Budget Update 2015-16

December 14, 2015

From: President Peter Salovey and Provost Ben Polak

To: Yale Faculty and Staff

We write to provide our annual update on the university’s financial picture, and to look ahead to budget planning for the next fiscal year. Strong investment returns and campus-wide collaboration toward cost savings have put us in a position to achieve our key goals for Yale. Our aim today is to describe some of those opportunities for the next few years while also examining the challenges that lie ahead.

For the fiscal year ending June 30, 2015, the medical school had a surplus of $36 million, and the rest of the university had a manageable deficit of $18 million. In the second year of our efforts to reduce central administrative costs, we slightly exceeded our target, with two-year cumulative cost savings totaling 5.2 percent. Thus, our return to relative financial equilibrium for the university is a true cause for collective celebration, and we thank all of you who have contributed to achieving it.

Over the last two years — thanks to the amazing efforts of the Investments Office — we have had exceptional endowment returns of 20.2 percent and 11.5 percent respectively, better than almost any other university in the country. Yale’s endowment is at a new record high in nominal terms, but adjusting for inflation it is still 5 percent below its 2008 level. Looking forward, we cannot rely on high endowment returns every year, particularly in a time of falling stock and commodity prices and increased instability in world financial markets.

We do still have challenges to address. Our financial aid costs, university wide, total $371 million. The opening of the new residential colleges in 2017 will bring 15 percent more Yale College students and, with them, increased demands on our budget for undergraduate scholarships. We also must redouble our efforts to accommodate unmet student financial need in all of our schools. Meanwhile, we have committed $50 million toward a critically important campus-wide effort to increase faculty diversity. And our work to build a more inclusive Yale will draw on resources, programs, and people across the entire campus.

Moreover, during the recession we fell behind in funding the pensions committed to our staff and the retiree medical benefits committed to our faculty and staff, and we need to rectify this shortfall. To start to do so, we will need to contribute significantly more in the coming year than we did at the start of our cost savings effort: the cumulative contributions over the five-year period from fiscal year 2017 to fiscal year 2021 are now estimated at $425 million. This is an increase of $133 million over our projections of a year ago.

We also need to invest in the future. This means continuing to create room in the budget so that we can push ahead on key initiatives, ones that will drive us toward achieving some of our most important shared goals. Major facilities projects — a new science building and innovative teaching labs on Science Hill, renovations at the Hall of Graduate Studies, a new residence for graduate and professional students, the soon-to-be-opened Adams Center for Musical Arts — will respond to the needs of our community, foster excellence in disciplines across the university, and promote greater interaction and collaboration among faculty, students, and staff. And, with the two new colleges now on the near horizon, we are preparing not only to admit more students but also to provide the resources to ensure that those students thrive, across every dimension, once they are here.

Although budgets are still fairly tight, our ability to take these steps forward reflects the fact that we are in a much better place financially than we were two or three years ago. We are grateful for your partnership in all we have accomplished so far, and for your commitment to the achievements that lie ahead.