Thursday, December 12, 2024
Dear Yale Faculty and Staff,
We write to provide you with an update on Yale’s financial position and to give context for budgeting plans in the upcoming fiscal year. In short, the university is on good financial footing and continues to make investments that advance its academic and research missions. However, given recent low endowment returns and the broader economic climate, we expect next year’s spending, particularly on new initiatives, to be far more constrained. Our careful stewardship of the university’s finances will preserve possibilities for Yale’s future while also making current priorities a reality.
Operational Results
Yale concluded the fiscal year ending June 30, 2024 (FY24), with solid financial results, generating a surplus from operations of $211 million on $5.9 billion in revenue. Due to the decentralized nature of Yale’s organizational structure, this surplus is dispersed across roughly 2,300 individual school, department, program, and faculty endowment, gift, research, and other accounts, most of which have legal or other restrictions on how they can be spent.
The university’s three major sources of revenue—endowment, grants and contracts, and medical services income—account for 81% of the university’s revenue. In FY24 each of these revenue sources grew by more than 10%, which was well above historic norms. This is a testament to the breadth of exciting teaching, research, and other programmatic activities happening on campus, as well as careful stewardship of resources. In addition, three extraordinary economic factors resulted in one-time positive contributions to the operating results: higher interest rates earned on operating cash balances, lower interest expense on the university’s debt portfolio, and declining utility costs.
The School of Medicine finished the year with a surplus of $96 million, while the Faculty of Arts and Sciences, professional schools, and the rest of campus accounted for the remaining $115 million surplus. Additional information about the university’s budget and FY24 actual results are available online.
Endowment
Yale’s endowment is the university’s largest revenue source, composed of thousands of funds designated to support specific components of the university’s mission, including student financial aid, research support, outreach initiatives in New Haven, and more. It is governed by the endowment spending rule, which aims to provide a stable flow of income to the operating budget while ensuring equitable spending across current and future generations of scholars and students.
In FY24, the investment return on the Yale endowment was 5.7%. This marks the third consecutive year the investment return was below the 8.25% return needed to sustain the current level of endowment spending. Since FY21, the market value of the endowment has decreased in nominal terms by 1.4%. It is 12.8% lower in inflation-adjusted terms. Despite the lower-than-modeled return in FY24, the long-term investment performance in absolute terms and relative to benchmarks remains strong.
A More Constrained FY26 Budget
According to the rules of the endowment spending policy, the recent investment return of 5.7% means endowment income will grow by just 3.2% in the FY26 budget. This essentially matches the current rate of inflation. Therefore, Yale’s budget will have enough endowment revenue to pay for existing expenses but not new ones. New initiatives or investments will require new sources of revenue, and absent that, new investments may need to be deferred or reconsidered.
In addition, the significant uncertainty of the current economic environment has the potential to impact future revenues. This is one more reason we will need to exercise restraint for any new commitments.
Fortunately, the university has many exciting initiatives that are already underway through the exceptional efforts of faculty and staff around the university. Over the past several years, through prudent academic and financial planning, we have marshaled the resources that enable us to keep moving forward with these initiatives.
Commitment to University Priorities
Our goals remain focused on sustaining and advancing the quality of faculty teaching and research, attracting an excellent student body, strengthening the infrastructure needed to support our academic mission, supporting exceptional clinical care, and deepening our commitment to and partnership with New Haven. To advance these goals, the university remains committed to investing in the academic priorities and initiatives that will strengthen research, scholarship, education, preservation, and practice across campus.
The university’s success is directly related to your hard work and commitment to excellence each day. We are deeply grateful for your talents, effort, dedication, and service. We are also thankful to faculty and staff colleagues who serve on the university’s Budget Advisory Committee, which reviews proposed budgets from schools and units and advises the annual budgetary process.
We remain confident that, working together, we will continue to advance Yale’s mission to improve the world today and for future generations.
Sincerely,
Scott Strobel
Provost and Henry Ford II Professor of Molecular Biophysics and Biochemistry
Jack Callahan, Jr.
Senior Vice President for Operations
Stephen Murphy
Vice President for Finance and Chief Financial Officer