Yale Bulletin and Calendar

November 7, 2003|Volume 32, Number 10

Budget plans for the coming year

To: Yale Community Members
From: Provost Susan Hockfield

Over the last decade, Yale University has experienced a period of remarkable financial growth that has benefited virtually every part of the institution. Extraordinary strength in the national economy, superb management of the endowment, and unprecedented levels of alumni giving and institutional fund-raising permitted us to initiate and expand important academic programs, improve financial aid, and accelerate the much-needed renovation of the campus. We were also able to make strategic investments in New Haven, in information technology, and in our staff, which grew more than 20% during this period. Our investments to make faculty salaries competitive and our teaching and research facilities attractive have yielded some of the most successful faculty recruitment seasons in memory. As just one mark of the institution's growth, Yale's annual budget five years ago was $1.14 billion; this year it is $1.74 billion, an increase of over 52%.

No one can be unaware that the financial landscape, nationally and in higher education, now presents challenges, which we will need to manage effectively if we are to continue to advance Yale's standing among the leading universities of the world. I write now to explain these challenges, describe how they impact Yale's budget, and outline our strategies for addressing them.

The changing economic conditions have reduced revenue growth in some areas and increased costs in others. While our endowment continues to outperform most of our peers, the downturn in the financial markets has produced a marked slowdown in the rate of growth of spending from the endowment. The economic environment has also affected our donors; they remain extraordinarily generous to Yale even in these unfavorable economic times, but giving has declined from a peak of $358 million in 1999-2000 to $222 million for the fiscal year that concluded in July. This is occurring just as Yale and other universities face dramatically increased costs in many areas, particularly for health care, energy, need-based student aid, and compliance with government regulations. In addition, the historically low interest rates related to recent economic trends have produced savings in some areas of the University's budget, such as the cost of borrowing to support our capital program, but they have produced offsetting increases in other areas. In particular, the low interest rates have reduced the rate of return that can be expected from pension funds as well as the discount rate on future pension liabilities, so mandatory actuarial calculations have required us to increase substantially the funding for pensions and for our retiree health plan.

A year ago, my predecessor, Alison Richard, outlined for Deans, Directors and department chairs the impact that external economic factors would make on Yale if the economic doldrums continued. She explained that we could balance the current budget by drawing down accumulated balances in various reserves and restricted funds. Unlike many of our sister institutions, which last year froze salaries, eliminated positions, and cut capital spending and operating budgets, we used 2002-03 to make substantial progress in many of our key initiatives, to better position Yale in the long run. We were able to do this because of the strong performance of Yale's endowment, which now will also allow us to set goals for reducing expenditures that will be more modest than those of most other institutions.

The challenge is this: total revenue is projected to grow by 6.3% next year, and expenditures by 10%, producing a deficit of approximately $30 million, which represents 3% of our central budget. We must now work together to find savings and efficiencies that will bring the growth of expenses in line with the growth of revenues.

Our planning will be guided by four central principles. First, we must sustain core academic programs. We will not back away from the important initiatives of recent years that are serving the institution so well, and, unlike the budget reductions of the 1990s, we will not seek reductions in the size of the ladder faculty in any of the schools. Second, we must ensure that salaries for faculty and staff remain highly competitive, to enable us to hire and retain the very best in every area. We have increased faculty salaries in recent years, and we are equally committed to improving the salary and benefits of managerial and professional staff. To this end, we plan to increase the salary pool for our valued M&P employees by 5% in the coming year. Third, we must continue to provide competitive levels of financial aid so that we can recruit the very best students. And finally, we must continue our commitment to refurbish and maintain our buildings.

We will address the financial challenges in three ways:

1. We will reduce operating expenditures. In particular, we need to make our administrative systems and processes more cost-effective and less burdensome. We must find ways to consolidate some activities, eliminate redundancies, and support some services at a reduced level, or not at all. In addition to seeking economies in the purchase of goods and services, we will need to reduce staff in every area of the University by 5 to 10% over the next two years. Over the next several months we will be working with you to redesign some of our administrative functions to achieve these staff reductions. We anticipate that the necessary reductions can be achieved largely through attrition and retirements. As a result of the enhancements just made in the Staff Retirement Plan, which applies to unionized employees as well as to managers and professionals, we expect a larger-than-normal number of retirements in the next year or so. Those retirements, together with normal turnover, will provide schools and departments with welcome flexibility to determine how staffing can best be reorganized.

2. We will seek savings in the capital budget by lowering the costs of construction. In addition, some building projects not already in the construction or planning stage may see some delay before authorization, but at this point there is no need to curtail the carefully planned capital program now in place.

3. We are planning to launch a broadly based, University-wide fundraising campaign. New funds raised through this campaign will enable us to embark on new initiatives that will keep Yale in the forefront of teaching and scholarship.

Accomplishing these several goals will engage the Deans, Directors and Officers, but we will also rely on people in every work unit and department to suggest ways to address these challenges, with cost-saving ideas that may be small or big. Working together throughout the University, we can use this time to ensure that our resources are focused most effectively on our core mission of teaching and research.

T H I SW E E K ' SS T O R I E S

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'Women Mentoring Women' program launched

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Colleges' sustainable dining initiatives are focus of conference

Women astronauts will talk about their 'Place in Space'

Computer scientists to develop ways to protect privacy online

Exhibit looks at Robert Damora's '70 Years of Total Architecture'

Yale Rep show explores collision of politics and culture in America

Her native landscape inspires Irish writer's 'desperate themes'

DeStefano hopes 'game plan' will bring him to Olympics

Study: Recovery rates from childhood leukemia . . .

Memory-enhancing drugs may actually worsen . . .

Dr. Robert Arnstein, counselor to generations of students, dies

World-renowned oncologist Dr. Paul Calabresi passes away

Rare form of obsessive compulsive disorder linked to gene mutation

Older patients may not be prepared to receive diagnosis, study says

Symposium will examine 'American Literary Globalism' . . .

Koerner Center to showcase emeritus faculty member's works

Researchers sequence and analyze the DNA of an ancient parasite

Two books on slavery are winners of the Douglass Prize

United Way Campaign nears halfway mark in meeting its goal

Yale Books in Brief

Campus Notes