Financial Report

The Year in Review

This fiscal year was simultaneously a year of change, and a return to prior patterns. It was a year in which we said a fond farewell to Dean Claudine Gay, as she assumed the presidency of Harvard University, and in August we welcomed Hopi Hoekstra as the faculty’s new dean. In the broader economy, it was a year of high inflation, modest market returns, and remarkable generosity by our donors. It was also the first full fiscal year following the global pandemic that brought a return to prepandemic levels of expenditure.

The Faculty of Arts and Sciences has emerged from the pandemic in relative fiscal health, with a fiscal year 2023 annual surplus of $62 million. The FAS’s unrestricted dean’s reserves are now at 13 percent of annual operating expense, exceeding the University recommendation of 10 percent, and ensuring a cushion against an uncertain future.

Our fiscal health has enabled continuing investment in the excellence of our faculty, through our hiring initiatives, and in expanding affordability of a Harvard College education. In fiscal year 2023, we significantly expanded the Harvard Financial Aid Initiative (HFAI) for low- and middle-income families. Beginning with the Class of 2027, the cost to attend Harvard College is free for families with annual incomes below $85,000, and expected contributions for families with incomes between $85,000 and $150,000 max out at 10 percent of annual income.

We are proud of the resilience of the Faculty of Arts and Sciences, and of the work of our faculty and staff to manage the FAS through the pandemic period. At the same time, we must acknowledge potential financial challenges ahead. The FAS is reliant on endowment distributions for 51 percent of operating revenue. This year’s endowment return was 2.9 percent, marking the second year in a row of below-target earnings. While the Harvard Corporation manages distributions to reduce the impact of down years on the FAS, continued below-target earnings could constrain revenue growth in future years.

As we approach the future, we will do so with awareness of potential challenges and a strong financial position. Through long-term planning, and thoughtful investments in our mission, we will ensure the continued excellence of the Faculty of Arts and Sciences.

Fiscal Year 2023 Financial Results 

This report presents the Faculty of Arts and Sciences’ (FAS) financial results for the fiscal year ending June 30, 2023. This narrative does not include financial results for the Harvard John A. Paulson School of Engineering and Applied Sciences (SEAS). For consolidated results of FAS and SEAS, please see the Faculty of Arts and Sciences Financial Report Appendix, which includes the operating results in both the Balance Sheet and the Modified Generally Accepted Accounting Principles (GAAP) and Management, or cash, views for the Faculty of Arts and Sciences (which includes SEAS). 

Compensation

Compensation—salaries, wages, and benefits—is the Faculty of Arts and Sciences’ largest expense, comprising 46 percent of the total. In fiscal year 2023, compensation totaled $707 million, which was 8.5 percent more than 2022, an increase of $58 million or 2.2 percent from 2019, on a compound annual average basis. The fiscal year 2023 increase in compensation follows two fiscal years of decreases in compensation costs following the voluntary early retirement program in 2020 and a high vacancy rate due to difficulties in hiring and retention driven by challenges in the broader labor market. The FAS’s significant growth in compensation in fiscal year 2023 was a result of (i) competitive pay increases for employees, including ratification of a new contract for union employees, (ii) an equity review of nonunion staff salaries, in response to the rapidly changing labor market, and (iii) year-over-year workforce growth of 6.4 percent as units worked to fill strategic vacancies to prepandemic levels. Cost of employee benefits remains relatively flat, having grown 1.2 percent from 2022 to 2023 and only 0.3 percent on a compound annual average basis since 2019.   

Noncompensation Expenses 

Noncompensation expenses, including expenses for space and occupancy, supplies and equipment, and services purchased, increased $65 million or 8.4 percent over fiscal year 2022 as on-campus activities have surged back to levels seen before the pandemic, an increase of $118 million. Growth included a $27 million increase in other expenses (including travel and food/catering), an increase of 63 percent over fiscal year 2022. Travel related expenses grew 111 percent over fiscal year 2022, as Harvard lifted all travel restrictions in June 2022. Expenses related to space and occupancy have also grown, contributing an additional $14 million to the total growth, an increase of 8.3 percent over fiscal year 2022. Pandemic-related expenses for testing, masks, air filtration, and rental of isolation housing decreased from $16 million in fiscal year 2022 to $7 million in fiscal year 2023. Overall, noncompensation expenses have rebounded to prepandemic spending levels, growing 3.9 percent from 2019, on a compound annual average basis. 

Net Results 

Overall, in fiscal year 2023, revenues totaled $1.6 billion, and expenses totaled $1.5 billion, for a surplus of $63 million under Generally Accepted Accounting Principles. On a cash basis, the surplus was $108 million. Of that amount, $46 million was added to the dean’s unrestricted reserves, which brings FAS unrestricted reserves to $205 million (over 13 percent of annual cash operating expense). The remaining fund balances were added to restricted endowment, gift, and sponsored reserve accounts. These reserves will provide the FAS resilience as we enter a period of potentially lower endowment returns and resources as we continue to support our faculty and students at the highest levels. 

Consolidated Net Results (excluding SEAS)