Endowment drives fiscal recovery

And the rich keep getting richer.

The last four years have been a gilded age of sorts for Yale. The University saw its endowment grow to over $10 billion by the end of fiscal year 2000, even as it spent billions refitting old infrastructure that had decayed as Yale struggled with budget deficits in the 1970s and 1980s.

A combination of prudent fiscal policy, a low interest-rate environment and intelligent management of the endowment amid a booming stock market lifted the University out of financial trouble in recent years. Providing the most significant help in springing Yale from its fiscal trap was the endowment’s tremendous growth during most of the 1990s, including a 40 percent return during fiscal year 2000, which lasted from July 1, 1999 to June 30, 2000.

Yale’s record 2000 endowment return was only the climax of a series of healthy yields during the 1990s — returns have increased significantly since a two percent return in 1991.

Following seven years of budget deficits, Yale edged its way into the black for the first time in 1998. Since then, numbers have improved further, but there are still tough decisions to be made. While the University initially projected a $10 million surplus for the 2002 fiscal year, unforeseen energy expenses and new initiatives have maintained the pressure on Yale administrators to make ends meet.

Provost Alison Richard, Yale’s chief academic and financial officer, has said the evaporation of the surplus is a sign that the University is vigorously investing in new initiatives and infrastructure.

She’s not kidding.

In fiscal year 2001, Yale spent about $300 million on capital projects alone, ten times what would have been spent in an average-to-generous year in the 1980s. The hum of construction machinery on campus will continue to reverberate; President Richard Levin has estimated that from the beginning of his tenure in 1993 to 2010 the University may spend as much as $3 billion on rebuilding its physical plant.

Other ongoing projects like the $400 to $500 million residential college renovations are being paid for mainly by alumni donors and debt taken on by Yale.

Renovations to the Medical School and construction of five new buildings on Science Hill together make up more than a $1 billion investment by Yale in the sciences.

The largest single capital expenditure was updating Yale’s antiquated and labyrinthine computer system. Yale originally planned to spend $30 million on Project X, but it ended up costing the University over $100 million.

Despite Yale’s high-profile decision not to follow the lead of Princeton and eliminate the ‘loan’ portion of its financial aid packages, students were not left out of the money entirely.

For three years in a row, beginning in 1998-1999, Yale held its tuition bill to a historically low 2.9 percent annual increase. Last fall’s announcement that international students would gain need-blind admission was the most recent of a series of financial aid improvements.

Over the past four years, Yale has also begun to allow students to keep the entirety of outside scholarships to reduce the self-help portion of their aid, following several other universities in doing so. And for the last two years, the University has frozen the financial aid “self-help” portion — the money students are expected to earn themselves.

Nor are faculty the losers; in 2002, for the third year in a row, the boost to faculty salaries will be five percent, two percent above the inflation rate calculated by Yale.

But Yale’s future financial success cannot be guaranteed. Endowment returns for fiscal year 2001 and the near future will likely be adversely affected by unstable market conditions.

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