Faculty Senate minutes - May 29, 2008 meeting





MAY 29, 2008

A.Recommendation from the Committee on Graduate Studies

Upon a recommendation from the Committee on Graduate Studies, the Steering Committee, on behalf of the Senate, approved the recommendation from the Committee on Graduate Studies to renew the degree-nominating authority of the Interdisciplinary Program in Financial Math for MS degrees for a five-year period, from September 1, 2009 through August 31, 2014.

B. Recommendation from the Committee on Graduate Studies

Upon a recommendation from the Committee on Graduate Studies, the Steering Committee on behalf of the Senate, approved the recommendation from the Committee on Graduate Studies to renew the degree-nominating authority of the Interdepartmental Program in Immunology for the PhD and MS degrees for a three-year period, from September 1, 2009 through August 31, 2012.

C. Recommendation from the Committee on Graduate Studies

Upon a recommendation from the Committee on Graduate Studies, the Steering Committee on behalf of the Senate, approved the adoption of the language proposed by the Office of the Vice Provost of Graduate Education and the University Registrar, clarifying the language regarding Orals Chairs and Reading Committees.

D. From the Committee for the Review of Undergraduate Majors

Upon a recommendation from the Committee for the Review of Undergraduate Majors, the Steering Committee, on behalf of the Senate, authorized the renewal of the degree-nominating authority for the Bachelor of Arts, Minor and Honors, for the Interdisciplinary Program in Urban Studies for a five-year period from September 1, 2009 through August 31, 2014.

E. From the Committee for the Review of Undergraduate Majors

Upon a recommendation from the Committee for the Review of Undergraduate Majors, the Steering Committee on behalf of the Senate, approved a one-year extension of the Undergraduate Individually Designed Major in the School of Engineering for the period of September 1, 2008 through August 31, 2009.

F. From the Committee for the Review of Undergraduate Majors

Upon a recommendation from the Committee for the Review of Undergraduate Majors, the Steering Committee, on behalf of the Senate, approves a one-year extension of the undergraduate Honors Progran in the School of Education for the period of September 1, 2008 through August 31, 2009.




Report No. 12


At its meeting on Thursday, May 29, 2008, the Fortieth Senate of the Academic Council heard reports.


Academic Secretary to the University

Minutes, MAY 29

I. Call to Order

The Chair, Professor Eamonn Callan, called the fourth Spring Quarter and penultimate meeting of the 40th Senate to order at 3:20 PM. In attendance were 34 voting members and 11 ex officio members.

He opened the meeting by congratulating on behalf of the Senate six Stanford faculty who were elected to the American Philosophical Society, Gretchen Daily, President John Hennessy, Roger Kornberg, James McClelland, Claude Steele, and Irving Weissman.

II. Approval of Minutes - (SenD#6104)

The minutes of the May 15, 2008, meeting of the Senate were approved.

III. Action Calendar

There were no action items.

IV. Standing Reports

A. Steering Committee

Chair Callan reported these actions of the StC on behalf of the Senate and the agenda of the last meeting of the Senate:

1. In the hour before the Senate convened today, the StC met in an Administrative Session, on the Senate's behalf, to hear six items that did not need to come to the full Senate. (The materials for the items from that meeting are available on the website or the Academic Secretary's office. A report of that session will appear in the June 4th Stanford Report.)

2. The roster of the newly elected 41st Senate was announced. Senator Karen Cook, Professor and Chair of the Department of Sociology, will Chair the 41st Senate and Harvey Cohen, Professor of Pediatrics, will serve as Vice Chair. The other members of the StC are Professors Lanier Anderson (Philosophy), Margaret Brandeau (Materials Science & Engineering), Jonathan Bendor (Graduate School of Business), Harry Elam (Drama), and Hank Greely (School of Law). Chair Callan, on behalf of the Senate, offered his congratulations to all of them.

3. The results of the Advisory Board were verified by the Committee of Tellers and will appear in the June 4, 2008, Stanford Report. Professor Elisabeth Paté Cornell, Materials Science & Engineering, was re-elected representing Group II (School of Engineering) and Professor Linda Boxer, Medicine, will join the Board as new member, representing Group VI (School of Medicine, Section B: Clinical Sciences). The terms of the other members of the Advisory Board did not end this year.

4. June 12th is the final meeting of the 40th Senate. The agenda includes two reports. David Abernethy, Professor, Emeritus, will present the annual Emeriti Council report, and Richard Shaw, Dean of Admissions & Financial Aid, will report on undergraduate admissions.

Following the June 12th Senate meeting, at 4:30 p.m., President Hennessy will host the annual reception at the Faculty Club for the members of the incoming and outgoing Senates, chairs of the Committees of the Academic Council, members of the Board of Trustees and other special guests.

Professor Debra Satz raised her hand and was recognized by Chair Callan.

Professor Satz: "I rise on a point of personal privilege."

She addressed the Chair:

"On behalf of your Senate colleagues, I want to thank you for your fair and judicious leadership of the 40th Faculty Senate. I have especially appreciated your heroic labors to raise the intellectual level of the Senate, your efforts of reaching out to new senators, and your all-too-rare ability to get to the heart of the matter with respect to reports and presentations.

