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04/08/92

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Proposed budget plans ready for trustee consideration

STANFORD -- Stanford officials have succeeded in identifying ways to resolve almost $43 million in operating budget deficit.

However, they say, given considerable uncertainties, the university could have an ongoing budget-base shortfall after 1993-94 of an estimated $10 million to $15 million annually.

The latest cuts and income enhancements mean that, between 1990 and 1994, the university will have cut its budget by approximately $66 million, excluding cuts at the Medical School.

"This is an enormous sum by any reckoning, and yet will have been accomplished without damage to the essential teaching and research core of the institution," Provost James N. Rosse wrote in the 1992-93 Operating Budget Guidelines, which will be proposed to trustees on Monday, April 13.

Faculty and staff salary increases averaging 4 percent are proposed for next year, along with a 17 percent increase in student financial aid.

Rosse will review the guidelines Thursday, April 9, at the Faculty Senate. The document also includes the final report on the recent $43-million budget-cutting exercise by the Cabinet Committee on Budget and Strategic Planning.

Rosse's final budget document calls for a 1992-93 operating budget base of about $442 million, as well as an additional $10 million in one-time expenditures. In his last major act as provost, Rosse has made the following proposals to trustees:

  • A package of cuts and increased income will total $42 million -- $1 million shy of the $43 million target. About half the target will be achieved in 1992-93, another one-third in 1993-94 and the remainder in 1994-95.
  • The operating budget-base deficit, while these cuts are made, is projected at $24.3 million in 1992-93, dropping to $6.2 million in 1993-94.

Last year, university trustees authorized use of up to $100 million in reserves to cover university and Medical School deficits for three years. The university this year is operating with a budget-base deficit of $35.8 million, which has been reduced to $24.5 through delays in the salary program and other one-time budget reductions.

The continuing budget-base deficit is difficult to predict, the report states, and will be affected by changes in research volume, the future structure of indirect cost rates, endowment performance and uncertainty over future mechanisms for charging staff benefits. The current set of assumptions produces figures ranging from $10 million to $15 million a year beginning in 1994-95.

  • Additionally, officials project deficits in one-time costs of $13.6 million for 1992-93 and $17.8 million in 1993-94.

A big component of both the budget-base and one-time deficits are high costs for strengthening financial controls to comply with government regulations.

No specific recommendations are made on how to finance the deficits because the issue is under study by the trustee Task Force on Financial Policies. A report is expected in June.

  • A 1992-93 salary program will average 4 percent for both faculty and staff, with raises to go into effect Sept. 1, 1992. The 1993-94 salary package is forecast to be slightly ahead of inflation, but no specific number is given.

A general tuition hike of 9.5 percent for 1992-93, approved by trustees in February, also is part of the plan to increase income.

1992-93 proposals

Due to uncertainties about indirect cost recovery, "the rate assumed in the total budget for 1992-93 is in large part determined by the 55.5 percent rate that we have experienced in the last two years," the report states.

"We are hopeful, however, that a higher rate will be negotiated, because the costs incurred in support of research are much higher than 55.5 percent," the 120-page document states.

The university expects to recover $71.6 million in research indirect costs, down from $73.4 million in the current year.

Officials projected that Medical School research volume will grow 3 percent and non-medical research by 3.5 percent.

The planned budget assumes continuation of need-blind admissions. It also assumes continued tuition remission for graduate students as part of a staff benefits rate totaling 31 percent.

Endowment payout is projected to total nearly $63 million, an increase of only 2.8 percent over the current year because unrestricted reserves are being drawn down to cover deficits. Because of a smoothing formula used to cushion the operating budget from significant changes up or down in endowment performance, the payout rate is projected to decrease from 4.75 percent to 4.66 percent. The trustee task force could recommend changing to a less conservative payout rate to cope with the large deficit.

Among expenditures for 1992-93 is $15.6 million for the cost of consultants, staff and improved information systems relating to compliance with government regulations. Of this, $7.6 million is built into budget base, while the remaining $8 million is labeled as a one-time expense. The costs are separated out as a new budget line to "show their magnitude and to recognize that they are essential to providing the level of control and accountability now required at Stanford," the report states.

