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Stanford Report, November 3, 1999

Faculty Senate minutes

TO THE MEMBERS OF THE ACADEMIC COUNCIL THIRTY-SECOND SENATE

Report No. 3

SUMMARY OF ACTIONS, OCTOBER 28

At its meeting on Thursday, October 28, 1999, the Senate of the Academic Council heard reports and took the following actions:

1. Accepted the 1998/99 Annual Report of the Committee on Graduate Studies (SenD#4988), as presented by Professor George Dekker, Chair.

SUSAN W. SCHOFIELD

Academic Secretary to the University

MINUTES, OCTOBER 28


Call to Order

Chair Mark Zoback called the Senate meeting to order at 3:19 p.m. There were 43 voting members, 8 ex-officio members, and a number of invited guests.


Approval of Minutes

The minutes of the October 14, 1999 Senate meeting (SenD#4997) were approved as submitted.


Report from the Senate Steering Committee

Chair Zoback advised that the Senate would consider proposed revisions to the Faculty Discipline Policy at its next two meetings on November 11 and December 2, and on the latter date would also engage in general discussion of interdisciplinary teaching programs (IDPs), a topic suggested by several Senators. There was no report from the Committee on Committees.


Report from the President

Apologizing that he would have to leave the meeting at 4:15 p.m., President Casper said he wished to report on two items.

"Jim Clark's pledge must be the largest gift ever from a person whose only affiliation with a university has been that of a faculty member. Let it be an inspiration to all of us," Casper began, to great laughter. The $150 million gift to establish a new Center for Biomedical Engineering and Sciences was preceded by 18 months of programmatic work, he said. The effort was led by Professors Steve Chu of Physics and Applied Physics and Jim Spudich of Biochemistry, along with the "Bio-X" Steering Committee, and the deans of Medicine, Humanities & Sciences, and Engineering. "While our thanks go first of all to Jim Clark, they go also to all those who have worked hard and quietly to make it possible for Stanford to make the most of the opportunities that exist here because of the physical and intellectual proximity of the sciences, engineering, and medicine." Casper commented on a letter in the Stanford Daily from a doctoral student in the Music Department complaining about "the monotony these days to see all big donations feeding the ever-insatiable monster of Science-cum-Technology." Though modern science is very expensive, he agreed, investments in scientific research greatly benefit the people of the United States and the world. He stressed that Stanford had devoted much attention to the humanities in recent decades, citing the founding of the Humanities Center at the beginning of Don Kennedy's presidency and his own efforts to increase the visibility of the humanities. "We should rejoice in our success in the area of biomedical sciences and bioengineering, and be confident about the humanities," he said, "even though it may be more difficult to find financial support for them."

The President next announced his decision to begin the process of terminating Stanford's participation in the UCSF Stanford Health Care merger. Casper read the text of a letter sent that day to University of California President Richard Atkinson (copy attached to the Minutes), adding some additional comments on several paragraphs. He stressed that very good progress had been made in the bilateral discussions ongoing since August 3rd. However, based on intensive consultations with faculty clinical leaders, he said he had concluded that sufficient faculty support did not exist to recruit new, strong leadership for UCSF Stanford Health Care, nor to accomplish the necessary integration of faculty physicians' practices, including shared risks and pooled revenues. The latter was primarily a legal requirement, he said, adding, "I came to the conclusion that the issues were so complex and the identification of the two faculties with their home campuses so strong that indeed this was probably unachievable."

Emphasizing that the time devoted by a great many people over the preceding three years to sorting out organizational and economic issues had been "truly staggering," Casper said that he believed continued diversion of the energies of the faculty would be unacceptable for the Medical School. He also stressed that very large financial losses had been outside their immediate control, resulting from the Balanced Budget Act of 1997 and unreimbursed aid to the poor. Casper indicated that he had urged the Governor of California, through his Chief of Staff, to take a serious look at the situation of academic medical centers in the state. He said that he hoped UC would consider an invitation extended at the end of his letter, that is, the creation of an alternative service corporation designed to retain beneficial portions of the merger. President Casper added that, "There is no decision I have taken in my eight years as President I have anguished more about than this one. I knew at the beginning of the merger that it was bold and therefore risky. I knew it would face many obstacles. I am still not sure that asking for dissolution was the right thing. I only know that I had no alternative but to do so."

