Yale Eliminates Deficit, Moves Toward Financial Equilibrium

Yale University is poised to enjoy its first year without a budget deficit since 1991, according to the budget for 1997-1998. The balanced operating budget – the result of a long-range plan formulated in 1992 for whittling away the deficit and achieving financial equilibrium – calls for expenditures of approximately $1.1 billion, and a record $253 million for building renovations, new construction, systems and other investments on campus.

“Eliminating the deficit, which shrank steadily and according to plan over six years from a high of $17 million to last year’s $4 million, is an important milestone in reaching financial equilibrium,” said Charles H. Long, deputy provost, at a recent budget briefing session for news reporters. “This has been accomplished while still providing the resources necessary to sustain and enhance Yale’s excellence, and while offering the smallest Yale College term bill increase (3.7 percent) in 29 years.”

By limiting the growth rate of non-personnel expenses to levels slightly below inflation, Yale has been able to offer competitive salaries and benefits needed to recruit and retain a world-class faculty, said Mr. Long, who added that 53 percent of the operating budget goes toward salaries and benefits. The budget also includes a salary pool for rewarding valued staff, resources to expand student and faculty access to the University’s computer network, and adequate support for the core programs and initiatives that afford Yale its distinction in higher education, he said.

The University also expects to spend $111.43 million in financial aid this year as Yale College continues its 34-year-old “need blind” policy of admitting applicants without regard to financial need, with a pledge to meet their full demonstrated need. Nearly 41 percent of undergraduates receive financial aid, and more than 90 percent of Ph.D. students pay no tuition during their years at Yale

Pay-as-you-go policy for building maintenance

“The next step toward achieving financial equilibrium is to increase the amount available in Yale’s operating budget to offset the costs of deteriorating buildings – a process that will take eight more years,” Mr. Long said. The current operating budget has $11.2 million for capital maintenance, an increase of $4 million from last year.

Given the fact that most buildings have a useful life span of between 30 and 60 years, replacement costs for the 225 buildings on campus are roughly $50 million a year, according to a 1995 analysis. Without money in the operating budget to meet those costs, a great deal of needed maintenance was deferred during the 1970s and 1980s, Mr. Long explained, leaving the University with an expensive tab for modernizing its buildings.

To avoid eroding its endowment, Yale has chosen to borrow most of the money needed for renovations, including 61 percent of this year’s capital maintenance budget. “By the year 2005, we plan to have enough money in the operating budget to pay as we go, when combined with additional amounts we expect to raise from annual gifts for facilities. We will reach that goal by steadily increasing our capital maintenance budget until we reach $50 million a year in 1995 dollars. From that point on, paying for renovations will be like buying a new car with cash and then starting immediately to save for the next car.”

Still in a catch-up mode, Yale is spending five times that amount this year on its buildings. Most of the expenditures will be directed toward rehabilitation of Yale’s aging power plants ($22.4 million) and major renovation of the residential colleges ($15 million). Other buildings targeted for modernization are Sterling Library ($20.4 million), the Law School ($19.2 million), Payne Whitney Gymnasium ($22.2 million) and Linsly-Chittenden lecture hall ($14.4 million).

The budget also includes some new construction, which is being funded almost entirely by gifts. Construction on the new $11-million Irving S. Gilmore Music Library, which will eventually house the bulk of the University’s 130,000 music holdings, started this summer in the northwest courtyard of Sterling Memorial Library, near High and Wall streets. A new “swing” dormitory – a temporary housing unit for students in residential colleges undergoing long-term renovations – will cost $12.95 million this year. It will be located on the triangular block bordered by Tower Parkway, Ashmun Street and York Square Place.

Other features of the 1997-1998 budget include further progress in providing the entire campus with modern, high-speed connections to the computer network, which will bring computers to the desktop of every faculty member. (All undergraduate students have had computer connections in their rooms since last year). Yale also is investing in Project X, in which Yale’s core financial systems will be replaced and basic business processes will be redesigned to take advantage of new technologies. That project and the power plant modernization are expected to save money in the long-term.

Recognizing that the University’s health and New Haven’s well-being are inextricably linked, Yale’s financial plan also supports continuation of the New Haven Initiative, which is aimed at economic development, human development and neighborhood revitalization throughout the city. Under the leadership of the Office of New Haven Affairs, Yale has targeted neighborhoods from Newhallville to the Hill for assistance through the second phase of the Homebuyer program. About 275 Yale employees have purchased New Haven homes in the last three years, thanks to financial incentives offered by Yale that will total $5.6 million over the next decade.

Mr. Long also noted that the Office of Cooperative Research, which speeds the transformation of Yale research discoveries into commercially valuable products, has become an important income source. Gross revenues from patents and licenses is projected to be about $18 million this year – a 50 percent increase from last year – with about 65 percent available to fund Yale programs and activities. Yale’s discoveries include a newly approved AIDS medication and a vaccine for Lyme Disease that is now in clinical trials.

Among major revenue sources for the operating budget are grants and contracts (27 percent), tuition, room and board (23 percent), spending from the endowment (18 percent), and medical services (15 percent). Finance officials also noted that income from the endowment and gifts remains strong.

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