# FAS Fiscal Year 2026 Financial Results November 03, 2026 Dear colleagues, As the new Chief Financial Officer for the Faculty of Arts and Sciences (FAS), I am writing today to share the FAS fiscal year 2026 financial results. Fiscal year 2026 began with the FAS facing both a longstanding structural deficit and the sudden loss of federal research funding. While funding on existing grants was restored during the year (the government has since appealed the court’s decision), the interruption signaled the beginning of a longer-term shift in the federal research funding landscape. The FAS took steps to reduce recurring costs and prepared to launch a new administrative model. Each of these developments shaped the year’s financial results. On an adjusted basis\*, the FAS ended the year with an aggregate operating surplus of approximately $31 million, an improvement of $18 million over the prior year, on nearly $1.8 billion in revenue, which is an operating margin of 1.7 percent. Revenue declined by $18 million, or one percent, from FY25 (adjusted for reinstated federal research funding). The decline was primarily driven by reduced sponsored funding. Expenses declined by approximately $36 million, or two percent, a reflection of lower research spending, hiring constraints, and other budget measures taken during the year. Of note, the new administrative model, which will reduce overall administrative expense and improve coordination and service levels, began operating this fall; therefore, most of the anticipated savings will materialize in FY27 and are not reflected in the FY26 results. **The overall operating result masks an important distinction between restricted and unrestricted funds.** The $31 million aggregate surplus consists of a $158 million surplus in restricted funds, while unrestricted funds had a $127 million operating deficit. As a result, restricted fund balances increased $50 million, to $926 million, while the FAS had to draw down $38 million of unrestricted, flexible funds, leaving a balance of $112 million. Restricted gifts, endowment distributions, and grants must be used within the terms established by donors and sponsors, and most are restricted to activities in academic departments and centers. Unrestricted resources cover costs for many core activities across the FAS for which dedicated funds are unavailable or insufficient, from undergraduate financial aid and graduate fellowships to building maintenance and new academic initiatives. Unrestricted funds allow the FAS to meet unexpected needs and invest where dedicated funding does not yet exist. These are also the funds the FAS uses to support departments. The best practice across Harvard is for every School to hold flexible reserves of at least 10 percent of operating expenses. At $112 million, or 6 percent, the FAS has a $63 million gap. **Reaching a responsible level of flexible reserves remains a critical financial priority for the FAS.** Uncertainty around federal research funding illustrates why that flexibility matters. The funding interruption reduced research activity during the fiscal year. Federally sponsored research spending at the FAS fell by $46 million from the prior year. Indirect cost recovery, which helps pay for the space and infrastructure needed to conduct research, fell by $13 million. The pace of new awards remains uneven across sponsors and fields. Additionally, in March 2025, the University directed Schools to create financial capacity in their budgets through structural reductions and instituted University-wide faculty and staff hiring restrictions. FAS reduced discretionary spending, paused all non-essential capital projects, and reduced the non-ladder faculty budget by 25 percent overall. These actions contributed to this year’s improvement in operating surplus. **While these difficult interventions improved the FAS’ financial picture, it does not mean the FAS has resolved its longstanding structural deficit.** The structural deficit is distinct from the FAS’ operating results, but the two are connected. The operating results generate the cashflow that is needed to renew our facilities, maintain a large and historic campus, upgrade labs and equipment, provide new tools and technologies, and service the debt issued to fund that work. These investments are not optional. Without sufficient unrestricted operating cashflow to fund them, the FAS has two choices: to borrow from the past by drawing on flexible reserves, as it did by $38 million in FY26, or to borrow from the future, as it also did in FY26, by deferring maintenance and issuing more debt. The FAS debt burden now stands at approximately $1.5 billion, and operating cashflow must cover roughly $72 million of principal payments each year, before it can be used for anything else. **Two recent events strengthened our financial outlook.** First, donors committed $688 million in gifts and pledges to the FAS (excluding the Harvard John A. Paulson School of Engineering and Applied Sciences), the highest total in the FAS’s history. Current-use gifts, which we rely on each year to fund roughly 9 percent of our operations, exceeded our budget expectations by $18 million. These commitments support financial aid, graduate students, faculty appointments, and facilities, and will provide room for investments in those priorities. Much of the giving is restricted to these specific purposes, however, an exceptional fundraising year does not permanently change our recurring revenues because we rely on a certain level of giving each year to pay for our operations and to cover inflation. Second, Harvard’s endowment returned 27.1 percent in fiscal year 2026, increasing the value of the FAS’s endowment funds. This will strengthen distributions over time. Harvard smooths annual distributions to protect operating budgets from swings in market returns. For example, after a record 34 percent return in 2021, Harvard’s endowment had a negative 2 percent return the following year. **The strong return is welcome and will provide additional income to support the FAS starting in fiscal year 2028.** This community has worked hard to build a strong financial foundation for the FAS, and we’ve made important progress. There is still more work to be done to rebuild unrestricted reserves, keep recurring costs in line with recurring resources, and develop a sustainable way to maintain our buildings and IT infrastructure – all so we can invest in the future. These tasks will remain central to our financial planning in the years ahead and to our ability to navigate an increasingly volatile environment. But we should pause and acknowledge all we have accomplished during an especially challenging time. The improved operating result, robust philanthropy, and strong endowment performance provide an important tailwind for our future budget planning, that along with careful tradeoffs and continued discipline, should give the FAS the ability to make carefully chosen investments to advance our academic mission – investments guided, in part, by the multi-year academic plans that departments are currently developing. Julie Joncas Chief Financial Officer Faculty of Arts and Sciences \*Excludes impact of creating the Research Accelerator Challenge endowment. See also:- [ Messages from the Dean ](/news-categories/messages-dean)