Strengthening Yale as a world-class leader in teaching and
research, and in helping develop leaders for all walks of
life, requires world-class talent, tools and innovation in
every aspect of our operations. Whether it is through our
ability to provide the technologies that support breakthrough
research, or through the recruitment and retention
of outstanding women and men in every part of the
University, we must all contribute to Yale’s mission in an
increasingly demanding and competitive world. Our
report this year highlights some of the dynamic changes
underway within Finance & Administration which are
aimed at contributing even more to Yale’s mission.
Overall, the University’s financial position strengthened
during the past year. Endowment assets grew by $1.7 billion
to $12.7 billion, representing a 19.4% return for the
year. New endowment contributions of $114 million were
received or pledged. Investment for new buildings and
the capital maintenance of current buildings continued at
a high level of $202.1 million and we expect this trend to
continue. Our operating budget for the year was balanced,
as planned.
Debt plays a significant role in the University’s financial
equilibrium model, financing capital investment where
appropriate. The University’s debt remained at $1.57 billion
during the year. We are integrating sound debt policy
into our operating and capital plans to ensure efficient
debt deployment and an acceptable debt burden in future
years. Current debt to expendable resources and debt
costs to operating revenue ratios are at comfortable levels
to allow for additional investment through leverage, and
these ratios are carefully monitored.
We are facing increased challenges to our operating budget
in the current fiscal year (2004-05). The challenges
stem particularly from higher energy and health care
costs, as well as our decision to fund a high level of capital
replacement and maintenance costs. Our investment in
faculty recruitment and retention continues to be robust.
To ensure that these key objectives continue to be met,
strong measures are being taken to contain costs and
achieve greater efficiency in our key processes. While
these measures have reduced initial projections, we currently
anticipate a deficit of approximately $15 million for
the year.
Our objective is to return to a balanced operating budget
in fiscal year 2005-06 and retain this position long-term.
Some of the many actions to accomplish this are outlined
in the attached report. In an era when the ambitions of
our academic programs will be as great as ever and when
we cannot assume the economic environment to be as
robust as it was in the decade of the ‘90s, we know that
we need to work smarter and more effectively to provide
the quality of service that faculty and students deserve.
We believe a critical factor in our success will be the
developing partnership and spirit of cooperation between
the women and men in management and those
represented by Yale’s unions. We completed negotiations
between the University and Local Unions 34 and 35 in
September 2003 and now have a contract that will extend
over the next six years. We are going to make the most of
this time. All parties are committed to improving communications
and trust. We are meeting regularly to work
toward tangible goals, and we are jointly identifying
opportunities to improve productivity, customer service
and employee satisfaction. We are also committed to providing
opportunities for the fine men and women within
the University through better career development, leadership
training and cross-disciplinary career experiences.
Finally, let me emphasize how much we appreciate the
invaluable contribution of money, time and ideas that the
Alumni and Friends of Yale are making as we continue to
embrace change to make Yale the best it can be.
John E. Pepper, Jr.
Vice President for Finance and Administration
2
The strategic priorities for the University are bold. Yale aims to advance its programs
in science and medicine to the top ranks of the nation’s institutions while continuing
to strengthen its world-class position in the arts, humanities, and social sciences.
The University is investing in programs and relationships to make Yale a truly global
university in both Yale College and its many top-ranked graduate and professional
schools, and to spawn enlightened leadership, in all disciplines, all over the world.
Yale is extending its preeminence as an undergraduate institution through a
curriculum that fosters international experiences and stresses the development of
the quantitative and qualitative skills that the 21st century requires.
The context within which Yale takes on these challenges is fiercely competitive at
every level, and the stakes have never been higher. Yale must bid to hire the best
faculty, and the right facilities are crucial to attracting key students as well as faculty.
Like other selective schools, Yale supports the financial needs of all students, which,
in turn, entails an ever-growing financial commitment. On the revenue side, even
though Yale’s endowment continues to have superb performance relative to other
universities, returns in general may not be as extraordinary as in the 1990s.
In addition, Yale needs actively to manage day-to-day expenses and provide better
ongoing maintenance. The operating budget for the 2003–04 year was under pressure
due to increased benefit costs, including pensions, rocketing health care costs, and
extraordinary energy costs. These are not expenses unique to Yale; indeed, every
university, every business, and every household in America is coping with these issues.
Yale greets these challenges with enthusiasm and confidence and an imperative
to improve the way it does business. No other major university is taking a more
sweeping look at how administration can contribute to the academic mission.
And no other major university has harnessed a more impressive constellation of
talent, technology, and business processes to make it happen.
Over the past five years, many initiatives and technological advances have been
made to advance administration. Under the leadership of Deputy Provost Stephanie
Spangler, ASSET (Administrative Services and Support Enhancement Team) task
forces have explored potential savings in areas like travel, printing, procurement,
and telecommunications.
In December 2003, President Levin was successful in recruiting John Pepper, retired
chairman and CEO of Procter and Gamble, as Vice President for Finance and
Administration, and this has further galvanized efforts to create another center of
excellence at Yale.
“Our strategy is to apply the most effective business practices to a great university. In
fact, our methodology—including rigorous analysis, benchmarking, the exploration
of new ideas, and the focus on best practices—mirrors that of any academic
discipline,” Pepper explained.
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2003 - 2004: Yale University Finance Annual Financial Report