Once Ambitious, Harvard Revisits Allston Planning

Stymied by financial constraints, Harvard’s expansion is now dictated by near-term pragmatism

Whether the first-year President was truly indignant about the headline emblazoned on the front page of her morning newspaper or whether her reaction was merely an attempt at damage control is difficult to discern. Regardless, Drew G. Faust, in a break with her usual public restraint, wasted no time in quashing the report.

“Harvard is not ‘rethinking’ Allston,” she wrote that December morning in 2007 when the article was published. “I am unequivocally committed to moving aggressively and ambitiously forward, and to making our unfolding plans a reality.”

A year and a half later, with the world fully steeped in financial turmoil, that report in the Boston Globe—which suggested that Faust was distancing herself from the confrontational, fast-moving style of her predecessor, Lawrence H. Summers, and rethinking the University’s outsized Allston plans—seems remarkably prescient. The University has not only struggled to make ends meet in an unprecedented fiscal crisis, but it has also reined in its visionary—and what some have criticized as financially irresponsible—plans to construct a new campus across the Charles.

In November, Faust wrote that Harvard would weather the market turmoil by “staying true to our academic values and our long-term ambitions.” But just three months later, she cited the University’s “collective obligation to face the situation with the right balance of short-term focus and long-term ambition” in soberly announcing her decision to slow construction of the Allston Science Complex—long considered the lynchpin of Harvard’s 50-year planned expansion.

Now, with the University’s budgets critically strained, some have suggested that Harvard’s present fiscal challenges have arisen in part because financial planning for Allston was given short shrift by Summers, who instead set his sights on loftier institutional and research goals.

“I think the Allston project was a combination of genuine ambition for Harvard to remain at the forefront of scientific breakthroughs and for President Summers to have created something for which he would be remembered,” says former Dean of the College Harry R. Lewis ’68. “To go out and borrow money on buildings, on top of [a troubled budget] without having a plan for raising the funds—credible, realistic plans for building—was a mistake in my view.”

Others defend the former President’s plans, arguing that the University’s heavily debt-financed and accelerated Allston expansion was essential for Harvard’s continued scientific competitiveness, and that the planning was not unusually or excessively risky. Rather, they say, a confluence of unfortunate events decimated University budgets and forced Faust’s hand.

“It would have been so imprudent and financially impossible to go ahead with this pace and scale,” said University Provost Steven E. Hyman in a recent interview with The Crimson.

Whatever the origins of Harvard’s current predicament in Allston, it is clear that, at least for the foreseeable future, the visionary “blue sky” planning once preached during the Summers era has been replaced by a more measured, fiscally somber planning process.

‘BLUE SKY’

Since his earliest days in office, Summers was openly ambitious about his plans to transform Allston, a vision he hoped to make the hallmark of his tenure. As evidenced in his annual letters to the community, his primary motivation to invest in Allston was to ensure the continued strength of the sciences at Harvard, which he said would soon suffer from a crippling insufficiency of space.

Alyssa A. Goodman, an astronomy professor who served on the Provost’s Advisory Group on Science at the time, recalls the visionary scope of Summers’ ambitions.

“A faculty group is not usually convened to just dream big,” Goodman says. “But everyone was told, ‘We want to know what you would do if you didn’t have to worry about the costs.’ It was kind of refreshing.”

Summers’ eventual plan for the new campus—first presented to Harvard’s deans at a summer retreat in 2003 and officially announced that fall—boldly called for both the construction of undergraduate housing and the relocation of two graduate schools to Allston, all anchored around a hub for interdisciplinary science research.

To “consider more fully the opportunities and challenges” inherent in these programmatic goals, Summers convened four Allston task forces in 2003 to examine elements of the plan more closely. Goodman says that these committees eventually did touch on budgetary considerations in its evaluation of different ideas.

But while most of the deans and faculty agreed that Harvard’s long-term needs required an energetic push into neighboring Allston, considerable friction soon arose around the plan’s particulars—and also around Summers’ aggressive, independent, and at times dictatorial style.

