Despite a multi-million dollar deficit last year, University administrators maintain confidence in the future of Yale’s budget.
In an August email to the Yale community, University President Peter Salovey wrote that he expects the budget to be balanced by fiscal 2016 — the fiscal year beginning July 1, 2015 and ending on June 30, 2016. In fiscal 2013, the University had a $39 million central operating deficit. As a result, Salovey and Provost Benjamin Polak issued three- and five-year budget targets to units throughout the University, asking them to reduce spending. These targets are the first projections expected to bring the University into the black since before the onset of the 2008 recession.
“With continued diligence, we believe that the University’s budget for next year should be in balance,” Vice President for Human Resources and Administration Michael Peel said in an email. “It is expected that the number of layoffs, which was elevated in the past 12 months, will return to more normal levels in the coming year.”
Peel added that the work of managers and departmental teams throughout the University has lowered costs in the fiscal year 2015 budget. As a result, he said “a significant reduction” will be achieved this year in the size of the annual budget deficits Yale has experienced in the recent past.
While Polak said there is still a lot of work to do to balance the budget by fiscal 2016, he added that he is “quietly confident” that the University can accomplish that goal.
Eliminating the budget deficits that began during the recession has taken time.
After the financial downturn in 2008 reduced the size of the Yale endowment by 25 percent, the University faced a projected $350 million annual deficit in 2009. Since then, Yale has worked to reduce the deficit and has covered the gap between revenue and operating expenses each year using reserve funds. But a deficit of $39.2 million still remained in fiscal 2013.
Even in the context of the University’s large endowment, valued at $20.8 billion in June 2013, the University’s deficit has caught the attention of outside experts in recent years.
A June report on Yale’s finances by Moody’s Investors Service, an independent financial analysis group, noted that Yale has faced three years of modest operating deficits. Still, the report forecasted a stable credit outlook for the University, based in part on the prediction that the deficits would be reduced.
While Polak noted that the actual rather than projected budget deficit from last year has not been calculated yet, he added that he believes that this year’s deficit will be smaller.
“I am optimistic that they will be better than last year, but I don’t want to jinx it,” Polak said.
Vice President for Finance and Business Operations Shauna King did not respond to requests for comment.
In his email last month, Salovey added that the University’s plans forecast small budget surpluses in the years following 2015-’16. The surpluses will fund research and teaching, as well as new initiatives across campus.
While Peel said he is confident that the University is very close to resolving its operating budget imbalance, he noted that strains on Yale’s resources remain.
For the immediate future, administrators said budget cuts must still be made — a prospect that most faculty members are far from excited about.
Molecular, Cellular and Developmental Biology professor Joel Rosenbaum said recent budget cuts have directly impacted his department’s ability to hire and retain top faculty. For example, he said, Yale lost a professor to Harvard Medical School this summer due to the University’s inability to offer a higher salary.
“This new hiring will take money, and I do not have high hopes it will be forthcoming with the current budget stringency,” Rosenbaum said. “So, I am delighted that Yale might be able to balance its budget in a couple of years, but I would like to know on whose shoulders the cuts required for this balancing are going to fall.”
Other faculty members agreed. Assyriology professor Benjamin Foster GRD ’75 said the University has left certain vacant faculty positions unfilled for too long, practicing a “delayed maintenance” of the faculty.
Though the University predicts small budget surpluses in the coming years, faculty were wary of speculating on uses for the new funds. Rosenbaum said that given the planned expansion of Yale with two new residential colleges, it would be foolish for him to suggest how to direct the budget. For others, the existence of surpluses themselves seems a rarity.
“While I’m told Yale used to be rich, it hasn’t felt that way since I arrived in 2010, and I really haven’t thought hard about where surpluses might go since that’s been akin to wishing for snow in August,” said School of Management Professor and the Jackson Institute Director James Levinsohn.
Still, Levinsohn was quick to add that he thinks the budget is being handled in a sensible manner. He added that Polak has done impressive work to balance the budget while maintaining the University’s focus on teaching and research.
Yale, Harvard, Dartmouth and Cornell all posted budget deficits for the fiscal year that ended in June 2013.