Yale Daily News

The University finished the 2021 fiscal year with an operational surplus of $276 million, yet still emphasized a deficit within its unrestricted funding sources. 

In a joint email sent to all faculty and staff Friday, University Provost Scott Strobel, Senior Vice President for Operations Jack Callahan and Vice President for Finance Stephen Murphy announced that Yale had finished the 2021 fiscal year with an operational surplus of $276 million within an overall $4.275 billion budget. The operational surplus, coupled with the unprecedented endowment value increase of over $11 billion, has exceeded the University’s expectations, they wrote, and reflects the “careful stewarding of university resources by all parts of the university.” In light of the high endowment return, the University will fund a series of new initiatives, including increased investments in faculty and academics, expanded student financial aid, improved physical infrastructure and an increased annual contribution to New Haven.

However, Yale also suffered a $98 million deficit in its unrestricted funding sources over the 2021 fiscal year — the largest deficit in history. The deficit was within the unrestricted funding sources — which do not come with donor provisions and can be spent at the discretion of the President and Provost. Even with the deficit, the University still finished the year with a significant surplus, prompting professors to raise questions about why Yale emphasized the financial pitfall.

“These collaborative efforts have put Yale in an excellent financial position to accelerate our investments in the academic mission of the university and its people,” the administrators wrote in their joint email. “We will continue to be both ambitious and intentional in these investments because what we do in the next few years to support our students, faculty, staff, and the city of New Haven will define Yale for generations to come. This is an exciting moment.”

But despite the $276 million operational surplus, the announcement notes that the COVID-19 pandemic has had a “significant negative impact” on Yale’s finances, accounting for over $350 million in lost revenues or increased expenses — of which $200 million came in the past fiscal year. 

According to Murphy, the $98 million deficit is a result of the University providing personal protective equipment and testing and tracing programs centrally, as opposed to making each unit of the University fund their own. Murphy added that the deficit was also driven by the “large number of deferrals and leaves of absences last year.”

“So that’s a sizable deficit,” Murphy said. “That’s the largest deficit that we can find in Yale’s history. We were able to absorb it though, because of savings in prior years… that’s something that we did intentionally — saving in times when we had some extra money — so that we would be able to have that sort of cushion in a time of need.”

In an email to the News, Callahan explained how this significant deficit fits into the broader budget update. The operational budget surplus of $276 million dollars, Callahan wrote, includes the historic deficit. Yale’s units — schools and other large areas within the University — ran a surplus of $374 million. The Deans and Officers control those funds, not the President and Provost, Callahan wrote.

He further explained that around 70 percent of the endowment is restricted. Most of the unrestricted funds available to the President and Provost comes from the unrestricted payout of the endowment, Callahan added.

Professor of economics John Geanakoplos, who serves as the co-chair of the budget committee of the Faculty of Arts & Sciences Senate, suggested a reason why the University might be placing such a focus on the deficit in its announcement. 

“A reason for pretending to be poor is you [Yale] can delay the decision about how you’re going to deploy the money,” he said. “And it seems like the Provost, perhaps wisely, wants to think hard about how he’s going to spend the money. And I’m hoping that he keeps in mind the mission of Yale, and not the thousands of requests he’s going to get for spending on all kinds of things.”

He further added that it is crucial that the University remains clear-eyed on its priorities going forward, given the myriad of requests for funding it will receive following the endowment’s large growth.

The deficit, which is the product of Yale taking on the COVID-19 infrastructure costs for the entire University, ought to be balanced out by the multiple units paying the central University back, Geanakoplos suggested. 

“The center should be charging fees to many of these professional schools that count on the center to bail them out in case there’s trouble,” Geanakoplos said. 

The impact of the increased endowment will first be felt in the 2023 fiscal year, which begins on July 1, 2022 and whose budget is currently under deliberation. The University aims for a 5.25 percent annual spending rate on the endowment, seeking to balance short-term spending needs with long-term financial stability, according to the announcement.

Strobel described the impact that the smoothing rule has on the University’s spending plans, saying that the rule is designed so as to ensure that Yale does not overspend in a successful year or underspend in a year of weak growth for the endowment.

Because of the swelling of the endowment, the University said it will place greater priority on the recruitment and retention of faculty as it continues to pursue its diversity and inclusion goals. The email further added that Yale will use the new funds to “accelerate investment” in the academic priorities outlined by University President Peter Salovey. These priorities include five areas of focus within the sciences, including planetary solutions and neuroscience.

In addition, the University is “committed to further expanding financial aid” for students across all of Yale’s schools, the email said. On Oct. 28, the University announced that the student share for undergraduates would be reduced beginning in fall 2022, eliminating the student income contribution.

The announcement also previews Yale’s plans to expand staff and faculty benefits, including a new childcare stipend for eligible employees and enhancements to the parental leave policy and the short-term disability program.

“We couldn’t be prouder of what we’ve seen this community do by pulling together, and so we’re looking at what else we can do [to] acknowledge and reward that among our faculty and staff for their extraordinary work during the pandemic, and particularly in light of the financial results,” Murphy told the News.

The University will also continue to invest in mental health resources, and will pursue construction and renovation projects across campus, including the new Tobin Center for Economic Policy and ongoing renovations of Kline Tower.

Additionally, according to the announcement, Yale plans to “meaningfully increase” its voluntary financial contribution to New Haven, which currently stands at $13 million per year.

Yale announced its endowment increase for the 2021 fiscal year on Oct. 14. 

Philip Mousavizadeh covers Woodbridge Hall, the President's Office. He previously covered the Jackson Institute. He is a sophomore in Trumbull College studying Ethics, Politics, and Economics
Zhemin Shao covers the University's endowment, finances and donations. He previously covered the Office of Career Strategy. Originally from Seattle, WA, he is a sophomore in Silliman College.