University finances healthy, provost says in annual budget report
BY KATHLEEN J. SULLIVAN
With an estimated $59 million surplus in 2007-08, the university is in "very good fiscal shape" as a result of strong investment returns, unprecedented fundraising and rapidly rising healthcare revenue, Provost John Etchemendy told the Faculty Senate last week in his annual budget report.
However, Etchemendy cautioned that it's not all rosy.
"We see a leveling off, in fact, potentially a decline in research revenue," he said. "At this point, it's not serious enough that it's causing problems, but it is causing worry. And I'm sure all of you, particularly in the biological and medical end, are very worried about the National Institutes of Health budget."
Etchemendy also announced that the university will ask the Board of Trustees at its June meeting to increase the target payout rate from Stanford's $14.1 billion endowment to 5.5 percent from 5 percent over the next five years to help complete high-priority construction and infrastructure projects while maintaining the strength of academic programs.
He said the increased flow of funds would allow Stanford to keep the budgets of schools and programs "whole" while directing money from the general fund to completing capital projects.
His presentation included an assessment of fiscal 2006-07, ending Aug. 31, based on projected results, and a financial forecast for fiscal 2007-08, which begins Sept. 1.Consolidated operating budget
Etchemendy said the university is anticipating a surplus of $58.8 million in the consolidated budget next fiscal year on $3.5 billion in revenues, $3.3 billion in expenses and $125 million in transfers. For the current fiscal year, the university expects to report a $76.6 million surplus on $3.3 billion in revenues, $3.1 billion in expenses and $126.5 million in transfers.
The consolidated budget covers operating revenues and operating expenses for the entire university, except the hospitals, which are separate corporations.
Next year, revenue from healthcare services is expected to rise 6.4 percent to $402 million, compared with $378 million this year. Etchemendy attributed the revenue boost to increases in the amount paid to the Medical School by the hospitals for physician services.
Investment income is expected to grow 12 percent to $828 million in 2007-08, compared with $740 million this year.
Revenue from students is expected to grow 4.8 percent to $574 million in 2007-08, compared with $548 million this year, as a result of increases in tuition, room and board.
But Etchemendy said that the net increase from student income is about 3 percent after increased spending on financial aid programs—expected to rise to $169 million next year—is taken into account.
He said the "worrisome line" on the revenue side of the consolidated budget is the one for total sponsored research support, which is projected to grow only 2 percent in 2007-08.
"That's less than inflation, so that's a real decline," he said. "Of course, we could turn out to be surprised and it could be higher than that."
He noted that Stanford had raised a record $911 million in gifts last year, including $444 million earmarked for the endowment.General funds budget
"The general funds budget is the budget of unrestricted revenue that we control and allocate centrally," Etchemendy said. "So this is the most important revenue in the sense that it is the grease or the oil that keeps the university running."
The general funds budget accounts for about 25 percent of the consolidated budget.
Next year's budget anticipates $862 million in general funds, of which $134 million flows to the Graduate School of Business, the School of Medicine and the Continuing Studies and Summer Session programs, based on previously agreed-upon formulas.
After transfers and other adjustments, $722 million in general funds will be allocated directly by the provost in 2007-08, a $47 million increase over this year.
Of that amount, the provost has allocated $11 million to salary and benefits and $32 million to new programs, including $6 million to recruit and retain faculty, meet increased costs of start-up packages and fund the new Junior Faculty Child Care Assistance program.
"We have been experiencing absolutely unprecedented competition for top faculty—competition both in recruiting top faculty, but also in trying to retain you guys and keep you here," he told the assembled faculty during his PowerPoint presentation. "That has obviously put pressure on the salary pool. So we have made significant allocations to the salary pool to allow us to maintain our top faculty."
Next year, the provost also plans to allocate:
The capital budget calls for $386 million in expenditures next year and is the largest in Stanford's history, Etchemendy said. Most of the money will be directed to the seven remaining buildings in the Science, Engineering and Medical Campus plan ($121 million), the Munger Graduate Residences ($96 million) and the new Graduate School of Business campus ($21 million).
This year's capital plan forecasts $2.4 billion in total costs for projects that are currently under way or are planned to begin over the next three years. So far, donors have given or pledged $567 million, leaving about $557 million to be raised to meet the fundraising goal of $1.1 billion for individual projects. The capital plan also requires an additional $1.2 billion in combined reserves, debt and other resources yet to be identified.
"Capital fundraising goals of that magnitude are extremely ambitious, so that's a worrisome picture," Etchemendy said.
He said that if the Board of Trustees approves the proposed increase in the endowment payout rate, that would generate about $130 million annually, which would fill in for general funds that must be used for building and infrastructure projects.