As the country’s economy slides into uncertainty with the onset of the first recession in a decade, many of the conditions that allowed Yale to experience an unprecedented decade of prosperity no longer exist.
Surprisingly, however, there are some upsides to a recession for the University.
At a time when Yale has committed to a record setting level of capital improvement, the recession would appear to have arrived at the worst possible moment, but low interest rates and a weak construction industry may allow the University to survive a recession with relatively few sacrifices.
As the economy sags, the Federal Reserve has lowered interest rates to jump-start the economy, thereby allowing Yale to borrow money more efficiently.
Debt supplies 61 percent of the funds for the $324 million capital budget. The capital budget funds the various renovations and construction projects around campus, including the residential college renovations and the Science Hill building initiative.
“As far as the debt goes, the interest rates are very low now,” Yale President Richard Levin said. “We can borrow on very favorable terms.”
While lower interest rates make increased debt spending more feasible, the University still does not want to tie its $1.4 billion operating budget down with paying off interest on loans.
“The more we have to spend on debt, the less we can pay for programs,” said Deputy Provost Lloyd Suttle.
Yale officials, however, would be cautious about significantly delaying the renovation schedule. In the early 1990s, years of deferring maintenance of buildings led to a crisis, which the University does not want to repeat.
“We won’t let ourselves get in that situation,” Deputy Provost Charles Long said. “It’d be very disappointing and falling back to old patterns if we said we couldn’t take on more more debt [for projects].”
The second largest portion of funding for capital projects comes from gifts, though, and with a slow economy, many alumni may not be able to afford to give the University money.
But Long said the University receives most of its gifts from a select group of alumni who see their major contributions to Yale as independent of economic conditions.
Yale may also benefit from a slowdown in the construction industry that could lower its cost.
“Some people think that if the economy and the construction industry take a downturn, we could bid at lower prices,” University Planner Pamela Delphenich said.
While it is difficult to know how the endowment will survive the recession, the investment office managed to grow the $10.7 billion endowment 9.2 percent last year despite harsh market conditions.
The University’s pocketbook will likely take a hit next year because a bad economy will hurt the families of students, who will need larger financial aid packages. With the University already planning to implement a new financial aid program for the 2002-2003 school year, the financial aid budget could see a large increase.
“I’m sure that the financial aid budget will show the effects of the economy,” Long said.