Harvard’s deficit soars to $34 million and finance officials plan better cost management

BOSTON – Harvard University finance officials are pledging to manage costs better and pursue innovative revenue strategies after its deficit soared to $34 million in the most recent fiscal year, compared to a $7.9 million shortfall the previous year.

A financial report released Friday says the school saw revenues jump 5 per cent to $4.2 billion, due largely to the increased annual distribution from its hefty $32.7 billion endowment.

Revenue also was bolstered by a 17 per cent increase in gifts for current use, from $289 million in the previous fiscal year to $339 million in the most recent year.

Operating expenses for the nation’s oldest school rose 6 per cent to $4.2 billion. Benefits, wages and other compensation expenses accounted for about half of expenses.

The financial report, authored by Harvard’s Vice-President for Finance and Chief Financial Officer Daniel S. Shore and Treasurer James F. Rothenberg, notes that the $34 million deficit is slightly less than 1 per cent of the school’s revenue. In that context, they said, it is manageable, while still meaningful.

“However, the ability to stay in financial balance going forward depends in large part on institutional commitment to cost management and an embrace of innovative revenue opportunities,” they said.

The Ivy League school can manage costs better by consolidating operations and procurement, which could also help improve efficiency, yield higher quality service and improve ability to manage vendor-related risks, according to the report.

“Culture change of this sort is hard for any large and decentralized organization,” Shore and Rothenberg said in the report. “Changing Harvard’s culture will require time, transparency, a willingness to make mistakes along the way, and the capacity to learn from them. ”

Reducing costs of benefits can be difficult because they are “experienced at a more personal level,” they said. “Yet these changes are inevitable and will allow us to protect the integrity of the high-quality teaching and research that has allowed Harvard to lead throughout the centuries.”

The report noted that Harvard is no exception from other colleges and universities facing substantial pressure as net income from tuition, particularly at the undergraduate level, grow slowly. Although the endowment earned an 11.3 per cent gain on investments in the most recent fiscal year, Harvard must use caution in planning for future distribution due to the volatility of global financial markets, the report said.

Political bickering in Washington is not helping matters either.

“The federal government’s ongoing commitment to research funding is more uncertain than it was last year, and we have already begun to feel the chilling effects of the budget sequester on research grants,” the report said.

Harvard President Drew Faust noted the nation’s wealthiest university has not been immune to the fact that a faltering economy has raised questions in the public’s mind about the value of a college education as well as the reality that every revenue stream upon which institutions of higher learning depend has come under pressure.

“We will need to meet those challenges by acting thoughtfully and decisively as a community; we will adapt where circumstances demand it; and we will remain steadfast in defending the values that make Harvard an essential contributor to the pursuit of knowledge in the world,” Faust said.

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