As we begin fiscal 2010, even the most optimistic forecasts call for a slow and uneven recovery from the recession. Although the economy appears to have stabilized, HBP in particular, as well as Executive Education, tend to be lagging indicators. Thus, it may take some time before two of the School's major sources of income recover their growth momentum. In addition, as predicted by the University nearly a year ago, the endowment's negative return for fiscal 2009 will lead to lower distributions beginning in fiscal 2010. Finally, alumni giving—an important source of revenue for the School—may also take time to recover.
The School's fiscal 2010 budget takes these anticipated headwinds into account and forecasts a drop in total revenues of $40 million, or 8.5 percent, from fiscal 2009. To ensure that HBS continues to operate within its means, total expenses are budgeted to decline by $18 million, or 4.1 percent, from fiscal 2009 actual spending. This represents a drop of $40 million, or 10 percent, from fiscal 2009 budgeted spending. The decrease primarily reflects lower anticipated variable costs for HBP and Executive Education because of slower business activity, as well as a decline in salaries and benefits expenses because of reductions in faculty and staff.
One area where expenses may rise is University assessments. Given the endowment losses sustained in fiscal 2009, there is likely to be less endowment income available to support the University's central administrative functions for the next several years. As a result, HBS and the other Harvard schools may be asked to shoulder more of these costs.
Overall, we expect HBS to remain solidly cash flow positive in fiscal 2010. In addition, reflecting the growth in cash from operations in fiscal 2009, the School begins the new fiscal year with an unrestricted reserves balance of $96 million, up $17 million from last year, and well within our long-term target. Reserves are used by HBS to capitalize on strategic opportunities and, when needed, to finance construction of new campus facilities.
Our strong reserves balance positions HBS to continue enhancing the campus, even if we encounter constraints on the School's ability to borrow from the University. To enhance its flexibility, Harvard issued $1.5 billion in taxable bonds in December 2008. In order to maintain its AAA credit rating, the University's ability to assist HBS and other Harvard schools with debt financing may be limited.
Still, many questions remain about the underlying health of both the global economy and the School's sources of income. Given the past year's decline in the value of the endowment and the challenges facing HBP as it reinvents its business, the School's revenue trajectory is anything but definite.
We are committed to protecting the School's key priorities and strategic initiatives through this period of uncertainty. Broad conversations about the future of MBA education, the publishing industry's digital migration, and changes in the market for Executive Education all were under way at HBS long before the recession unfolded, and will persist once the economy is again on more solid footing.
We are thinking holistically about each of these topics in the context of the School's curriculum, faculty, research agenda, and the HBS campus and community to ensure that our planning leads us toward broader and longer-term goals in the years ahead. The School's MBA fellowship spending will continue to grow. The faculty will continue to drive innovation in MBA education and create new knowledge. HBS will continue to invest in academic innovation and in campus integrity and expansion.
We remain committed to thoughtful and responsible stewardship of the School's resources in pursuit of these goals.
Richard P. Melnick, MBA '92
Chief Financial Officer