The President also made a brief statement concerning the union demonstrations taking place outside the Senate meeting room. "Labor negotiations with hospital employees are [now and for the foreseeable future] the responsibility of UCSF Stanford Health Care," he said. "I have struggled over the last four years to make sure that our clinical operations have a future, as I am sure they will have. That is the appropriate focus of my attention."

Professor Efron (Statistics) first congratulated the President on the wonderful Bio-X gift. Concerning the hospitals merger, he asked if Casper would care to speculate on the merger's "close-down costs" and on whether Stanford Hospital by itself is a viable entity. Responding that he did not yet know what it would cost to unwind the merger, the President underlined that those costs would be borne by the reserves of the independent Stanford Health Services, not by Stanford University. As to the second question, "Stanford will make it alone, assuming that we are all by ourselves, because we have to make it alone." He indicated that many faculty members believe it will be easier to respond to the financial pressures if they are fully responsible for their own destiny. Academic medical centers across the country are losing even larger amounts of money, for example the University of Pennsylvania, Casper said. This is due to three factors that have come together: underreimbursement for Medicaid by the states, Medicare cuts, and managed care, which has shifted the risk of medical care from the insurer to the provider. Now that Medicare is being scaled back, the fact that support for education and residents at academic medical centers has historically come through the Medicare entitlement program creates a funding crisis. The states and the federal government must address this urgent problem, Casper said, or all academic medical centers will be diminished. "If misery loves company, we will have company at least."

Professor Gardner (Molecular Pharmacology) applauded Casper's recognition that this is a nationwide problem. It should be a wake-up call to everybody in the room, she said, because places such as the Stanford Medical School create benefits for everyone in terms of medical care innovation, enrichment of the economy in areas such as the medical device industry and biotechnology, and the like. Professor Brauman (Chemistry) expressed immense admiration for President Casper's willingness to take the risk of trying to solve the problem in a very different way. He thanked the President for all of the personal effort he had put into it, and the members of Senate joined in an enthusiastic round of applause. Casper was appreciative, noting that thanks were due also to Dean Bauer and members of the Medical School faculty. Professor Swain (Medicine) added thanks on behalf of many colleagues with whom she had spoken in the preceding few hours. "Your attention to what the faculty thinks is appreciated beyond what you can possibly realize. Thank you again for one of the most difficult decisions. And I rarely, rarely use the word 'courageous', but I think it fits this decision."

At the request of Professor Rickford (Linguistics), the President described several of the benefits that have come from the merger. "In a somewhat perverse way," one of the benefits of the merger is to have obtained an immensely sharpened understanding of our problems, he said. "And since I always believe that understanding your problems is the first step towards solving them, in that sense we have come nearer to solutions." He also indicated that achieving the large cost reductions required the prior year might have been more difficult outside the merger, "and the discipline that was imposed on us was salutary." We have learned that choices can and must be made, Casper advised, "and we must under no circumstances permit our expenditures to run ahead of our revenues." He noted that there had been additional administrative benefits in areas such as improved information technology and contracting. Considerable programmatic progress was also made, Casper said, in cancer services and in an important "children's initiative" that could bring great benefits on the research and clinical sides, and which the two Medical School deans hope to pursue as a joint venture even absent the merger.

Professor Hinton (Music) referred back to Casper's mention of the Music graduate student's complaints about the Bio-X gift. "As someone who has the interests of the Music Department very much at heart, I'd like to suggest that the student's departmental affiliation is either immaterial -- he wasn't representing us, officially at least -- or wholly inappropriate", he said. "Disciplines such as physics, biology, and engineering ... are far from irrelevant to the study of music, be it music's production, reproduction, or reception." There was appreciative laughter, and some additional banter.


