Though three years have passed since the onset of the nationwide economic recession, Yale’s professional schools are maintaining a conservative approach with their budgets.
While University President Richard Levin claimed in an early October town hall meeting that University finances have stabilized, academic units across Yale will not immediately benefit from the 21.9 percent return on endowment investments in fiscal year 2011, Provost Peter Salovey said. As a result, the professional schools that have struggled most through the economic downturn — those whose operating revenue depends heavily on income from the endowment — have yet to move past financial difficulties imposed by the recession.
“The biggest effect of the recession at Yale has been the value of the endowment and the amount of the endowment that could be spent,” Salovey said. “The more endowment available to you, the tougher it was after the downturn to make your budget.”
The University’s investments fell 24.6 percent in the wake of the 2008 financial crisis, following several years of dramatic endowment growth between 2004 and 2007.
Federal stimulus spending and other grants buoyed revenue for some professional schools after the recession hit, but the $350 million gap that the financial crisis and declining endowment ripped in Yale’s budget still forced cuts at the professional schools.
Although Yale’s “smoothing rule” helped units across the University weather the initial impact of the recession, Salovey and two professional school administrators said that the rule also means recent gains in the endowment will not immediately benefit professional schools’ budgets.
Designed to keep Yale’s endowment spending relatively consistent on an annual basis despite fluctuations in investment returns and the economy, the rule bases the yearly rate of endowment spending primarily on the amount spent in the previous fiscal year. The calculated rate is held between 4.5 percent and 6 percent of the endowment’s market value. Associate Dean of the School of Architecture John Jacobson ARC ’70 said the 21.9 percent return will only increase endowment income by a marginal amount in the coming fiscal years.
While the endowment covers roughly 60 percent of expenses for many of Yale’s academic units that rely on general appropriations of central University funds, according to a January letter from Salovey and Levin, Yale’s professional schools vary in how much they depend on the endowment for annual operating revenue.
Some professional schools are largely self-supporting, meaning their portion of endowment income come from funds that are pegged for use at their respective schools. Salovey said all professionals schools are responsible for planning their own budgets, but schools like the Law School, Divinity School and School of Management are among the schools considered “essentially self-supporting” in their finances.
The School of Music, which is not considered self-supporting, scaled back program budgets and new international initiatives following the onset of the recession, Music School Dean Robert Blocker said in a Thursday email. Despite these changes, the school continues to feel the lingering effects of the fiscal year 2009 drop in the University’s endowment, he added.
The School of Forestry & Environmental Studies receives roughly 50 percent of its annual revenue from school-specific endowment funds and is considered self-supporting, said Eugénie Gentry, the school’s director of Development and Alumni Services.
Since the school is relatively dependent on income from the endowment, Gentry said the recession forced administrators there to trim spending and consolidate services. The Office of Development and the Office of Alumni Services was restructured to eliminate two positions, Gentry said, and faculty who left other parts of the school were not immediately replaced. Gentry added that administrators at the environment school have done their best to maintain support for students and financial aid throughout the downturn.
Administrators at the School of Architecture also made cuts designed to address their budget shortfall while preserving the school’s core academic mission, Jacobson said. Though he declined to reveal specific details of the school’s budget, Jacobson said administrators looked closely at restrictions on endowment funds to see whether there was any additional “flexibility” in their use.
“We regret having to have deal with the economic crisis,” Jacobson said Wednesday. “We tried very hard not to let the impact of the financial situation have any affect on our academic program and we think we’ve successfully accomplished that.”
Yale’s endowment was valued at $19.4 billion as of June 30, still below its high-water mark of roughly $23 billion.