Learning to Live with the Squeeze

Paul C. Cabot '21, former Treasurer of Harvard, was in his office one day nearly 25 years ago when an elderly, disheveled man wearing an old coat drenched from a rainstorm outside walked in and sat down. Placing his briefcase on the floor, the intruder reached in and drew out his wet, muddy galoshes, and proceeded to drop them on the fine office rug. Before Cabot could say anything, the man, Arthur D. Stillman, reached in his briefcase once more and handed Cabot over $1 million worth of securities in AT&T.

Stillman's donation came in an era of an expanding national economy when former President Nathan M. Pusey '28 could easily tap great fortunes for large' scale development. But "Harvard's ability to call on wealthy alumni is rapidly nearing an end" one University fundraiser says, and Treasurer George Putnam Jr. '49 now concedes that Harvard currently faces "the hard realities of an acute financial bind where there now exists a need for hard choices."

The bottom line of soaring inflation and crippling recession that are hitting the traditional sources of outside gifts is that the cost of operating Harvard is nearly outrunning the University's ability to pay. In recent years, Putnam says, President Bok and Hale Champion, financial vice president, have "succeeded in squeezing all the old fat out, but you can't do this forever. Eventually the choices will have to be made."

To fight off the impending squeeze, Bok said this week that the University is turning to the fundraising efforts of the Development Office to cultivate new sources of income and improve upon the traditional sources of giving. It is a challenge which that office has faced in the past, and Harvard is meeting it head on with innovative techniques especially adapted for the tight economy.

The University's fund raising style is designed to tap more financial resources than in the past, by running several separate drives at once. Each one gears its approach to a constituency with a special concern in the development of one facet of the University. Not only is Harvard going overseas to reach untapped and valuable foreign fund resources, but the University has also created programs that will catch the eye of various American ethnic groups, and still others that appeal to the self interest of American and foreign corporations.

"We can appeal to self interest," Dr. Chase N. Peterson '52, vice president for alumni affairs and development, explains, "and claim that our program will benefit the group that we approach." In the East Asian Studies Program, for example, the University has been remarkably successful in convincing Japanese, Korean, and other East-Asian-based corporations that an East Asian center at Harvard will ultimately benefit these corporations because it will strengthen ties to the United States. In this same way a group of Korean business men has contributed $1 million for a chair in Modern Korean Economics and Society, hoping the chair will provide valuable training for students who will eventually return to Korea.

Similarly the Program for Jewish Studies is directing its appeal to the American Jewish community in hopes that this "valuable resource of charitable money" as one fundraiser calls it, can be tied to the University.

Harvard has done more, however, than simply redesign its fundraising drives to appeal to a certain interest group. "When the financial times are hard you get lean, musclier, and hungrier, and you start to open your door to newer forms of giving," one fundraiser said last week.

One of the more bizarre plans the University has right now is the sale of land in Florida that could net Harvard as much as $10 million.

The make-up of Harvard University determines the underlying push of these fundraising efforts. Not only are few programs free from the financial squeeze, but Peterson is now beginning to claim that if Harvard cannot "get off the plateau" and significantly increase its sources of funding, then the "golden era of Harvard College when the University could always afford to offer substantial scholarships could be nearing its end." "Harvard is the place of pre-eminent excellence," Peterson believes, and it is the fundraising done on a year by year basis that makes the University go. Without momentum, if we just sit on our hands, the Harvard of today would decay."

When Pusey gained office, he undertook the first massive fundraising effort which would radically change the structure of the University. Pusey inherited the sad financial legacy of the Conant years, during which the one major fund drive, the Tercentenary, attempted in 1936 in the middle of the Depression, was a tremendous failure. As a result of the generally poor state of fundraising, Conant attempted cut back faculty positions. The furor these cuts stirred near toppled the Conant administration.

Because of World War Two, many of the University's maintenance needs went unheeded and a great increase in House occupancy severely taxed Harvard's housing capability.

Thus when Pusey moved into Mass Hall, he recognized that fundraising would be a major factor in his administration. Pusey was convinced that American higher education had to get on a higher financial plateau if it was ever to satisfy burgeoning educational needs and provide the scholarships to make Harvard a national university.

Pusey began an extensive study of the University's needs and coaxed Faculty dean McGeorge Bundy and the Harvard Corporation into backing a huge $82.5 million general fund drive--The Program for Harvard College--to be kicked-off once a $6 million drive for the Divinity School started by Conant was completed.

No private institution, let alone university, in the United States had ever attempted a drive of this proportion before. "It was a quantum leap from anything thought of at the time," Pusey recalled last week. "With the expanding economy and the mounting operation expenditures, the costs of standing still were enormous, and this occupied me constantly," Pusey added.

The drive's success was widely heralded and called significant attention to the needs of American higher education. It would have great influence upon federal, state and foundation funding to American universities.

"People were scared at the time," James R. Reynolds '25, director of Development under Pusey, recalled last week. He added that Pusey ordered a feasibility study which showed that the alumni had a positive attitude toward giving. Reynolds was instrumental in organizing the regional alumni organizations into powerful fundraising organs that would lie at the heart of all the later fund drives conducted by the University.

