Economy hits Yale endowment

December 16, 2008 7:38:50 PM PST
Yale University said Tuesday its nearly $23 billion endowment has dropped 25 percent to about $17 billion in recent months due to the recession, prompting the Ivy League college to delay construction projects and take other cost-cutting measures. Yale normally provides an annual update on its endowment, but Yale President Richard Levin provided the update Tuesday amid concerns over the effect of the financial turmoil rocking Wall Street.

Yale said in September that its endowment earned a 4.5 percent return in the fiscal year ending June 30, bringing total assets to $22.9 billion. Yale's "best estimate" of the endowment's value now is $17 billion, a decline of 25 percent since June 30, Levin said.

The 25 percent decline has a very significant impact on operations because income from the endowment supports 44 percent of the university's annual expense base of $2.7 billion, he said.

Yale projects an annual budget shortfall of $100 million next year and growing to over $300 million by 2013-14.

Levin says the endowment is still very large and is at its same value as January 2006.

Yale will continue to recruit faculty and maintain its improvements to financial aid announced last year for low- and middle-income families, he said.

"By acting thoughtfully and strategically, I am confident that we can weather this storm while continuing to advance our most important objectives, albeit at a slower pace," Levin said in a statement to faculty and staff.

With the exception of the renovation of Morse and Ezra Stiles Colleges, Yale will defer starting construction of new buildings and renovations until conditions in debt markets improve or additional gift funding can be secured, Levin said.

Yale will move forward with design work on the projects, including plans for new residential colleges, but postponement may become necessary, Levin said.

"I want to underscore that we are not canceling any projects that have been approved; we are simply delaying the initiation of construction," Levin said.

All new buildings and renovation projects under construction will continue until completion. All postings of new positions must receive prior approval, Levin said.

For the 2009-10 academic year, faculty and staff with salaries below $75,000 will be eligible for merit increases of up to 2 percent, while faculty and staff who earn more than $75,000 will be capped at $1,500.

Employees represented by labor unions will receive the increases scheduled for the final year of their contracts.

Yale hopes to cut various budgets by 5 percent, largely through attrition, cutting spending on outside consultants and reduced travel.

Harvard University said on Dec. 3 that its endowment has tumbled $8 billion in the four months since the end of the last fiscal year. The estimated 22 percent decline is the school's sharpest endowment drop in modern history.

Harvard's endowment, the largest in higher education, was valued at $36.9 billion on June 30.

The top deans of Harvard's Faculty of Arts and Sciences have asked department heads to freeze pay raises for non-union staff and halt most searches for tenure and tenure-track professors.

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