"In faithful deference to our tradition, I will attempt to pay you your dues in verse.

"To call or not to call, yet another Senate question:

Whether 'tis nobler for the chair to suffer

The slings and arrows of over loquacious colleagues,

Or to take action against the sea of proposals

And, by voting, kill them. To postpone, to table.

No more; And by tabling we end

The boredom and the thousand bureaucratic acts

That Senate committees are heir to: 'Tis a solution

Devoutly to be wish'd. To postpone, to table.

To table, perchance to die. Ay, there's the rub;

For in the act of postponement, what IDP's may languish,

When we have yet deferred another Senate review,

Must give us pause. There's the respect

That makes calamity of so long meetings;

For who would bear the debates and motions about Rumsfeld,

The library's hours, the cost of graduate housing,

The pangs of over-long reports, the truth's delay,

The infinity of papers, and the yawns

That patient merit of th' wordy takes,

When he might his chairing break

With a red burgundy? Who would budgets bear,

To grunt and sweat under a report on Area One,

But that the dread of something more than majors, rules, and sports,

The undiscover'd documents from whose bowels

No senator returns, puzzles the will,

And makes us bear those academic policies we have

Than fly to others we know not of?

Thus, conscience does make filibusters of us all,

And thus the Irish hue of resolution

Is covered over with the pale cast of thought,

And enterprises of research ethics and justice

With this regard, they turn to after-hours meetings,

And lose the name of Senate action.

"Soft you now!

The fair kind Eamonn! Leader in thy orisons

Be all our tributes remembered."

Professor Satz, her oration ended, descends majestically to center stage where Chair Eamonn Callan awaits, as Senators enthusiastically applaud.

"And this is for you." She hands him a gavel inscribed with the name, "Eamonn Callan".

Chair Callan, gazing at the gavel, "My very own. I've always wanted one."

Professor Satz admonished, "Use it well."

B. Committee on Committees

There was no report.

C. President's and Provost's Report

The president had no report. There were no questions.

Other than the Budget report to follow, the provost had no report. He offered to answer questions.

Professor Russ Fernald, citing a report from the American Association of University Professors that salary increases for faculty have gone up less than inflation, noted that in contrast, salaries paid to head coaches in Division 1A universities are ten times as high as those paid to the highest-paid faculty member. "While those numbers may reflect market values, the question might be how that reflects on an institution or on the role of sports relative to that institution."

Provost Etchemendy agreed with Professor Fernald's point but noted that Stanford's salaries have not only kept up with inflation, but have exceeded inflation by a considerable amount, largely because of competition for top faculty that is driven by the schools with the wherewithal to drive such competition--schools like Stanford that have significant resources.

"…Our coaches' salaries are not anywhere near ten times our highest-paid faculty salaries...if you look at the University's 990, which is a public IRS document that we are required as a nonprofit to produce each year--you can get it on the Web--you will see listed the top five highest-paid employees. And you'll see there that [only names of] faculty appear...No coach appears…There are certain sports in which head coaches are paid very well--football, men's basketball, and, increasingly, women's basketball, thankfully. But, in fact, coaches [of other sports] are not paid very well. And it's actually a very troubling thing to me that some coaches in the smaller sports…and assistant coaches, are paid very poorly. It's very difficult for them to live in this area. We are actually trying to increase those salaries."

Provost Etchemendy went on to express his concern about the growing disparity between the faculty salaries at the private, wealthier institutions, and the public institutions. It is not healthy for U.S. higher education to have certain institutions that are able to compete much, much better for faculty [like Stanford can] than the public institutions. He commented, "I think that that's not healthy overall for the higher education system."

In answer to a question from Professor Philippe Buc, Provost Etchemendy assured him that the salaries of faculty in place have also increased well above the national average, not just those of faculty recruited to Stanford.

Professor Simoni had an anecdote: "Many years ago, someone asked Don Kennedy at a Faculty Senate meeting how did he feel that newly hired Coach Bill Walsh was paid so much more than the president of the university, which was true. And Don's response was to quote President Herbert Hoover, who, when asked, how did he feel about Babe Ruth making so much more money than he did, said, 'Babe Ruth had a better year than I did.'"


Professor Simoni added, "And in that particular year for Don, it was also true."


V. Other Reports

A. Provost's Budget Report (SenD#6093)

Chair Callan turned to the Provost's Budget Report. He thanked the provost and the budget office for providing before the meeting copies of the report and a print out of slides to be shown. He introduced several guests: Tim Warner, Vice Provost for Budget & Auxiliaries Management, Dana Shelley, Financial Manager from the Budget Office, and Steve Olsen, Associate Director of Budget, Finance & Planning.

With the aid of slides, Provost Etchemendy began by giving the big picture.

"The first thing to say is that the university is in incredibly strong, incredibly excellent condition…it is stronger than it has ever been, whether measured by the strength of the faculty, the strength of our programs, student selectivity, our financial position, or alumni generosity.

