BY JAMES ROBINSON
A sluggish stock market and spiraling health care costs are among the factors that will cause next year's proposed $2.4 billion consolidated budget to run a deficit of $19 million, Provost John Etchemendy told the Faculty Senate on Thursday.
While academic and administrative units across the university have for the second consecutive year withstood budget cutbacks, Etchemendy said their impact "will be minimal and not terribly visible overall. Most people will not notice it, and it will not decrease the quality of the education that we deliver or the research that we do."
At the same time, Etchemendy -- who concluded his presentation with the admonition "Don't panic, but feel free to worry" -- said he was, indeed, worried what would happen if lean times persist.
"What worries me more than anything else is moving forward. If we continue to have tight budgets, we can't approach those reductions in quite the same way as we have approached this last set of reductions," he said, describing some of the cuts made so far as "low-hanging fruit." And reductions such as this year's salary freeze -- resulting in a $20 million savings to the consolidated budget -- cannot be repeated next year, he added.
"It would be much better to make some structural cuts of a larger sort and perhaps more targeted sort," he said. "And that's probably what we will have to do if the outlook is that the budgets will continue for two or three years to be as tight as they have been."
The Board of Trustees is scheduled to review the proposed budget at a meeting later this month.
The consolidated budget includes designated funds, restricted funds and grants and contracts. As a result, much of it is beyond the provost's control. The forecast deficit of $19 million comes to about 1 percent, Etchemendy noted, and comes from spending down reserves built up in various accounts over the years.
"The context for this budget year is dominated, obviously, by the poor economic climate," he said. Among factors straining the budget are:
The General Funds make up the flow of unrestricted money that comes from such revenue as tuition, indirect cost reimbursement and endowment payout. The $675 million General Funds budget for the 2003-04 fiscal year is expected to run a small surplus of about $2.9 million, Etchemendy said. Without a series of corrective actions -- including the effects on the General Funds of a salary freeze, tuition increase and, especially, $23.4 million in budget reductions to schools and administrative areas -- the General Funds would have run a $40 million deficit.
"It turns out that the academic units took, on average, 6.1 percent in cuts, and the administrative units took, on average, 6.1 percent in cuts. That was just an accident. We did not do across-the-board cuts," Etchemendy said. In the cases of some academic units, the reductions were accomplished both by making cuts and by generating new revenue from, for example, increasing the number of graduate students in certain programs.
Since last fall, units have had to make presentations detailing how they would make cuts of 5, 7.5 and 10 percent. While the cuts ended up averaging 6.1 percent, they "varied a lot from unit to unit. There were some units where the overall cut was about 3 percent; others, about 10 percent. The legal office, for example, was cut by 10 percent.
"So these were not across-the-board cuts," the provost emphasized.
As recently as the 2001-02 fiscal year, the so-called "increment" to the General Funds budget represented those areas where the administration chose to pursue new initiatives. Etchemendy noted with some nostalgia that in that year about half of the $40 million increment went to "new programs. So that was the fun year."
The increment for the 2003-04 year is only $19.6 million, but it is "almost entirely used up" by paying the added cost of employee benefits, he said.
The provost also presented a lean capital plan for the fiscal years 2004-06 that comes in at $837 million, down from $1.1 billion this year.
The capital plan includes projects forecast during a "rolling three-year window." Given today's financial constraints, however, "I'm quite sure that not all of the projects in the three-year capital plan will happen in those three years," Etchemendy said. "Some of them will not be able to obtain funding. Some of them will be delayed -- they will happen, but they'll happen in four years or five years."
He named nine major projects. Projects whose funding has been fully identified are the Kavli Institute at the Stanford Linear Accelerator Center, the Graduate Community Center, and the expansion of the Lucas Center at the radiology building. Projects whose funding has been partly identified are a replacement building for the Hansen Experimental Physics Lab, which needs to be demolished to make room for a replacement for the Terman Engineering Center; "Art to Anatomy," which would move the Art Department into the old anatomy building adjacent to the Cantor Center; and 400 units of graduate student housing for the Law School.
Three other projects for which funding is being sought are a new biology building; a School of Engineering Center to replace the Terman building; and the Stanford Medicine Information and Learning Environment (SMILE), an education facility at the School of Medicine.
In senate discussion of the presentation, Al Hastorf, psychology, representing emeriti, asked Etchemendy if faculty salaries were competitive. Etchemendy said they were in "pretty good shape" and that Stanford remained "very, very competitive" with other institutions.
Asked about the hiring freeze that he imposed last fall,
Etchemendy said it had "not been as effective as we would have
liked." While he said it had worked "pretty well" on the
administrative side, "in the schools, it has not worked," in part
because some filled positions are funded with grants. In fact, he
said, there had been a year-to-date increase of about 3.6 percent
in the number of university employees.
Provost John Etchemendy gave a presentation on the lean 2003-04 budget to the Faculty Senate Thursday. Photo: L.A. Cicero
Medical School Dean Philip Pizzo took part in a discussion on the provost's budget presentation. Photo: L.A. Cicero
Stanford Report, June 4, 2003