UP CLOSE | How have budget cuts hurt us? (and could we have cut differently?)

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Photo by Alison Griswold.

Though the global recession has ended, Yale has not recovered from losing more than $6.5 billion during 2008–’09.

Since the financial crisis hit, administrators have pledged to protect what they view as Yale’s most central tenets: financial aid and the academic core. Yet as the University scrambles to trim its spending for the third consecutive year — trying to close a $68 million budget gap — it becomes steadily tougher to leave those components untouched.

Cuts to staff, delays in academic hiring and salary freezes for top administrators were not enough to overcome the deficits Yale has faced each year since the crisis, so administrators have twice turned to the University’s reserves — extra income set aside for a rainy day — to make up the difference. Though those excess funds closed the gap in the first and second years after the recession hit, University Provost Peter Salovey says they are now essentially depleted.

With those funds no longer available, the cuts have continued, and administrators’ determination to protect the central elements of the University — particularly the commitment to financial aid — has come at the expense of other aspects of the undergraduate experience.

How well, then, have administrators coped with the recession and upheld the pledges they made three years ago? And at an institution that prides itself on dedication to the undergraduate experience, in what ways have the aftershocks of the budget shortfall affected students?

A PLUNGE AND A PROMISE

When it comes to University finances, Salovey assumed his post at, frankly, a bad time. Salovey and his once-famous mustache took office in October 2008, as the global economy plummeted and it became clear that Yale’s golden years of financial growth were over. That December, administrators realized the endowment was on track to nosedive nearly 25 percent before the fiscal year ended.

As the impending fallout became a reality, University President Richard Levin pledged to preserve financial aid and the academic core above all else.

“I think we’re committed to the undergraduate student experience and we’re committed to a generous financial aid program,” Salovey said in an interview last week. “The changes we have made really shouldn’t affect either of those in any substantial way.”

But something had to change as 2008 closed, and Yale officials took decisive action to cut expenses, putting all capital construction projects aside from essential or ongoing renovations on hold. Administrators continued to slash expenses throughout 2009 and 2010, announcing a comprehensive round of cuts in February 2010 that asked departments and programs to forgo up to 7.5 percent of the funding they traditionally drew from the central operating budget and calling for the Graduate School to shrink admissions by 10 to 15 percent.

Those measures chipped away at the deficit, but the endowment plunge had originally torn a $350 million hole in Yale’s budget. With tens of millions left to account for, the University turned to its rainy-day funds.

Yale’s finances had swelled between 2004 and 2007, with endowment returns of nearly 20 percent or more under the supervision of David Swensen, the University’s chief investment officer. When departments did not spend all the money allotted to them — as often happened during the boom years — the excess funds trickled into rainy-day accounts, or University reserves.

In the aftermath of the financial crisis, administrators decided to buy time by spending the reserves in a series of “one-time” actions, Salovey said. Now, he said, those reserves are all but gone.

“At the very beginning of this, when the first downturn hit, we had lots of money in the reserves,” Salovey said. “But I believe we largely used them in the first year of the downturn.”

But Yale still faces a $68 million budget gap for the coming academic year. Both Salovey and Deputy Provost Lloyd Suttle say that the reserves — both the central University pool and excess funds spread throughout academic departments — have fallen below a spendable level, meaning that Yale will see cuts for the third consecutive year to close the gap.

SLOW RECOVERY

Despite administrators’ hopes that a round of cuts authorized in May 2010 would be the last, Salovey and Levin announced in January that departments and programs across the University would have to trim their expenses once again.

The reason? Slow endowment recovery and the lack of the reserves that had offset budget woes before. Shortly after announcing the newest cuts, Salovey called the University’s use of its rainy-day funds an “over-reliance,” adding that Yale is now trying to balance its budget in more sustainable ways.

“If the economy had come roaring back and the endowment came roaring back with it, we wouldn’t have been in a position where those one-time actions would have been had to be made permanent,” Salovey said. “But that’s not what happened. The endowment is on the rise again, but the recovery is slow and so we simply were not going to be able to grow our way around those one-time actions.”

University officials knew that Yale was unlikely to rebound quickly. Their earliest predictions about the economy and endowment have proved fairly accurate, and sometimes conservative: They planned for zero growth in fiscal year 2010, and the endowment performed better than expected, returning 8.9 percent. Still, they were hesitant to make sweeping, permanent cuts before absolutely necessary.

Did Yale rely too much on its reserves? Salovey says that it is difficult to tell, but that the University might not have needed to make further cuts this year had the administration implemented long-term changes in the initial stages of the financial crisis.

“I do think it would have been better to have made fewer one-time actions and more sustainable actions right off the bat,” he said. “It would have been harder in the early part of the budget challenges but we would have been done sooner.”

With the reserves gone, Yale is making “sustainable” changes to the way it operates now. Though Levin said that making all the necessary budget adjustments in a two-year period might have been preferable, he also said he has no regrets about the course Yale charted. Speeding up cuts could have worsened their impact, Levin said, for example by causing the University to implement more forced layoffs rather than to reduce staff through attrition.