"I think this is contributed to by the fact that we have an absolutely fantastic set of deans who are leading the nation in programmatic innovation and faculty [and] program quality. We…are close to the end of the second year of a record campaign, the Stanford Challenge, which was launched a year and a half ago with a goal of $4.3 billion. We are above $3 billion in pledges already. That is an extraordinary amount of generosity on the part of the alumni, an extraordinary amount of work on the part of the deans, the president, and our fantastic development staff-[but] not me, I don't do development. But everybody [else, including] many faculty, have contributed a lot to that success.

"We just finished an undergraduate admission season that was also record-breaking. We had 25,000 applicants. Because of that, we had the lowest admission rate--under 10 percent--and the highest yield--72 percent—which actually caught us by surprise.

"It's not as if there aren't any challenges. There are. [They] appear in the budget. On the revenue side, the main challenge is the continued decrease in federal support for research…for the fourth year in a row.

"On the expense side, the main challenges are…competition for top-quality faculty, which has driven expenses significantly, and competition for top-quality students, which has partly driven some changes in the financial aid program.

"…There's a good side to those challenges as well. On the research side, we have always been very dependent upon research income. We are, so far, successfully replacing that dependence with other sources of revenue…which have increased.

"The competition for faculty and students, I would never want to be without that. That's a sign of strength of the institution. The quality of the faculty that we have, their attractiveness to other institutions, and the competition for students is something that I would never want not to have, obviously.

The Provost then outlined his talk:

Consolidated Budget

General Funds Budget

Capital Plan & Budget

How Does the Endowment Work?

How Are the Schools Funded?

The consolidated budget is the budget for operations of the entire university. It includes the medical school but excludes the hospitals. (While the medical school is part of the university, the hospitals are separate entities.) The consolidated budget is the entirety of the operating income or revenue that comes into the university and the entirety of the operating expenses that go out of the university. It does not include gifts to endowment or expenditures on capital projects.

The general funds budget is an important subpiece of the consolidated budget. While most of the consolidated budget consists of various forms of restricted revenue, the general funds budget is the unrestricted funds of the university that are centrally allocated to schools and other units.

The consolidated budget is a forecast, a prediction, of the actions of hundreds of units and people around the university—the revenue they're going to generate and the expenses they're going to spend. For example, if you're a Principal Investigator, it's a forecast of the grants you're going to get and what you're going to spend for the year. The general funds budget, on the other hand, is a report of allocations made centrally.

The capital plan and budget is the three-year plan for on-going capital (construction) projects. The capital budget is the cost incurred on these projects during the coming year, i.e., the 2009 fiscal year.

Budget Priorities for 2008 - 2009

Attracting and retaining the best faculty. This includes an aggressive salary program, startup costs, lab renovations, and housing.

Implementing the Capital Plan. This includes paying debt service and operations and maintenance for newly completed projects, and implementing the Capital Facilities Fund.

Making Stanford more affordable. We are implementing the most generous financial aid enhancement in the university's history.

Responding to reduced federal support for graduate education. Vice Provost for Graduate Education Patti Gumport has been working on ways to increase support for graduate students to make up for shortfalls caused by reduced federal research support. She has announced 199 new fellowship recipients, 53 more centrally funded fellowships than were granted last year, and has developed plans for covering funding shortfalls due to NSF and NIH tuition caps.

Enhancing central administrative support. This is necessary for compliance purposes and other administrative purposes.

Consolidated Budget

Figure One


The figures are in millions of dollars.

The first column is the projected figures for fiscal year (FY) 2008

(September 1, 2007 to August 31, 2008).

The second column is the figures for FY 2009

The third column is the percent increase from FY 2008 to FY 2009.

The fourth column is the compound annual growth rate over the previous 5 years

(5 Year CAGR).

The projections for fiscal year 2009 are revenues of $3.824 billion, expenses of $3.519 billion, and after transfers of $175 million, a net surplus of $130 million.

The provost called attention to the drop in the increase in revenues from 8.8 percent on average for the last five years to 2.6 percent while expenses also decreased but not as much. He promised to return to that later.

Student income (line 1 of Figure One) Student income is graduate and undergraduate tuition and room and board.

The provost explained, "We're projecting that's going to increase by 3.7 percent even though we are increasing tuition only 3.5 percent…largely because of a projected increase in the number of students and because certain graduate schools increased their tuition somewhat more than 3.5 percent. The TGR (terminal graduate registration) fees for the second year in the row increased by zero percent, that is, we are not increasing them."

Financial aid (line 15) A 15.2 percent increase is projected because both the undergraduate financial aid and graduate aid are to be increased. Over the past ten years Stanford's average annual increase in tuition, room and board has been 4.8 percent, which is higher than that of the Consumer Price Index (CPI).

The provost noted, "But the increase has not been much higher than what we call HEPI, the Higher Education Price Index, a measure of inflation for higher education institutions. HEPI is like the CPI, except the…goods are more the kind that we buy. We pay lots of salaries but don't buy a lot of Cheerios. The HEPI has been going up about 4.5 percent over the past ten years. So our 4.8 percent is higher than HEPI, but not by a lot. Still, we feel the increase in sticker price has to be moderated. That's why we increased tuition and room and board by [only] 3.5 percent this year. And we project we're not going to be increasing [them] at a much higher rate in the next several years.

The enhancements in the financial aid program will cost the university an additional $15.5 million annually.

