours after Hoekstra announced the estimated deficit, which she reported as “approximately $350 million,” in an email to faculty and staff Tuesday afternoon.

At the meeting, Hoekstra said the findings reflected long-run imbalances between the FAS’ revenues and expenses .

“The volatility of our current moment is only part of the story. Beneath it lies a persistent structural gap between what we spend and what we take in that predates our current financial pressures,” Hoekstra said during the meeting.

The FAS has already undertaken significant cutbacks to spending this year, halting staff hiring, keeping its budget flat, and pausing all spending on non-essential capital projects in response to growing funding pressures from the Trump administration.

The administration slashed nearly all federal grants to the University last year — a significant blow to the FAS, which received more than $145 million in federal sponsored funding last fiscal year. The freeze on Harvard’s grants was reversed by a federal judge’s ruling in September, but some research projects have still taken a hit under separate rounds of funding cuts.

The FAS saw a $12 million year-over-year decrease in federal funding, FAS Chief Financial Officer Kori N. Ofori said during a presentation at Tuesday’s meeting. But that change was offset by a $21 million rise in nonfederal sponsored funds in fiscal year 2025 compared to the previous year, according to Ofori.

The return of frozen federal funds prompted administrators at the Harvard School of Public Health to loosen spending limits. But Hoekstra indicated that the FAS would keep a tight grip on its fiscal reins in anticipation of ongoing struggles.

“Since we face such a drastic structural deficit, everything is on the table. We’re looking at every aspect of the FAS — there is not a stone unturned,” Hoekstra said.

At the meeting, Stein cautioned that the Resources Committee’s projection of the FAS’s structural deficit could still understate the severity of the FAS’s fiscal situation because the group intentionally left out key costs that were difficult to accurately impute.

Its figure does not include estimates for how changes to federal research funding, including a potentially shrinking pool of available grants and lower indirect cost recovery rates, could decrease the school’s revenues. Federal awards currently make up approximately $150 million, or 8.3 percent, of the FAS’s budget, according to Stein.

The committee’s calculations also assumed that all of the school’s endowment funds were unrestricted — even though a majority have restrictions that limit what the FAS can spend endowment dollars on.

Stein added that while the returns to Harvard’s endowment have been high enough over the past 10 years to allow significant payouts from endowment income, there is no guarantee that high returns will continue.

The committee’s projections also did not account for costs associated with the Trump administration’s tariffs and Harvard’s growing legal expenses.

At the Tuesday meeting, some professors raised concerns about the recent reductions in Ph.D. admissions numbers within the FAS. Physics professor Melissa E.B. Franklin thanked the committee for its work, but said that she believed the reductions were too steep.

“You seem to be missing the point: you want to preserve old buildings, but you don’t want to preserve R1 research as part of it. This will just kill it,” Franklin said. “Scientific research is not housing prices — it’s something magical. And there are a lot of magical people here.”

Hoekstra addressed criticisms of the Ph.D. admissions reductions in her opening address, saying they were a “painful” but necessary step to free up the school’s finances to support its current students.

“I made this decision guided by the principle that we must uphold our commitment to our current graduate students fully and maintain the quality of our graduate programs. But we should all see it as a signal, a reminder of why structural change is urgent,” Hoekstra said.

When the Trump administration slashed federal funding to Harvard, the FAS opted to provide funding for its graduate students who had previously been supported by grants. But supporting the more than 1,000 Ph.D. students in the Science division who had previously relied on federal grants cost the school more than $20 million for just a year, Hoekstra said.

“Next year, we will reassess where we are, and if we’re on better financial footing and federal funding continues to flow, we can admit more students,” she said.

At the Tuesday meeting, Ofori said the school’s revenues had grown by $106 million over the past year, driven by higher tuition revenues from the Division of Continuing Education and higher non-federal funding.

But the FAS’s expenses grew by $116.5 million — mostly due to increases in salaries and wages, supplies, and facilities costs — contributing to an annual deficit of $8 million. That represented the first annual deficit run by the FAS since 2020. The school ran a $3 million surplus the previous year.

The FAS has also depleted its central budget over the course of the last two years. Its spending of unrestricted funds exceeded unrestricted revenue last fiscal year by $43 million, compared to a $12 million gap the previous year and a series of surpluses before the pandemic.

Last year’s shortfall reflects Hoekstra’s decision to redirect unrestricted funds to support research impacted by the funding freeze through the Research Continuity Funding program, which funded 80 percent of the operating costs previously covered by depleted federal grants.

At the same time, the FAS saw an $81 million surplus in locally held, restricted funds — which are tied to specific purposes or departments, often because of limits placed by their donors — last fiscal year. That marked a sharp increase from $28 million the previous fiscal year.

—Staff writer William C. Mao can be reached at william.mao@thecrimson.com. Follow him on X @williamcmao.

—Staff writer Veronica H. Paulus can be reached at veronica.paulus@thecrimson.com. Follow her on X @VeronicaHPaulus.