Three years after the recession tore a $350 million hole in Yale’s budget, Provost Peter Salovey says University finances are finally stabilizing.
Yale has been in rough financial straits ever since the endowment dipped nearly 25 percent during the 2008 recession. The University nearly depleted its rainy day funds to close gaps in the annual budget and offset slow economic recovery and endowment growth over the next few years. But now that the budget cuts University administrators called for last winter are in place and positive endowment reports are in at other colleges and universities, Yale seems headed for more solid financial ground.
“I think we’re now in pretty good shape going forward,” University President Richard Levin said. “The crisis mentality of the last three years is behind us.”
The stability has come in part from an unexpected budget surplus left over at the end of the 2010-’11 academic year, Levin said. Though administrators allotted approximately $2.8 billion for University-wide expenses that year with the hope of breaking even, Levin said they ended the fiscal year on June 30 with a “considerable surplus.”
Salovey said the surplus partly came from returns on Yale’s cash holdings, which the University did not anticipate because interest rates were so low throughout the year. At least some of the spare funds will go toward replenishing the University reserves — money that Yale sets aside to be used when other revenue sources shrink.
Though the University always aims to build its reserves, Levin said it was “somewhat of a surprise” that Yale could afford to funnel funds into those stores when fiscal year 2011 closed.
While beginning to replenish University reserves is one sign that Yale has made it through the worst of the 2008 recession, it is not the only one. Salovey said that, after the campuswide budget cuts he and Levin called for in January, he thinks the University will not need additional reductions in the near future.
“We wanted people to do it as fast as they could and hold it there,” Salovey said. “Units will have to sustain the budgets they reduced to over the past couple of years, but will not likely need to make new cuts.”
The budget for the current 2011-’12 academic year should be similar to that of the previous year, Salovey said, though he was unsure of the specific figures. The portion of the budget covered by spendable income from the endowment — which amounted to $986 million in fiscal year 2011, or roughly 35 percent of Yale’s total expenses — should also be comparable this academic year, he added.
Though the University has not reported its endowment returns for the fiscal year that ended June 30, expert opinions and the performances of peer institutions suggest that Yale’s endowment will return around 20 percent — a significant increase from the 8.9 percent return it saw in fiscal year 2010.
With the 2008 financial crises largely resolved, Salovey said administrators will now be able to pursue goals beyond a balanced budget.
“In the last two years, we could focus on only a small number of other initiatives,” Salovey said. “But we now should be able to add to that number because our financial situation appears more stable in the present and is improved for the future.”
Despite the impact of the recession, Yale’s endowment was the second largest in higher education as of June 30, 2010. It was valued at $16.7 billion.