Features of the new program include:

Parents with income below $100,000 are not expected to contribute toward tuition.

No parent contribution at all for those with income < $60,000.

No student loans are required: Reduce student responsibility to $4500 ($2500 for low income students).

Generous changes to 'need analysis' targeted at middle income families:

--Exclude first $250,000 in assets.

--Cap home equity at 1.2 x income.

--Adjust for cost of living in calculating need.

--Divide parent contribution equally for multiple siblings in college.

--Treat students assets like parents' assets.

"The headlines many newspapers picked up were that parents with incomes less than $100,000 are not expected to contribute towards tuition and parents whose incomes are below $60,000 are not expected to contribute toward tuition or room and board or books or any other expenses…of a Stanford education. But there are a number of other things we added that aren't headline material, but are just as generous and just as expensive to the university…We survey parents every four or five years to see how they are managing to afford a Stanford education. It turns out that parents at the low-income and high-income part of the spectrum have been affording Stanford just fine…But many middle-income families find it very stressful and quite a strain on the budget to send their kids to Stanford. They can afford it--we don't lose students because they cannot afford it and we do not lose students to institutions that cost less--so it's clear that they can afford it. But that doesn't mean they do it easily.

"So [the items under the last bullet above are] meant to address the true middle-income families in the country and try to improve the situation for them."

The other goal was to have a program that could be easily communicated, because "…many students around the country are absolutely convinced they couldn't possibly afford to go to Stanford or Harvard or Yale. And so they probably don't even apply. So that's the reason we structured the program this way--so people can understand it—they understand that 'my family doesn't make over $100,000. I'm going to be able to afford to go to Stanford.'"

"…Over the last five years, the 'sticker price' (tuition, room and board), adjusted for inflation, has gone up from about $42,000 to $47,000, an increase of 13 percent, adjusted for inflation. But, if your family income is between zero and $60,000, the price has gone down 60 percent, from about $7.6K (thousand) to $3K. Similarly, for the $60 to $90K income range, it's gone down 52 percent."

The percentages of students with families in these income categories are: $0-60,000 (17%); $60-90,000 (11%); $90-120,000 (23%); $120-150,000, (11%); and $150,000 and up (39%)...(The percentages are of all students, not just those receiving financial aid.)

In answer to a question, the provost noted that even the very highest income group is getting enough financial aid to offset the sticker price increase…but most families who are earning $200K or above are paying the full sticker price. Some of them are not, however—for example, if they have a lot of kids in college.

In answer to another question, the provost acknowledged that the undergraduate student population is not a cross section of society. "That's not because of cost, because we don't lose students because of cost. It's because many of those at the lower end of the income spectrum tend not to be as academically prepared for getting into Stanford and some who are prepared don't apply because they don't believe they can afford it.

"Let me say, though, one interesting fact about our new financial aid policy: for over 80 percent of the families in the U.S., Stanford is now cheaper than the U.C. system."

In answer to a question, "'Family contribution' is everything other than Stanford grants, scholarships and outside grants. But, 'family contribution' includes the student [contribution]. We do expect students to contribute toward the expense [of their education]. On average, it's going to be about $3,000 a year. That's not out of the parents' [pockets], but from work-study, summer work, and so forth. We expect the student to contribute this amount. We don't believe that a Stanford education should be free."

Sponsored Research (lines 2 - 5)

The projected decrease of 2.3 percent next year, "is driven by a very large 11 percent decrease in the expected SLAC research revenue because of the major construction project, the Linac Coherent Light Source, will be completed this coming year.

"Nonetheless, direct research revenue to the central university, our non-SLAC research, is projected to increase 0.6 percent--in effect, no increase."

A graph of sponsored research illustrated from 1999 to 2004 a substantial growth rate, but from 2005 to 2009, no growth, in nominal dollars. Adjusted for inflation there has been a decrease in sponsored research support of almost 3 percent per year.

As a result, whereas grants and contracts have been the largest single source of revenue for the university—35% in 2005—this coming year, they are projected to be 28 percent of the consolidated budget, said the provost, "That's a big drop--a seven percent point differential. And notice--we've passed a landmark. Grants and contracts…will no longer be the largest single source of revenue. It will instead be investment income (29%)."

Health care services (line 6)

This figure consists of the payments made to the school of medicine for the health care services provided by the faculty in the different departments to the hospital and clinics. "And that is continuing to go up at a healthy pace, but not as fast as we averaged the last five years."

Expendable gifts and net assets released (line 7)

Net assets released from restrictions are pledge payments. A donor may make a pledge but not fulfill the pledge that year. When the donor does fulfill the pledge, it appears as a net asset released.

"We are projecting no net increase--why? Because we're following two years of absolute record gift income. Two years ago we received $911 million in gifts, which was not only number one in the country, but was higher…almost by 50 percent, than any other university had ever managed to raise…Last year was not quite as high, but it was in the upper $800's. We don't think we can expect that to go up."

Investment income (lines 8 - 10)

It is projected to rise 7.2 percent.

Other investment income (line 10) is from various other assets that are invested but not from the endowment itself, for example, rental income from the research park is included here. Other investment income is expected to rise by 5.4 percent, a healthy increase but below the average for the last five years.