The Program for Harvard College would take three years to complete and ultimately increase money for Faculty endowments, boost financial aid to undergraduates, establish the University Health Center and the current athletic program, and provide money for endowments and undergraduate and married student housing.

During the Pusey years, many of the standards and practices that now dominate fundraising were perfected. "There is a group in every generation who even in bad times can give to Harvard," Reynolds says. "But in order to raise this money you need to know your constituency--who they are, what they are, what they are interested in, and be able to identify their gift-giving potential. You need communication and cultivation of your constituency because if the alumni are not advised of your interests then they will not know how to give."

The Pusey administration's ability to cull Harvard alumni dollars shows the success of Reynold's formula. Pusey's fundraisers racked up an additional $125 million through the remainder of his term, making a grand total of $207 million. Money from the drives went for the creation of Medical and Law School development offices, the program for Harvard Science (which eventually built the science center), the Pusey Library, and the International Studies building.

All told, during the Pusey years the operating budget of the University went from $39 million to nearly $200 million. Harvard received a total of $600 million in new funds and the market value of the endowment nearly tripled, from $342 million to more than $1 billion. The cost of running the University's single largest budget--the Faculty of Arts and Sciences--rose from $11.8 million in 1953/4 to $70 million by the time Pusey left office. In addition, during the Pusey years the number of living alumni rose from 95,000 to over 156,000.

When President Bok succeeded Pusey in 1971 the University's financial outlook seemed secure. Harvard had just completed one of its most successful drives ever--The Program to Finish a Job for Harvard--established to implement all those programs Pusey had wanted but not attained during his administration. In a near-Herculean effort, John Loeb '24 headed a six-month, January-to-June drive that netted $9.5 million.

Underneath, however, there were sings that all was not well. A series of management reports released at the time anticipated heavy financial pressures just around the corner. The reports advocated more administrative talent topside to carefully manage and control internal financial management and cultivate sources of income to the University. Bok changed the management of the University by creating four vice presidents. In addition the Harvard Management Corporation was set up to handle the University's investment portfolio and real estate, a move which has allowed the University to spend more time improving the value of its capital.

George F. Bennett '33, Treasurer of Harvard from 1965 to 1971, said this week that when Bok took office, "Harvard, for the first time in years, recognized that it had to decide what it wanted to do in terms of what it could do. There was a sense that we were entering the years of hard choices and we began to take the appropriate steps."

History has to a large degree borne out Bennett's perception of the economy. Inflation has forced the University to trim back many operations and to raise more money from outside sources of income. In energy and fuel expenditures, for example, costs rose by more than $3 million despite a 22 per cent cutback in energy consumption during the past fiscal year. Undergraduates have felt inflation in real terms most heavily in the past three years alone; the cost of attending Harvard/Radcliffe has risen from about $5025 to more than $6450.

Coupled with the inflationary impact is the recession that has depleted the assets of the foundations that have traditionally supported Harvard. The squeeze is of course apparent. Operating costs are skyrocketing while the ability to raise income is becoming increasingly more difficult.

A breakdown of the income components within the University's 1974-75 budget provides and additional picture of the financial problems facing Harvard. During the late 1960s, student revenues contributed a little more than 20 per cent of total income. Since 1968-69, however, the percentage of revenue derived from this source has increased steadily, reaching 28 per cent last year. Though this year students provided 27 per cent of the income, it is clear that tuition will continue to rise, and play an ever-increasing role in the income side of the economic picture.

The 1974-75 budget also shows that government funds, which in 1967-68 made up 40 per cent of all University revenue have steadily declined in importance, reaching the 25 per cent level last year. Harvard must rely upon student fees and will continue to milk this source of income for several years hence. But with government funding declining, outside funds raised by the Development Office will be the final bulwark preventing Harvard from pricing nearly all students out of the market.

President Bok said this week that the financial well-being of Harvard is a "fundamental long-term problem." "Harvard is more fortunate than many other institutions but it is now imperative that we must work very hard to control expenses, plan more carefully, and raise more money in order to make ends meet." Peterson now begins every corporation meeting by briefing members on the long range questions of fundraising.

Peterson can readily reel off a list of programs and parts of the University that are most acutely hit by the financial bind.

Because of inflation, faculty salaries, graduate teaching fellows and many of the programs at the school of education have been phased out. The Russian Research Center and the University's libraries and museums are currently keeping pace with inflation through a combination of minor retrenchments, including revenue drawn from the Faculty budget. Indeed many of the drives the development office now heads are designed to provide endowments for these libraries and museums.

Harvard is now forced to establish its place in the current national economy, fighting harder than ever before to make ends meet and cultivating new sources of outside giving. It is a period not unlike those years when Pusey was considering the massive Program for Harvard College. "It was a different world then," Pusey remarked, "but if we had never undertaken the drive Harvard would have been left at the starting line."