On tap at Yale: more budget cuts

Even a corporation with $20 billion in the bank needs to live within its means.

That's the message from Yale's new president and provost. Five years after the financial meltdown, they say it's time to end the university's budget deficits—which will likely mean more staff reductions in the next few years, the Yale Daily News reports.

"Higher education in the United States is under intense financial pressure," President Peter Salovey ’86PhD and Provost Ben Polak wrote yesterday in an e-mail to faculty and staff. "Yale is no exception."

The university ran an operating deficit of $39 million in the fiscal year that ended July 1, the officers noted. "If we take no actions, this deficit will continue to grow."

And, they signal, they are dealing not just with a changed economic climate, but also with a shift in budgeting approach.

"Prior to the recession, we often relied on outsized endowment growth to cover new university initiatives, but one of the lessons of 2008-09 is that this is not wise," Salovey and Polak write. "Moreover we cannot, year after year, draw on reserves or rely on spendable gifts to cover budgeted expenses and new initiatives. To move forward, we will need to reallocate resources away from other areas, particularly administration, and toward strengthening our collective core mission: education and research."

Since the 2008 crash, Yale has made round after round of spending cuts. (Sample headlines from our coverage: "Budget cuts will pinch some harder than others," October 2009; "More budget cuts on the way," February 2010; "More budget cuts next year, prez and provost say," January 2011; "Another ‘challenging’ budget year for Yale," January 2012.) Nonetheless, costs keep rising—by 5.8 percent in the last year alone.

And while the endowment earned 12.5 percent last year, bringing its total to $20.8 billion,"it is still not back to its pre-2008 level (partly because we spend about $1 billion from it every year)," Salovey and Polak write.

Their e-mail doesn't specify target dollar amounts, percentage reductions, or methods. Instead it speaks of the need for "shared leadership," "cooperation across units," and an individually tailored approach to find savings in different areas of the university.

But each "unit" will be asked to cut both personnel and non-personnel spending. Shauna King, vice president for finance and business operations, "told the News that it would be nearly impossible to eliminate the deficit without affecting personnel, noting that 60 percent of Yale’s expenditures come from 'people costs.'"

It's not clear how much savings might come through attrition or voluntary measures, such as early retirement incentives, as opposed to layoffs.

UPDATE (11/20): Yale has posted a Q&A on the budget with Salovey, Polak, and King. "Positions need to be eliminated," King says, "but there are many ways to do this and avoid or minimize layoffs." She also says there is no plan for a salary freeze: "we don’t want to micro-manage how units meet their targets."

Asked about "budget fatigue" after four years of cuts, Salovey responds: "Yes, there is fatigue. But we cannot pretend that the problem is not there. The fact is that during the recession we had a $350 million budget problem, and we addressed more than $300 million of it. . . . Now we just need to close the gap."