By Ken Gewertz

Gazette Staff

Harvard has maintained its financial stability and made strong progress toward meeting its goals in a rapidly changing economic environment, according to the FY 1995-96 Financial Report, issued last month.

Vice President for Finance Elizabeth "Beppie" Huidekoper said that the Report reflects an institution successfully adapting to multiple pressures and demands.

"The University is improving in many ways during a time of constrained economic resources and rapid change in higher education," Huidekoper said.

The Report provides a portrait of the University's financial condition for the fiscal year ended June 30, 1996. It includes analyses of financial results and endowment growth, a review of construction activities, the annual report of the Harvard Management Co., and supplemental information in graph form. The document also discusses the current financial picture in the context of the last 20 years, and outlines future challenges.

A Financial Portrait

According to the Report, the University's endowment was $9.1 billion, compared with $7.4 billion last year. New reporting rules require that calculations for the endowment include $247.1 million in money pledged to Harvard but not yet collected.

The increase in the University's endowment was the result of several factors, among them the excellent performance of Harvard's investment portfolio. Total return on endowment in 1996 was 26 percent, compared to 16.9 percent in 1995.

The Campaign brought in $330 million in new pledges and gifts in 1996. The campaign's goal is to raise $2.1 billion before the close of 1999.

In FY 1996 sponsored research support totaled $339.7 million, an increase of 1.0 percent. In 1995, the comparable increase was 5.2 percent. Support for direct costs of research grew by 1.5 percent for federal support and 3.6 percent for nonfederal support. However, reimbursements for indirect costs declined by 2.5 percent.

The University's total revenues were $1,518.7 million, compared with $1,466.9 million last year, while total expenses were $1,520.9 million, up from $1,470.2 million the year before.

The University's annual operating deficit dropped to $2.3 million from $3.3 million last year, the fifth consecutive year in which the deficit has diminished. Much of this decrease is due to ongoing efforts at containing costs, and streamlining systems.

"Because cost reduction provides the opportunity to fully or partially fund new initiatives by reallocating existing resources," the Report states, "efforts to reduce costs and to improve the efficiency of Harvard's administrative and service operations continued unabated."

Challenges and Achievements

The Report highlights a number of achievements over the past year, all of which were set out as objectives in the academic planning process. Forty-eight tenured faculty appointments were made in FY96 -- some of which replaced retiring faculty while others represented important additions to individual faculties.

Significant progress was also made in renovating and renewing facilities to support research, teaching, and student life. The restoration of Memorial Hall was completed, renewal of the Barker Center for the Humanities was begun, the School of Public Health's François Xavier Bagnoud Building was completed, and the Law School began renovating the Langdell Law Library.

At the same time, strategic investments were made in information technology to support students and faculty, and student aid grew at a faster rate than tuition increases.

These achievements were realized in a year when student income grew by only 4.3 percent and sponsored funding was essentially flat. The success of the Campaign and the endowment returns, coupled with continuing efforts to control costs, have enabled the University to make these strategic investments.

Efforts to contain costs included the introduction of new purchasing alliances, the restructuring of a number of central service departments (Harvard Planning and Real Estate, the former Office for Information Technology, and the Harvard Printing and Publications Services), and the launching of project ADAPT -- the multi-year effort designed to streamline administrative processes and systems. Additional cost containment efforts are ongoing at virtually every level of the University.

The Report suggests that the ongoing challenges to the University will be to respond to the anticipated decline in sponsored support, to continue to make strategic investments to achieve academic and programmatic objectives, to succeed in the Campaign, and to continue to rigorously manage expenses.

An additional concern is keeping tuition increases moderate while continuing to provide the level of financial aid required to make Harvard accessible to talented students regardless of their financial resources.

In FY 1996, combined undergraduate tuition, room, board, and fees increased by 5.1 percent, the lowest percentage increase since 1969. Expenditures for scholarships and student assistance continued to grow faster than tuition and fees, reflecting what President Neil L. Rudenstine has called "a steady and powerful commitment to access and affordability."

A New Format

The FY96 Report is presented in a different format from previous years as a result of new standards of reporting required by the Financial Accounting Standards Board (FASB). The changes reflect an increasing demand for consistency in the way in which nonprofit institutions report their financial situation.

Under the new rules, nonprofits must provide a balance sheet, a statement of changes in net assets, and a statement of cash flows, focusing on the organization as a whole. Net asset balances must be displayed in three categories -- unrestricted, temporarily restricted, and permanently restricted -- based solely on donor-imposed restrictions. And pledges must now be included on the balance sheet as a receivable, with an equivalent increase in net asset balances.

The Report is available on request from the Office of Financial Systems (495-4532).