Trustees approve 2020-21 budget, set endowment payout in light of COVID-19

At their last meeting of the academic year, the Stanford Board of Trustees approved a high-level budget plan for 2020-21, including an increase in endowment payout supporting student financial aid, while taking additional measures to deal with the loss of revenues and investment market volatility caused by the coronavirus pandemic.

Anticipating a greater need for financial aid, the trustees approved a 3% increase in payout from endowment funds that support student financial aid. This funding will help Stanford fully cover tuition costs beginning in the 2020-21 year for undergraduate families with annual incomes below $150,000, up from the previous $125,000 threshold. It also will allow the university to expand support for many PhD students. Overall, spending on student aid is projected to increase 9% relative to the 2019-20 budget.

This increased commitment to financial aid comes at a time when the university expects a significant shortfall in anticipated revenue for the next fiscal year. The budgeted revenue of nearly $7 billion is approximately $620 million less than would be expected at Stanford’s historic growth rate, absent the pandemic.

To deal with this budget challenge, the trustees took the unusual step of approving the withdrawal of up to $150 million from unrestricted endowment.

In recognition of continuing investment market volatility, the trustees also approved a 10% decrease in payout from endowment funds that do not support student financial aid, relative to 2019-20. Endowment income provides about 20% of the total funding for university operations, and the reduction will lead to budget cuts for many units.

Taken together, these three actions will result in total endowment spend exceeding that in each of the prior two fiscal years.

Provost Persis Drell, the university’s chief budget officer, said the blended approach to endowment payout approved by the trustees for 2020-21 reflects Stanford’s desire to sustain financial aid while accounting for continued risks in financial markets.

“We are intentionally placing a priority on increased payout to support student aid in the coming year, knowing the additional financial needs that many students and families are experiencing as a result of the pandemic,” Drell said. “This puts additional strain on our already challenged budget, which we are dealing with by reducing endowment payout for other purposes and by directly tapping the endowment.”

Due to the disruptions created by the pandemic, the university’s normal budget process was put on hold this spring and then re-started with new underlying financial assumptions. University units were asked in April to prepare new budget plans, which are now being reviewed. Units are expected to receive actual allocations of centrally controlled funding at the end of June to inform their final budget planning in July.

The high-level budget plan approved by the trustees provides a picture of overall revenues and expenditures forecasted for the university as a whole, with the expectation that units will align their spending with the final revenues that are available to them. Stanford also has taken several university-wide actions to constrain spending, including a salary freeze, hiring pause and pay reductions for senior leadership.

While some revenue sources will see declines, tuition income, sponsored research and health care services income are all projected to see modest increases relative to the 2019-20 budget.

“We will need to be prepared to continue adapting to changing circumstances,” Drell said. “We expect to update the budget throughout the year as circumstances change and more information about our costs, expected revenues and the situation of the financial markets becomes clearer. For now, we are taking what we believe to be a conservative, yet realistic, approach to navigating this uncertainty.”

The budget plan also envisions continued construction of several projects currently in progress, including the Center for Academic Medicine, the residential component of Middle Plaza in Menlo Park and the new Public Safety Building. Planning will continue on a number of other capital projects, though their timing is uncertain due to the effects of the pandemic.

The budget plan is available on the Bondholder Information website: https://bondholder-information.stanford.edu/budget/index.html