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JOHN HARVARD’S JOURNAL

ences as biotechnology grows in the years have a chance to interact with. I had for- Buildings and ahead [see “Biomedical Momentum,” No- gotten, in the years that I was away from vember-December 2003, page 54]. the University, just how many truly bril- Benefits liant people are here. And it is the glory of On paying for the academic plans and campus ex- the University that it is not any kind of hi- The story of Harvard’s 2003 budget pansion. erarchy: that people seek truth wherever came down to benefits and buildings. We raised $562 million last year thanks they can find it; that it is one of the very During the 12 months ended last June 30, to the generosity of Harvard’s many few human institutions where a 25-year- the University’s revenue totaled $2.47 bil- friends. That was an 18 percent increase old who has just arrived can reject the pet lion—a 5.3 percent increase, just slightly on the previous year and the second high- idea of a revered senior figure and be con- slower growth than in the prior fiscal est year in Harvard’s history. gratulated for it. year. Expenses climbed $171 million, to In terms of a University campaign, At the same time, that very flexibility $2.43 billion—higher by 7.6 percent, but that’s something that people are starting that makes the University so great can an improvement from the nearly 11 per- to think about, but before we launch any sometimes make a job like mine a chal- cent spending growth in the prior fiscal kind of campaign, it would be very impor- lenge. One friend of mine who leads a year. “It was nice to see that expense tant for us to have a clear idea of what’s company said to me, “Let me understand. growth slowed,” said Ann E. Berman, vice going to happen in Allston, a clearly Most of the important people at your in- president for finance, discussing the an- defined set of priorities around the devel- stitution have jobs for life. You have very nual Financial Report to the Board of Overseers opments in , a real sense little scope to change their compensation of Harvard College, published December 8 of how our professional schools are going and they, not management, choose their (and available on line at http://vpf-web.- to make a great contribution in serving successors.” I said, “That’s right—but harvard.edu/annualfinancial/). society, and a powerful vision for how anything you would gain in e∞ciency Berman characterized the two princi- Harvard can really present itself as one from being more hierarchical would be pal drivers of expense growth very di≠er- university, not a set of tubs with pipes more than lost in creativity.” ently. She called the 22 percent increase in connecting. I think we’re making good But I do think we do need to work on space and occupancy costs, to $241.2 mil- progress toward each of these objectives developing more collaborative approaches lion, or about one-tenth of Harvard’s [see page 68]. across the schools, and that in our non- budget, “expected and understood.” The academic functions, we need to set the University has been in an historic build- On Harvard’s culture, as seen from Massachusetts same kind of standards of excellence that ing boom (see graph), investing the fruits Hall, following his earlier experiences as graduate the best business organizations set for of the 1990s capital campaign and high re- student, faculty member, and then public servant in themselves. turns on the endowment in new acade- organizations such as the World Bank and United mic buildings, renovations (like the States Department of the Treasury. On the Harvard he envisions a decade hence. overhaul), badly needed It’s a great place. I’m having the time I’m feeling good about the directions graduate-student housing (like One of my life and look forward to coming to in which the University’s moving. If we’re Western Avenue), and acquisitions (more the o∞ce every morning because of the able to keep going—and it depends on land in Allston, the Blackstone steam ability and commitment of the people I good luck, and on a lot of people—the plant in Cambridge). As facilities open Harvard of 2013 will have and are financed, operating and interest a dynamic, new curricu- costs rise; during the year, debt outstand- lar experience for its stu- ing increased about $400 million, to $2.25 dents, terrific new spaces billion, with further borrowing in for student activities, a prospect as the Medical School’s new re- thriving set of science search building, the Center for Govern- programs that will have ment and International Studies in the attracted an even larger Faculty of Arts and Sciences (FAS), and fraction of the best young other major projects come on line. scientists in the world On the other hand, the explosion in than we have today, pro- employee-benefit costs is “a concern,” fessional schools that are Berman said. Compensation costs, $1.26 at the forefront of na- billion, account for more than half of Har- tional and international vard’s expenses. While salaries and activities in their profes- wages increased 6 percent, pension and sion, and ground broken healthcare costs surged an extraordinary and foundations laid and 36 percent, to $274.2 million, reflecting an Allston campus start- the convergence of adverse factors. One ing to rise. was adoption of a new, more generous

