2003 - 2004: Yale University Finance Annual Financial Report

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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