Etchemendy presents mostly optimistic budget outlook to Faculty Senate
In fiscal 2011, which begins on Sept. 1, Stanford is projecting a surplus of $84.5 million on $3.8 billion in revenue in its consolidated budget for operations.
In recent years, Provost John Etchemendy has begun his annual budget talk to the Faculty Senate with a pithy saying summing up his financial outlook.
This year was no exception.
"Don't count your chickens" was this year's message, which appeared in a yellow box on a slide projected on the screen in the Law School lecture hall where the senate holds its regular meetings.
It was a motto that elicited appreciative laughter from the audience.
"The budget situation this year is much, much better than it was last year," Etchemendy told the senate yesterday. "But as my mother always told me: Don't count your chickens before they're hatched. So I caution you that things could change at any moment, as we discovered in 2008."
Etchemendy presented a largely optimistic look at the budget for fiscal 2011, which begins on Sept. 1.
He said Stanford is projecting an $84.5 million surplus on $3.8 billion in revenue next year, and that, after a one-year salary freeze, the university will have enough money to offer merit raises to faculty and staff.
Provost John Etchemendy noted that funding for sponsored research without AARA grants has been flat since 2005. (Click to enlarge)
He said revenue from sponsored research will increase in 2011, thanks to grants awarded under the American Recovery and Reinvestment Act (ARRA) of 2009. However, pointing to a chart titled "Sponsored Research without ARRA," he noted that, setting aside the stimulus funding, research funding had been flat since 2005.
"That should raise a worry in your heads," Etchemendy said. "What is going to happen when ARRA funding goes away? My guess is the country is probably not able to afford significant increases in research funding. That's a worry going forward."
In a talk that lasted about 40 minutes, Etchemendy presented the highlights of the 2011 budget, focusing on the three budgets that constitute the plan: the consolidated budget for operations, the general funds budget and the capital budget.
Using multi-colored charts and graphs, he presented a financial forecast for fiscal 2011 and reviewed the major budget decisions of fiscal 2010, which ends Aug. 31.
Etchemendy said Stanford made two major decisions in early 2009: to reduce the payout from the endowment by 25 percent over two years, and to maintain the university's generous financial aid program for undergraduates.
He said his highest priority over the last two years has been to help the schools recover from the drop in their endowments; next year's general funds budget includes $20 million in new general funds flowing out to schools to fill in some of those gaps.
Etchemendy also discussed the "budget lessons" the university learned this year. In good times, the university needs to be more cautious about adding staff, he said. In very bad times, moving quickly is better than moving slowing, he said, referring to the university's decision to make sizeable budget cuts in one year, instead of dragging out budget reductions over four to five years.
The 120-page Stanford University Budget Plan 2010/11 was distributed at the meeting.
Consolidated budget for operations
The consolidated budget includes revenues and operating expenses for the entire university, except the hospitals, which are separate corporations.
In 2011, Stanford is expecting a surplus of $84.5 million on $3.8 billion in revenues, $3.7 billion in expenditures and $107.4 million in transfers.
In fiscal 2010, Stanford is projecting a surplus of $151 million on $3.7 billion in revenues, $3.5 billion in expenses and $78 million in transfers.
Consolidated budget 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 (18 percent) and healthcare services (13 percent).
Revenue from healthcare services is projected to rise 4.7 percent to $519 million in fiscal 2011, compared with $496 million this year. The 2011 healthcare services revenue includes about $400 million paid to the School of Medicine by Stanford Hospital & Clinics and Lucile Packard Children's Hospital for physician services by its faculty.
Total income from sponsored research is expected to grow 2.6 percent to $1.15 billion in fiscal 2011, compared with $1.12 billion in fiscal 2010. During the current fiscal year, total income from sponsored research is projected to grow 15 percent over 2009 levels, mainly due to federal stimulus funding.
Five of Stanford's seven schools – Earth Sciences, Education, Engineering, Humanities and Sciences, and Medicine – and the SLAC National Accelerator Laboratory received recovery act grants, according to the Office of Sponsored Research.
Investment income from the endowment and other investments is expected to be relatively flat in fiscal 2011.(Click to enlarge)
Next year, investment income from the endowment and other investments is expected to be $905 million, compared with $898 million this year.
Revenue from students – tuition, and income from room and board fees – is expected to rise 3.8 percent to $680 million in fiscal 2011, compared with $655 million this year.
Consolidated budget expenses
Next year, salaries and benefits will account for the largest share (54 percent) of expenses in the consolidated budget, followed by other operating expenses (30 percent), the SLAC National Accelerator Laboratory (10 percent) and financial aid (6 percent), the budget plan says.
The salaries 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 4.7 percent to $1.98 billion in 2011, compared with $1.89 billion this year. Etchemendy attributed the increase to the planned salary increase program for faculty and staff, and to a 1 percent increase in the total number of faculty and staff.
"After a year with no salary increase, one of our highest priorities was to allocate funds for a modest salary program," he wrote in the executive summary of the plan.
"Our goal is, first and foremost, to maintain Stanford's competitive position for both faculty and staff, but also to reward loyal employees after two stressful years. The modest salary program will allow us to provide merit increases to deserving employees and to address equity and retention cases that have undoubtedly arisen."
Expenses for SLAC are expected to grow 6.1 percent to $345.7 million in fiscal 2011, compared with $325.7 million this year. Next year's SLAC budget includes $211.5 million in salaries and benefits and $134.2 million in non-compensation expenses.
Student financial aid
The university expects to spend $217.4 million on financial aid for undergraduate and graduate students in 2011, compared with $216 million this year.