The provost then explained the remarkable rise in endowment income. The compound annual growth rate averaged about 20 percent, but ranged from 2% to 50% (the latter in 2008).

"…This spike of a 50 percent increase in the payout was because of a policy change that I explained [to the Senate last year]…The trustees decided to raise the target payout rate from five percent to five and a half percent and reset the actual payout to five and a half percent. That netted out to a 50 percent increase of endowment payout dollars going into the budget.

"The purpose of that was not to bloat the budget [but] to help support the…extremely ambitious capital plan.

The provost explained how this works. "Most things that are supported by endowment are also supported by some general funds. So imagine…a program that receives half its support from endowment payout and half from general funds. When you increase the endowment payout rate, that means that you release general funds that are no longer needed to support this program. The program still continues to receive [the same absolute dollar support].

"So…we redirected the released general funds into a fund called the Capital Facilities Fund that is intended to help us complete the capital plan without putting a huge burden on the general funds budget. We don't want to be cutting into future salary increases for faculty, for example, because of the capital plan.

"That flow will eventually be about $140 million per year. About $85 million of it comes out of central general funds. The rest goes into the Capital Facilities Funds in the School of Medicine, the School of Business, and so forth.

Other Income (line 11)

"Other income includes program fees such as Executive Education and football revenue. We're projecting a huge increase in football game revenue!"

Total Revenues (line 12)

The provost concluded his discussion of Total Revenues by pointing out that the percent increases projected for this coming year are significantly below the average for the last five years for every revenue line with the exception of the indirect cost line.

He turned to Total Expenses.

Salaries and benefits (line 13)

This figure includes both staff and faculty. A 6.3 percent increase is projected, which takes into account salary increases plus headcount increases.

The provost expressed concern about the rapid growth rate in staff head count, which in the last ten years has been close to 3.6 percent on average per year, compared to the faculty growth rate of about 1.5 percent, on average, per year. ("Staff", in additional to the usual meaning of the word, includes research fellows and other academic staff.)

"Some of [the increase] is driven by increase in research quantity…and it's partly due to the increase in the Medical School clinical operation. Obviously, there's [an increased] need for staff physicians, doctors that provide those services."

The provost noted that unlike the number of faculty and undergraduates, the number of staff is not under central control. "We don't really control [the number of] graduate students [either], although they tend to be controlled financially by limitations in the funds to support graduate students."

This concludes the provost's comments about the Consolidated Budget. There were a few questions.

One questioner pointed out that grants and contracts income flattened over the last four years despite the continuing staff increase. "Does that mean you're changing staff growth from one coupled to external grants and contracts to one that's now coupled with gifts?"

Provost Etchemendy responded that the budget group [see below] examined staff growth in all of the various units and schools to try to understand exactly what's driving that increase and it turned out to be hard to understand. In the early years of 2000, the doubling in NIH research grants stimulated a large growth in staff [but that leveled off]. The Medical School has continued to grow somewhat disproportionately, but the growth is everywhere.

Professor David Burke commented, "The trick of pulling more money out of the endowment to allow a greater increase in the General Funds is like moving endowment funds into a place they couldn't get to—right?"

Provost Etchemendy disagreed, saying, "I don't like describing it that way, because endowment funds that are restricted will still be used for the purpose [for which] they were intended. But…general funds are always what we use to fill in for shortfalls of restricted and other kinds of funds, and so it [the increase in endowment payout] does release some general funds. It's not a way of diverting endowment payout to another use. It's a way of releasing general funds for another use."

<b>The General Funds Budget

The provost noted that the General Funds Budget of $931 million is about one quarter of total university revenue of $3.8 billion. The rest of total university revenue consists of restricted (29%) or designated (17%) funds, grants and contracts (23%) and auxiliaries (7%).

Restricted funds are restricted to what the donor decides.

Designated funds are not legally restricted, but they are restricted de facto because an appropriate use for them has previously been decided. For example, Stanford has a policy for royalty income. It is divided into thirds—one third to the inventor, one third to the inventor's department and one third to the school.

Auxiliaries are the units that bring in their own revenue to match their expenses and receive no additional funds from outside. Examples are intercollegiate athletics and housing and dining.

The sources of general funds are primarily tuition (53%), indirect cost recovery (20%) and unrestricted endowment income (18%).

How are General Funds spent?

The provost explained, "We are primarily a people enterprise. Most of what we spend our general funds on--most of what we spend all of our funds on--are salaries. [This consumes] two-thirds of the General Funds. Other expenses are for everything else we do--utilities, the lights, and so forth, which amount to 31 percent. Financial aid is about two percent of general funds [but] that only pays for a portion of financial aid. A lot of restricted funds go into financial aid as well."

Figure Two


ICR is indirect cost recovery. Non-formula schools are all the schools except the School of Medicine and the Graduate School of Business.

By unit, about half goes to schools and academic units, including the formula schools and the non-formula schools (see figure). The formula schools are the Graduate School of Business and the School of Medicine. The non-formula schools are the other five schools. Administrative units receive about 34 percent of general funds. If you look at the consolidated budget, Administrative units are about 14 percent of the consolidated budget.

