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10/18/95

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"Senate members question details of new policy on restricted funds"

Stanford -- A new policy that will allow the university to partially recoup the infrastructure costs associated with restricted fund donations made to schools and departments stirred little debate at the Faculty Senate meeting on Thursday, Oct. 12.

The new policy, established by the Board of Trustees during meetings last week and in June, was presented by Provost Condoleezza Rice.

The handful of senate members who voiced their opinions about the matter agreed with the policy in principle, viewing it as a necessary move to help place the university on solid fiscal ground at a time when federal support for research and education is uncertain.

But they raised questions about the policy's implementation. Beginning on Jan. 1, 6 percent of private donations will be shifted to the university's general fund to offset maintenance and custodial costs associated with earmarked donations. Exceptions include gifts that directly replace general fund expenditures, such as those that fund tenure-line faculty salaries, undergraduate and graduate student aid, undergraduate research stipends and building projects. A separate utilities charge also will be assessed in each school's budget, a portion of which may - at the dean's discretion - be drawn from restricted funds.

"We exempted those categories that we think deserve exemption," Rice said. "But beyond that, exemptions really can't be made because it would be unfair to those who are actually stepping up and paying this price."

John Perry, professor of philosophy, said that the 6 percent infrastructure charge is a reasonable step for the university to take to build its general fund. But Perry took issue with a change in rules regarding interest funds. The new policy states that interest earned while funds are waiting to be spent also will be transferred to cover general university expenses. Funds in hand before Jan. 1, however, will receive interest until Aug. 31, 1996, after which any remaining balance will not be credited with interest.

"If somebody manages to get a million dollars and is saving it for a splendid opportunity, maybe you don't want [schools and programs] to profit from that, but you ought to at least return the cost of inflation to that fund," Perry said.

Rice stressed that the policy was designed with donors' intentions in mind. "Donors make expendable gifts with the expectation that, generally, the entire account will be spent relatively soon," she said.

President Gerhard Casper added that upcoming changes in accounting rules for private universities will show restricted funds as being part of a university's unrestricted pool of money. "The university will look to the outside world as much wealthier than it actually is," Casper said. "That is a tremendous distorting factor if you have large balances of that kind."

Unlike federal grants and contracts, restricted gift funds rarely have included reimbursement for a portion of associated infrastructure costs, such as custodial costs.

Chemistry Professors Steven Boxer and Michael Fayer strongly backed the notion that programs supported by restricted donations should begin bearing their share of the university's infrastructure costs. Both professors questioned the discrepancy between the new 6 percent tax on projects supported by restricted funds and the 61 percent indirect cost rate associated with sponsored research projects. (Through negotiated indirect cost rates the government pays universities for overhead costs of doing federally supported research.)

Fayer suggested that the university charge restricted fund projects that "act like research grants . . . a much larger amount than 6 percent or you should assure us that our indirect costs on other grants are not subsidizing those projects."

He was particularly concerned about cases where sponsored research projects are located in the same buildings as large projects supported with private donations. "What a lot of people worry about is that part of the indirect cost rate actually goes to maintaining the buildings that are used for projects supported by these gift funds that don't maintain these buildings," Fayer said.

Rice conceded that the new infrastructure charge "is not a perfect science." But she assured senate members that there would not be any double dipping of indirect cost reimbursements for federally sponsored research projects and infrastructure charges recovered from research projects supported by private donors.

The provost also defended the relatively small size of the 6 percent tax, describing it as "a step in the right direction," and added that the administration tried to make the new policy on restricted funds "tolerable for donors and foundations and others who are currently not accustomed to paying anything."

Rice cautioned faculty members that donor response to the new policy would, in part, depend on how they portray it. "When a faculty member whom donors support explains that this is a legitimate charge by the university and that there are real costs there that have to be covered, . . . I believe the donor will understand," she said.

Economics Professor Timothy Bresnahan said he would be happy to explain what he views as "a perfectly reasonable charge" to his donors. But Bresnahan said that the new policy is "one of a series of changes in university budgeting reducing the amount of resources available for teaching and research."

Rice acknowledged that cuts are being made in the schools' administrative line. But she said the deans and department chairs are responsible for the way those cuts are distributed among administration and teaching and research.

"This is not simply the center voraciously taking in the resources of the schools to fund Gerhard's office and mine. I can guarantee you that," said Rice, who pointed out that the central administration is running on a bare-bones budget.

"Central administration has almost nowhere to go at this point. We are doing everything we can to continue to cut costs . . . but the fact of the matter is there are certain things that have to be done at the center to keep the university in compliance and running."

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