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Posted at 2:32 PM ET, 02/ 4/2010

Yale saves with colder buildings

By Valerie Strauss

Yale University, which has the second largest endowment in the United States, at $16 billion, is freezing the salaries of highly paid officials and lowering thermostats from 70-73 degrees down to 68.

Brrr.

Last week I wrote about a new survey of college endowments, which showed the biggest declines since the Great Depression. The hardest hit in terms of money actually lost were the schools with the most to lose.

Now we are seeing what schools are going to do about it.

President Richard Levin and Provost Peter Salovey detailed the measures the school is taking to absorb a decline of the endowment from $22.9 billion in June 2008 to $16.3 billion in June 2009--a 28.6 percent drop.

That still makes the school the second richest in the country--so there is no need to cry for Yale--but the institution was accustomed to operating with a higher endowment.

For the record, Harvard University is the wealthiest, with an endowment of $25.6 billion in 2009, a nearly 30 percent drop from the year before, and the school in third place behind Yale is Stanford University, with a $12.6 billion endowment, compared to $17.2 billion fund in 2008.

Last week the first definitive survey to track the effect of the economic downturn on collegiate investment funds was released by the National Association of College and University Business Officers and the Connecticut nonprofit corporation Commonfund. The endowments suffered their worst losses since the Geat Depression in the 1930s.

The student newspaper, the Yale Daily News, reports the cuts will cut into administrative and academic programs. It also mentions that thermometers are going down in the winter and up, from 72 degrees to 75 degrees in the winter, to save about $1 million.

Here is the text of the letter sent to alumni:


Dear Alumni:
I send you a copy of the letter (below) that the Provost and I distributed yesterday afternoon to faculty and staff providing the latest update on Yale’s response to the economic downturn. We are grateful to our faculty and staff who are assisting in making difficult decisions, and we remain optimistic that, with the latest reductions, we will be able to maintain a stable budget. We continue to take great pride in our service to our students and the wider world.With continued appreciation for your strong support,
Sincerely yours, Rick Levin

To: Faculty and Staff of Yale University
From: Richard Levin and Peter Salovey
It has now been 16 months since the onset of the global financial crisis that caused a deep decline in the value of Yale’s endowment and compromised the University’s ability to sustain the level of expenditure that had been planned for the 2008-09 academic year and beyond. As a community we have managed the challenge admirably, but we have more to do to bridge the current budget gap and achieve our long-term institutional goals.

It is important to keep in mind that the reduction in the value of our endowment follows a period of unprecedented prosperity. Over the past decade, the University invested over $3 billion in the improvement of its physical plant and increased the size of its faculty by 29% and staff by 28%. More than 100 new ladder faculty members were added to departments and programs in the Arts and Sciences. Every school has flourished during this period; financial aid has been dramatically enhanced, and thousands of students have benefited from Yale support in pursuing research, study, and internship opportunities overseas. Yale’s academic programs command the highest respect from our peers and the general public. It is against this backdrop of remarkable achievement that we must now slow, but not stop, our forward momentum as we balance expenditures against reductions in endowment-generated income.

As we reported in September, the decline of our endowment from $22.9 billion in June 2008 to $16.3 billion in June 2009 requires us to reduce our overall expense base by $350 million per year in the years ahead to achieve a balanced budget. Collateral effects of the recession, such as decreased interest income on our cash balances, widened the deficit even further. Actions taken last year eliminated more than half of the total deficit, but, as we communicated in the fall, a substantial gap of nearly $150 million remained as of last September; this gap needs to be closed for the next and subsequent years.

Despite the recent partial recovery of public stock markets, the value of the endowment remains below $17 billion, after accounting for the University’s budgeted spending during the current fiscal year. Consequently, as we anticipated last February and reiterated in our September communication, we need to undertake another round of substantial budgetary actions to achieve balance for the 2010-11 fiscal year and beyond.

You will recall that last year we postponed over $2 billion in scheduled construction projects, proceeding only with the completion of the renovation of Morse and Ezra Stiles Colleges, fully gift-funded projects such as the Art Gallery renovation, urgently needed maintenance projects, and essential cost-saving utilities upgrades. We also froze faculty and M&P salaries above $75,000 and reduced budgets for non-faculty staff and non-salary expenditures by 7.5%. In September we announced substantial reductions in the previously planned rates of investment in developing the West Campus and in introducing new administrative systems through the YaleNext project. We also slowed the pace of faculty recruitment in the Faculty of Arts and Sciences and accelerated a second round of reductions (5%) in non-salary expenditures to the current fiscal year.

Before asking the numerous decentralized units of the University to undertake further reductions in their own budgets to close the remaining gap, we have worked with many groups of faculty and staff to identify a number of targeted actions that would reduce the burden of adjustment on schools and departments. In addition to looking for new revenue sources, the actions we are taking include:

--The salaries of officers, deans, and highly compensated direct reports to the officers will be frozen. The pool available for salary increases of faculty, as well as managerial and professional staff, will be 2%. The amount of this increase compares favorably to the increases for 2010-11 in the recently renegotiated union contracts, as well as early reports of the merit increases being granted by other major employers.

