News, advice and resources for business school applicants

Update: Yale SOM's New Campus

On Friday, September 18th we incorrectly posted that the new Yale School of Management building project is on hold. Our reporting was based on a letter that the President of Yale sent to the University community on September 10th (see the full text of that letter below). 

Although it is true that “no major construction will proceed until funding is available from donor support or financial markets recover” we were informed by a representative of the Yale SOM that the current phase of the business school project (construction plans and drawings for the building) is fully funded and still moving forward. We regret any confusion this may have caused.

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To: The Faculty and Staff of Yale University

From: Richard Levin and Peter Salovey

We write to apprise you of the University’s financial condition as we
continue to work through the effects of the economic downturn. We
have been greatly impressed with the response of the Yale community.
Rather than wait to reduce expenditures until the current fiscal year
began on July 1, many units achieved significant savings in the first
half of this calendar year. Budget reductions were achieved with a
spirit of cooperation and common purpose.

We explained in our messages to the community last December and
February that we did not want to overreact to the downturn in
financial markets by making reductions that might later prove
unnecessary if markets recovered quickly. Thus, the budget reductions
we undertook eliminated most, but not all, of the deficits previously
forecast for the years ahead. These forecasts assumed that the June
30, 2009, value of our endowment would be $17 billion. Although the
publicly traded portion of our endowment declined no further in value
between December and June 30, we continued to incur losses in the
value of our illiquid investments in private equity and real estate.
The precise final results for the 2008-09 fiscal year are still being
compiled and will be announced later this month, but it is clear that
we will report a June 30 value of the endowment of approximately $16
billion. Only a small fraction of our endowment is invested in
publicly traded securities, so the recent stock market rebound has not
had a substantial effect on that number. The bulk of our endowment
remains invested in illiquid assets, which have not begun to recover
their value.

Because we did not make a full adjustment to the initial decline in
our endowment and because it has declined further since last December,
we are now projecting a general appropriations deficit in the range of
$150 million each year from 2010-11 through 2013-14. Thanks to the
work undertaken last year, these deficits are only half as large as
the projections we faced last December, but they are still substantial
and will require further budget adjustments.

Units of the University heavily dependent on endowment income will be
especially affected. Because our spending rule spreads the impact of
dramatic changes in the market value over time, the endowment payout
for the current academic year declined only 6.7% from last year’s
level. But the payout will decline by approximately an additional 13%
in 2010-11 and remain at that level for the next several years. This
estimate reflects our assumption that the endowment will remain flat
during the current year and begin to grow after June 30, 2010, at the
rate we have historically used in our budget modeling.

We will provide full details of the budget adjustments required for
2010-11 later in the year, but we want to alert you to the fact that
another round of reductions will be necessary. We also want to
describe some of the actions we are undertaking now; other measures,
still under consideration, will be outlined later. We will not
retreat from our important commitments to financial aid in Yale
College and the Graduate School. But with the exception of financial
aid, no area of expenditure will be immune from close scrutiny.

As you know, construction projects that were already underway last
December are being carried forward to completion. Apart from the
renovation of Morse and Ezra Stiles Colleges, urgently needed
maintenance projects such as Harkness Tower, and essential cost-saving
utilities projects, no major construction will proceed until funding
is available from donor support or financial markets recover. We have
secured donor support to continue the design of the new residential
colleges and to undertake site clearance, the first phase of which
will occur this fall. We also have secured full funding from donors
for completing the renovation of the Yale University Art Gallery. All
other projects remain on hold.

Progress toward other important University priorities will be slowed
as well. We will continue to recruit faculty to develop exciting new
programs on the West Campus, because outstanding laboratory facilities
are in place. But we have set a pace that will trim our originally
planned expenditures by more than 25% in the years immediately ahead.
We are also curbing our expenditure on the redesign and implementation
of new administrative systems (the YaleNext project), by reducing the
use of outside consultants, narrowing the scope, and slowing the pace
of implementation.

Faculty recruitment will continue, but at a significantly reduced pace
in the Faculty of Arts and Sciences, where more than 50 ladder faculty
have been added over the past four years (an 8% increase) and about
100 ladder faculty members have been added over the past decade (a 17%
increase). As we move forward, we believe it would be imprudent to
reduce the size of the faculty, only to increase it again to
accommodate increased undergraduate enrollment when the new colleges
open. Some authorized searches and all new requests for searches to
fill vacancies will be scrutinized carefully, however, and many will
be deferred for a year or two.

Last winter we asked units to reduce both their staff and non-salary
expenditures by 7.5% for the 2009-10 academic year, and we signaled
that a further 5% reduction in non-salary expenditures would be called
for in 2010-11. To accelerate our movement toward budget balance, we
are now asking units to achieve this additional 5% reduction in
non-salary expenses during the current year. We are counting on
faculty, department managers, and others who control resources to curb
nonessential expenditures on travel, entertainment, equipment, and
supplies to the extent needed to achieve this target.

We are truly grateful for the support and cooperation that we have
received in making these difficult adjustments. We know that we can
count on you in the year ahead to make tough choices among competing
priorities, to identify non-essential activities that can be
curtailed, and to seek ways to work across departmental lines to lower
costs. We are attempting to negotiate these trying times without
compromising the University’s commitment to maintaining the
extraordinary quality and reputation of our teaching and research.
Even as we defer some of our most important long-term investments, we
will keep in focus our goals of maintaining the strength of Yale’s
superb faculty, student body, and staff, and improving for everyone
the experience of working in a community that contributes so much to
the well-being of our city, the nation, and the world.

This letter also appears here: http://opa.yale.edu/president/message.aspx?id=88

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Posted in: MBA News

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