At Kennedy School, Major Cutbacks Loom

The Kennedy School of Government (KSG) will begin major cuts in programs and staffing over the next few weeks after learning that its budget deficit for the current fiscal year will be almost twice what it had anticipated.

In what KSG Executive Dean J. Bonnie Newman says will be a “painful” task, the school will have to choose which of its roughly 600 employees to release—only its 38 full professors will have complete job security.

At a staff meeting last Wednesday, KSG Dean Joseph S. Nye announced that the estimated deficit for fiscal year 2002—projected at just under $3 million at this time last year—is now $5.6 million.

Although the school already took steps to reduce its deficit—including eliminating five staff positions—Kennedy School officials have now begun to step up their efforts.

Without major cuts now, the problem will continue in years to come, officials say. Despite what Newman calls “numerous efforts to trim programs and projects,” the current deficit projection for 2003 is $2.5 million—a number that she says may increase just as this year’s estimates did.

Newman, Nye and other top officials are meeting this week with directors of the school’s centers and programs. Within the next two or three weeks, Kennedy School leaders will decide where to cut programs and staff.

“It’s clear now we won’t be able to balance the budget without personnel reductions,” Newman says. “Any organization periodically needs to take a look at what it’s doing, [but] we don’t want to take a machete approach.”

‘Painful’ Choices

Pressure to bring the KSG budget under control has come from the University’s highest ranks, according to one University official. The Corporation, Harvard’s highest governing body, has been concerned with the school’s budgetary problems. At a recent meeting, Nye presented Corporation members with a “tough plan” to eliminate the deficit.

“Now he has to carry through, they told him,” the official says.

With advice from faculty and staff, Nye will ultimately review each program individually to determine which budgets will remain intact, which will be tightened and which will be slashed altogether.

The school will continue to subsidize research where donations don’t cover the full cost—so long as officials believes the work is central to their mission, Newman says.

Newman says she will not know the extent of the layoffs until next month, but staff cuts will be inevitable.

“With the exception of senior faculty, we’ll be looking at everyone,” she says.

Although the school has not instituted a hiring freeze, it now requires that Newman and Academic Dean Frederick Schauer approve any new appointments.

Yet eliminating staff positions and programs does not mean that money will flow back into KSG’s general pool, as donated funds are often earmarked for one specific research purpose.

“The difficulty is that there’s all kinds of complicated constraints that have come by way of various donors,” says Littauer Professor of Public Policy and Administration William Hogan. “If a donor has contributed X amount of dollars for center Y, you can’t just get rid of center Y and take the money.”

As a result, Newman says, the school has asked its development office to focus more on raising unrestricted funds. Although officials throughout the University have worried that the national economic recession will lead to a drop in donations, Newman says that contributions to KSG have remained steady.

Yet the school’s youth—it was founded in 1978—means that it has relatively few alumni to draw on for donations. And since many of its students go on to public service, they usually cannot make the substantial contributions of others schools’ wealthy donors, Newman says, gesturing from her Littauer office across the river to the Business School.

Despite these disadvantages, in the past the school pursued deficits to encourage growth—a solution that has now become infeasible.

“Especially in the current weaker environment for both investment and giving, we cannot risk the health of our academic programs by permitting deficits to grow,” University Provost Steven E. Hyman writes in an e-mail.

The End of An Era

The 1990s were a period of great expansion for the Kennedy School. Over the last five years, it has increased its faculty positions by almost 40 percent, while launching new programs such as the Center for Public Leadership and the Carr Center for Human Rights Policy.

To fund these additions, the school has been running budget deficits for the last several years—in 2001, it was $3 million.

But as the deficits coincided with a national economic boom, the school’s growing endowment could at least partially meet the demands of its growth.

Yet in the new economic climate of the last year, and particularly since Sept. 11, the school’s budget could no longer absorb million-dollar shortfalls.

Kennedy School executive programs, many of which are run in Washington, D.C., saw a drop in enrollment—and some were even cancelled—following Sept. 11, leading to a loss in revenues.

“We’ve taken a fairly substantial hit because of Sept. 11,” says Peter Zimmerman, KSG’s senior associate dean for program development and executive education. “Basically, Washington froze up.”

Earlier this year, the school closed its Washington office and terminated or sub-let its leases in various Cambridge buildings in an effort to cut real estate expenses.

But KSG purchased the leases when real estate prices were high and was forced to sub-let in a declining market, taking what Newman called a “significant loss.”

Other unanticipated expenses have included overtime payments, which came to $650,000 last year.

Coming along with KSG’s faculty growth were expensive overhead costs for administrative staff and physical space.

While outside donations fund new centers and research within KSG, they rarely fully cover the overhead costs associated with such projects—which can include everything from equipment to electric bills.

According to Newman, the school is left to make up the difference.

These expenses become particularly problematic because program administrators often predict unrealistically low costs for staffing and equipment to encourage the school to approve their requests, Hogan says.

Hogan says that underestimating overhead costs is a problem that is “built into the culture” at KSG.

“People in this institution constantly underestimate what the real overhead costs are, because there are all kinds of incentives to underestimate,” Hogan says.

When the school was small, he says, its dean could raise money to offset unanticipated overhead costs, a solution that has become infeasible.

“When you get bigger it gets harder and harder, and eventually you have to change what you’re doing,” Hogan says.

‘Smaller is Beautiful’

Despite reductions in research funding, faculty at the school say that KSG will remain academically competitive.

“I don’t expect it to have any significant effect at all,” says John W. Thomas, a lecturer in public policy. “I think the school will certainly maintain its place academically.”

Although expansion will not proceed as it has over the past decade, Hogan says that “even absent a budget deficit problem I would not have expected the growth to continue.”

Ramsey Professor of Political Economy Richard J. Zeckhauser ’62 says he sees the deficit as something of a blessing in disguise that will allow the school to “prune selectively.”

“I’m one of the smaller is beautiful sort of people,” he said. “The school will be stronger if it pays more attention to what its central mission is. It would strengthen our intellectual offerings and prevent us from getting too diffuse.”

Calling KSG’s recent program and faculty increases “very precipitous,” Zeckhauser says that the school should review its projects to ensure that all current research is worthwhile.

“I think it’s a good time to take stock,” he says.

Students say they are interested in the effect of budget cutbacks not only on academics but also on morale.

The KSG cafeteria, a popular gathering place for students and faculty, loses money each year, a problem that will only grow when the University concludes ongoing wage negotiations with its dining service employees.

Although she has stressed the importance of the cafeteria to the KSG community, Newman says ending dining services at the school remains a possibility.

David Libatique, a second-year student in the school’s Masters of Public Policy program, noted that while students last year had a banquet following the completion of a major project, this year’s budget left no funds for a similar celebration.

“It makes a difference,” he says. “It affects the way students perceive their value.”

—Staff writer Elisabeth S. Theodore can be reached at theodore@fas.harvard.edu.