Provost outlines next year's budget
BY KATHLEEN J. SULLIVAN
Provost John Etchemendy began his annual budget presentation to the Faculty Senate by showing the last slide from his 2008 presentation, which said: "Don't Get Complacent."
A year ago, Etchemendy warned the senate that there were some signs of financial problems on the horizon and no one should expect that the "plenty" of the previous five years—the endowment had soared to $17.2 billion by 2007—would last forever.
Still, no one was expecting what did happen: a 30 percent drop in the value of the endowment in 2009—the largest drop in the last four decades—as the nation and the world were engulfed in an economic crisis. Before this year, the largest decline was 8 percent.
"As you can imagine, it has been a tremendously difficult year for budgeting at the university," Etchemendy, the university's chief academic and budgetary officer, said at last week's meeting. "The good news is things will be looking up as we go forward."
In a talk that lasted about an hour, including questions and answers, Etchemendy presented the highlights of the 2010 budget plan, focusing on the three budgets that constitute the plan: the consolidated budget for operations, the general funds budget and the capital budget.
Using colored charts and graphs, he presented a financial forecast for fiscal 2010, which begins Sept. 1, and reviewed major budget decisions of fiscal 2009, which ends Aug. 31.
He said the endowment was the "big story" of the year from a budgeting standpoint.
During fiscal 2009, Stanford will spend $1.1 billion from the endowment and other investments, which help pay for a variety of expenses, including faculty salaries, financial aid for graduate and undergraduate students, and programs across the campus. This year investment spending will account for 30 percent of revenue in its $3.7 billion consolidated budget.
"This is the first year in which investment income is the largest single source of revenue for the university, and it will be—for a while anyway—the last year," Etchemendy said.
Eventually, the endowment payout—the sum the university spends each year from the endowment—will also drop by 30 percent, or by about $300 million, Etchemendy said.
"We decided that we would try to take the bulk of the reduction in payout in two years—10 percent next year [reducing the payout to $830 million] and 15 percent the following year [reducing the payout to $700 million], or about 25 percent," he said. "Hopefully investment returns will have pulled the endowment up a bit by then, and in theory we'll be done [reducing the payout]."
Etchemendy said the alternative, a series of continuing small budget cuts over the next five to seven years, would hurt morale and impede Stanford's ability to make strategic decisions.
"We have to recognize and adjust as quickly as possible to a new operating baseline," he said.Consolidated Budget for Operations
The consolidated budget includes revenues and operating expenses for the entire university, except the hospitals, which are separate corporations.
Stanford is expecting a surplus of $39 million in the consolidated budget for fiscal 2010 on $3.7 billion of revenues, $3.6 billion in expenses and $92 million in transfers.
"Don't pay a lot of attention to that $39 million surplus, that's a 1 percent number and I promise you our abilities at forecasting are not accurate enough for that margin of error," Etchemendy said. "Basically it's a balanced budget."
In fiscal 2009, Stanford is projecting a surplus of $83 million on $3.7 billion in revenues, $3.5 billion in expenses and $180 million in transfers.Revenues
Next year, sponsored research support will account for the largest share—30 percent—of consolidated revenues, followed by endowment and other investment income (24 percent), student income (17 percent) and healthcare services (13 percent).
Total income from sponsored research is expected to grow 10 percent to $1.13 billion in fiscal 2010, compared with $1.03 billion this year. Etchemendy said the federal economic stimulus bill is a major driver in the projected upsurge in sponsored research.
Investment income—from the endowment and other investments—is expected to fall 16 percent to $886 million in fiscal 2010, compared with $1.06 billion this year.
Revenue from students—tuition, room and board income—is expected to increase 6 percent to $645 million in fiscal 2010, compared with $610 million this year.
Income from healthcare services is expected to grow 2 percent to $472.5 million in fiscal 2010, compared with $461.5 million this year. The lion's share of 2010 healthcare revenue, $422 million, is money paid to the Medical School by Stanford Hospital and Clinics and Lucile Packard Children's Hospital for physician services by its faculty.Consolidated Budget Expenses
Next year, salaries and benefits will account for the largest share—53 percent—of expenses in the consolidated budget, followed by other operating expenses (31 percent), the SLAC National Accelerator Laboratory (10 percent) and financial aid (6 percent).