Report from the Provost

Provost Hennessy advised that the Dean of Religious Life search had not concluded the prior year and was being reconstituted. He listed the current members as: Professors Arnie Eisen (Religious Studies), Brad Gregory (History), and Brad Osgood (Electrical Engineering), as well as Nadav Caine (graduate student), and staff members Jane Camarillo, Scott Dudley, Kathy Ku, and Joan Lane. Hennessy said that he and Brad Osgood were co-chairs and Jacqueline Wender was providing staff support. The committee seeks suggestions for the next Dean of Religious Life, he advised.


1998/99 Annual Report of the Committee on Graduate Studies (SenD#4988)

Chair Zoback welcomed George Dekker, Professor of English and Chair of the Committee on Graduate Studies (C-GS) for both 1998/99 and 1999/2000, as well as committee members John Baugh and Tom Wasow, Associate Dean of Graduate Policy (ex-officio). Dekker expressed his appreciation to valuable committee members Jim Jucker, Guadalupe Valdes, and Hazel Markus, who had completed their terms. He joked that because he had served previously as the Associate Dean of Graduate Policy, he assumed that chairing C-GS "would be like rolling off the proverbial log, which it was, but sometimes the drop seemed to be about 20 feet." Dekker drew attention to the committee's responsibilities, along with the Associate Dean of Graduate Policy, for monitoring the university's progress in creating a more diverse graduate student body. He offered to report back to Senate, if desired, on the import of the various statistics appended to the C-GS annual report, noting that understanding long-term trends is of most value. Dekker encouraged Senators to "fire away" with any questions, "and I'll ask Tom Wasow to answer them," he quipped.

Professors Traugott (Linguistics) and Rickford (Linguistics) urged C-GS to look not just at annual data, but at rolling statistics over a five or ten year period in order to identify trends. Rickford pointed out that the State of California's retreat from commitments to diversity and affirmative action had resulted in dramatic declines in the number of minority students in UC graduate programs. "To what extent are we benefiting from some of those declines?" he asked, adding that he hoped C-GS could provide not only Stanford statistics but also comparable figures from within the UC system. Dekker agreed that C-GS would pursue this matter, with the assistance of the Registrar's Office.

Professor R. Fernald (Psychology) noted the C-GS report's mention of electronic dissertations and encouraged the committee to establish a plan for moving to electronic dissertations, alone or in parallel with paper dissertations. Associate Dean Wasow advised that he had had several discussions with other universities on this topic and believed electronic dissertations were inevitable. He and Dekker said that they thought that being in the first wave would be costly, however, and would not be a big benefit to Stanford.

Professor Brauman (Chemistry) asked if C-GS had looked into worries that changes to Circular A-21 regarding tuition remission for graduate students might result in a decrease in the overall number of graduate students. Though C-GS had not discussed the topic, Charles Kruger (Vice Provost and Dean of Research and Graduate Policy) reported that the number of graduate students at Stanford, and in each school, had not changed substantially over the past decade. He said that he recalled the data less well down to the departmental level, but believed that at the level of the three divisions within H & S, there had been no declines attributable to tuition remission changes. Professor Noll (Economics) expressed the view that this issue was related to the committee's discussion of tracking employment for graduate students, since disciplines that relied heavily on federal support might be reducing the size of their graduate programs even if there was still a large demand for those students. He urged that departments be required to track the employability of their graduate students and that C-GS undertake a serious study of the matter. Wasow pointed out that effective tracking would require looking at least five years out, because students often spend a few years in temporary jobs and post-docs, and said that information gathering would be very labor-intensive. Professor Simoni (Biological Sciences) volunteered that he believed a lot of departments already had this sort of data, due to federal reporting requirements. Chair Zoback thanked the committee for their work and accepted the 1998/99 Annual Report of the Committee on Graduate Studies.


