In the face of a bleak economic forecast, the construction of the two new residential colleges will be delayed, along with almost all other construction projects, University President Richard Levin told the News on Tuesday.
In a letter to faculty and staff, Levin also announced deeper cuts to the University’s operating budget. He called for spending reductions on staff salaries and non-personnel costs by 7.5 percent instead of 5 percent as previously planned. The endowment is still projected to lose 25 percent of its value by June, Levin said, but with no sign of improvement in the economy, he said financial recovery may take longer than the University had previously planned.
“I wish we could avoid these additional actions,” Levin wrote in the letter. “And I understand that meeting the revised budgetary targets will be challenging.”
CAPITAL SPENDING DELAYED
The colleges are not the only project to be postponed; most planned construction projects will be delayed in an effort to save $2 billion in capital spending. Work on all new buildings and renovations currently under construction will continue, Levin said, as will essential maintenance and the renovation of Morse and Ezra Stiles Colleges.
Levin said that even design work on other projects will stall until credit markets open up or gift funding is secured.
“To the extent we have gift money for the colleges,” he said, “we will be able to continue the design work.”
Funds have already been raised to support the planning of a new campus for the Yale School of Management, Levin said, and so that design process will continue.
Planning for the two new residential colleges has already made some progress. The architect, School of Architecture Dean Robert A.M. Stern ARC ’65, presented designs to the Yale Corporation over the weekend.
“I’m disappointed that the construction got delayed,” Stern said, “but I’m optimistic that we will move forward with the project as soon as circumstances will allow us.”
But the circumstances are too complicated and too volatile to predict when they might change in Yale’s favor. Besides gift funding, construction projects require borrowing, but the credit markets are broken, Deputy Provost Lloyd Suttle said. Even for Yale, with its top credit rating, there is barely any money available to borrow.
That rating is not something administrators want to jeopardize by taking on too much debt, Suttle said. A major factor in that assessment is the ratio of current debt to endowment value, so as the endowment declines 25 percent this year, it also limits the amount of money Yale can afford to borrow.
University officials had hoped to postpone any decision about delaying the construction of the colleges until 2011, when the University had planned to break ground. But in a telephone interview Tuesday, Levin said that projects related to the new colleges — mainly associated with clearing and preparing the site for construction — needed to begin in just a few months if the colleges were to open on schedule in 2013. In other words, this was the point of no return.
OPERATING BUDGET CUTS DEEPEN
Spending on salaries will be cut 7.5 percent in the 2009-’10 fiscal year, up from the 5 percent reduction Levin announced in December. Levin said he hopes to make the cuts through turnover and reductions in the number of temporary employees, but he did not rule out layoffs.
“I don’t think there’s any possibility we can manage without some layoffs,” Deputy Provost Charles Long said. “It seems inevitable.”
The cuts translate into the elimination of about 600 positions, which is more than can likely be achieved through turnover alone. Vice President for Human Resources and Administration Michael Peel said attrition is at its lowest rate in 10 years. In a recession, people tend to be less likely to change jobs because the job market is tighter, and less likely to retire because their investments are down.
Levin said one way to reduce the budget is to cut back on temporary and contract employees. He stressed the difficulties of laying off unionized workers, who are protected by labor contracts.
Even Yale’s highest-paid employees will feel the pains of the economic downturn. Staff with salaries below $75,000 will still receive a 2 percent raise. But now, instead of a $1,500 raise cap for employees making above $75,000, those faculty, staff and administrators will have their pay frozen.
Budgets will be cut across the University, Levin said, and not just personnel spending will be reduced. Instead of the 5 percent reductions in non-personnel spending planned in December, the University will now cut 7.5 percent next year and an additional 5 percent in the 2010-’11 academic year.
These cuts, which Suttle said are the deepest since at least the 1970s, will save the operating budget an additional $37 million next year, on top of the $100 million that was announced in December. The budget gap was created by the endowment’s essentially flat growth last year and projected decline this year.
The details of how these across-the-board cuts will break down in each department will be communicated in a memo this week, which will give budget planners targets and guidelines to start drafting their annual proposals.
Administrators are also planning to announce Yale College’s tuition for the upcoming academic year later this week.