For the new residential colleges, the 2013 opening date was always ambitious. And given the financial meltdown, that date is starting to look less and less realistic.
With the revelation last month that Yale’s endowment dropped an estimated 25 percent, much of Yale’s $2.6 billion capital spending plan for the next few years has been plunged into uncertainty — possibly including the largest expansion of Yale College in almost 50 years. Some projects have already been delayed, and the two new residential colleges, last valued at $600 million, is likely to join them.
The most important factors that will bear on the colleges’ on-time completion are Yale’s ability to finance construction through borrowing and fundraising, and it is much too early to try to predict those, administrators said. In the meantime, design, fundraising and other preparations for the new colleges will proceed on schedule, they said, but postponement may yet prove unavoidable.
“The main variables about whether we proceed are most likely to be financial,” University President Richard Levin said in a phone interview Tuesday. “Unless the market conditions improve substantially and the endowment’s value rises, it’s really a situation of waiting and watching.”
Levin announced last month that, while the renovation of Morse and Ezra Stiles colleges will proceed on time, other new projects will be deferred. The Yale Biology Building has already been delayed one year, while the new School of Management campus and renovations of the University Art Gallery and Hendrie Hall will not start until funding is secured or markets improve. The new residential colleges may also share their fate.
Credit markets are currently frozen, meaning Yale, like other institutions, cannot rely on borrowing to supply the day-to-day cash flow for big construction projects.
“We will not be able to issue as much debt for construction projects as we had anticipated in our multi-year capital budget,” Levin said in his letter to the Yale community on the University’s financial situation last month.
Access to capital through borrowing in today’s economic climate is a major obstacle, Deputy Provost Lloyd Suttle said. Even if the University tried to sell bonds, it would be hard to find buyers, he said, which would make borrowing more expensive for Yale.
The credit crunch was underscored Wednesday by Bloomberg’s report that Harvard and Princeton universities are selling bonds at a discount in a scramble to shore up liquidity as the value of their assets wane.
Without being able to rely on credit markets to finance construction, fundraising is the way forward. Levin said while the University wants to take on “a fair amount” of debt, it is also trying to raise a lot of money.
So far, the 13th and 14th residential colleges have “galvanized” donors who are excited about expanding Yale College’s imprint on the world and about opening up more spots for their children and grandchildren, Provost Peter Salovey said in an interview in November. Yale had already raised a $140 million nucleus fund for the expansion project, putting the University’s fundraisers more than a quarter of the way to their $500 million goal, Vice President for Development Inge Reichenbach said late last semester.
But, much like the recession has chilled borrowing, administrators said they also expect the economic downturn to dampen donations.
“We are keeping a close eye on costs and fund-raising success,” Salovey said in an e-mail Tuesday. “With all of our capital projects, including this one, fundraising is going to be the key. Projects may be delayed if we see a significant slowdown in gifts to the University to support them.”
In the meantime, preparations for the colleges are proceeding on time. Suttle said the administration is moving forward with its plans to prepare the site for the new colleges and work on their design.
After all, the colleges are not slated to break ground until 2011, which is still far in the future. There is no way to predict how the economy may fare in the next two years — it may recover fully, or the crisis may deepen.
But based on the current models and projections, the University anticipates that the endowment will remain flat in the 2009-’10 academic year and resume growth in the 2011 fiscal year. That means administrators are projecting a $100 million gap in the operating budget next year that will grow to $300 million by 2013-’14. The operating budget is separate from capital spending and relies on the endowment in a way that capital spending does not, but it provides some indication of the University’s unfavorable economic forecast.
The Yale Corporation, the University’s highest governing body, will look at more detailed plans from the architect, School of Architecture Dean Robert A.M. Stern ARC ’65, at its February meeting and will hold extensive deliberations on the two new colleges during its April meeting.
Ultimately, if the choice is between delaying the colleges or compromising their cost, administrators said they would rather build them later in order to build them right.
“Everyone involved feels that we should build wonderful colleges and not use the current economic situation as a reason to compromise on their design,” Salovey said in an e-mail. “We are building for the long-term.”
The question now is whether the long-term might get even longer.
Paul Needham contributed reporting.