This message provides an update on the impact of federal actions on Yale’s budget, and it outlines the steps the university is taking to address this challenge. Key highlights:
- The federal tax on university endowment income will have a significant impact on Yale’s budget.
- Schools and units have been asked to achieve budget reduction targets within a three-year period.
- The university hiring pause will conclude on September 30, 2025, allowing hiring efforts to gradually resume on October 1.
- The university will offer a new one-time retirement incentive program for managerial and professional (M&P) staff, which is intended to help units meet their budget reduction targets.
Dear Faculty and Staff Colleagues,
Like you, we are here because we believe in the university’s contributions to society, and we are deeply proud of the ways our community addresses urgent global challenges, provides lifesaving care, and deepens our understanding of the human experience. Every day, we witness how Yale’s work—the work all of you perform and empower—serves and strengthens our nation and world.
As we adapt to new federal legislation and other challenges affecting Yale and higher education, our actions are guided by a profound commitment to the university’s mission. We are dedicated to ensuring that this mission endures and thrives, and with this goal in mind, we offer the following financial update.
Fiscal year 2025 financial results
First, we begin with positive news. In the fiscal year ending June 30, 2025, the university recorded a net surplus in operating results. Most of the surplus is distributed across individual schools, units, departments, labs, and programs. The remainder is held in central funds, which are used to support the university’s academic priorities and to provide a cushion for unexpected expenses.
We do not take these results for granted. Thank you for your careful stewardship of resources, which has led to these conditions and prepared us for the challenges ahead.
Fiscal year 2026 budget and the tax on endowment income (“endowment tax”)
Unfortunately, we are entering a period of significant financial headwinds. Federal actions are changing the landscape of higher education. These actions include an increase in the tax on the university’s endowment income, as well as cuts to federal support for research, student financial aid, and Medicaid. These changes will meaningfully reduce funds that comprise key parts of Yale’s budget.
In today’s update, we will focus on what is currently the most significant challenge before us: the tax on Yale’s endowment income. As described in previous messages, Yale’s endowment income is currently taxed at an annual rate of 1.4%. In July, Congress passed legislation that increased this tax to 8%, beginning July 1, 2026.
This action marks a substantial increase in the money Yale must pay the federal government each year, resulting in a significant reduction in the funds we will have to support students, faculty, staff, and local partnerships. The tax is not a reduction in the university’s revenue; it is an ongoing expense of approximately $300 million per year, and one that will increase at roughly the rate the endowment grows. For more information, please refer to
these FAQs.
This tax will significantly increase our expenses, and we must now identify ways to decrease costs in other parts of our budget. To address this challenge, we are introducing various measures.
Actions taken to date
As outlined in our
June memo, we have already taken several steps:
- Each school and unit reduced non-salary expenses in the fiscal year 2026 budget by 5%.
- The university decreased by 1% the pool for faculty and managerial and professional (M&P) staff salary increases.
- We delayed several large capital building projects.
The first two actions resulted in $85 million in savings this year. This is a helpful start, though we have more work to do to address the remainder of the challenge posed by the endowment tax.
Hiring pause
In addition to these strategies, our June message announced a ninety-day hiring pause, providing flexibility for schools and units to achieve budget reductions. Effective tomorrow, October 1, we will lift this pause, allowing hiring to resume.
While units may now begin filling open positions, we urge careful and strategic decision-making as we move forward. Each vacancy represents a potential cost-saving opportunity. We have asked unit leaders to prioritize positions that are essential to maintaining academic excellence and advancing strategic institutional goals.
For positions deemed critical to our mission, deans and lead administrators will prioritize which roles to fill first. We cannot move forward with all positions immediately, as the backlog created by the hiring pause will take several months to address once hiring efforts resume.
Meeting new budget targets
Given the savings implemented in the actions described above, we will not ask units to revise their budgets for fiscal year 2026. Instead, they will adhere to budgets developed last spring.
To address the remaining impact of the endowment tax, units will begin to meet new budget targets in fiscal year 2027, starting July 1, 2026, when the increased endowment tax will take effect. We have asked unit leaders to implement changes over a three-year period, providing flexibility as they prioritize work critical to pursuing their strategic goals and the university’s mission. This window will allow time to adjust, and it acknowledges that some units will need to continue supporting multi-year commitments that cannot end immediately.
We are keenly aware that this process will be difficult, and the results will be felt across every part of Yale. During this period, we will utilize the university’s recent surplus and reserves that units and programs have set aside to cover short-term deficits; however, reductions will still be necessary. We must avoid delaying hard decisions and directly address this challenge as quickly as possible.
Supporting schools and units as they respond to new budget targets
This fall, schools and units are actively engaged in the three-year planning exercise to reach their budget reduction targets. As this work progresses, university leaders, as well as faculty and staff members of the
Budget Advisory Group, will examine how units will be impacted. Collectively, we will advise units as they make strategic choices that uphold Yale’s tradition of excellence in teaching, research, scholarship, preservation, and practice.
We already know that some areas of the university will feel more strain than others. This is partly due to the different ways Yale’s schools and units are funded. While some rely on endowment income as their sole source of revenue, others are highly dependent on patient care revenue, grants and contracts, or tuition.
As schools and units develop their plans, we will monitor and strategize how to support those that are more heavily impacted. We will also ensure that deans and other leaders receive guidance as they identify strategies for redistributing workload and restructuring operations in ways that preserve both our mission and the well-being of our community. In addition, we will continue to monitor federal actions, including potentially dramatic changes to facilities and administrative cost (F&A) reimbursement rates, which provide crucial research support, as well as the impacts of Medicaid cuts. These changes could significantly harm revenue streams that are critical to some schools.
Additional opportunity to achieve budget targets: retirement incentive programs
While the work to reduce budget targets is underway, we will implement additional strategies to support cost-saving measures.
Today, we are announcing a new one-time
retirement incentive program for M&P staff in fiscal year 2026. More information will be emailed to eligible employees next week. The program will offer an additional option for staff who may be contemplating retirement, while also giving schools and units an opportunity to realize savings toward their budget targets.
Yale’s existing contracts with Local 34, Local 35, and the Yale University Security Officers Association (YUSOA) also include a union retirement incentive program. More information is available through the
Employee Service Center. Yale continues to offer a phased retirement program for faculty, and plan documents are
available online.
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In closing, Yale faces financial challenges that require difficult decisions and careful planning. Still, we are determined to navigate this period by sustaining what matters most: outstanding research and scholarship, education, preservation, and practice. We welcome your ideas and perspectives, and we invite you to share your input with us and other university leaders using
this webform.
Throughout its history, Yale has weathered tremendous challenges, each time adjusting, adapting, and responding with new ways to advance its mission. The path ahead requires us to address harsh realities, but with careful and thoughtful stewardship of our resources, we will continue to shape a future defined by resilience, innovation, and progress.
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