Central obligations include debt service, utilities, operations and maintenance, etc.

In answer to a question, the provost explained that the two formula schools are so-called because they get their general funds according to a formula. In the case of the medical school, it's a complex formula that's tied to various revenue streams. It tries to match all of the central costs of the medical school so that the university retains that much and returns the rest to the medical school. In the case of the business school, the formula is simpler: it retains a large portion of the tuition it generates.

How are general funds allocated?

The provost explained that "… It's a long process [that starts in September] with a very hard-working group, the University Budget Group [UBG]." Some members of the group were in attendance—Professor Robert Simoni and Vice Provost for Graduate Education Patti Gumport, and members of the university budget office staff, Tim Warner, director, Dana Shelley, and Steve Olsen. [The names of all the members of the UBG can be found on page x of the Stanford University Budget Plan 2008/2009.] The process continues throughout the year, ending in June when the provost presents the budget to the Board of Trustees for approval.

The provost explained, "The deans and directors of…other units within the university come to the budget group and say, 'Here is what we would like to do. We are launching a new program, we're doing such and such, and we'd like to staff this program. And here's…the money we have that we can apply to that, but we fall short. Can you fill in the shortfall using general funds?' And the budget group then makes…decisions…and recommendations. It's all driven…by the long-range forecast of what the incremental general funds will be next year.

"This coming year, we project a $42 million increase in general funds. The first thing we do is figure out what costs we have to pay--the increased utility costs, the increased debt service, and so forth…out of general funds.

"[The next thing we project is] what salary program we feel we can afford and need to provide for staff and faculty, and what the benefits costs are going to be.

"…Then we make a decision about how much we can afford to spend on new programs or program expansions…So if you want to add a faculty member to, say, the Bioengineering Department, that would be part of the new program. The question is--how much can we afford to use for new programs and how much do we feel we should hold back in the surplus for the future? This year, we ended up allocating $16.6 million for new programs or additions to programs and holding back a surplus of $6 million. The overall inflation, that is, salary and non-salary inflation, is projected to be $19 million.

"Of that $16.6 million for new programs, some is precommitted…One of the things the Budget Group often does is ramp up a program. It takes the view, 'Yes…we should expand that program, but we can't do it in one year, so we will do it in [three] years.' We add a certain amount of general funds each of the next three years. So there are prior-year commitments that amounted to about $8 million this year. That left $8.7 million to allocate for new requests. The new requests, [however, totaled] about $30 million. That's the difficulty the Budget Group has to face. It has to figure out how [to choose among] $30 million of persuasive, important new programs that the university wants to [support but only has] $8.7 million to allocate."

The slides depicting the General Funds Allocations to Non-Formula Academic Units, Administrative Units and other Central Unit were shown in succession.

"I'm not going to go into the details of these allocations or what was being supported. That's all described in the budget book."

Forecasts of General Funds

A table of forecasts was shown. From 2002 to 2008, the annual increase in General Funds averaged 7.5%; for the coming year 2008 - 2009, it is projected to be 4% and for the years 2009 - 2012, 3.8%.

The provost pronounced the picture conservative and not terribly encouraging. "I predict that for the next several years, general funds will be tight. And what that will mean is that we have to use them for the highest priorities [which are] faculty salaries, faculty startup, and so forth…So not a lot of [room for] new program expenditures."

The next slide was a graph illustrating the revenue forecast and the expenses forecast. Between 2005 and 2009, the revenue exceeded expenses as much as $40 million at its highest point; after 2009, the picture dramatically changes; the projected expenses actually exceed the revenue by several million dollars. "That's one of the reasons that we kept the $6 million surplus. That should cover our projected deficit in 2010.

"Exactly five years ago, when I was presenting a depressing budget…that involved a salary freeze, I ended it by saying 'Don't panic'. I don't think anybody's going to panic this year, because we are in…tremendous financial shape and tremendous programmatic shape…So my message this year is, 'Don't get complacent'."


Dean Philip Pizzo (School of Medicine), to clarify the provost's remark, asked, "But there's no salary freeze?"

Provost Etchemendy, nodded, "There's no salary freeze"

President Hennessy laughed, "Only for the Medical School".

Provost Etchemendy, spotting Chair Callan moving towards the lectern, said, "I'm not done."

Chair Callan got the message, "You're not done. Okay. Good."

President Hennessy confirmed, "He's not even close."

Chair Callan attempted to mollify the provost, "I'm just moving to get closer to the action, closer to the action, that's all."

Provost Etchemendy cast him a baleful eye, "Going closer to the action", but did add, "I'm going to zoom through the rest of this."

Capital Plan and Budget

The Capital Plan is the three-year projection of the building projects that will be under way in the next three years, 2009, 2010 and 2011. It's the largest in Stanford's history, $2.8 billion. The provost commented, "It reflects a number of things I won't go into. But when we have finished this capital plan, we will have an infrastructure that has revitalized our science, engineering and medicine infrastructure; improved the arts facilities; and improved faculty, staff, and student housing. It also includes the North Campus development [in Redwood City]."

The Capital Budget for next year is $680 million.

