More budget cuts coming

Three years removed from a 24.6 percent plunge in the endowment, administrators said that a round of budget cuts approved in May would be the last unless the economy took another drastic turn. But Provost Peter Salovey and University President Richard Levin announced Thursday that additional cuts are needed.

Non-academic units must reduce unspecified spending of general University funds by an average of 5 percent, while academic units will also be expected to limit their use of general appropriations in 2011–’12, Salovey and Levin wrote in an e-mail to Yale faculty and staff outlining goals for the next academic year’s budget. The reductions will continue efforts to close a $68 million budget gap — largely the remnants of the $350 million deficit that emerged when the endowment lost $6.5 billion in 2008–’09. Administrators said they have not yet determined what parts of the University the new cuts will affect.

“We are still making cuts in part because the economic recovery from the recession, including the recovery of our endowment assets, has been slow,” Salovey said in an e-mail to the News Monday night. “The economy and the endowment along with it seem to be moving in the right direction, thankfully, but at a slow pace.”

The endowment returned 8.9 percent in the 2009–’10 fiscal year — exceeding the expectations of administrators, who assumed no growth in their earliest projections. But Salovey told the News in November that the University was still not ready to “hang up a ‘mission accomplished’ banner” and needed to maintain a sustainable budget.

The projected budget is not balanced because the University relied on roughly $60 million in reserves, one-time donations and other stopgaps to balance the 2010–’11 budget, Deputy Provost Lloyd Suttle said in an e-mail Monday. Other cost-saving measures — such as staff consolidation — are taking longer than anticipated, he added, and will continue into the next fiscal year.

Endowment income is the University’s largest revenue source, amounting to $986 million in 2010–’11. Such income covers more than 35 percent of costs University-wide, and up to 60 percent of expenses in some units. Spending from the endowment is based on a “smoothing rule,” which limits spending to 5.25 percent of the endowment each year and is calculated with a “built-in lag,” Salovey and Levin said in their memo. The smoothing rule helped soften the blow of the 24.6 percent endowment drop by preserving spending, Suttle said, but now spending will increase more gradually than the rate at which the endowment recovers.

Spendable endowment income will shrink in the 2011–’12 budget, the memo said, scaled back to $975 million. Salovey and Levin said they expect that figure to remain essentially flat for the next three years — but University expenses such as financial aid, utilities and employee salaries and benefits are expanding nonetheless. The University has tightened its budget in the past three years by trimming spending on nonessential costs such as travel and social events, and also cut nearly 250 jobs. Academic departments have been directed to fill faculty vacancies and delay additional hires.

Yale’s officers and deputy provosts will work with directors, chairs and deans of individual units to decide where reductions will be made and how endowment gifts will replace expenses formerly paid by general appropriations funding, Salovey said.

The final proposed budget will be presented to the Yale Corporation at its June meeting.

Clarification: January 18, 2011

An earlier version on this article paraphrased Provost Peter Salovey as saying Yale officers and deputy provosts will decide where reductions are to be made in individual units. Salovey clarified Tuesday that the budget process is collaborative, and that the officers and deputy provosts will work with directors, chairs and deans of each unit to determine where cuts can be made.

Comments