Yale will be forced to reduce its staff and cut expenses in response to a projected $30 million budget deficit in the 2004-2005 fiscal year, Yale University Provost Susan Hockfield said Tuesday.
In a letter sent to Yale’s faculty and managerial and professional staff, Hockfield said the University’s total revenue is projected to grow by 6.3 percent next year but expenditures are expected to increase by 10 percent, producing a deficit. Hockfield said the financial problem is the result of national economic conditions.
“We’re not making money as fast as we were, [but] we’re spending money as fast as we were,” Hockfield said. “Prudent adjustments now will prevent us from having to do really disastrous adjustments in the future.”
While Yale’s endowment grew last year by 8.8 percent, it did not realize the double-digit growth it had seen in the late 1990s. Donations last year fell to $222 million. In the 1999-2000 fiscal year, donations hit an all-time peak of $358 million.
Higher costs due to poor economic conditions are also increasing Yale’s deficit. For example, Hockfield said, a low interest rate has produced some budgetary savings, but the lower rates have also decreased the expected rate of return from Yale’s pension funds, forcing the University to increase its funding for pensions.
“A slow economy affects everyone,” Hockfield said.
Hockfield said Yale will respond to the projected deficit by reducing operating expenditures, lowering construction costs and delaying some projects, and launching a new fund-raising campaign.
Yale will work to improve efficiency throughout its administration in an effort to ensure it supports scholarship and teaching to the greatest extent possible, Hockfield said.
In addition, there will be a 5 to 10 percent reduction in staff across the board over the next two years, which Hockfield said will likely be accomplished chiefly through attrition and retirements.
Administrators will not try to cut costs by reducing the number of tenure-track faculty, Hockfield said. But a small portion of non-ladder faculty — only those brought in for a new initiative or those appointed to fill in for a professor for a year or two — may be affected by the cuts, Hockfield said.
While other universities have frozen their employees’ wages, Hockfield said the University’s budget plans do not include this strategy, since Yale feels it must offer competitive salaries to both faculty and staff in order to hire and retain desirable employees.
Local 34 President Laura Smith said Yale’s unions have been urging the University for some time to work with them on increasing efficiency. Smith said the University needs to completely redesign the way it manages its funds.
“I think what [Provost Hockfield's letter] highlights is how desperately that’s needed here,” Smith said.
Smith said both of Yale’s largest unions, locals 34 and 35, want to work together with Yale to make changes both parties deem necessary. She said it would be premature to make a statement about numbers.
In addition to the administrative cuts, Yale will consider delaying some building projects, but Hockfield said residential college renovations and Science Hill construction should not be affected.
The University is also preparing to launch a capital campaign to raise funds to implement changes suggested by the Committee on Yale College Education. These proposed changes include increasing the size of the faculty by 10 percent.
Yale Vice President for Development Charles Pagnam said the administration is still in the early planning stages of the campaign. He said the economy will not hold Yale back but that it may impact the University’s fund-raising goal.
Hockfield said Yale was not forced to make cuts last year, unlike many of its peer institutions. This year, Yale is not the only university to face a deficit.
Last year, Stanford University faced a $30 million shortfall in its budget, Stanford University Vice Provost for Budget Tim Warner said. Warner said the university froze the salaries of faculty and staff members, cut staff positions, reduced services and added additional students to selected graduate programs in an attempt to increase revenue.
Warner said the university did not know if it would have to make further cuts next year.
The Massachusetts Institute of Technology, which will have to cut its budget by $70 million next year, announced Monday that it is freezing the salaries of all faculty and staff who earn more than $55,000 annually for one year. MIT officials said the move will save the university $10 million. MIT is also cutting as many as 250 jobs.