The capital plan includes the science, engineering, and medical campus plan, a total of eight buildings. Two of the buildings, Astrophysics and Y2E2, have been finished. The construction of the other six buildings will be underway in the course of the next three years, including the engineering center, the nano technology center, bioengineering/chemical engineering, the biology building, the Stanford Institutes of Medicine I (the stem cell laboratory building) and the Learning and Knowledge Center, the latter two in the medical school.

The provost continued, "I do want to mention the building energy retrofit program. That's actually been very successful. We're going systematically through the least energy-efficient buildings--mostly laboratory buildings--retrofitting them with modern technology and thereby saving large amounts of energy costs. We are also funding enhanced sustainability features for all of the new science, engineering and medical buildings.

"The Capital Facilities Fund is the fund that we have created to help pay for this. Allocations are made where restricted or gift funding is unlikely or unavailable. The goal is to reduce the need for general funds serviced debt. We want to protect general funds as much as possible to remain competitive for faculty."

How Does the Endowment Work?

First, how large is the endowment?

A slide showed that between 1998 and 2007, the endowment grew from $4.7 to $17.2 billion. The growth includes investment returns and new endowment gifts minus the annual payout.

How is the endowment invested?

The provost explained, "It's invested by the Stanford Management Company, which is a part of the university, but a part that operates separately. It has its own president, John Powers, who reports to John Hennessy, and also its own Board of Directors. [Members of] that board are chosen by our Board of Trustees."

The provost explained that the Company has an extremely diversified investment strategy and a long-term investment horizon of 50 to 100 years. "That's one of the reasons that it can make the kinds of returns that it does, because it's not investing for returns for next year or returns for even five years."

The policies are reviewed by the Board of Trustees Finance Committee and the Special Committee on Investment Responsibility. "There are certain things we don't invest in. We don't invest in tobacco companies…in companies…dealing with Darfur…those policies are decided by the Special Committee on Investment Responsibility.

Who decides how much is spent?

"The Board of Trustees sets the annual payout rate. The goal is intergenerational equity. What does that mean? Well, the university is forever, even longer than diamonds. The endowment is meant to support the activities of the university in perpetuity. Furthermore, the goal is to support that activity for current students and for future students equally. So [we] try to achieve a policy that maintains the inflation-adjusted value of each endowment fund.

"The current target payout rate is 5.5 percent. We have a 'smoothing rule', because investments go up and down, and the smoothing rule protects the budget from investment volatility.

"Here's how it works, in theory. The endowment is invested, and, on average, we assume that we can get between 9 and 10 percent nominal return on the investment. We take a portion and spend it, and we take another portion and reinvest it in the endowment principal. If all goes well, if we spend about five percent and have returns of 9 or 10 percent, then that reinvestment will keep up with inflation. So the following year the payout will be three or four percent higher, and so, for example, an endowed chair will continue to support the faculty member's salary and the increase will cover the …salary increase.

"In practice endowment returns are very volatile. Here are the investment returns for the last ten years."

A slide illustrated annual investment returns and payout rates for each of the last 11 years. The returns varied widely from -7.3% to +39.8% with the last year's rate of 23.4%. In sharp contrast, the annual payout rate held steady, beginning at 5.1% and slightly declining to 4.3% over the same period.

The next slide converted the annual payout rate from percent to dollars and showed a smooth and steady rise from $194 million in 1997 to $609 million in 2007. The provost commented, "You can see that the smoothing rule works very well."

Who decides how the endowment income is spent?

The provost explained, "Basically, to first approximation, it's the donors. Donors decide the general purpose of whatever fund they give. Subject to the donors' restrictions, the payment is spent by whoever controls that fund. And we…assiduously respect the wishes of the donors."

Figure Three


The Y axis shows the restrictions by the donor from a very specific purpose to any purpose.

The X axis shows who controls the funds, ranging from a specific department or program to the president or provost looking out for the broad university interests.

Each diamond represents a separate endowment fund with a specified purpose and control point.

The uppermost right hand square represents the "unrestricted endowment" which is 21% of Stanford's endowment.

The provost continued, "You can think of the restrictions as having two dimensions. [see Figure Three]. One is the purpose specified by the donor. It can be very specific, broadly defined or very general. [The other dimension is] the level of the control point--how much of the university might benefit from that fund? Is it controlled by the provost and hence can be used throughout the university? Or is it controlled by [the dean or school or is it limited to a department or program]?

"Here are some examples. The Leland Stanford and Jane Lathrop Fund established in 1903, then worth $33 million, is now worth about $500 million; it was a big part of the original endowment. It is unrestricted, just to support the university. It goes into general funds.

"We might have another fund for graduate aid that is a central fund for graduate aid…It is not as unrestricted for purpose, but it does sit centrally, so it can be used in any school.

"A fund for a 'Professor of Management' for the business school is used at the discretion of the school dean.

"Here's a fund for classics, unrestricted purpose for the classics department. So the chair of the department of classics decides how to use it. So it's 'unrestricted', but because of the control point, it's actually relatively restricted.

"Another example might be a book fund for books on Buddhism. The control point is the religious studies librarian. It has a very restricted purpose and control point.