Next year's budget incorporates $22.7 million of the $42 million recently identified in expenditure reductions and income enhancements.

Outlook for 1993-94 and beyond

In 1993-94, $14 million more of the target will be eliminated from the budget, leaving another $3.7 million to eliminate the year after.

Nevertheless, university officials project a deficit of about $24 million for 1993-94, including $6.2 million in budget base. The one- time component of that -- $17.8 million -- is considered "highly uncertain," the report states, and will depend on the university's emerging relationship with the government.

Only minimal incremental funds are expected to be available from the central administration for program growth, forcing more reliance on school and departmental funds.

Officials expect the university's relationship with the government to improve, resulting in increased indirect cost recovery, the report states.

To help resolve the ongoing budget shortfall, the university must consider redesigning the academic organization to accommodate new resource constraints, and explore investment strategies and financial policies.

Final report on cut

The final report of the Cabinet Committee on Budget and Strategic Planning reveals that university officials identified $42 million of their original $43.3 million target. Central initiatives fell short by $1 million and unit cuts by $250,000 when student services was cut $150,000 less than originally intended, and officials decided to take no cuts from the already lean Department of Public Safety.

Officials are still studying the idea of instituting a surcharge on restricted funds expenditures, which is intended to recognize costs associated with restricted funds held outside the operating budget.

Budget cuts in the schools and principal support units make up 50 percent of the budget adjustments; 11 percent are income enhancements in the units, such as increased enrollment of master's students; and 39 percent comes from central initiatives, such as increased tuition and reduced support for facilities construction.

Final "cross-cutting" reviews -- of how plans submitted by units in mid-January affected the entire university -- demonstrated, for the most part, that units "had kept Stanford's foremost commitments in mind as they set priorities," according to Rosse's report.

Among problems revealed in the analysis was excessive reliance on student fees, a situation redressed by the University Cabinet in February when it vetoed a proposed student health center fee.

The research cross-cutting group warned of detrimental consequences from a slow, continuous drain of faculty time, and stressed the need to maintain discretionary funds for faculty support.

The group studying support services noted "likely pressures where cuts in capacity have been made without corresponding cuts in demand," and said it would be important to invest in management development and analytic capacity.

No significant loss in ethnic diversity was projected from the budget-reduction plans.

Changes such as reduced library hours and reduced support for extra-departmental services should be monitored to assure "that the quality of our commitment to undergraduate life, to teaching and to a culture that supports research and scholarship does not deteriorate," the report states.

An advisory group, reporting to the provost, is being formed to assess the impact of budget cuts over the next year.

Budget-cutting plans include a 3.4 percent decrease -- approximately 30 positions -- in the number of tenure-track faculty, excluding the School of Medicine, through attrition and retirements.

The schools also will reduce non-tenure track teachers, including visitors and lecturers, placing greater reliance on teaching by tenure-track faculty, especially in interdisciplinary programs and the first-year curriculum. The greatest impact will be in the School of Humanities and Sciences, which is cutting lecturer expenses by more than 20 percent.

Several schools will achieve savings through consolidations and reorganizations.

To increase income, approximately 200 additional master's degree candidates will be admitted to Stanford, and several schools will increase their continuing education programs.

Administrative staffing levels already are back to the level they were in 1985, and about 150 additional positions will be eliminated.

Rosse praised the collaborative process of the last nine months that involved large numbers of faculty, staff and students in decision making at various levels.

"Although the process was not exempt from honest differences, disagreements and some painful moments along the way, it was essentially free of any bitterness and divisiveness that could have sent it far off course at any time," he wrote.

"We know more about the institution than at any time in recent memory" and are "clearly well along the path to knowing and understanding our institutional strengths and weaknesses."

In the report, Rosse said uncertainties over the federal research budget and changing rules governing indirect cost recovery will continue to affect the university. He nonetheless expressed "no doubt about Stanford's continued leadership among American research universities."

This can be attributed to investments and recruitments the university made in the last decade and to the Centennial Campaign's success, the report states.

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