Yale’s budget is squarely in the black again this year with a surplus of $194 million, an increase of $143 million from last year.
The University’s annual budget report, released Wednesday, showed substantial revenue increases in the 2015 fiscal year, including the recognition of the $250 million gift from Charles Johnson ’54 to fund the building of two new residential colleges. As the national economy improves and Yale’s endowment continues to yield high returns, University Provost Benjamin Polak said he thinks Yale’s financial outlook has almost returned to its level before the economic bubble.
“I think the campus has made a lot of progress from when the endowment dropped,” University Chief Financial Officer and Vice President for Finance Stephen Murphy ’87 said. “We’ve put the economic downturn behind us.”
But administrators in Yale’s Division of Finance said the surplus is only $17.3 million in practice, as Johnson’s donation is a bequest, meaning it is written into his will and will not be paid to Yale until his death.
This year’s report marks the first budgetary recognition of Johnson’s pledge, although it was announced in 2013. Johnson promised $250 million, but the amount was valued in this year’s budget report as $100 million. This difference is caused by the way Yale evaluates Johnson’s gift, University spokesman Tom Conroy said.
William Jarvis ’77, managing director of the nonprofit consulting firm Commonfund Institute, explained that Yale must have calculated the amount of money today that will be worth $250 million at the time of Johnson’s anticipated death and assessed it at $100 million, taking into consideration factors like interest rates. If Yale’s calculations are off, any difference between the $100 million figure and the actual value of the bequeathal will be recorded in future years, Conroy said.
“It’s not actually revenue [for the operating budget],” Polak said of Johnson’s gift, the largest single donation in Yale’s history. “We don’t have this money to spend.”
According to the generally accepted principles of accounting (GAAP), an institution like Yale must report all revenue it receives, even if it cannot spend it. In most years, Yale’s largest sources of revenue are the endowment and clinical income from the Medical School. But two substantial gifts — Johnson’s to finance the new colleges and another to fund financial aid — make Yale’s surplus this year appear larger than it is for immediate spending purposes, also known as the “management view,” Murphy said.
While the figure given by the management view is the one administrators consider when allocating resources from year to year, only the GAAP view is audited annually by independent financial firms like PricewaterhouseCoopers, which assessed the University’s economic standing.
“The GAAP view is giving us a totally unrealistic view,” Polak said.
Still, the management view of the budget’s surplus does show an increase of $4.2 million from last year. Murphy said this year’s practical surplus of $17 million is actually slightly lower than it should be due in part to the ongoing renovations of the Beinecke Rare Book and Manuscript Library, which were paid for through the endowment income and are artificially depressing the budget’s surplus, Murphy said.
Polak noted that while on paper Yale’s central campus — which includes Yale College and the graduate and professional schools — is running a small deficit, if the budget did not include the Beinecke renovations, central campus would have a surplus.
Polak attributed the overall surplus to two factors: the current strength of the endowment, which is at an all-time high of $25.6 billion, and a University-wide effort to control costs by limiting the growth of the administrative staff. By keeping Yale’s costs down, Polak said the University frees up money for projects like new programs for undergraduates, new equipment and larger financial aid.
Revenue from Yale’s medical services represented 23.3 percent of the University’s operating revenue. Federal grants, like those for scientific or medical research, did not increase. Looking at Yale’s budget from either the management or the GAAP angle, Polak said there is cause for optimism.
“The news is good relative to where we’ve come from,” Polak said. “During the recession it looked pretty grim. That’s not true any more.”
Yale’s finances have recovered to pre-recession levels, but this is not true for all schools in the United States, Jarvis said, adding that schools with smaller endowments are less dependent on their endowments to fund their operating budgets. It is only in the last year that the endowments of schools across the country have begun to return to pre-recession levels.
According to the budget report, Yale’s net revenue from tuition, room and board increased by 9.5 percent. By far the largest budgetary cost last year was the salaries and benefits for Yale employees, taking up $2 billion of the University’s $3.2 billion in expenses.