Moving YSM forward in an uncertain economy
Our approach to the economic downturn must be strategic: we will continue to support programs of high priority, while making every effort to increase efficiency and eliminate waste.
As we start a new year, one of the topics foremost in our thoughts is the economy. Given the rapid downturn of the last several months, each of us is understandably concerned, and I know that many of you want to know how the School of Medicine has been affected. The purpose of this letter is to explain our current financial situation and tell you how we are proceeding for the immediate future and beyond.
It may be helpful first to provide an overview of the school’s budget. For the FY2008 year that ended June 30, 2008, the school’s income from all sources totaled $988.6 million. The largest component was sponsored research (45%) followed by clinical income (36%), endowment income (8%), tuition and fees (3%), and philanthropic gifts (2%). The largest portion of our budget is administered by the school’s 27 departments and their faculty with the remainder shepherded by the YSM central administration, all in support of our three core missions: education, research and patient care. The central budget is 26 percent of the school’s overall budget and totals $256 million.
Let me now describe the impact the declines in the markets have had on us. In December, President Levin wrote to the Yale community about the university’s response to the downturn. The university is projecting a 25 percent drop in the value of the endowment in the present fiscal year, FY2009, from $22.9 billion to approximately $17 billion. Over the years the university has employed a “target spending rate” to responsibly steward the use of the endowment and a “smoothing rule” to protect against fluctuations in endowment performance. In the face of the dramatic declines brought on by the current economic crisis, however, and to protect against large variations in endowment spending over the next several years, the university has decided to modify these guidelines. Specifically, the university has directed that spending from the endowment be reduced by approximately 6.7 percent in FY2010 and then remain flat in future years, depending on the performance of the endowment.
Endowment income comprises 44 percent of the overall university budget. By comparison, endowment income comprises only 8 percent of the overall medical school budget. As indicated by these figures, the decline in the endowment impacts the university more severely than the medical school, and the university will be looking to us to cover our own losses from endowment declines. Similarly, endowment income comprises 17 percent of the central medical school budget, which means that the impact on the YSM central budget is more severe than on the departments, and the center will be looking to the departments to absorb their share of endowment shortfalls.
Our approach to managing the decrease in medical school endowment income must be strategic: we will continue to support programs of high priority while making every effort to increase efficiency and eliminate waste. Most importantly, I want to convey the school’s commitment to try to protect our employees in these uncertain economic times.
In his December letter, President Levin described several ways in which Yale will respond to the economic challenges now facing us. Each of these is in line with the medical school’s approach. Here are some specifics on how we are planning for the coming FY2010 year that begins on July 1, 2009:
- We will maintain our commitment to expanded financial aid. Last year, the school changed its financial aid policy to reduce the obligations of families and eliminate parental contributions from families making less than $100,000 per year. That policy will continue.
- We will continue to recruit faculty and staff to support the school’s expanding clinical practice and its research programs. However, all hiring decisions will be considered carefully by the Dean’s office and Provost’s office.
- We will continue to develop programs for the newly acquired West Campus. I will write to you soon with an update on those plans.
- We will follow university guidance in limiting the growth of salaries. Faculty and M&P employees with salaries below $75,000 will be eligible for merit increases of up to 2 percent. Merit increases for faculty and M&P employees who earn more than $75,000 will be capped at $1,500. Employees represented by labor unions will receive the increases scheduled for the final year of their contacts.
- We will also meet the university’s target of an overall 5 percent reduction in non-faculty salaries and benefits and in non-salary expenses in the central administration. We will realize these savings by closely examining all central business units and support services, seeking greater efficiencies in all our activities and eliminating non-essential services.
- We will evaluate currently planned capital projects and consider delaying construction work that can wait.
In spite of the challenges before us, we shouldn’t forget that we entered this period on a very strong footing and we remain strong. In the presence of a constrained NIH budget, we are among a handful of medical schools experiencing consistent growth in NIH funding over the past few years, including the first six months of FY2009. Clinical collections for this period grew 11 percent. Thus, our two main revenue sources are performing well. Moreover, an inspiring number of benefactors are continuing to support our school. Gifts and pledges have been significantly and steadily rising over the past several years and totaled $67 million from July 1 through December 31, 2008. This figure is on par with commitments made at the end of the first half of FY2008 and exceeds all prior years, demonstrating a remarkable level of support in the present economy. Other positive factors include lower energy costs and a proposed boost in the NIH budget as part of the economic stimulus plan introduced this month in Congress.
As I mentioned above, what is most critical is for all of us to recognize the importance of strategic decision-making. At the highest level, this means investing in those areas that will bring a significant return, recognizing that those returns are not always measured in dollars. At the day-to-day level, it means making intelligent use of our resources and cutting back where spending is not essential. We should be prudent and alert for opportunities to eliminate waste. But this is no time to back off from our core values and goals, and by making well-considered, strategic decisions now, we stand to do well in the future. We will continue to be a school that seeks new knowledge in the service of humanity, finds new ways of diagnosing and treating illness, and produces new leaders in science and medicine. To reach these goals, I ask all of you to help. Talk with your colleagues about ways in which we can reduce costs without compromising our core missions, share your ideas by writing to me at firstname.lastname@example.org, and remember that Yale School of Medicine thrives on your dedication and commitment.