CONTACT: Stanford University News Service (650) 723-2558
Rice plans cuts: 'Not crisis, just reality in 1990s'
STANFORD -- Provost Condoleezza Rice is asking Stanford's administrative and academic units to cut their budgets a total of $18 million to $20 million over the next three years.
The effort should not be thought of as "crisis budget cutting again," Rice said in an interview, but as the reality of the 1990s, when every institution in the United States finds that revenues are not keeping pace with expenses. The goal is to develop a long-term sustainable budget for Stanford, rather than grapple perpetually with annual deficits.
The reductions, about $5 million of which will come in 1994-95, are part of a restructuring plan Rice previewed at the Faculty Senate on Sept. 30. They are meant to eventually eliminate a continuing "structural" budget deficit that remains, even after a $22-million "repositioning" program launched in 1990 and a three- year $43-million budget cut/income enhancement effort developed in 1992.
The new plan also is designed to provide budget flexibility for academic innovation.
While both sides of the university will contribute to the new reductions, much of the early burden will fall on administrative units, which also absorbed the largest share of cuts in the last two rounds.
In budget letters sent this week to the university's deans and vice presidents and vice provosts, Rice asked central administrative units to submit, by Jan. 15, alternatives showing what services they would eliminate and how they would restructure if, in each of fiscal years 1995, 1996 and 1997, they were given only 90 percent and 95 percent of the prior year's budget. Only the 1995 proposal will be required but planning for all three years was highly encouraged.
If those amounts were taken from every administrative unit, it would add up to a potential cumulative total of approximately 15 percent to 30 percent of the central administrative budget. Actual reductions will be determined only after a review of the proposed reductions in services.
No specific target is being applied to academic schools and academic support units, but they are being asked to find ways to restructure their administrative functions and evaluate priorities among academic programs, and will be expected to cut budgets as well.
Some units will be cut more than others, based on the university's priorities, Rice said.
"Equity in budgeting just isn't good management, and we can't do it that way," she said.
"We're going to do it in a way that takes account of the implications of what we're doing and then makes conscious decisions about doing some things and not doing others."
Asked if any academic departments might be eliminated, Rice said, "We'll leave that to the academic planning process. I really don't believe in centralized planning."
Some staff positions may be eliminated, but it is too early to know for sure.
"Attrition, retraining and redeployment are all obviously preferable if we can do them," she said.
Decisions by management structure
Decisions on the new round of cuts will be carried out within the university's management structure, she said, "because we're going to be at it for a long time."
"I actually don't think of this as a big budgetary crisis," Rice said. "This is just managing in the '90s. Every American institution out there is going through exactly these kinds of questions.
"I'd like the community to be calm about it. Let's not assume that we're spinning up again for another big budget-cutting exercise."
The Cabinet will play a key role in the ongoing process, as will the University Management Group - the senior associate administrative deans from each of the schools.
Rice said she will consult with the community, particularly to discuss administrative proposals for changes in levels or types of service. Monthly meetings are planned with the Associated Students' Council of Presidents. Rice said she would consult with other student government groups. Rice also said she would work closely with the Faculty Senate's Planning and Policy Board, a body created in 1992 to consider long-range issues.
Two or more town hall meetings also are planned, and an e-mail account - Budget.Savings@Forsythe - has been set up to receive budget-cutting ideas from anyone in the community.
The Medical School is not included in the latest budget numbers. Because of the size and complexity of its budget problems - brought on largely by the shortfall in indirect cost recovery - the Medical School is following a separate planning process. Adding to the challenge, Rice said, is the reorganization of the hospital and Faculty Practice Plan to Stanford Health Systems, and uncertainties about the effect of future national health care policies on academic medical centers.
The Medical School's budget presentation will be wrapped into the university presentation, Rice said, when she takes the deficit-reduction proposal to the Board of Trustees in December.
Budgeting to revenues, not cost
A basic change in the new budget system is that "we are going to budget to revenue, not to cost," Rice said. In the past, budget officers tried to determine how much expenses would grow, then raised revenue - through tuition, the indirect cost rate and other sources - to cover the costs.
"That was a perfectly legitimate thing to do" when revenue was under less pressure, Rice said. Now, the provost and others involved in budgeting will start with revenues, then work on expenses.
"That means that no school should assume a general funds allocation," she said. The schools must define "coherent academic programs that are supportable, where they have assessed candidly strengths and weaknesses and talked about how to address them." In that context, they can restructure administrative functions, she said.
Rice said she thought "long and hard" about whether to ask the schools to identify cuts in the same way as central administrative units, but ran up against a hard reality: School administrative functions are closely linked to research and teaching, and "can't be divorced from them in budget cutting." The schools are being asked to explore how to combine, recombine, share services and share administrative structures, she said.