Discussion with the Provost's Committee on Faculty Housing Policy (SenD#4994)

Senate Chair Zoback observed that "the faculty housing problem is really not one problem, but many," involving recruitment and retention, threatening the nature of Stanford as a residential university, and with the potential for dividing the professoriate into the haves and have-nots. He was not surprised, he said, that many Senators had indicated an interest in discussing the topic in Senate. Zoback reminded everyone of the background materials distributed in advance [committee charge and membership, summary of housing programs, information on eligibility for and ownership of campus homes, and history of house prices and faculty salaries] and noted that additional information had been placed at desks, including maps showing where faculty members live, a graph of the gap between house prices and salaries over time, and a chart of campus housing "availability, or more correctly, unavailability." He welcomed committee members David Leith, Herbie Lindenberger, and Barry Weingast as guests, noting that Senate members Deborah Gordon and Stephen Hinton were also on the committee. The Chair set forth the ground rule that discussion of campus sites for housing, whether "in-fill" or other sites, was not in order, "not because this is unimportant, but because the committee will not be considering this issue." He asked Senators to keep the discussion focused on issues of faculty housing policies, and encouraged them to stay as long as possible, since the meeting was running somewhat later than anticipated.

Carolyn Sargent, Director of Faculty/Staff Housing, made a short presentation setting the context for the discussion. Stanford wants to remain a "residential university," she said, and has three long-standing housing goals: to enable faculty and senior staff to live close to the academic core of campus; to enable faculty to afford adequate housing and enjoy the financial benefits of home ownership; and to provide a variety of housing types to meet different needs and levels of affordability. Stanford's current housing problem is part of a regional problem, she reminded everyone, with more new jobs than new housing in the booming Silicon Valley. As a result, housing prices are escalating, as is anxiety about affordability, and very little is for sale. Sargent displayed and commented briefly on several charts and slides:

* Median Prices Campus Single Family Homes 1970-1999 [increasing from about $240,000 to $870,000, in 1999 dollars]

* Campus Homes Listed for Sale April 1990-October 1999 [showing normal availability in the range of 40-60 homes dropping below five homes since October 1997]

* Eligible Persons and Campus Owners [bar chart showing breakdowns for Assistant, Associate, and full Professors, Staff, and Emeriti]

* Housing Allowance Program (HAP) [declining nine-year income supplement to assist with monthly housing expenses]

* Down Payment Assistance Program Loan (DPAP) [fixed rate loan to assist with down payment up to $150,000 maximum]

* New Mortgage Assistance Program Loan (MAP) [interest-only, non-amortizing loan that increases buying power, up to 50% of purchase price or maximum of $500,000]

Sargent described the differences between the new MAP and the Lathrop (previously COIN) loan program it replaces. The MAP interest rate stays constant at 3-1/2%, not escalating as previously to an 8% maximum, she said, and the cap on the maximum return to Stanford is reduced from 25% to the Applicable Federal Rate plus 2%, "about 8.1% if it were today." She advised that the new program would in place by December, that it is proving very popular with faculty members, and that current Lathrop holders would be offered the ability to amend their loans.

The tough question, Sargent concluded, is "What should Stanford do?" She gave two illustrations of solutions at other universities. Princeton buys one-third of a house for tenured faculty and shares appreciation on a pro rata basis at the time of sale, "not a tax-efficient program," she commented. UC-Irvine has indexed housing at 40-50 percent of market, with price at resale limited by an index such as CPI, which "keeps housing affordable, but turns it into shelter, not an investment." Before turning to Professor Lynn Orr, Chair of the Provost's Committee on Faculty Housing Policies, Sargent recapped the charge to the committee: How well are existing programs serving the needs of the faculty, and what improvements can be made? How can new housing be made affordable?

