Provost Peter Salovey has a new ally in his attempts to close Yale’s remaining $100-million budget gap: a 2-foot-tall dragon.

The green plastic toy — which lights up, rears its head and roars at the press of a button — was a gift from Vice President for Finance and Administration Shauna King, who joked that she was giving Salovey extra help persuading the University’s departments to meet their budget cut targets of 7.5 percent. But Salovey may not need the backup: Administrators said departments are cooperating in what is likely to be the last round of budget cuts in the near future, despite a new policy that may give department heads less control over their funds even in easier financial times.

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Instead of relying on central funding for core activities and using their own funds for extra events and programs, departments will from now on turn to their own funds first, gaining income from the general operating budget only if they can make a case for it. So besides forcing Yale to make a series of difficult cutbacks, the recession has also prompted the University to rethink its underlying approach to budgeting.

As deputy provosts meet with departments, schools and programs to finalize budget proposals this month, Salovey said, most units appear to be on track to meet their targets for the fiscal year ending June 30, 2011 — meaning the University will finally close the budget gap brought on by the economic recession after nearly two years of scaling back. If departments fail to meet their targets, though, Salovey said, another round of cuts may be necessary.

But when Yale does become more prosperous again, departments will still have less control over their money. Administrators are shifting departments to what they call an “all-funds budgeting” approach, in which departments must specify what every dollar will be used for in advance rather than treating their own endowed funds as an ad-hoc pool that can pay for conferences, visiting lectures and other non-core programming.

Historically, departments have received funding from a general University-wide pool for all their basic activities — teaching, personnel and other expenses — and supplemented that with income from their endowed gifts to fund extra activities. Now, Salovey said, they will be expected to start with their own income and fill the gaps with general funds the Provost’s Office will dole out as it sees fit.

“Now, we’re using general appropriations funding as a last resort,” Deputy Provost Charles Long said, “as opposed to what we’re all used to.”

In short, departments will no longer be free to use the income from endowed funds as they wish.

But administrators and department chairs said they are not concerned about losing funding for non-essential activities.

Though the new system will mean that chairs will have to be more flexible, Alexander Nemerov, chair of the History of Art Department, said he is confident his department will be able to provide the full range of programming students and faculty have come to expect.

“We always want to leave some discretion money for good ideas,” Salovey agreed. “In better times, we’ll budget gift funds as discretionary for good ideas, but at the moment, we don’t have that luxury.”

The increased use of departments’ own endowed funds begins now, with what could be the last round of budget cuts.

Between cutting spending, scooping up unused gifts and shifting expenses from the general operating budget to endowed funds, departments have a variety of means at their disposal to meet their current targets, Salovey said.

Long said this round of cuts has affected spending on staff salaries, as well as goods and services, such as social events and conferences. The Italian department, for example, has decided not to invite a director or an actor to its contemporary Italian film festival later this month, as it usually does, and its faculty and staff will drink tap water instead of Poland Springs bottled water, chair Millicent Marcus said.

Meanwhile, most departments are losing staff, whether by leaving open positions vacant, voluntary layoffs or involuntary layoffs.

The budgeting process has also forced departments to examine more closely the endowed funds created from donations made to the department over the years, he said. Annual income from these funds may be repurposed to pay for the core elements of departments’ missions, such as professors’ salaries, while gifts with unspent balances will be used as a one-time stopgap.

Even if the endowment recovers faster than expected, Long said, other parts of Yale that suffered from the recession — such as the two new residential colleges and other building projects that were suspended last January — may take priority over restoring departments’ budgets to their former size.

The University will finalize its budget model for the next fiscal year by the April meeting of the Yale Corporation later this month.