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Facility Expenditures pension plan for salaried and 800 A bull market in bricks and mortar, as Harvard’s annual investments in unionized employees during the building projects and acquisitions exceed a half-billion dollars during 700 past two years, to achieve compa- the past three fiscal years (figures in millions of dollars) rability with the faculty pension plan. Another was the adverse 600 e≠ects of low interest rates on the prior plan, which had previously 500 generated net income for the Uni- Capital expenditures

versity. Pension costs doubled as 400 In 2003 dollars a result. More conservative as- sumptions about future rates of Five-year average 300 return on plan assets almost guarantee higher pension costs in the current fiscal year, Berman 200 said, and for the future as well if interest rates remain low. Health- 100 benefit costs continued to surge, having risen nearly 90 percent 0 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 during the past five years, and updated assumptions about fu- ture costs drove the expense for post- ministrative spending, if possible, in the den—but projects only 3 percent increas- retirement benefits up some 60 percent. near future (see “Barer-Bones Budgets,” es for fiscal 2006 and beyond. So in FAS’s Given these adverse factors, the rein- November-December 2003, page 58). next budget, for example, benefit costs ing-in of expenses elsewhere in the Uni- Within the schools, the process may be alone will rise by twice as much as its in- versity’s books can be taken as something subtler, but the pressures are the same. vestment income (the source of half its of a victory. Similarly, the growth in rev- The University’s fringe-benefit rates ap- revenue). With very large buildings in enues appears relatively favorable. During plied to wage and salary costs will rise by construction (see page 71) and more than fiscal year 2002, distributions from the about 8 percentage points (some $89 mil- half a million square feet of FAS labora- endowment to support operations were lion) for fiscal year 2005, beginning July 1. tory space proceeding through design and increased by $134 million (21 percent), to The Corporation decided on December 8 permitting—and a commitment to hire $749 million (plus $85.2 million for All- that the endowment payout will increase more professors to populate them—larger ston costs). But then austerity set in: in by 4 percent for fiscal 2005—twice the fixed costs, and uncomfortably tight fi- fiscal year 2003, endowment funds dis- 2004 boost, to help with the benefits bur- nances, loom in the relatively near future. tributed rose just 2 percent, to $770.7 mil- lion (plus the Allston assessment, an- other $80 million). Taking up some of the slack were faster growth in tuition in- Archive films,” he says. “We lend it out sparingly.” come than in the prior year, and a 15 per- That is but one of nearly 9,000 films in cent rise in gifts for current use, to $151.9 Goes Silver the . This fall the million: “Not the disaster that one might archive, founded in 1979, began a year- have expected, given the economy,” Recently, a caller from the Austrian long celebration of its twenty-fifth an- Berman said. The rate of growth in spon- Film Museum in Vienna had two ques- niversary with a benefit screening of Mys- sored-research support also doubled, to 6 tions for Bruce Jenkins, Cavell curator of tic River, the new, highly regarded picture percent, bringing in $548.9 million in the Harvard Film Archive: Do you have a from director Clint Eastwood. (Before the such funds. copy of Sherlock Jr., the 1924 silent-film clas- film rolled in Sanders Theatre, Eastwood, The net result was that Harvard’s bud- sic starring Buster Keaton? And if so, is it on videotape, saluted the Film Archive’s get surplus narrowed to $40 million: a full-picture width—not cropped, as many milestone.) A few weeks later, director surplus of nearly $70 million in operations silent pictures were, in a later release, to Errol Morris showed his new documen- supported by restricted funds, partly make room for a sound track? Happily, the tary, The Fog of War, based on interviews o≠set by a deficit of nearly $30 million in answer to both questions was yes, and the with former U.S. Secretary of Defense operations dependent on unrestricted archive sent the film to Austria. “Some- Robert McNamara, M.B.A. ’39, LL.D. ’62. funds—the latter a “disheartening” out- times we have the best existing print of In November, the first film ever screened come, Berman said. That makes her priori- a film—or even the only print,” Jenkins at the archive, Ernst Lubitsch’s Lady Win- ties for the future simple: “We’re focusing explains. There is, for example, “a deli- dermere’s Fan (1925), was projected with on expense growth,” pursuing savings ciously rare film noir—Detour, made in live piano accompaniment. A spring event wherever attainable to achieve level ad- 1945 by Edgar G. Ulmer, the king of the B- will feature actor Tommy Lee Jones ’69, a

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