The United States’ credit rating was downgraded this past August and the subsequent bout of national economic turbulence is threatening to plunge the university into tricky financial straits.
Though the government’s near-default this summer drew comparisons to the economic turmoil of 2008, the two crises will likely play out differently for Yale. When the economy tanked three years ago, Yale’s endowment suffered, but the University’s science and medical research programs benefitted from federal stimulus money. Now, instead of releasing a stimulus package, the federal government is preparing to slash spending and shrink its deficit by more than $1.5 trillion over the next 10 years, and even well-endowed universities such as Yale will feel the pressure of the constricting budget.
The federal cuts will likely be most noticeable at Yale in areas that rely heavily on federal grants, such as the medical school and the University’s science departments. In the wake of 2008, Yale was among universities that received funding from the federal stimulus bill — the American Recovery and Reinvestment Act — and accrued some $121 million in research awards between February 2009 and January 2010.
“We had the ARRA funding that came as part of the stimulus program which ramped everything up tremendously,” said Michael Glasgow, Yale’s executive director of the Office of Grant and Contract Administration. “We’re on the dovetail end of that, and we’re hearing cuts. … It’s potentially scary because we’ve gone from an increase to what could be a decrease in terms of federal funding.”
Many federal programs benefit Yale and its students at both the graduate and undergraduate levels, which means that Congress’ move to reduce the deficit by cutting spending rather than raising revenue could impact the Yale community, Provost Peter Salovey said. Those federal programs include the National Institutes of Health, National Science Foundation and Department of Energy.
The money awarded by the federal government for nondefense research and development has remained relatively constant for the past few years, said Sara Rockwell, associate dean of the School of Medicine. In the years before 2008, she said about 20 to 25 percent of Yale research proposals were funded by the National Institutes of Health and other federal funding agencies.
But now she says that amount has dropped to around 10 percent, and she expects that funding will continue to see additional cuts.
“It is likely that the budget for research will fall, and it will fall despite the fact that salaries and expenses will continue to rise,” she said. “That will mean that the [relative] decrease in the money we have to do research is even greater than the decrease in dollars.”
The federal government cuts will be felt not just among graduate students, but also among undergraduates, Rockwell said. Graduate students and postdocs will see valuable state and government funding that supports both their research and stipends diminished, while undergraduate students may see research opportunities and career possibilities dwindle.
Nor will the impact of budget reductions be contained to just the medical school, Rockwell said. As many federal science programs take hits, the reverberations will also reach departments such as Chemistry and Astronomy.
“There is no area of our funding that looks healthy,” Rockwell said. “If we were healthy in one area and unhealthy in another, there would be less concern. Unfortunately, we are looking at tight funding across the board.”
Beyond cuts made to federal programs, Yale and similar universities will also have to face the impacts of potential reductions in grants given at the state level, said Sandy Baum, chairwoman of the Department of Economics at Skidmore College and a senior policy analyst at the College Board.
While Yale has weathered economic turbulence better than most schools because of its $16.7 billion endowment — the second largest in higher education as of fiscal year 2010 — Baum said even that money will not cushion the University’s research endeavors from cuts to federal programs.
“Obviously that is a place where Yale [receives] a lot of money,” Baum said. “They are vulnerable there.”
Amid the turmoil caused by the national downgrade, Yale maintained its top-notch AAA credit rating.