Wage, Budget Freezes Possible as Harvard Looks to Spend Less

Even the world’s richest university is feeling the pinch from the economic downturn.

Harvard’s president, Drew Faust, said last week that the university is looking for ways to reduce spending across the campus, raising the specter of cuts to programs and compensation, as Harvard’s endowment plummets. It is also assessing all aspects of its sweeping plan to expand across the Charles River in Allston, she said.

“We must recognize that Harvard is not invulnerable to the seismic financial shocks in the larger world,” Faust wrote in an e-mail to faculty, staff, and students.

She did not specify what cuts were on the table and declined to be interviewed.

“The letter is the letter,” said John Longbrake, university spokesman, who would not elaborate on the implications of Faust’s e-mail. “Look, this is a serious situation, and they’re planning and looking at things across the board.”

A Harvard official familiar with its financial picture said the university is considering imposing a wage freeze for administrators and faculty, as well as a budget freeze on all programs. The Faculty of Arts and Sciences, Harvard’s largest faculty, is confronting a loss of roughly $4.5 billion in the market value of its endowment, which would translate to a net loss of $225 million from its budget, the official said on condition of anonymity because the plans are not final.

Harvard’s move follows a range of belt-tightening at colleges and universities across the country.

Last month, Boston University instituted a hiring freeze and a moratorium on all construction projects that are not already underway. Yesterday, Dartmouth College said it was trimming its budget after its endowment lost $220 million during the turmoil. The New Hampshire school’s endowment had finished the fiscal year at $3.66 billion. Brown and Cornell also imposed hiring freezes recently.

Harvard’s endowment before the economic crisis was $36.9 billion. The money funded more than a third of the university’s annual $3.5 billion operating budget.

Harvard officials would not say how much the endowment has lost in recent months, but Faust referenced a Moody’s projection of a 30 percent decline in the value of college and university endowments this fiscal year. For Harvard, that would mean an $11 billion loss - that is, about $550 million in lost income.

Also under review are Harvard’s expansion plans in Allston, Faust said. Construction projects that remain the highest priority include a $1 billion science complex in Allston and a law school addition in Cambridge, and renovations to the Fogg Museum.

Faust’s letter laid out other financial challenges that Harvard faces, despite its great wealth.

The university cannot expect continued generous contributions from donors and foundations, she said. The pool of federal grant money for research is also at risk of drying up.

And any increase in tuition, which accounts for 20 percent of the university’s revenue, should be kept modest during the tough economy, Faust said. It costs $47,215, including room and board, to attend Harvard, a 3.5 percent increase from last year.

Amid the financial storm, Faust affirmed Harvard’s commitment to recent initiatives to expand financial aid for low- and middle-income families. Students from families making below $60,000 will still get a free ride, she said. And families making up to $180,000 per year can expect to pay no more than 10 percent of their income.

Some faculty members said Faust’s letter, though sobering, did not come as a surprise.

“This strikes me as a drumbeat getting us ready to think in terms of a slowdown in growth, or even cuts and freezes,” said Andrew Gordon, a history professor on Harvard’s faculty council.

Michael Smith, dean of the Faculty of Arts and Sciences, was unavailable for comment. But he warned faculty and staff yesterday that everyone would be affected in the belt-tightening. The Faculty of Arts and Sciences draws more than half its operating expenses from the endowment.

“Given the prominence of endowment income in our finances, we must consider budgeting scenarios that significantly reduce our annual operating expenses,” Smith wrote in an e-mail after Faust’s letter.

Wilfried Schmid, a math professor who also serves on the faculty council, said Faust’s reaction to the bleak economy is sensible.

“Nobody has any idea whether this is going to be a replay of the Great Depression,” Schmid said in an interview. “Harvard is resilient enough to weather quite a storm, but exactly what this means, we’ll have to see. Harvard is still the top university, and we’ll do whatever’s necessary to stay there.”