The salary and benefits line in the consolidated budget represents total compensation, which includes academic, staff and bargaining unit salaries, fringe benefits, tuition benefits for research and teaching assistants, and other non-salary compensation, such as bonuses and incentive pay. It does not include salary and benefits for SLAC employees.
Total compensation is expected to rise 2 percent to $1.9 billion in 2010, compared with $1.86 billion this year.
Total headcount is expected to remain flat—about 11,270 staff and 1,880 faculty—next year. While 350 staff positions have been eliminated in recent months as a result of budget cuts, Stanford anticipates adding positions due to the increase in research funding.
Expenses for SLAC are expected to rise 14 percent to $370 million in 2010, compared with $325 million this year. Next year's SLAC budget includes $200 million in salaries and benefits, and $170.5 million in operating expenses. The national laboratory was recently awarded $68 million in federal stimulus money to fund research on the Linac Coherent Light Source, and to upgrade equipment and research facilities.
The university expects to spend a total of $218 million on financial aid for undergraduate and graduate students in 2010, compared with $206 million this year. More students than ever before will receive financial aid in 2010; family needs for aid have risen during the recession. Next year, a record 3,235 students will receive financial aid, compared with 3,130 in 2009.
Stanford has maintained the enhanced undergraduate financial aid program announced in 2008. Under the new program, parents with incomes of less than $100,000 no longer pay tuition. Parents with incomes of less than $60,000 do not pay tuition or contribute to the costs of room, board and other expenses. Students still are expected to contribute their earnings from work during the summer and academic year. The program also eliminates the need for student loans. Stanford will spend $111.5 million on undergraduate aid in 2010, compared with $102 million this year.
Over the last five years, Stanford has nearly doubled the annual sum the university spends on undergraduate financial aid from its own coffers. In fiscal 2005, it spent $58 million.General Funds Budget
The general funds budget is a critical component of the consolidated budget because general funds can be used for any university purpose. Every university unit receives general funds, which support both academic and administrative functions. The main sources of general funds are student tuition, indirect cost recovery from sponsored research, unrestricted endowment income, and income from the expendable funds pool.
The general funds budget will account for 23 percent of the consolidated budget in 2010.
Total general funds revenue in 2010 is projected to be $863 million, of which $152 million will go to the Graduate School of Business, the School of Medicine, and Continuing Studies and Summer Session, based on previously agreed-upon formulas.
After transfers and other adjustments, the provost will allocate $703 million in general funds in 2010, compared with $781 million this year.
Three months ago, Etchemendy directed all schools and administrative units to trim 15 percent from their 2010 budgets in response to the decline in the endowment. Valued at $17.2 billion in 2008, the endowment is expected to drop to $12 billion this year, its value in 2005.
To date, the "non-formula" budget units—including the five other schools and all of the university's administrative units—have taken $79.5 million in base budget cuts, yielding a $40 million surplus for 2010. Etchemendy said the surplus will be used to provide bridge funding to units that need two years to fully implement their budget reductions.
As a result of the recent cutbacks, Stanford has frozen 49 faculty searches in addition to the 350 staff jobs eliminated through layoffs, attrition, hiring freezes and retirements.Capital Budget and Three-Year Capital Plan
The 2010 capital budget calls for $647 million in expenditures. The lion's share of the budget—75 percent—will be spent on academic and research buildings. The projected spending reflects only a portion of the total costs of the projects, because most span more than one year.
Next year, most of the money will be spent on the following construction projects:
Stanford also will proceed with renovation projects at Crothers Hall and Crothers Memorial Hall (student residences), the School of Education building, and the Cognitive and Neurobiological Imaging Center for the School of Humanities and Sciences.
Last January, Stanford announced it was suspending or canceling $1.3 billion in construction projects. Since then, construction projects totaling $230.5 million were reactivated, including the concert hall and dining commons, reducing the sum of suspended and cancelled projects to $1.1 billion. Stanford's three-year capital plan contains $1.8 billion in construction projects, compared with $2.8 billion in last year's three-year plan.
Etchemendy will present the 2010 budget plan to the Stanford University Board of Trustees at its June 10-11 meeting.