The university's need-based financial aid program for undergraduates is designed to ensure that a family's economic circumstances will not prevent a student from attending Stanford.
Under an enhanced undergraduate financial aid program Stanford established in 2008, parents making less than $60,000 a year are not expected to pay tuition or contribute to the costs of room and board and other expenses. Families making less than $100,000 a year do not pay tuition. Many families earning more than $100,000 per year also receive generous aid packages, in amounts that vary depending on income and assets. The program also eliminated the need for student loans.
All Stanford students are expected to pay a portion of their college costs, typically from summer and part-time campus jobs during the school year and/or outside scholarships. During the 2010-11 school year, undergraduates will be expected to contribute $4,750 to the cost of their education, up from $4,500 this year.
Funding for undergraduate need-based scholarships is expected to include about $111 million from the university in fiscal 2011.(Click to enlarge)
Stanford estimates that undergraduates will receive $124.3 million in need-based scholarships in fiscal 2011, including $110.9 million from the university and $13.4 million from government and outside awards. In 2010, undergraduates received $128.4 million in need-based aid, including $113.3 million from Stanford, and $15.1 million from government and outside awards.
"The decrease in the need-based scholarship budget is due to the expectation that there will be 100 fewer students requiring aid in 2010/11 as the economy strengthens and family incomes rise accordingly," Etchemendy wrote in the budget plan. "However, we will closely monitor student needs throughout the year and make adjustments as needed."
Next year, Stanford expects to provide financial aid to 3,250 undergraduates, compared with 3,350 this year – a number that set a university record.
Etchemendy said the university is facing a $45 million gap in financial aid funding next year. To address that problem, the university increased the financial aid goal of the Stanford Challenge to $300 million.
"Assuming we are successful, that will eventually bring in an additional $15 million in endowment payout to support financial aid," he said, adding that the remaining gap will be covered by a combination of general funds and alumni contributions to The Stanford Fund.
General funds budget
A year ago, Stanford expected a balanced general funds budget in 2011, following a year of campus-wide budget cuts linked to the 30 percent drop in the value of the endowment. The university laid off 500 staff members, froze 50 faculty positions, and delayed or canceled $1.2 billion in capital projects.
Since then, the general funds picture has improved in several areas, Etchemendy said. The university's forecast of unrestricted endowment income has increased by $16 million over last year's forecast as the financial markets recovered, and other principal sources of general funds, notably tuition and indirect cost recovery, are up by $12 million.
Now Stanford is predicting a $26.3 million surplus in the 2011 general funds budget. The outlook for 2012 also has brightened; instead of a $15 million deficit, Stanford is projecting a $21 million surplus.
The general funds budget is a critical component of the consolidated budget because the money can be used for any university purpose and supports most of the core academic and administrative activities at Stanford.
Total general funds revenue in 2011 is projected to be $958.4 million, of which $152 million will go to the Medical School, the Graduate School of Business, Continuing Studies and Summer Session, based on previously agreed-upon formulas.
A brighter general funds picture allowed Stanford to allocate money for high priority items that were not included in the 2010 forecast, Provost Etchemendy said. (Click to enlarge)
After transfers and other adjustments, the provost will allocate $802.4 million in general funds in 2011, including $72.9 million in incremental allocations.
The budget plan says the largest general funds allocation proposed for 2011 is the $19.3 million budgeted for "endowment mitigation," which is aimed at "lessening the blow of the endowment drop" on the university's schools and other academic units. In 2010, Stanford earmarked $20.1 million for endowment mitigation. Both allocations significantly exceed any other allocation made during the past two years.
Etchemendy said the improved general funds picture has allowed Stanford to allocate money for high-priority items that were not included in its 2010 forecast.
"Specifically, we have restored $4.3 million to the university reserve; we have allocated $10 million toward undergraduate financial aid; and we have made $15.5 million in selective allocations for incremental program support, primarily in the academic units," he wrote in the budget plan.
The 2011 capital budget calls for $368.2 million in expenditures. The projected spending reflects only a portion of the total costs of the projects, because most span more than a year. The major projects in the 2011 capital budget include:
- Knight Management Center, the new home of the Graduate School of Business ($122.1 million)
- Bing Concert Hall ($48.9 million)
- William H. Neukom Building in the Law School ($22.5 million)
- Bioengineering/Chemical Engineering Building ($16.2 million)
- Jill and John Freidenrich Center for Translational Research ($10 million)
- East Campus Dining Commons ($17.6 million)
Etchemendy will present the 2011 budget plan to the Stanford University Board of Trustees for their approval at the June 9-10 meeting.
Votes on two proposals on principal investigator eligibility
After presentations, followed by questions, answers and comments, the senate approved two motions:
- "The senate authorizes the Committee on Research to further refine, and then implement and evaluate exceptions to Stanford's policy on principal investigatorship eligibility for senior and distinguished scientists at SLAC [National Accelerator Laboratory] for a trial period not to exceed four years. The goal of the trial is to allow SLAC to pursue significant opportunities in non-Department of Energy research."
- "The senate authorizes the Committee on Research to further refine Stanford's policy on principal investigator eligibility for postdoctoral scholars in the Medical School for a trial period not to exceed four years. The trial would permit postdoctoral scholars in specified circumstances and with specified approvals to submit one proposal for a traditional investigator-initiated research award. The Committee on Research will return to the senate [in the fall] for a discussion and vote on the proposed exception to the policy for a trial period."
The full minutes of the May 27 meeting, including the question-and-answer sessions that followed the presentations, will be available on the Faculty Senate website next week.