The cuts administrators announced in January will take effect next year, but Suttle said that — barring major setbacks to the economy — those reductions should be the last.

Levin said he stands by the University’s budget strategy, contending that there was no reason to avoid spending the rainy-day funds, and that he felt the University was “over-reserved” in many departments. While it is important to rebuild Yale’s central reserves, Levin said maintaining caches of money in individual departments is not a priority. Yale still has hundreds of millions in reserves scattered across the University and will add to those funds this year, he added.

Four endowment experts agreed with him that rainy-day funds exist to be spent.

“That’s exactly what a reserve is for,” said Sandy Baum, chairwoman of the Department of Economics at Skidmore College and a senior policy analyst at the College Board. “It makes much more sense to do that than to make dramatic changes based on what is likely to be a temporary change.”

FINANCIAL AID AT A COST

Though administrators say they have done their utmost to shield students from the fallout, their best efforts have nonetheless impacted the undergraduate experience as funds reallocated toward financial aid have been pulled from other areas.

“There is this trade-off between what we give students once they get to the university, and how much they are paying,” said Ronald Ehrenberg, a professor at Cornell University and a leading expert on higher education. “The university has to figure out what that [trade-off] is, and that’s a very difficult decision.”

The University has searched high and low for creative places to find funding for financial aid. In one instance, select undergraduate and graduate students felt the impact last spring when the administration announced plans to cap most academic prizes at $1,000 and reallocate the excess funds to financial aid. Some prizes had previously paid out several thousand dollars.

Leslie Brisman, an English professor and former chairman of the department’s prize committee, pointed to the Sholom and Marcia Herson Scholarship — an accolade given to students intending to complete graduate work in English — as one of the worst affected. The Herson prize had nearly $9,600 of available prize money in 2010, but was restricted to two $1,000 awards, with the rest absorbed for financial aid, Brisman said. Herson prize money will not be awarded at all in 2011, he added, as no senior is headed to Yale’s graduate program in English.

Many professors and students argue that trimming the prizes undermines the University’s commitment to academic excellence. But Suttle said he and his colleagues needed to find places to cut, and that using prizes to support financial aid was a “reasonable strategy.”

Even Yale’s residential colleges have not escaped the financial overhaul. Members of the Provost’s Office and other administrators equalized the budgets of the 12 colleges this past fall — shrinking budgets in the three wealthiest and requiring all 12 to forgo some of their discretionary funds. As with the prizes, the excess funds from college-specific donations and endowments were siphoned off to pay for financial aid and help fill Yale’s deficit.

“The colleges were due to give up some of our resources, just like every other part of the University,” Council of Masters chair Jonathan Holloway said last week.

Still, financial aid policy has not gone untouched. Yale has reworked its financial aid distribution, Director of Financial Aid Caesar Storlazzi said in February, increasing aid for families in the lowest income bracket, but upping the contribution for those in the wealthiest.

Salovey, Levin and Suttle all said that tweaking the distribution has altered, but not hurt, the University’s commitment to financial aid.

“It was touched; obviously, we increased it at the bottom and reduced it slightly at the top,” Levin said Sunday. “But I would say that we didn’t do anything to reduce the competitiveness or attractiveness of our financial aid program.”

STUDENT LIFE LESS ‘LAVISH’?

As administrators have combed the University’s coffers for excess funds that can go toward financial aid, students have sometimes felt the repercussions of the overhaul.

An increase in the expected student contribution portion of financial aid packages sparked outrage among members of the Undergraduate Organizing Committee, who held a mock cocktail party in Beinecke Plaza in October 2010 to protest the $400 increase and Levin’s high salary, which grew by $350,000 between 2007–’08 and 2008–’09.

Though the prize caps have affected a limited number of students, they still have had a significant impact on some. Last year’s Herson Prize winner, Andrew Rejan ’10, said the restrictions on prizes indicates a vaster devaluing of the humanities at Yale in recent years.

“In the real world, a poem maybe is worth nothing more than the paper it’s printed on and these essays on the 18th-century novel maybe are not worth anything, but I had this sense that at Yale, this humanistic learning seemed to count for something, and I think the prizes were emblematic of that,” Rejan said. “Now I feel that glory is being stripped away.”

A student at Columbia University’s Teachers College, Rejan said he could have used the full prize money to lessen his student loans.

But for students who have not experienced a tangible decrease in the funds Yale allots them, the reverberations of the recession have been minimal. Holloway, who is the master of Calhoun, said events may be less “lavish” than they were in past years since funding for Master’s Teas, study breaks, college trips and social functions has shrunk, but that the quality of life for students is still “very high.”

Benjamin Hecht ’11, a three-year master’s aide in Jonathan Edwards, said he thought that the JE College Council had less money to work with after the recession and the redistribution of college funding. The college has scaled back or eliminated certain events, Hecht said, noting that the annual ski trip became a day outing instead of an overnight gig in 2010, and was slightly less subsidized.

Still, Hecht said he thinks events most important to Jonathan Edwards’ Master Penelope Laurans have been preserved.

Matthew George ’11, who has worked as a master’s aide in Saybrook for four years, said he has not noticed any impact of budget cuts during his time at Yale. The food remains the same at Master’s Teas, he said, and the college continues to heavily subsidize events.

