Budget Plans for the Coming Year

Date:   December 19, 2005
To:       Members of the Yale Community
From:  Andrew D. Hamilton, Provost
Re:       Budget Plans for the Coming Year

To the Yale Community,

I have just completed my first twelve months as Provost and, like all of you, am looking forward to the holidays when I can take a deep breath and survey the past year, celebrate its successes and learn from its difficulties. Above all, I am grateful for the opportunities I have had over the past year to get to know and work with faculty, staff and students from across the University, and for the help and support I have received from so many of you.

2005 has been a year of important changes in the lives of many in the Yale community, and in the physical surroundings on campus. We have introduced new financial aid policies that make a Yale College education more affordable to students from families with incomes below $60,000. At the same time we have improved graduate school stipends, summer support, and health coverage. We expanded the Yale Sustainable Food Project in all dining halls and made a ground-breaking commitment to decrease green house gas emissions by 2020. We have proposed an expansion in child care options for Yale parents and re-energized our efforts to enhance the diversity of our faculty with a set of challenging but achievable goals that departments and administrators will be expected to meet. We have undertaken a broad range of initiatives to improve administrative support services and reduce costs, including strategic investments in procurement, printing, travel, staff development, and labor-management partnerships. Finally, in recent weeks we have made necessary investments of more than $2 million annually in our police and shuttle services to improve the safety and security of all members of the Yale community.

At the same time, our buildings continue to undergo rejuvenation and growth. In the last few weeks, new buildings housing the School of Music and the departments of Biomedical Engineering and Chemistry have been dedicated, as has a splendidly renovated Davenport College. Construction will begin in the next few months on new buildings for the departments of Art History and Biology, and a comprehensive renovation of Cross Campus Library will get under way. To protect our investments in our buildings, the University budget includes a charge, called the Capital Replacement Charge (CRC), that reflects the annual cost of long-term maintenance, calculated as a percentage of each building's eventual replacement or renovation cost. The fiscal discipline imposed by CRC, which will have ramped up to $177 million in the 2007 budget and be fully-funded in 2010, insures that Yale will never again face the problem of deferred maintenance.

Much is changing at Yale. And change it must. We are engaged in a world-wide competition to recruit the best faculty, students, and staff, as well as to produce the foremost scholarship in all intellectual areas and training in the professions. Continuing investment in our people, programs, support services, and facilities is essential if we are to strengthen our position at the forefront of the enterprise of knowledge and continue to prepare leaders who will shape the academy, the professions, and the society in the decades to come.

The current year's budget and our planning for fiscal year 2007 face a number of very serious challenges. Over the past several months, as a result partly of the hurricanes in the South, utilities costs have risen by more than 35%. The cost of relief efforts as well as the war in Iraq have led the Federal government to make major cuts in the research funding budgets of the NIH, NSF, DOE, and other agencies. This has already had, and will continue to have, a significant effect on our budget by reducing the amount of indirect costs that we recover to support research.

The changes in Federal funding have a disproportionately heavy effect on the School of Medicine, which garners 80% of Yale's research funding and constitutes 45% of the University's budget. The pressures on the Medical School's budget are exacerbated by other outside pressures, particularly changes in managed care and malpractice costs. The Provost's Office is working closely with Dean Alpern's team not only to address the immediate financial pressures facing the School, but more importantly to lay the groundwork for its long-term financial stability.

The budgetary impact of the initiatives, ongoing commitments, and external pressures described above resulted in a projected deficit in the 2007 budget of more than $25 million. We had extensive discussions within the administration, with Deans and Directors, and with the University Budget Committee on the best strategies to bring the budget into balance, particularly after two years of across-the-board and targeted cuts in salary and other expenses. We all feel that further significant cuts at this time would not be in Yale's best long-term interest. Rather, we will find ways to use revenue coming into the University more effectively. Some sources of revenue are growing much faster than others. In particular, the value of our endowment continues to grow at a pace unparalleled at any other university in the world, and new gifts continue to flow in as a result of the remarkable generosity of our alumni and the effective efforts of the Development Office. We must find ways to insure that the increased income from these sources is used to support our core programs and highest priorities. Furthermore, we must insure that the budgetary impact of CRC, University initiatives, and the rising cost of utilities does not fall entirely or disproportionately on general appropriations (GA), but is spread across all revenue sources, including endowment and gifts, to the extent that such expenditures are consistent with the donors' expressed intent.

The budget guidelines that will be distributed soon from the Budget Office will be based on the following principles. First, we will continue to look for, and count on, modest cost savings and staff efficiencies in all departments and units, made possible by our strategic investments in procurement, travel, printing, "Best Practice Initiatives," and other areas. Second, since space is a crucial part of the support for virtually every program, we will begin to charge CRC to all of the funds that support a program, including endowment funds where it is prudent and appropriate. Third, since many programs are supported in part by GA and in part by restricted funds, we will allocate GA based on the total amount of funds available to support a program. And finally, we will continue to look for opportunities for savings and reallocations in all areas of the budget.

Yale is an extraordinarily strong and distinguished institution that contributes internationally, nationally and locally to the advancement of knowledge and the betterment of humankind. In the past we have faced budgetary challenges far greater than those presented above. We have solved them by working together, and I have every confidence that with a shared sense of purpose we will bridge the budget gap that we face while continuing to make the essential investments in our programs that will keep Yale as one of the best universities in the world.

I join with everyone in the Provost's Office in wishing you all a happy and peaceful holiday season and a successful 2006.

Andrew D. Hamilton