Lynn Orr remarked that the new committee had met twice and saw the goal of Stanford's housing programs quite simply as enabling Stanford to attract and retain the best faculty. "We'd like decisions [about whether to come to or stay at Stanford] to be made based on the merits of the academics, not based on the cost and availability of housing." He said the committee would look at the current programs to see if they use the university's resources efficiently to satisfy the goal, and, "probably the harder task," would think about how to make any new housing built on campus affordable over time. The issues are complex, he acknowledged, involving budgetary constraints, tax questions, competitive concerns with other universities, and several sets of constituents with differing needs. The committee is "in the earliest stages of discussion and invites the Senate to help understand how the housing programs work now and how we can do a better job in the future," he stated.

Professor Etchemendy (Philosophy) said he wanted to thank Sargent and the Housing Office publicly for going to heroic lengths to help his department with numerous faculty recruits the prior year. He suggested that the committee look closely at any housing programs at NYU and Columbia, wagering that those universities had already faced in the past a situation similar to Stanford's current one. Orr confirmed that the committee was compiling a list of competitor institutions and would look at what housing programs they offer, if any.

Professor Satz (Philosophy) voiced her understanding that NYU does not allow emeriti to continue to live in faculty housing, as contrasted with the Stanford statistics that show emeriti occupying a large number of campus homes. Acknowledging this to be a very sensitive issue, she asked the committee to consider possible incentives to emeriti to move off campus, and suggested that information on emeriti eligibility be included in the data gathered from other universities. Orr stated that he "could not imagine a situation in which promises to existing faculty would not be honored," whereas new university housing could be offered under possibly different terms. Professor Efron (Statistics) said, "Our emeriti are people who brought this university from a mediocre state to a very high state. And the housing that we offered them was an inducement for them to come here. It is very ungracious for us to sit here and criticize them for living in that housing." Professor Simoni (Biological Sciences) added that not only is it ungracious, it is almost guaranteed to prolong the retirement age and would therefore be counterproductive. Etchemendy added that keeping emeriti in the vicinity was of great value to departments and the university, leading him to speculate that the amount of housing projected in the draft county plan ought to be doubled. Hennessy agreed with Etchemendy's concerns, noting however that the amount of future housing to be built was limited not just by the available land but also by construction and financial considerations.

Efron voiced the opinion that Stanford simply had not devoted enough energy to solving the housing problem, which had been coming on for 15 years. "You drive down Junipero Serra, and you see riding stables, a driving range, a golf course, the Oak Creek Apartments. That is a catalogue of missed opportunities for building housing." Commending the administration on its determination and success in rebuilding the science part of campus, he said similar long-range planning and resources are needed to solve the housing problem. "And we have those resources. We have to decide that that's more important than doing some other things."

Professor Shachter (EES/OR) said that he hoped the committee would include in its scope an understanding of the costs of the "very creative and generous" support provided of late by the Provost to recruit a number of senior faculty members. Orr agreed to do so, and Provost Hennessy commented that those kinds of commitments were "not sustainable." Hennessy signaled a fundamental institutional change away from the past, risk-averse strategy and toward an approach where "the university will have to share in the risk [of market downturns] with our faculty." Professor Walbot (Biological Sciences) reminded people of the era of high interest rates and high availability when she arrived in the 1970's, urging the committee to fashion robust policies looking at Bay Area housing over a 30- or 40-year time frame. She also encouraged the committee to survey faculty members who participated in particular housing programs (perhaps in five-year cycles), to find out their experiences going into and coming out of the programs. Responding to a question from Walbot, Sargent said there are about 600 individuals currently participating in housing programs, but said that she did not have figures for total participants over time.

Professor R. Fernald (Psychology) reported that he had contacted a number of junior faculty members and found that they were experiencing a surprising range of different kinds of problems. He said that finding solutions to their difficult financial issues seems debilitating for them as starting faculty, and he sensed their worry about the difficulty of managing to stay at Stanford. He urged the committee to systematically sample junior faculty situations in detail. He also concurred with Walbot that any new housing programs should have enough flexibility to track rapid fluctuations in the market.

Associate Provost Jeff Wachtel volunteered that, working in the Housing Office 15 years ago, faculty recruits who didn't believe they could afford a home could be convinced that Stanford's programs would make it possible, and he could hand them a list of 15-20 campus homes they might be able to purchase. In the past two years, he said, that same exercise might persuade them that by going to extraordinary personal lengths they might be able to afford a campus home, but there was no list to hand them.