Asked if schools would voluntarily cut themselves without specific targets, Rice said she would "rely on the good faith of the deans and the departments and the faculty."
"I think the school deans want to see Stanford as strong as Stanford possibly can be," she said. What is at stake, she said, is the university's ability to "create and innovate."
Beyond cutting the deficit, Rice said she hopes the restructuring will yield savings that can be redirected to beef up Stanford's $2 million innovation fund. That fund is inadequate, she said, in part because it also is used for contingencies such as health and safety problems.
In addition, the university needs to invest in new faculty and new academic infrastructure, Rice said.
"There's a massive new information age out there that's radically transformed classroom teaching," she said, "and we don't really have the money to think much about needed investments." She said that Libraries and Information Resources has been trying to do that "on a shoestring."
Rice also is encouraging units to call on visiting committees to help them evaluate their strengths and weaknesses.
As an incentive to reduced spending, starting next year units will be allowed to retain their year-end savings instead of returning them to the provost.
Despite four years of budget cutting, university officers have been predicting that Stanford would have an ongoing shortfall of $10 million to $15 million in the non-medical operating budget in 1995. Adding to that problem are recently enacted federal regulations that will result in lower reimbursement for indirect costs. Also, Rice has pledged to set aside several million dollars annually for planned building maintenance to avoid creating a huge deferred maintenance problem down the road.
Unrestricted and restricted funds
At Rice's request, each of the schools is beginning to develop a consolidated budget for 1995 that will incorporate all restricted and unrestricted funds, to provide a clearer picture of funding sources available to support various activities.
For years, budget officers and the community have focused on the operating budget, which comprises mainly the university's unrestricted funds. It currently totals $469 million - about one-third of the university's consolidated budget. The latter includes restricted funds, grants and contracts, auxiliaries, and SLAC.
In recent years, restricted funds - gifts, contracts and grants designated for specific purposes - have grown faster than unrestricted funds, according to Budget Director Tim Warner. In theory, general funds were available to be moved in and out of programs as restricted funds declined or grew. But in reality, unrestricted funds stayed put even when restricted support grew.
Meanwhile, the restricted budget created costs that have been "putting more and more pressure on the unrestricted budget," Warner said. For example, a donated building must be lit and cleaned with operating budget money.
When cuts had to be made in general funds, the problem became very serious.
Rice said she understands that restricted funds are restricted.
"But they were all raised under the Stanford University name," she said. "I think for the chief budget officer not to have a sense of how restricted funds are being used really is a neglect of my fiduciary responsibilities.
"I need to know how a program is being supported by certain funds in order to make intelligent decisions" about the need for unrestricted funds.
Too early for specifics
Rice avoided specifics on what might be trimmed, but she did give an example of what would be difficult to cut: Environmental Health and Safety, "because the regulatory environment is getting tougher, not easier." She also mentioned that the Development Office was restructured last year, she said, and "it is also an important source for us of revenue."
On the other hand, she said that Vice Provost Mary Edmonds has been eager to begin a review and restructuring of student services.
"It's been a long time since we've really viewed student services as a whole and thought about the breadth of services we provide and whether they are supporting the broad interests and concerns of students," Rice said.
The provost said she expected the Commission on Undergraduate Education to produce ideas that would lead to further organizational innovation, and freeing funds to implement them was one of her goals.
"The worst possible thing we could do is to have great new ideas out there about the future of undergraduate education and then not organize around them," she said.
There is little or no fat left to trim in administrative units, so there is no choice but to perform work differently, and to simply stop doing some things, she said. Although this was talked about in the last round of cutting, it did not really happen, she said.
"We're really going to engage in restructuring this time," Rice said, warning faculty and students that they must be prepared to do more for themselves.
"Faculty and students love to talk about the growth of administration and administrative costs, and we never seem to realize that we, of course, help drive administrative costs because we're very demanding in terms of services."
She said that faculty members get more service at Stanford than they would if they worked at Hewlett-Packard or Apple Computer.
"All of us are going to have to be willing to live with the consequences of bringing down our administrative costs," Rice said.
On the other hand, the assumption that budget cuts mean poor service is contrary to recent experience in corporate America, Rice said.
"In a lot of downsizing, they've seen service performance go up, not down," she said.
Restructuring and reengineering are necessary, Rice said, because "I don't see major ways for us to enhance revenue."
It is difficult to squeeze more from fund raising, she said, since the just-completed Centennial Campaign already raised it to record levels that will be hard to equal. Endowment income is doing well, but "the realities of the economy suggest you can't count on that [to increase dramatically]." Because of new government restrictions, reimbursement for research overhead will decrease rather than increase, she said.
This is an archived release.
This release is not available in any other form.
Images mentioned in this release are not available online.
© Stanford University. All Rights Reserved. Stanford, CA 94305. (650) 723-2300.