--Managerial and professional staff will receive their annual salary increases effective September 1, rather than July 1. This deferral produces a one-time cost saving, but it also will allow for more effective reviews of annual performance, which can now be conducted over the summer, rather than squeezed into May and early June.

--Stipend support in the Graduate School will be increased by 2%, but the number of new students admitted will be reduced by 10 to 15%. Nonetheless, the size of the Graduate School will remain larger than it was a decade ago.

--Support provided by the Provost for a number of ongoing research and outreach programs will be reduced but not eliminated.

--Adjustments have been made to the international summer award program for Yale College students. Support levels remain adequate to make overseas study or internships affordable for those students on financial aid.

--The scholarship benefit for children of faculty and staff members will be held at its current maximum of $15,200 per child per year.

--We are reconfiguring paid time off for managerial and professional staff employees effective July 1. We will combine vacation and personal days into a single benefit of 24 days, change sick pay to 6 days per year, and add a Short Term Disability Plan. The new Short Term Disability Plan will provide income protection for up to 26 weeks for staff members who experience an injury or illness. This is a long needed and well deserved change. Future vacation time carryover will be reduced, and we will begin a gradual phasing out of the bonus vacation program. The revised paid time off program, coupled with the new Short Term Disability Plan, will save money and increase income security for staff members while continuing to ensure that our paid time off benefits remain superior to our peer universities and the local market.

--We are introducing a payroll contribution for individual coverage with the Yale Health Plan for those earning over $83,000.

--We will also achieve savings by sharing and consolidating the business, human resources, and information technology services within the units directly supervised by the University officers. Once we are confident that consolidated services can be satisfactorily delivered while generating cost savings, we will expand the use of shared services throughout the University, most likely beginning in 2011-12. In the meantime, local consolidation efforts already being planned in schools and departments will continue.

--We have changed the set-point on thermostats in all University buildings to 68 degrees in winter and 75 degrees in summer, and we continue to look for ways to achieve more savings in our facilities costs.

Each one of these actions is significant, but, together with the previously announced slowdown in West Campus and administrative systems investment, these actions produce only a little more than $50 million in budget savings. Beyond this, we still must find approximately $100 million of savings in the general appropriations of unrestricted University funds by June 30 for the 2010-11 budget.
The self-supporting professional schools (Medicine, Nursing, Law, Management, Divinity, and Forestry & Environmental Studies), along with completely endowed programs (such as the Yale Center for British Art, Beinecke Library, and Institute for Sacred Music), will need to adjust their expenditures to reflect a 13.4% reduction in the endowment payout. We have briefed the deans and directors of these units, and they will be responsible for these decisions, subject to review by the Provost.
For units of the University, both academic and administrative, that receive general appropriations of central University funds, we will take a somewhat different approach than last year. Each budgetary unit will be given a proposed reduction in general appropriations funding, calculated as 7.5% of this year’s expenditures on non-faculty staff and non-salary expenditures plus an additional amount proportional to the endowment fund income and unexpended fund balances available to each unit after accounting for the reduction in endowment payout. Departments will then be asked to propose budgets that meet these targets. We are, of course, hoping to keep staff reductions as low as possible, but some will be necessary as we will not be able to close the gap only with non-salary expense reductions and the substitution of endowment income and unspent fund balances for general appropriations. Clearly, endowed funds and gift balances can only be spent on activities permitted by the terms of the donors who established them. We will do our best to work with each unit to find ways to use endowment income and unspent balances in a manner consistent with donor restrictions, as the use of these funds can minimize required reductions in staff and non-salary expenditures.
Every effort will be made to reduce staff through normal turnover (retirements and departures), and we will continue to assist those managerial and professional employees who are laid off by providing enhanced severance pay and extensive transition support. Members of Local 34 who are laid off may participate in the Interim Employment Pool or take severance pay.
In the next week, the Budget and Planning Office will provide information to Deans, Directors, Department Chairs, and Business Managers on the process and schedule for preparing a 2010-11 budget. The deputy provosts and members of the Business Operations Leadership Team will provide additional support and assistance. Information relevant to budget planning will be posted at http://www.yale.edu/budget.We continue to be inspired by the cooperative spirit in which our community is working together to address these financial constraints, and we are truly grateful for your efforts. We know we are asking you to make difficult choices and decisions, but we are optimistic that if we can achieve the reductions outlined here, we will have created a stable and sustainable budget for the University. With your help, Yale will remain a leader nationally and internationally, and we will continue to take pride in our service to our students and the wider world.

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By Valerie Strauss  | February 4, 2010; 2:32 PM ET
Categories:  College Life, Higher Education  | Tags:  Yale University, endowments  
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