Professor Martin (Graduate School of Business) expressed deep concern, as a campus homeowner, about the determined objections of some on-campus owners to the building of additional affordable housing in the core campus area. She asked if the committee had data on the proportion of faculty who actually disapprove, and wondered aloud if it is fair for the campus homeowners' organization (SCRL) to require all homeowners to be members and to

have their dues used in this way. When Martin said she worried that their "not in my backyard" objections would hold up solutions, Hennessy concurred that "development would be proceeding if there had not been such vociferous objections from some on-campus homeowners." Simoni sneaked in two opinions -- that building on the in-fill sites would make no significant contribution to solving the housing problem, and, on the other hand, that he could not imagine this would affect significantly the quality of life on the campus -- before this topic was ruled out of order by the Chair.

Simoni continued on a different point, expressing puzzlement about the phrasing of the committee's charge, since if there is a housing problem then the existing housing programs must by definition not be adequately serving the needs of the faculty. He also stated that, "to my mind, this is a money problem, pure and simple." Hennessy and Orr assured him that recruitment and retention of the faculty is something the university is willing to invest in. Professor Gardner (Molecular Pharmacology) pointed out that, owning a home has always been a very important investment in people's lives. If radical changes are being contemplated, she urged that the committee look carefully at the real recruitment and retention value of an investment versus a subsidized house or a rental house.

Professor Monismith (Civil and Environmental Engineering) said that, as a member of the previous housing task force, he was pleased that the university was focusing on sustained affordability and the full life cycle of homeowners' needs. Orr agreed that, while not a formal part of the charge, it would be useful for the committee to stay closely connected to the county land use permit process. Professor Pratt (Spanish and Portuguese) sought clarification of what was meant by a "residential campus", since it has never been the case that all Stanford faculty members lived on campus. In response, Stanford was contrasted to Berkeley, where "nobody lives on campus."

Stressing that affordability and availability are equally important, Professor Heller (Biological Sciences) said he hoped the committee would pay attention to the latter, for example by producing a class of housing that could be held below market value. Orr quipped that "no member of the committee wishes to try to repeal the laws of economics," or, "might wish to, but realizes the impossibility." He emphasized that they had made a prior assumption that some fraction of the housing proposed under the GUP would be built, and that their job was to figure out how to deal with that most effectively. Professor Klausner (Law) revealed that he had come from NYU, where he said much of the housing is rental, but they also give large subsidies to recruit or retain faculty members. He agreed with Simoni that the amount of money devoted was a lot more important than the creative ways it might be used. He said he thought the connection between availability and affordability had to be thought out a lot more carefully than it had been, postulating that "perpetual affordability" might be replicated as easily for an existing Palo Alto house as for a new house to be built on campus. Orr indicated that housing assistance programs for those buying off campus might look different than for those buying on campus, and Hennessy pointed out that a new program of affordable houses might create a dramatic rationing problem with departments fighting each other for campus homes.

Professor Noll (Economics) stated his opinion that "there has been a long history at Stanford of using bad economics to do housing programs." As an illustration, he indicated that the annualized cost of housing is what matters to people, so it is important to look not just at increases in house prices compared to faculty salaries over time but to take account of differences in interest rates as well. Also, "the tax system drives huge wedges between plans that otherwise look interestingly equivalent," he said. "If you build 300 more housing units on campus and the form of a $400,000 subsidy to each full professor goes from being a [taxable] cash payment to giving them $400,000 worth of land, they won't be taxed on it." Noll expressed the firm belief that for the next decade or two, solving the housing problem with land was going to be "off scale the cheapest way to deal with the problem." Professor Brauman (Chemistry) voiced the concern of many homeowners that, with a closed community such as Stanford's, the departure of emeriti and/or the construction of a large number of new homes, would make the bottom fall out of the campus housing market.

