Yale still addressing budget gap

More than three years after the onset of the recession first forced administrators to make University-wide budget cuts, Yale’s finances still have not fully recovered.

University President Richard Levin and Provost Peter Salovey wrote in a Wednesday memo to faculty and staff that additional budget reductions are required to close the remnants of a $350 million gap caused by the 25 percent decline in the endowment three years ago. Though Yale returned 21.9 percent on its investments in the fiscal year that ended June 30, the University’s increase in spending is projected to outpace growth in revenue for the 2012-’13 academic year.

Levin and Salovey said they expect to avoid the “across-the-board” cuts in the coming year’s budget, unlike those they called for last January and in previous years. The 2012-’13 budget should also leave room for increases in faculty and staff salary and wages, they said. As University officials move toward a sustainable budget, they will meet with deans, directors, faculty and staff to evaluate programs, look for different sources of funding and consider places to trim.

Additional cuts are required in part to allow Yale to resume the capital construction projects it stalled to save $2 billion in spending when the recession hit in 2008, such as work on Science Hill facilities and the new residential colleges.

“A balanced budget is a necessary target for the near term, but it is not enough to secure a vibrant future for Yale,” Levin and Salovey said in the memo. “In order to make room for academic initiatives and to advance some of the construction projects frozen in the crash of 2008-’09, we will need to free up or find new resources.”

Spending across the University is expected to increase by 6 percent next year, driven partly by rising costs of utilities and health care benefits for employees, Salovey and Levin said. At the same time, revenue is projected to rise by just 2.6 percent because of the “smoothing rule,” which keeps spending from the endowment relatively consistent on an annual basis despite fluctuations in investment performance. The spending rule helped soften the blow of the recession on the University’s finances when the endowment plunged in fiscal year 2009.

Despite Yale’s strong endowment performance in the latest fiscal year, Levin and Salovey said they do not expect to achieve similar returns in the near future considering today’s “turbulent financial markets.” Even when the University officially announced its 21.9 percent investment returns in September, experts cautioned against reading too much into one-year numbers in light of global economic uncertainty.

Levin and Salovey said that a deficit for 2012-’13 is also expected because administrators balanced the current budget by spending from the University reserves — income set aside in rainy day funds. Yale turned to those funds repeatedly in the aftermath of the recession and had essentially depleted them as of last April, though Levin said the University was able to funnel some money into the reserves when fiscal year 2011 closed.

Salovey wrote in a Wednesday email to the News that the University will maintain its commitment to protecting the academic core and the student experience as it looks for places to cut in the coming year. Levin could not be reached for comment Wednesday evening.

Administrators will begin to address specifics of the budget planning process at a Thursday meeting, Salovey said.

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