Yale reported strong financial results for fiscal 2016 last Wednesday, maintaining a trend of consistent performance despite a challenging financial and political environment.
Last revised on Oct. 26, the University’s annual financial report for 2015–16 reported operating expenses of $3.36 billion, a nearly 6 percent increase from last year’s $3.19 billion. Despite the added expenditure, University debt levels saw a marginal decrease, with $3.53 billion in debt reported for fiscal 2016 compared to $3.56 billion in fiscal 2015. The endowment remained the largest source of income for Yale’s operations, contributing about $1.15 billion, or about a third of the University’s total operating revenues for the year.
“The University’s solid financial footing, achieved through the concerted efforts of so many members of our community, is crucial to our ability to undertake the initiatives that will reinforce our place as a world-class institution,” University President Peter Salovey wrote in the report’s introduction.
Yale generated a surplus from its operations according to generally accepted accounting principles, or GAAP, as well as from a management view for fiscal 2016. On a GAAP basis, required for the University’s audit by independent financial firms, the University reported an $86 million surplus this year, while from the management view, the University had a $37 million surplus for fiscal 2016.
Yale allocates resources based on results from the management view. Yale has reported an operating surplus from the management view for at least the past five years.
University Chief Financial Officer Stephen Murphy said the surplus from operations shows that Yale is in a solid financial position. However, he also noted that the University’s largest sources of revenue — income from the endowment, medical services and research grants and contracts — are under considerable pressure due to factors including uncertainty in financial markets, health care regulation and federal budget legislation.
Yale’s 3.4 percent return on the endowment for fiscal 2016 was the best among its peers and one of four positive returns among universities with more than $500 million in endowment funds. However, the distribution of $1.15 billion of endowment funds, more than the endowment’s returns for the year, to the University’s operating budget meant that the endowment declined in market value. This was the third time that the endowment’s market value has declined since the 2008 crisis.
“This situation is a reminder that Yale will need to continue to manage its finances prudently [and] make hard choices about where to invest,” Murphy wrote in the report.
While endowment managers at many peer universities noted the deleterious impact of historically low interest rates on investment performance in fiscal 2016, Murphy noted that the low interest rate environment had a broader negative impact on the University’s net assets. According to Murphy, low interest rates led to increases in both the University’s liabilities for certain interest-rate swap agreements — a derivative instrument intended to protect against spikes in interest — and, more significantly, the University’s liabilities related to retirement benefits.
Because low interest rates mean that benefits promised to employees upon their retirement will cost more in the future than previously accounted for, Murphy told the News that the University will “considerably” increase its contributions to the benefit plans that are provided to most University employees who are not on the faculty.
All faculty members and certain staff employees are on contribution plans, which unlike benefit plans, require plan-holders to put in their own money.
“[Increasing contributions] is the right thing to do,” University Provost Ben Polak said. “We have made these promises to people who work at Yale, and we need to be funding these plans.”
During fiscal 2016, funds from the University’s capital-building program contributed to several new developments on campus. In addition to the reopening of the Beinecke Rare Book & Manuscript Library earlier this fall, Hendrie Hall/Adams Center will be reopening as part of a new center for musical arts.
Floor plans of the upcoming residential colleges were shared with the campus community Wednesday, and Murphy indicated that progress has been made in the development of the new Schwarzman Center, Yale Science Building and revamped Hall of Graduate Arts and Sciences.
“Our results are good — they mean that we can afford the operations and the activities that we have got already,” Murphy said. “If we want to make investments in new areas we will need to find new sources of funding to do that.”
Personnel costs remained the University’s largest expense in fiscal 2016, with more than $2.11 billion spent on compensation for Yale’s 15,018 employees.