Senate Chair Zoback thanked Sargent and Orr, as well as the 18 Senators who spoke about housing problems, for an excellent discussion and thought-provoking suggestions. Accepting a motion and a second, the Chair declared the meeting adjourned at 5:28 p.m.

Respectfully submitted,

Susan W. Schofield

Academic Secretary to the University


Attachment:
Letter of October 28, 1999, Casper to Atkinson


Note: All background documents and reports distributed to Senate are available on the Academic Secretary's Office web site at
http://facultysenate.stanford.edu SR

28 October 1999

President Richard C. Atkinson

University of California

Office of the President

1111 Franklin Street, 12th floor

Oakland, CA 94607-5200

Dear Dick,

More than four years ago, Chancellor Martin and I first broached the idea of merging the hospitals and clinics of UCSF and Stanford University into a single not-for-profit enterprise. We understood that what we were pursuing had no precedent and would face innumerable difficulties. Bringing together a public and a private university in this manner had been unheard of.

Only a few have worked harder than I to make the merger work. In the last few months, I have spent much of my time to determine whether an appropriate organizational model can be found that will allow us to go forward, gain the support of the faculty in both medical schools, and recruit the strong leadership that we urgently need. Discussions have included intensive consultation with the clinical leadership of the two medical schools, separately and jointly.

With great anguish I have concluded that, in our efforts to find bold solutions to the problems of academic medical centers, we have taken on too much. We have failed to achieve a new common UCSF Stanford Health Care culture that would provide the whole-hearted support needed. Instead, most faculty continue to identify almost exclusively with their home campus. As a result, UCSF Stanford Health Care has not succeeded in carrying out the purposes for which it was formed.

Among our challenges has been the need fully to integrate our medical centers. Simply merging the hospitals is not enough. Our faculty physicians were expected to join their practices, share risks, and pool their revenues. That has not been achieved by the September 1, 1999 target date established in the agreements. On both sides, few see any prospects for accomplishing that with the support of the faculty. The issue is thus intractable for both of us.

The time we had to devote over the last three years to sorting out organizational and economic issues has been truly staggering. Both universities are much indebted to the dedication, energy, and cooperation of many members of their respective faculties and staffs as well as the people at UCSF Stanford Health Care. The transaction costs have been far higher than most had assumed. Energy has been sapped and great weariness has crept in. Many fear paralysis. Unfortunately, our unitary management structure has not given us the flexibility and resources that we needed for managing the north and south sites effectively. Under these circumstances, I believe it is best that we now begin the process of unwinding the current venture. I suggest that our staffs meet with UCSF Stanford Health Care management and begin planning on how to carry out this process with as little disruption as possible.

I do this with a heavy heart because many of our financial losses are due to forces beyond our immediate control, forces that affect other academic medical centers as well. Since the merger, the negative impact of the Balanced Budget Act of 1997 has been much worse than expected and developments in the managed care market have given no reason for optimism as concerns that market place. For Stanford Hospital and Clinics alone, the impact of declines in federal funding over the next four years will be nearly $85 million. In addition, the State of California continues to expect academic medical centers, including Stanford and UCSF, to bear much of the cost of providing medical care for the poor. UCSF Stanford Health Care last year rendered at least $100 million in unreimbursed aid to the poor, a substantial portion of which was provided by Stanford Hospital and Clinics and the Lucile Salter Packard Children's Hospital. Even before the merger, Stanford had a strong record of contributing to the public good in this regard and its commitment to providing public services for the indigent will continue unabated.

In our joint letter of August 3, 1999 to the UCSF Stanford Health Care Board of Directors, you and I pointed to the progress that has been made in consolidating financial services and purchasing, in correcting deficiencies in information technology, and in pursuing joint contracting. We also stressed progress in bringing some academic clinical services, most notably children's services, together. If there is any interest on the part of the University of California to consider an alternative service corporation that will retain portions of the benefits of the merger, Stanford University will be more than ready to sit down and explore these possibilities.

Sincerely,

Gerhard Casper