Provost's letter of December 16th regarding budget plans for the coming year

December 16 , 2004

To:       Members of the Yale Community
From:  Andrew D. Hamilton, Provost
Re:       Budget plans for the coming year

In my short eight weeks as Provost, I have walked around most of this wonderful campus and have explored many of its buildings, new and old. I have particularly enjoyed meeting so many people in different units around the University and hearing about new initiatives and successes, as well as the occasional problem! Most impressive of all have been the advances in our academic programs and the improvements that have been initiated by so many in our administrative systems. We are a University in motion, and as we embark on the 2005-06 budget process, we must continue to emphasize and extend our strategic priorities, but within the financial constraint of a balanced University budget. As the Fall semester winds down I wanted to give you an update on the status of our budget and how it is influencing our planning for the next few years.

One year ago, we faced a projected annual deficit of $30 million in our operating budget, a deficit we committed to eliminate over the course of two years. We addressed this commitment in 2004-05 by reducing the budgeted operating deficit to $14.5 million through a wide range of difficult actions, including across-the-board reductions of 5% in staff salary and non-salary expenses. In the second year of this process we still face a deficit, but one that is significantly smaller due to the good work that was achieved last year. As we plan the 2005-06 budget, we must identify additional savings that will not only move the University toward a balanced budget but, just as importantly, develop the resources that we need in order to pursue important initiatives in rebuilding our campus, internationalizing our programs, and ensuring our salary offers and financial aid programs are sufficient to recruit and retain the best faculty, staff, and students.

In order to achieve these goals, we must continue to work together to increase revenues where feasible, make more effective use of restricted funds, constrain budget increases in certain expenses, and make selective reduction in others. More specifically, we must take full advantage of the wide range of cost-saving initiatives and business services improvements that are being implemented under John Pepper's leadership. We are not planning any across-the-board staff reductions this year, but we do plan to hold the non-salary expense growth to zero in recognition of the savings resulting from these initiatives. We believe that this action, coupled with the focused pursuit of selected revenue enhancement and cost reduction opportunities, will enable us to fulfill our commitment to balancing the operating budget and supporting our academic programs.

There are many pressures on the University budget, from the downturn in the economy and changes in our gift income to increases in the cost of fuel and the accumulated costs of maintenance and repair. Another important factor is a decision that was taken in the mid-1990s to gradually build into our operating budget the funds necessary to replace or renovate over time the buildings that make up our campus. This cost, known as the capital replacement charge (CRC), will reach more than $100 million in the 2005-06 budget and places inevitable pressure on our other operations. But it is an essential discipline that will ensure that we will never face again the blight of deferred maintenance that affected the whole university 15 years ago. The CRC has been wholeheartedly endorsed by the University Budget Committee and the Yale Corporation as an assurance of continued strength and health in our physical infrastructure, on which the excellence of our teaching and research programs depends. We will try to mitigate the impact that CRC has on our operating budget by seeking specific gifts for renovation and also by applying contributions from restricted funds where indentures allow.

I look forward to getting to know an ever-wider section of the Yale community in the coming months, and to working together with you to achieve our common goals.

Andrew D. Hamilton
Provost