Budget Reductions Needed To Offset Drop in Endowment-Generated Income

In a letter to the Yale community on Feb. 3, President Richard C. Levin and Provost Peter Salovey announced that the University will need to undertake a round of budgetary actions to achieve balance for the 2010-2011 fiscal year and beyond.

The Yale community has already responded “admirably” to the challenge of reducing its level of expenditure since the onset of the global financial crisis 16 months ago, noted Levin and Salovey. During that time, the Yale endowment declined from a high of $22.9 billion to its current value of under $17 billion — a drop that requires Yale to reduce its overall expense base by $350 million in the years ahead, they said.

“It is important to keep in mind that the reduction in the value of our endowment follows a period of unprecedented prosperity,” wrote the President and the Provost, pointing out that during the past decade, the number of staff and faculty has grown, financial aid has increased dramatically and the physical plant has been expanded and improved. “It is against this backdrop of remarkable achievement that we must now slow, but not stop, our forward momentum as we balance expenditures against reductions in endowment-generated income,” they wrote.

Before asking University departments to make further reductions in their own budgets, Yale will take a series of “targeted actions” designed to “reduce the burden of adjustment on schools and departments,” said Levin and Salovey.

In addition to looking for new sources of revenue, these include:

• Freezing the salaries of officers, deans and their highly compensated direct reports, while offering a pool for staff salary increases of 2%.

• Deferring managerial and professional staff salary increases until September, rather than July.

• Increasing stipend support in the Graduate School by 2%, while reducing the number of new students admitted by 10%-15%.

• Reducing, but not eliminating, the Provost’s support for a number of ongoing research and outreach programs.

• Adjusting the international summer award program for Yale College students.

• Holding the scholarship benefit for children of faculty and staff members to its current maximum of $15,200 per child per year.

• Reconfiguring paid time off for managerial and professional staff, while introducing a Short Term Disability Plan.

• Introducing a payroll contribution for individual coverage with the Yale Health Plan for those earning over $83,000.

• Sharing and consolidating business, human resources and information technology services.

• Changing the set-point on thermostats in all University buildings to 68 degrees in winter and 75 degrees in summer.

These actions are expected to produce a little more than $50 million in budget savings, said the Yale officers, adding that the University must still find approximately $100 million of savings in the general appropriations of unrestricted University funds by June 30 for the 2010-2011 budget.

To achieve this, they noted, the self-supporting professional schools (Medicine, Nursing, Law, Management, Divinity and Forestry & Environmental Studies) and completely endowed programs (such as the Yale Center for British Art, the Beinecke Library and the Institute of Sacred Music) will need to adjust their expenditures to reflect a 13.4% reduction in the endowment payout.

Other academic and administrative units will be given a proposed reduction in general appropriations funding of 7.5% of this year’s expenditures on non-faculty staff and non-salary expenditures, “plus an additional amount proportional to the endowment fund income and unexpended fund balances available to each unit,” said Levin and Salovey.

“We are, of course, hoping to keep staff reductions as low as possible, but some will be necessary as we will not be able to close the gap only with non-salary expense reductions and the substitution of endowment income and unspent fund balances for general appropriations,” they wrote, adding, “Every effort will be made to reduce staff through normal turnover (retirements and departures), and we will continue to assist those managerial and professional employees who are laid off by providing enhanced severance pay and extensive transition support. Members of Local 34 who are laid off may participate in the Interim Employment Pool or take severance pay.”

Information on the process and schedule for preparing a 2010-2011 budget will be provided to deans, directors, department chairs and business managers in the next week. Information relevant to budget planning will be posted at www.yale.edu/budget.

The president and provost concluded: “We continue to be inspired by the cooperative spirit in which our community is working together to address these financial constraints, and we are truly grateful for your efforts. We know we are asking you to make difficult choices and decisions, but we are optimistic that if we can achieve the reductions outlined here, we will have created a stable and sustainable budget for the University. With your help, Yale will remain a leader nationally and internationally, and we will continue to take pride in our service to our students and the wider world.”

For more information and updates on the budget, visit www.yale.edu/budget.

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