Harvard University's Faculty of Arts and Sciences (FAS) is confronting a significant financial challenge, with a projected structural deficit of approximately $350 million. The figure, which represents about 20 percent of the school's yearly operating budget, was announced by FAS Dean Hopi E. Hoekstra in a message to the university community on Tuesday.
The shortfall is attributed to a combination of factors, including the recent increase in the federal endowment tax and a steady rise in long-term operational costs. In response, the administration is planning substantial, long-term structural changes rather than temporary spending cuts.
Key Takeaways
- Harvard's Faculty of Arts and Sciences has a projected structural deficit of $350 million.
- This amount is equivalent to roughly 20% of the FAS annual operating budget.
- Key causes include a federal endowment tax and increasing long-term expenses.
- Dean Hopi E. Hoekstra has called for "lasting structural changes" to ensure long-term sustainability.
- Cost-cutting measures, including a hiring freeze and reduced PhD admissions, are already in place.
Understanding the Financial Pressure
The $350 million projection was developed by the Faculty Resources Committee, a group Dean Hoekstra reconvened this spring to address the school's financial health. This committee previously helped navigate the university through the 2008 financial crisis.
A structural deficit indicates that an organization's core expenses are growing at a faster rate than its revenues over time. This creates an unsustainable financial model if not addressed directly.
While the FAS had not reported an annual deficit since 2020, recent financial reports show a concerning trend. The school's budget surplus was $62 million in fiscal year 2023, but that number dropped to just $3 million one year later. For the fiscal year 2025, the FAS concluded with an $8 million deficit, signaling the growing gap between income and expenses.
By the Numbers
- Projected Deficit: $350 million
- Percentage of Budget: ~20%
- FY 2025 Deficit: $8 million
- FY 2023 Surplus: $62 million
Causes and Contributing Factors
The administration has pointed to several key drivers behind the projected shortfall. A primary factor is the increase in the federal endowment tax, which affects how much the university can draw from its extensive endowment to cover operating costs.
In addition, long-term operating costs have been steadily climbing. The projection does not yet factor in potential future challenges, such as changes in federal funding for research. Uncertainties remain regarding federal agency budgets, the number of new grants awarded to faculty, and the reimbursement rates for indirect research costs, all of which could place further strain on the budget.
Proactive Measures Already Taken
Concerns about the budget have been growing for months. In anticipation of financial tightening, the FAS has already implemented several significant cost-saving measures, including:
- Pausing all non-essential capital projects.
- Significantly reducing the number of Ph.D. admissions.
- Instituting a halt on most staff hiring.
- Maintaining a flat budget for the current year.
A Strategy for Long-Term Sustainability
Dean Hoekstra emphasized that the current situation requires a fundamental rethinking of the school's financial structure, not just temporary adjustments.
"This is not a moment for short-term belt-tightening, but for making lasting structural changes that strengthen the foundation of the FAS," Hoekstra stated in her message.
To achieve this, a Task Force on Workforce Planning was established in the spring. According to Hoekstra, this group has proposed a "more efficient" administrative model. The design phase for this new operational framework is set to begin this winter and will continue throughout the spring semester.
The goal is to realign the school's resources more closely with its core academic mission. By acting now, the administration hopes to make careful and strategic adjustments over time.
"While lasting change will take time, the earlier we begin to realign our resources with our academic mission, the more time we will have to make deliberate, thoughtful changes that preserve what matters most," Hoekstra concluded.
The Faculty Resources Committee is expected to present its findings in more detail during the next FAS monthly meeting.