Endowment loses $5.9 billion; cuts are planned

Though Yale's investment office is best known for its prodigious gains in good economic times, it has also famously weathered bad times with minimal losses over the past two decades. But as brokers are wont to say, past performance is no guarantee of future results. On December 16, President Rick Levin announced that the endowment's value had declined by an estimated 25 percent since July 1, from $22.9 billion to about $17 billion.

In a letter to faculty and staff, Levin said that since endowment income provides 44 percent of Yale's $2.7 billion budget, the university will have to respond to an expected shortfall next year. Assuming that the endowment does not fall further this fiscal year, Yale estimates a deficit of $100 million for 2009-10, growing to more than $300 million by 2013-14. (The university spends a percentage of the endowment's total value as averaged over several years, which dampens the effect of market changes.)

Levin said Yale will not immediately act to close the entire estimated budget gap while the market is still volatile, but will instead try to account for half to two-thirds of the shortfall through cost-cutting measures. Non-union staff and faculty salary increases will be capped at 2 percent or $1,500, staff positions will be cut by 5 percent (largely by attrition, Levin hopes), new positions will receive more scrutiny, and non-salary expenses will be cut by 5 percent in each of the next two years. Except for the renovation of Morse and Ezra Stiles colleges, all new construction projects will be delayed until funding is secured or the economy improves. Construction of two new residential colleges may have to be delayed, but design and fund-raising for them will continue.

The letter also discussed three areas that would be "protected" as the budget is cut. Recent expansions in financial aid will not be rolled back, faculty recruitment will continue, and the development of the West Campus (see page 18) will proceed, though more slowly.

Other universities have reported similar endowment losses (Harvard is projecting a 30 percent decline in the value of its endowment by the end of this fiscal year), and some have instituted more drastic measures, including hiring and salary freezes. Levin said that further steps may become necessary if the economy worsens, but he struck an upbeat note in his letter. "I am confident," he wrote, "that we can weather this storm while continuing to advance our most important objectives, albeit at a slower pace."