Frequently Asked Questions

There are two distinct categories in Yale’s annual budget: the capital budget and the operating budget. The capital budget pays for buildings, renovations, and equipment. The operating budget covers everything else: the day-to-day operations of the university. In both cases, the annual budget includes (1) our anticipated expenses and (2) the funding sources that will pay for them.

The budgeting process begins in each school or major unit, which assembles its own budget proposal for the year ahead. The provost makes budget decisions after consulting with a group of advisors—including the senior vice president for operations, the vice president for finance, other senior administrators, and tenured faculty members—who meet with the dean or director and financial team of the school or unit to review the proposed budgets.

The provost, senior vice president for operations, and vice president for finance present a proposed university-wide budget to the president, who requests approval from the board of trustees.

How much endowment income we spend is decided based on two factors: a target spending rate approved by the board of trustees and a smoothing rule that protects us from instability in the financial markets. The spending for a given year always depends on both the amount we spent in the previous year and the endowment’s value from two years ago.

To determine the year’s spending, we apply the targeted spending rate (5.25%) to the endowment’s year-end value from two years ago. Then we take 20% of that amount and add it to 80% of the total amount spent in the most recent fiscal year.

For a series of slides with more comprehensive details, see our introduction to the endowment spending policy.

The targeted spending rate is important because it ensures that we do not hoard the income from strong financial years at the expense of investing in our current programs and people. The rate of 5.25% is based on our investments’ expected ability, averaged over time, to replenish the funds we spend and make up for inflation.

The smoothing rule is necessary to prevent market volatility from hurting our long-term ability to pursue Yale’s academic mission. Together, these components of our spending policy are designed to achieve “intergenerational neutrality”—that is, to spread the benefits of our investment returns equally over this and all future generations. The goal of our spending policy is to support the Yale of today AND the Yale of tomorrow.

No, but Yale’s endowment is the single largest source of budget funds. Endowment income accounts for 34% of the total operating budget for fiscal year 2020. Other funding sources include clinical practice in the School of Medicine, grants, tuition, and donations.

The Budget Office, Investments Office, and Office of Institutional Research maintain detailed data and other information on various aspects of Yale’s budget and endowment. See the right-hand sidebar for links to these resources.