By Steve Kelman

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The Lectern: Hard times hit Harvard

Taking a shower at the Harvard gym I used last week, I noticed that the hot water wasn't as hot as it usually is. I thought maybe this was because I was there in the late afternoon, but I have confirmed this in several showers since then. I have not checked with anybody to confirm this, but I'm guessing the hot water temperature has been lowered in the gym to save money.

Compared with people losing their jobs or delaying retirement, this is a pretty trivial example of belt-tightening, but it illustrates the fact that universities are not immune from economic crisis. Actually, student applications to universities tend to go up as the economy goes down, as students seek an education rather than waiting for nonexistent jobs. However, the Harvard endowment has almost certainly taken a major hit -- it is invested in stocks, commodities, venture capital, and private equity -- although university officials have been vague so far about the details. New giving is likely to go way down. Government research funding is a question mark.

Our dean, David Ellwood, called a special faculty meeting yesterday at the Kennedy School to discuss our economic situation. The university has over the last few years been extremely conservative in paying out from the rising endowment (the Kennedy School's endowment is invested as part of the university's total endowment, though our endowment belongs to us, not to the university in general). At least for next year, the university is likely to pay much more out, so the amount of money the Kennedy School gets, at least next year (no promises on future years) is likely to remain constant. We don't have the option of increasing revenues by increasing the size of our degree program student body -- normally an easy way to raise revenue -- because we don't have physical space for more students. Scholarship demands are likely to rise because of the falling economy. And executive education revenue is likely also to go down. It turns out we have also put aside money over the past few years into a rainy day fund, which turns out to have been a prudent step.

Our dean announced a strategic approach toward cost savings at the faculty meeting . We will seek to protect student scholarships (at least in absolute dollars, though scholarships will take a hit if demand for financial aid grows) and junior faculty (not reducing junior faculty leave policies or changing promotion standards). There will be a salary freeze for faculty and non-union staff (union contract wage increases will not be canceled). Many of the savings, should they prove necessary, will be borne by senior faculty. We may need to teach more for the same income -- which will save money both by allowing the school to save money on adjunct faculty for teaching and also reduce term-time overcommitments being translated into additional summer salary.

Actually, although I am senior faculty and thus a potential "victim" of this, I liked the dean's approach -- concentrate the sacrifices to those who can best afford them, try to protect the most vulnerable the most, and be strategic in thinking about savings priorities. Maybe not a bad approach to be followed by other organizations during these tough times.

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Posted by Steve Kelman on Dec 03, 2008 at 12:10 PM


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