With Yale’s budget projections for the 2006-2007 fiscal year $25 million in the red, University officials say the primary method for alleviating the shortfall will involve drawing from preexisting funds in the endowment rather than raising money to cover the difference.

This year the Development Office will play a key role not only in finding new donors, but also in transferring restricted funds supplied by alumni donors to fill holes where additional support is necessary.

Yale President Richard Levin said restricted funds can be applied toward reducing the deficit when the terms of the donation match the use of the funds.

“It’s often true that we get a reduction in the deficit from some gifts that are restricted to a particular use, but where the net effect is to relieve general appropriations to the budget,” Levin said. “The better strategy is when the gift is made to create sufficiently flexible terms to make the restriction one we can satisfy.”

The endowment posted returns of 22.3 percent in the fiscal year that ended June 30, bringing its value to $15.2 billion. The endowment consists of a diversified portfolio of hedge fund, real estate, venture capital and stock market investments. Money in the overall fund consists of 5,600 endowments to the University, each with its own separate restrictions, Deputy Provost for Undergraduate and Graduate Programs Lloyd Suttle said. These endowments are allotted to funding various sectors, such as student programming, professorships and construction and renovations.

Areas in which these funds can be used more liberally within the terms of the donation might include graduate student or faculty support, in which a gift given to support a professor who takes a leave of absence for a year could be applied to temporary faculty appointments, Suttle said.

Wednesday’s $1 million donation by Steven Brill ’72 LAW ’75 to support a new journalism initiative is a prime example of an endowment with restricted terms, like most of the sizable donations the University receives.

“When you have the potential of giving a million dollars, it’s nice to know where it’s being put to work,” Vice President for Development Inge Reichenbach said.

But Yale College Dean Peter Salovey said restricted funds such as Brill’s donation are not the only gifts Yale needs.

“The University needs all kinds of funds: funds to endow programs, funds where you can use the entire fund immediately, and unrestricted gifts allow us to do all kinds of activities that might not come to the attention of a donor,” Salovey said.

This is where the Development Office — the principal department in charge of soliciting donations and fund-raising for the University — comes in. The role of the office in the budget process concentrates on supporting the priorities outlined by the University’s capital budget, which details the projects planned for approximately the next 10 years, Reichenbach said.

Since certain components of the endowment cannot be used to cover deficits, alumni financial support can be applied to areas not otherwise covered by the endowment, Reichenbach said.

“Certain endowments cover certain costs, but you can’t just use endowments to cover certain deficits,” Reichenbach said. “You cannot say, ‘Oh, I have a hole here’ and plug it with endowment. That is not possible. You look at what causes the deficit and if that is something that alumni would find attractive to support.”

Executive Vice President for the Association of Fundraising Professionals Walter Sczudlo said he agrees that securing the trust of the donors should be a university’s priority over filling gaps in its budget.

“While it can be frustrating to the stewards of contributed funds to see areas of need not being met while at the same time there are surpluses in other revenue centers, if the organization wants to maintain donor trust, which is critical, they must respect donor intent,” he said.

There is not a particular focus on general donations in fundraising, but the University has always made an effort to direct new donations to projects it considers important, Suttle said.

Yale development officials strive to ensure that the use of a gift aligns with the terms either in the will of a donor or a letter from the donor specifying how the income could be used and do not have the ability to modify these terms, Suttle said. In a case where the donor is still alive, the University can explain to the donor how expanding the purpose of the endowment would be useful. If the donor is deceased and there are no living relatives, the University has to persuade a judge that it would be impossible to honor the original intention of the donor.

In some cases, it becomes necessary to change the terms of an endowment because donors of 100 years ago may not have kept in mind the perpetuity of their gift, Reichenbach said. Gifts arranged by the Development Office today attempt to make possible the use of donations for many years without changing their terms, she said.

“We have worked with our donors to try to tailor an indenture that can be used even 200 years from now,” Reichenbach said. “That was not always the case.”

For example, Salovey said, the details for the program that Brill endowed can evolve over time as deemed necessary by the University, as long as the donors are consulted. Both sides signed a legally binding agreement about the way in which the University can use these funds in the future.

“It’s the policy of the University that donors must leave to the University the actual administration of the programs that they endow,” Salovey said. “Having said that, we would of course always welcome their input and advice.”

Restricted endowment gifts to colleges and universities are not usually discretionary and provide stable long-term funds from which schools can draw, said David Bass, director of government relations for the Council for Advancement and Support of Education.

“It is certainly the case that the vast majority of endowment funds are restricted for very particular purposes by the donor, so those are not generally discretionary,” Bass said. “I think there is a common misconception that that might not be the case. I think colleges and universities very much value endowment gifts because it provides assurance that there will be long-term support that will not be subject to short-term vagaries or cash flows.”