Salovey said it is hard to gauge student perspective, but that he does not believe undergraduates have noticed the effects of budget cuts on the whole.

“While it is true that fewer compromises had to be made when we were able to spend more from the endowment, I’ve not heard from students that their present experience seems much changed from that of a few years ago,” he said.

COMPROMISING THE CORE?

Salovey says budget measures enacted in academic departments, like those in residential college settings, have had little impact on students.

“It’s possible that some departments might be reducing their social events at which students have been invited,” Salovey admitted. “So you could say, ‘Oh, there are fewer social events in that particular department,’ and that may be true, but I don’t see those changes as compromising the educational experience.”

Still, professors have said that the continued budget reductions could be starting to hurt Yale’s academic programs — the twin component to financial aid that administrators pledged to preserve at all costs.

In January, Levin and Salovey asked academic departments and other units across Yale — the professional schools, Graduate School, libraries and art galleries, among others — to trim their spending of general University funds by an average of 5 percent. All Yale College and Graduate School departments will take some budgetary action, Salovey said, whether that means cutting costs or replacing general University funding with other sources of income such as donor gifts.

Perhaps most problematically, the economic downturn also prevented Yale from expanding the size of its faculty this fall. During the boom years, Yale witnessed a dramatic rise in its faculty, with the numbers soaring from 599 professors in 1999–’00 to 697 in 2009–’10. But Suttle said that the Faculty of Arts and Sciences has remained at its current size of 709 members in the 2010-’11 year because of limited resources, and added Monday that he does not know when University finances will recover enough to expand the faculty again.

Professors say that if searches cannot move forward soon, departments and programs will begin to suffer from the lack of fresh ideas and courses.

“They tried to cut the central administration first or things that don’t have a direct effect on students and faculty, but they’re getting to the point now where they do have to start cutting those things,” Paul Freedman, acting chair of the History Department, said in January. “It’s not going to be directly more noticeable, but they’ve already cut most of what is easy to cut.”

Freedman said Sunday he is yet not sure if the History Department is authorized to hire new professors next year.

Judaic Studies Program chair Steven Fraade also said he is still waiting for a memo from the administration on whether searches will go forward. The delay in hiring becomes more problematic the longer positions remain unfilled, he said.

“If you have a faculty position that is open for two years you can tolerate that, but if it goes on for more than that, it has more of an impact,” Fraade said. “Nobody is prepared to say when the belt-tightening ends, because they don’t know.”

‘HARD TO SECOND-GUESS’

Three years after the recession hit, the University reserves are nearly depleted, administrators continue to scour the budget for places to cut, and the economy and endowment are just beginning to recover. Knowing what they do now, should Yale’s top officials have reacted to the financial crisis differently?

Administrators and endowment experts alike say there is no good answer to this question. Levin and Salovey say they stand by the decisions they made as the recession hit and the endowment plummeted three years ago.

“It’s very difficult to Monday-morning quarterback,” Salovey reflected. “But I would say in general we went about trying to balance a reduced budget — a budget due to endowment decline — in the right way.”

The only solutions five experts interviewed could offer run counter to the University’s stated priorities.

Two said that Yale could have trimmed its financial aid policy, preserving funding for the lowest income families but reducing it for those in higher income brackets. Higher education expert Ehrenberg called the financial aid policies of elite Ivy League schools such as Yale, Harvard and Princeton “more generous” than they should be, and Roger Kaufman, an economics professor at Smith College, called the amount of money Yale doles out for financial aid “scandalous.”

Yet Yale administrators have made their commitment to financial aid a cornerstone of the University. Levin said the financial aid Yale provides is better than that offered by most of its peers.

Other experts say Yale could have spent more from its endowment instead of cutting operating costs. This strategy is “absolutely” used by other schools, Skidmore economist and College Board senior policy analyst Baum said, adding that many in her field believe a university’s endowment exists for that purpose.

“Yale has a huge endowment,” Baum said. “They’re not at risk in any way.” Even after tumbling nearly 25 percent in fiscal year 2009, Yale’s endowment remains the second-largest in higher education after Harvard’s. It is valued at $16.7 billion.

But Levin has said that he, Salovey and others are determined to consider Yale’s finances in the long-term, and believe it would be irresponsible to harm the University’s future by overspending the endowment in the present. Levin and Salovey said last spring that the endowment belongs not only to the Yale of 2010, but also to the Yale of 2110.

Faced with an economic crisis, then, administrators set their priorities and used available resources to protect them. Though Yale continues to weather the effects of the downturn today, experts and administrators agree it is difficult to say if the University could have charted a better course through the recession years.

“It’s very hard to second-guess what they have done,” said Richard Anderson, principal of the higher education group at endowment consulting firm Hammond Associates. “The recession and financial crisis is very much beyond what anyone could have planned for, and it has disrupted everybody.”

Comments

  • gibbygervais

    Rather than cut financial aid, Yale could temporarily halt the planned development of West Campus. Harvard had to do the same with it’s Allston campus due to the financial crisis.