Yale tightens its belt another notch

Mark Zurolo ’01MFA

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Just before Yale posted its final endowment figures for 2008–09, in September, President Richard Levin announced a third round of budget cutting for the current fiscal year, 2009–10. Levin directed managers to reduce their non-salary expenses by an additional 5 percent; combined with earlier cuts, this equals a 12.5 percent reduction from last year’s non-salary budget.

Yale’s endowment lost a billion dollars more than the university anticipated.

Last December, the university announced a 5 percent cut in both salary and non-salary expenses. At the time, Levin explained in a letter to faculty and staff that “it is important that we not overreact,” in case markets recovered quickly. But in February, the figure was revised upward, to 7.5 percent. The latest 5 percent cut—originally planned to take place next year—comes in response to the news that Yale's endowment had lost a billion dollars more than the university anticipated. The endowment was worth $16.3 billion on June 30, down from $22.9 billion a year earlier, and Yale reported a 24.6 percent loss on its investments. In his September budget letter, Levin explained that even though the stock market had rebounded somewhat by June, Yale's portfolio consists mostly of illiquid assets, “which have not yet begun to recover their value.”

The consequences of the portfolio's decline will be felt gradually over time, since Yale uses a spending rule based on a multi-year average of the endowment’s value. As a result, spending from the endowment declined just 6.7 percent from the last academic year to this one. The university estimates that endowment spending will have to drop an additional 13 percent in 2010–11.

As a result, Yale is now projecting a $150 million deficit in its budgets through 2014, which Levin says will “require further budget adjustments.” But details beyond this fiscal year are yet to be announced. For now, the university is putting almost all construction projects on hold unless they can be funded through donations, as is the case with the renovation of the Yale University Art Gallery. Spending on the development of the new West Campus will be reduced by 25 percent. And although faculty will continue to be hired to fill vacancies, Levin says requests for faculty searches will be “scrutinized carefully” and that “many will be deferred for a year or two.”

About a hundred non-faculty employees were laid off this spring as part of the 7.5 percent cut in salary expenditures. Because the cuts announced in September don’t affect salary costs, they won’t require further layoffs.