The loss to Yale’s endowment is deeper than expected, and the cuts to this year’s budget will have to be as well.

The University’s budget deficit will grow to $150 million each year from 2010-’11 through 2013-’14, University President Richard Levin said in a letter to the Yale community Thursday. As a result, the administration wants to squeeze another 5 percent of reductions out of the current year’s non-personnel spending, in addition to cuts that will be made in future years.

[ydn-legacy-photo-inline id=”10229″ ]

The need for additional cuts this year is necessary in part because Yale expected a market rebound. But because the value of the endowment has fallen even further than expected — from $17 billion to $16 billion — the University is now pursuing more drastic measures.

“We did not want to overreact to the downturn in financial markets by making reductions that might later prove unnecessary if markets recovered quickly,” Levin said in the message. “We will provide full details of the budget adjustments required for 2010-’11 later in the year, but we want to alert you to the fact that another round of reductions will be necessary.”

The endowment’s value at the end of the fiscal year on June 30, which was previously projected to have fallen 25 percent to $17 billion, is actually closer to $16 billion, Levin said. The exact figure is still to be tabulated and will be announced later this month.

Only a small fraction of Yale’s endowment is invested in public equities, so it has not seen much benefit from the stock market’s recent rebound. Most of the portfolio is invested in illiquid assets, which have not begun to recover, Levin said. But that diversification also enabled the University’s propitious run over the last decade, University Provost Peter Salovey pointed out.

“Although a traditional stock and bond portfolio would have seen more recovery in 2009 year-to-date than Yale’s endowment,” Salovey said in an e-mail, “it would have trailed — by a considerable amount — our five-, 10-, and 20-year returns.”

Because the endowment’s contribution to Yale’s $2.7 billion operating budget is governed by a formula that smooths endowment gains and losses over several years, the endowment payout for the current academic year declined only 6.7 percent from last year’s level. But when the full effect of the endowment’s 30 percent plunge kicks in, the payout will decline by an additional 13 percent in 2010-’11 and remain at that level for the next several years.

For the current year, all departments have already had to reduce their staff and non-salary spending by 7.5 percent, with the expectation that they would cut another 5 percent in non-salary expenditures next year. On Thursday, Levin asked them to start cutting that 5 percent now — targeting travel, entertainment, equipment, and supplies — with the understanding that even more cuts will follow.

“Many units obviously manage themselves very well and don’t have a lot of excess, but there are always ways to reduce supplies and new purchases of equipment,” Levin said. “Of course it pinches, but I think this is an area where, relative to staffing reductions, it’s easier to manage.”

Consistent with the Universitywide construction freeze announced in February, no major construction projects, except essential maintenance and the renovation of Morse and Ezra Stiles Colleges, will proceed unless gift funding is available.

Levin reasserted that financial aid — and financial aid alone — is off-limits. Everything else will come under scrutiny. Faculty hiring, he said, will continue but at a slower pace.

Other priority initiatives will also be scaled back, including a 25 percent reduction in spending on the West Campus and about a 40 percent reduction in spending on the redesign and implementation of new administrative systems, an initiative called YaleNext.

The University projects that the endowment will remain flat during the current year and begin to grow at its normal target rate of 10 percent after 2010.