Talking about the budget

President Peter Salovey and Provost Ben Polak sent a message to the Yale community on Nov. 18 noting that the university has an operating deficit of $39 million. They called for units across campus to work together to help address this shortfall over the next three to five years in order to free up resources to support new university initiatives. YaleNews met with Salovey, Polak, and Shauna King, vice president for finance and business operations, to learn more about the budget in 2014-2015 and beyond:

Why do we still have a deficit: Hasn’t our endowment grown?

Salovey: Yes, the endowment has had very strong returns but it is still not back to the level it was at before the financial crash. Remember, we spend about 5%, roughly $1 billion, from the endowment each year. In the meantime, the operating costs of running a university have continued to rise faster than general inflation, and — more recently — we have seen cuts in federal support for research, especially in the sciences.

What are Yale’s “operating costs”?

King: These are the costs of all the people who work here, faculty and staff; owning, maintaining, and heating the buildings; buying paper, books, lab supplies, and computers; feeding students and providing financial aid — it’s all of those things. It is also the cost of servicing the debt that has been used for the construction and renovation of some of the buildings on campus.

How large is the deficit?

Polak:

For 2012-13, we had a deficit of $39 million, or about 1.3% of the budget. Just as a point of comparison, had we done nothing after the financial crisis in 2008, we would be facing a deficit on the order of $350 million. Most of that challenge — about 89% of that problem — has gone away. It’s gone away because the endowment has grown and because the community has worked together to restrain costs and manage the budget in these last few years. We have made tremendous progress, but we are not there yet.

What would happen if we did not fix the deficit?

Salovey: If we ran deficits forever and did nothing about them, we would use up our reserves. But this is not the main reason we have to fix the deficit. The main reason is that a university cannot stand still. We need to move forward. We need to have room in the budget to fund new initiatives to strengthen education and research. 

What is the time frame?

Polak: We’re going be giving units targets for 2014-2015 but also ones that extend out for three to five years. The reason for the short-term targets is to allow people to get going and not miss opportunities. The reason for longer-term targets is to allow units to plan sensibly and not just be opportunistic.

What parts of the university will be most affected by the cutbacks?

Polak: It’s going to be a common effort. It’s everyone’s budget and everyone’s mission, and we’ll be working together. We’ll be working with faculty and with administrative staff across the university, not just this year, but every year.

King: We’re all here at this incredible institution because we believe in its education and research mission. As administrators, we have a role to play in making sure we provide quality support while keeping the cost of that support as low as possible. It’s time to take another hard look at that because this is how we will free up the money Yale needs to invest in its mission; we need to reallocate resources.

Will there be lay

offs?

King: This is one way in which what we are facing now is different than what we faced in 2008–2009. Salaries and benefits do make up the majority of our operating budget, and over time we will need to lower those expenses. Positions will have to be eliminated, but there are many ways to do this and avoid or minimize layoffs. We have kept positions open this academic year in anticipation of the need to adjust the budget. We are allowing units sufficient planning time — that’s the reason for a multi-year targets — and considerable flexibility to identify how we might reallocate work or get work done in different ways, so we can take advantage of these current openings as well as the normal turnover, attrition, and retirements that happen each year. If we are thoughtful about this, we should be able to minimize layoffs.

Will there be a salary freeze?

King: We’re not calling for salary freezes. There may need to be salary restraint, but we don’t want to micro-manage how units meet their targets.

Will this have an effect on campus building and renovation projects?

Salovey: The provost announced Yale’s capital plan last month, and that plan stands. That report was circulated to the community and includes the new colleges, the biology building, and other planned projects.

Polak: The relation between the capital plan and this budget is two-fold. First, we need to be very cost-conscious about all building projects. Money spent in one place is money not available to be spent in another. But second, those projects are part of the reason we need to create space in the budget. We are determined to get them done. That is why we are determined to fix this deficit.

It feels as if we’ve been cutting since 2009 — people talk about “budget fatigue.” How do you respond to that?

Salovey: Yes, there is fatigue. But we cannot pretend that the problem is not there. The fact is that during the recession we had a $350 million budget problem, and we addressed more than $300 million of it. It was hard, but everyone pulled together. Now we just need to close the gap.