Summary: In response to the increased endowment tax and other financial challenges, schools and units have created multi-year budget plans. These plans reflect budget reductions that have or will result in organizational, service, and program changes.
Dear Yale Faculty and Staff,
Earlier this fall, during a faculty and staff meeting and in a subsequent memo, university leaders shared the impact of federal actions on Yale’s budget and the planning we are undertaking to adjust to new financial realities. As the semester comes to a close, we are providing a budget update focused on these planning efforts and what to expect as schools and units respond to financial limitations.
Summary of financial challenges and previously implemented measures
As described in our earlier communications, on July 1, 2026, the federal government will raise the tax rate on Yale’s investment income from 1.4% to 8%. This tax will significantly increase the university’s annual expenses, costing Yale approximately $300 million per year. To illustrate its scale, this new expense exceeds our yearly budget for undergraduate financial aid. It is also more than the combined annual budgets of eight of our fifteen schools. More details about the endowment tax are available in this set of FAQs.
In addition to the endowment tax, the university is also monitoring anticipated changes to Facilities and Administrative (F&A) rates and federal research support. Cuts to these crucial funding sources would pose a significant threat to research conducted across the university.
Earlier this year, we began preparing for these real and anticipated financial challenges by enacting a ninety-day hiring pause, reducing non-salary expenses for fiscal year 2026 by 5%, deferring building projects, and announcing a one-time retirement incentive for managerial and professional (M&P) and command staff.
As expected, these measures have been helpful; however, they cannot make up for the significant long-term reduction in funds that support students, faculty, and staff. This fall, we utilized the university’s annual long-range budget planning process to address the remaining gap, asking schools and units to achieve new financial targets within a three-year period (FY2027-FY2029).
Schools and units have developed plans to respond to new budget targets
This semester, schools and units worked on multi-year budget plans, and the Budget Advisory Group provided feedback on their strategies to prioritize work that is critical to advancing the university’s mission. This process concluded in mid-November. We are grateful to the deans and other university leaders who developed these plans, which demonstrate a deep commitment to Yale’s research and scholarship, education, preservation, and practice.
In the spring, all schools and units will prepare and present their annual budget proposals for the upcoming fiscal year (FY2027) to the Budget Advisory Group.
Based on the planning exercises conducted so far, it is clear that budget reductions will need to continue across the university and that some areas will feel more financial strain than others. These reductions will be guided by careful planning aimed at upholding academic excellence, supporting the student experience, and ensuring that Yale’s mission endures.
What to expect in the coming months
Some schools and units have already announced budget-reduction measures. These include changes to service offerings, building project schedules, travel and entertainment, and some undergraduate student summer support. In some cases, faculty searches have been delayed and staff hiring deferred. As units implement their plans, our community can expect to see additional organizational, service, and program changes. While some of these adjustments will occur in the coming months, we anticipate they will continue over the next two years. We have asked school and unit leaders to share updates with their respective communities as plans are finalized.
Nearly two-thirds of the university’s expenses relate to compensation and benefits. Unfortunately, this means several units may need to meet their budget targets by reducing their workforce. We are hopeful that most reductions can be accomplished by eliminating open positions and through regular turnover and retirement incentives. School and unit leaders are seeking to achieve savings in this way, actively considering how the recent ninety-day hiring pause, retirement incentives, and the three-year timeframe for achieving new budget targets provide additional opportunities for efficiencies and savings. In some units, even after these reductions, layoffs may be necessary, but university leaders are working hard to minimize them wherever possible. We hope to substantially complete any downsizing efforts by the end of calendar year 2026, provided there are no additional significant financial changes.
In cases where downsizing will occur, the university will provide support for those most affected. Additionally, unit leaders will be guided in reassigning workloads and reorganizing operations to maintain the community’s well-being while advancing Yale’s mission.
As the university adjusts to new financial challenges, we will continue to provide regular budget updates and plans to advance the university’s goals in this time of uncertainty. We thank you for your patience and ask you to continue supporting one another with the care and respect you have shown all year.
Sincerely,
Scott Strobel
Provost and Henry Ford II Professor of Molecular Biophysics and Biochemistry
Geoffrey Chatas
Senior Vice President for Operations
Stephen Murphy
Vice President for Finance and Chief Financial Officer