“For reasons deeply rooted in University governance and tradition...matters that are curricular are matters of the Faculty,” Summers said at the time. But he noted that it was not the Faculty’s prerogative to vote on Allston proposals. “Matters regarding the allocation of resources by Massachusetts Law are reserved for the Harvard Corporation,” he said.

And the secrecy of the planning troubled professors as well. When former Faculty of Arts and Sciences Dean Jeremy R. Knowles penned a major report on Allston in 2003 that argued against moving FAS sciences across the river, professors were only allowed to read the report behind closed University Hall and department chair doors. Concerns soon swirled in FAS that planning for Allston was a “fait accompli” and that objections and discussions about Summers’ plans were not being taken into account.

Ironically, then as now, FAS suffered from fiscal difficulties, for which Summers advised, “we would all do well to be very prudent in the use of our resources.” Yet he continued to keep the Faculty in the dark about how Allston would be financed. His lengthy 2003 President’s Letter to the Harvard Community on Allston Planning dedicated only a brief, vague paragraph to the costs that would be incurred (a to-be-defined “formidable financing challenge”). Subsequent letters were similarly quiet on the subject.

BORROWING TO BUILD

In most cases, Harvard uses a mix of debt, philanthropy, and University resources for capital construction—a financing scheme the University intends to follow in Allston, according to Chief Financial Officer Dan Shore.

But concerned that Harvard was lagging behind its peers in scientific prowess, Summers-era administrators made expedience their goal—planning to fast-track construction through debt financing, without the donor support University planners usually prefer.

“If we can’t move ahead in a timely fashion, I think we will lose many of our leading scientists to other areas,” Hyman said in 2007 to the board of the Boston Redevelopment Authority, seeking the city’s approval for proceeding with construction of the Science Complex. “Keeping this dream team together is absolutely critical.”

In keeping with Harvard’s traditional mixture of grandeur and secrecy, the costs of the Science Complex have never been revealed, although speculation and media reports have estimated the costs to be around $1 billion. To this day, that sum has been funded entirely through debt, according to Shore, and the University has no current intentions to refinance its debt for the project.

While some amount of debt financing is typical for construction projects, the University’s obligations for this particular project are considered to be extremely high—though Harvard’s large endowment and high returns have traditionally allowed it to borrow heavily.

“One hundred percent debt financing is very aggressive both on the part of the developer and the lender,” says Victor Calanog, director of research at Reis, Inc., a commercial real estate research firm. “It basically assumes that your capacity to pay won’t be encumbered in any way—either because you’re very assured of your income streams, or you’re confident about a project being completed very quickly or on-time and then turned into an income-generating asset.”

But the income stream that was supposed to relieve some of the debt—namely, a large, multi-billion dollar capital campaign—never materialized, derailed by tumult over Summers’ presidency and the administrative turnover that followed his forced departure in 2006.

But even with Faust solidly entrenched in Mass. Hall nearly two years after her installation, heavy debt financing appears likely to persist for some time.

According to Shore, University development officers typically report difficulty raising money for bricks and mortar, versus programmatic elements. And Vice President for Alumni Affairs and Development Tamara E. Rogers suggested in a recent interview that she intends to hold off on discussions with potential Allston donors until “the process of recalibrating the near-term status of the project is completed”—a decision slated for this fall.

Another source of revenue—the annual half-percent levy on the University endowment first taken in 2002 to pay for planning initiatives, infrastructure improvements, and redevelopment of acquired property—has similarly dried up. Hyman said earlier this spring that the Strategic Infrastructure Fund, as the tax is now known, has little, if any, discretionary money remaining after subtracting funds pledged for interest payments and expenditures.

A DOSE OF REALITY

This year, the projected 30 percent hit to Harvard’s endowment has suddenly laid bare the risks inherent in the University’s aggressive capital financing.

Harvard is now aiming to halve its spending in capital projects—currently estimated at $1 billion a year over the next three to four years, with an additional $3 billion in debt, according to Moody’s Investors Services.

