Operating expenses totaled $995.2 million, representing a 5.9% increase in expenses for the year. Compensation and related expenses increased at an expected level of approximately 4%. Other costs in support of the University's major systems and capital projects have increased at higher rates. These costs include interest expense, depreciation and certain consulting costs.

Faculty and Staff Compensation

Nearly two-thirds of the University’s operating expense for 1996-97 was devoted to faculty and staff compensation, including employee benefits. Salaries and wages represented the largest component of operating expenses, totaling $487.1 million. The cost of providing employee benefits, including various pension, medical, and postretirement health and insurance plans in addition to social security and other statutory benefits, amounted to $125.8 million. Together, these components of employee compensation increased by 4.3% over 1995-96, a result of modest growth in numbers of faculty and staff as well as normal inflationary increases affecting salaries and benefit costs.

The University employs approximately 2,600 faculty, 2,700 managerial and professional staff, and 3,600 unionized clerical and technical and service and maintenance personnel (based on full-time equivalents). In order to recruit and retain faculty of the highest caliber, Yale offers competitive compensation packages. The University is also committed to ensuring that salary and benefit programs for all levels of staff are equitable and competitive with the marketplace.

An important element of the University’s benefits package is the Yale University Retirement Annuity Plan, a contributory retirement plan for faculty and certain managerial and professional employees. The cost of this plan in 1996-97 was $26.8 million, a 6% increase over the previous year, reflecting growth in the salaries and numbers of participants. For other staff employees, Yale offers a non-contributory defined-benefit plan and makes annual contributions to the plan of an amount equal to pension expense.

Expenses other than compensation include books, goods and services; utilities; graduate student stipends and postdoctoral fellowships; interest on indebtedness; depreciation expense; and other operating expenditures.

Books, goods and services include supplies (such as those used for medical services and in research), library acquisitions, professional fees and other costs. This category of expense increased this year more than expected partly due to the one-time costs of resolving billing and collection issues at the School of Medicine. Significant consulting fees and other costs were incurred as part of these efforts that are not expected to recur in 1998.

Utilities expense includes oil, gas, electric and water costs. Yale operates three power plants, which provide heat and chilled water to the University and Yale-New Haven Hospital. The ability to burn either gas or oil in two of these power plants enables the University to take advantage of significant cost savings when prices for oil and gas fluctuate. Significant renovations of power plant facilities presently in process are expected to further improve the efficiency of utility usage.

Interest on indebtedness increased 25.1% over the prior year due primarily to a full year of interest costs on 100-year notes issued in April 1996. These expenses will continue to increase with the financing of facilities improvements.

Depreciation, a category of expense introduced into operations in 1995-96 as part of a comprehensive change in reporting for not-for-profit organizations, is expected to continue to increase and become a more significant component of operating expenses as the University invests in the improvement of its facilities.