Operating revenue generated in support of the University's teaching and research missions includes tuition and fees, grant and contract income for research and training, medical services income, contributions, investment income (including the transfer of Endowment return as defined by the Endowment spending policy) and other revenue, such as room and board. Operating revenue totaled $992 million, representing a 5.3% increase for the year.

Tuition and fee revenue is presented in the financial statements net of scholarships and fellowships awarded of $75.7 million. Room and board revenue is classified in auxiliary income. Total tuition, room and board charges were $248.4 million, a 6.7% increase over the prior-year amount of $232.7 million.

The Yale College term bill rate was $22,200 in tuition and $6,680 for room and board, which represented a 4.5% increase over the 1995-96 rate, the lowest increase in 28 years. The room and board charge was increased only nominally in order to encourage students to live on campus, reflecting our belief that the experience of living in a residential college community is an integral part of the Yale undergraduate experience.

Yale continually strives to improve student administrative services including admissions, financial aid, student accounts and registration. In 1996-97, the University continued to expand the use of the newly developed student information system. Among other improvements, a Web-based system that permits students to access their University records for review of financial aid information, account detail or to verify address information was introduced. It also provides a facility for prospective students to request program information and application materials. Little more than two years after its introduction, this new student information system is supporting service delivery to the entire student body.

Student Financial and Administrative Services continued to develop organizationally with the addition of Undergraduate Financial Aid as one of its component offices. This move will allow further integration of services to improve quality and delivery.

In 1996-97, planning began for a loan program that will offer more favorable financing options to students and their families. Working in partnership with one or more financial service institutions, the University intends to present these options in a simple format, facilitating the application process and reducing costs. The program is being planned for introduction during the spring of 1998.

Grant and contract income totaled $283.0 million in 1996-97, nearly 30% of University operating revenues. Most grant and contract funds are awarded to support research programs and projects. Other substantial awards support training, clinical activities and community services. Nearly three-quarters of grant and contract income supports programs within the School of Medicine, with the remainder devoted primarily to programs in the biological and physical sciences and engineering.

Awards from the Federal government totaled $216.7 million, of which 80% were from the National Institutes of Health (NIH). Yale is the fourth-largest recipient of awards to universities from NIH. The University also receives significant research support from the National Science Foundation, the Department of Energy and the Department of Defense, and awards for student aid from the Department of Education.

Awards from other sources, totaling $66.3 million in 1996-97, came primarily from foundations, voluntary health agencies, corporations and the State of Connecticut. These awards were for a wide variety of purposes, with about half for research.

Despite the increasingly competitive environment for grant and contract funding, Yale continues to play a leading role in this arena and in particular in the biomedical field. Grant and contract income increased by 5.1% over the prior year. This consisted of an increase of 6.4% in Federal awards and 1.1% in awards from other sources. The increase in Federal awards rebounded in 1996-97 to the level of earlier years, following increases of less than 2% in each of the three previous years. Research is an important priority on the Federal level, and there is increasing recognition of the importance of scientific research to the economy. Strong support continues in Congress and the administration for medical research. Rates of increase in funding from other sources have fluctuated in recent years.

Grant and contract awards generally include reimbursement for the costs of using, operating and maintaining research laboratories and other facilities, and administrative and support costs for research and other sponsored activities. These reimbursements for facility and administrative costs amounted to $68.5 million in 1996-97, an increase of 4.9% over the prior year. The University negotiated a new Federal facility and administrative cost rate agreement in 1997 that will continue until June 30, 2001.

The primary regulations governing Federal awards are Office of Management and Budget Circular A-21, Cost Principles for Educational Institutions. Changes in OMB Circular A-21 in recent years have imposed a limit on the reimbursement of facility and administrative costs, have increased the types and amounts of such costs not eligible for reimbursement and have imposed the application of Federal cost accounting standards. Changes currently in progress will reduce the reimbursement of energy costs for research laboratories and may limit the reimbursement for new or renovated research facilities. The current OMB proposal would only partially reimburse higher energy costs for research laboratories used for Federally sponsored research resulting in a loss of about $1 million per year to the University.

The importance of clinical programs for students and educators serves as an impetus for the University to provide a complete and diverse clinical setting. The School of Medicine is continuing to work with Yale-New Haven Hospital and the Yale-New Haven Health System to maintain and improve the teaching, research and clinical resources needed to sustain these programs.

The School of Medicine offers students and faculty the opportunity to study and teach the medical sciences in a clinical setting. Clinical services generate medical services income, which consists primarily of patient care services provided at the School of Medicine’s Faculty Practice Plan, diagnostic laboratory services and staffing contracts with affiliated medical centers including Yale-New Haven Hospital.

Medical services income in 1996-97 was $164.3 million, the third largest source of operating income to the University. The 10.5 % reduction in medical services income this year was due in part to operating difficulties the School is experiencing with its recently implemented billing system. To alleviate these difficulties, the School has purchased a new clinical billing and management information system, which is targeted for implementation in the fall of 1998.

The changing health care market, coupled with increased competition for managed care services, has constrained the growth in medical services income, a trend that is expected to continue in the near future. In response, the School is exploring numerous avenues to enable providers from the School to effectively compete in this environment. At the same time, quality improvement initiatives, such as the implementation of practice standards, continue to evolve.

Concurrent with the transformation of the health care market, the Federal agencies administering the Medicare and Medicaid programs have stepped up both regulatory requirements and audit reviews for these programs. Academic medical centers, including Yale, are confronted with major changes relative to this revenue stream, important for its role in supporting the research and teaching activities.

Investment income reported as operating revenues in the Statement of Activities and in the Supplemental Statement of Operations is an allocation of the total return from the Endowment based on the spending policy and the return on current operating investments. The allocation from the Endowment increased by $22.6 million from 1995-96. (Also see separate section on the Endowment.)

Contributions for operating purposes, which include gifts and unconditional promises to give in support of the University’s basic operations as well as those targeted for specific departments and schools, increased $13 million over the previous year. This primarily reflects the generous response of alumni and friends in the last year of the Yale Campaign.