But even before markets began to plunge and Harvard announced a 22 percent decline in the endowment for the four months ending Oct. 31, Faust was reportedly uneasy about the rigor of Harvard’s financial planning for its Allston expansion, according to one faculty member closely connected to University officials. While she was generally knowledgeable about the framework and programmatic elements of the Allston expansion from her time as dean of the Radcliffe Institute, Faust may not have been aware of the Allston plan’s reliance on debt nor the difficulty of raising funds for the project until she took office, according to the faculty member, who requested anonymity to preserve their relationship with University officials.

“She evidently felt that this was not a decision that was made as fully or carefully financially as it should have been,” says the professor.

Faust recently said in an interview that she thinks the Science Complex was “on a fast track” and that “we went ahead with the design of the building before we went and raised money from people,” though she added that this is standard practice at Harvard.

With markets deteriorating, Shore, Harvard’s CFO, says that by the fall, it was clear “the old capital plan didn’t fit the new reality, so we basically started fresh from the ground up—what are the projects we need to do, what are our priorities.”

According to Christopher M. Gordon, chief operating officer for Harvard’s Allston Development Group, planners methodically examined all of the University’s capital commitments throughout the fall, with Faust making the ultimate decision on the construction pace of the Science Complex.

“We didn’t want to run out the first time the stock market dips 10 points and stop a big project,” Gordon says. “But on the other hand, you want to make sure you make decisions thoughtfully and in a timely manner.” He adds that taking care of the scientists and the research that was supposed to be housed in the Science Complex was the “highest priority” for planners.

Even in the fall, Faust said, “it would have seemed unimaginable to slow construction.” But by the winter it was clear that not only was construction financially less feasible, but also that internal demand for construction was shifting as well. After consulting widely on what she and those who know her say was an extremely difficult and symbolic decision, Faust recommended to the Harvard Corporation—the University’s highest governing board—that Allston construction be slowed.

Now, even the Science Complex—long heralded as the centerpiece of the Allston campus—receives its dose of administrative caution. Last month, Gordon said it was “extremely unlikely” that the project would be stopped forever.

But he would not say for certain.

‘STAY THE COURSE’

The lack of consultation during the Summers planning process has also frustrated some faculty members, who feel the current fiscal predicament could have been at least partially avoided through a more open process.

“I think many of us on the faculty felt that the mission on this side of the river would be impaired if Harvard had moved too aggressively with Allston, and that clearly happened,” says Richard F. Thomas, a classics professor. Instead, “it was pretty much show and tell. I think there would have been a lot more balancing of the current, real parts of the University, and a lot less aggressive movement in Allston if the perception that some of us had was taken into account.”

But others say it is unfair to make such accusations only after a nose-diving economy has made the ramifications of aggressive debt-financing for construction apparent.

“I don’t think we’d even be talking about this if we didn’t have some pretty extraordinary events in the economy,” says Joshua D. Coval, a professor of business administration at Harvard Business School. “It’s pretty easy to second-guess these decisions...but basically, I think all of those were reasonable things to do in normal or even mildly unusual circumstances.”

John P. Huchra, former vice provost for research policy, cites bad luck as the source of Harvard’s current fiscal quagmire.

“It was an aggressive but a reasonably sound plan,” Huchra says. “It would be hard to say that, at the time, what was being planned was the bad thing to do. To be honest, it’s hard to say now that what was being planned was a bad thing to do.”

While a combination of over-ambition, poor communication, and bad fortune has exacerbated Harvard’s fiscal plight, the University’s top planners, at least, appear to have kept their faith in Summers’ Allston vision.

“I think the long-range vision was not originally derived by saying how much money do we have at what point in time,” says Kathy Spiegelman, the University’s chief planner, in a recent interview.

And Gordon says he does not believe the current economic crisis has made Faust less enthusiastic about the long-term vision for Allston.

“She’s a historian, so she gets the long term view. And Allston is a long-term view,” Gordon says. “I mean, markets go up and down, donors go up and down, but I think she really gets the point that you have to stay the course.”

—Staff writer Peter F. Zhu can be reached at pzhu@fas.harvard.edu.