"The endowment consists of over 6,200 different funds, each with different restrictions and control points…So people…often say to me, 'We have this huge endowment. Why don't we spend more of it?' Well, we are spending all of it we can. It's restricted in its use.

"The part that's not restricted is just this part up here, [pointing to the upper right hand square] 21 percent. And that flows into general funds and is a major portion of the general funds budget."

How do we spend the endowment payout?

"Thirty percent is spent on explicit financial aid, either graduate or undergraduate. About 40 percent pays salaries [faculty salaries, other academic salaries and staff salaries]…the equivalent of about 500 faculty salaries are supported by the endowment. [Materials and supplies consume about 19%.]

"Pressure has been put on universities, for example, by Senator Charles Grassley, who has been criticizing universities, and saying, 'Look, you're not using enough of your huge endowments on financial aid.'"

"Well, first of all, we are using a significant amount.

"Secondly, all of the other expenditures are, in a sense, financial aid. What do these other expenditures do? They…increase the quality of what [the university] provides without charging it to tuition or without charging it to sponsored research. That's a way, in effect, of giving financial aid to every student…otherwise, if we had to pay for the 500 faculty out of tuition revenue, then tuition would be much higher. So it's a way of providing our education for less money to every [student who attends].

"A lot of people don't understand how it is possible…that tuition does not pay the full cost of undergraduate and graduate education, and similarly, indirect costs do not cover the full cost of research.

"How do you put those two together? How is that possible? Well, it's possible because of the endowment payout, which fills in the holes…And that's [how] we are covering the remainder of the cost for education and the remainder of the cost for research."

The provost concluded this section by comparing the support of a private university, like Stanford, with that of a public university, like the University of California.

"This is a comparison I find, actually, very interesting. If you look at the different financial models of Stanford versus U.C., a lot of times people say, 'Well, it's unfair that we have this huge endowment and public schools like U.C. don't.' Well, that's true. If you look at our revenue, the three largest sources of revenue are sponsored research, 29 percent; endowment payout, 25 percent; and tuition, 12 percent, net of financial aid. The U.C. systemwide had sponsored research [that provided] 34%; a very small amount of endowment payout; state general funds that provided 30 percent; and tuition providing 12 percent. We have no state general funds. That's the difference in the financial model of the public institution and the private institution. Think of endowment as our replacement for state general funds."

How Are the Schools Funded?

The provost commented that the seven schools at Stanford are funded in different ways, with regard to reliance on general funds, expendable gifts, and the other income streams. He referred the Senators to the Stanford University Budget Plan and the printout of his slides, since time had run out.

Chair Callan: "Thank you very much, John." There was sustained applause.

Chair Callan opened the floor for questions.

Professor John Boothroyd asked if postdoctoral fellows were counted as staff or students.

Provost Etchemendy replied, "'Postdoc' is an odd category. For certain purposes, they are staff, and for certain purposes, they are students."

Professor Boothroyd had another question. '[Given] the $500 million tuition income and if we have about 15,000 students, that's roughly $33,000 per student tuition income. Are you counting money that comes from financial aid and flows back in as tuition as part of this tuition income?"

Provost Etchemendy answered, "The tuition line is the full tuition revenue in spite of the fact that some of that revenue is really funded by us. If you look at our annual report and at what's called the 'statement of activities', there we report it differently. We net the financial aid out of that tuition number."

Professor Robert Simoni commented, "John, I thought the U.C. comparison was interesting. You could normalize those numbers between U.C. and us on a per-student basis or a per-faculty basis. How does that comparison come out?"

Provost Etchemendy responded, "If you do that, overall, we have significantly more money. Off the top of my head I don't remember what it is. But we have more money on either a per faculty or per student basis than the U.C.'s. That's why I think U.C's are very much underfunded and that this is…not good for higher education in the country. U.C. is the strongest public university in the world. And we're slowly but surely cutting the funding and making it harder for them to compete."

Professor Malcolm Beasley asked the provost about decreasing sponsored research funding and its effect on the faculty.

Provost Etchemendy replied, "The answer is that faculty are [finding it increasingly difficult to maintain their research grant support]; it is particularly difficult for younger faculty. The age [of faculty being awarded their] first NIH R-01 grant is going up. It's much, much harder [to get an NIH research grant]. Phil [Dean Phillip Pizzo] could add to that. But it is a problem."

Dean Pizzo commented, "I agree with that exactly. It's particularly hard for younger faculty. But it's also very hard now for senior faculty. Even some of our most renowned and significant investigators are encountering problems in renewing their grant support."

There were no further questions for the provost

Chair Callan thanked the provost.


VI. Unfinished Business

There was no unfinished business.

VII. New Business

There was no new business.

VIII. Adjournment

In response to Chair Callan's request for a motion and a second to adjourn, Senators quickly responded.

As his last act as Chair of the 40th Senate, Chair Eamonn Callan declared,

"Okay. I will use my very own personal gavel to adjourn the meeting", and did so at 4:58 PM.

Respectfully submitted,

Rex L. Jamison, M.D.

Academic Secretary to the UniversityTwo faculty members—John Boothroyd, a professor of microbiology and immunology, and Sheri D. Sheppard, a professor of mechanical engineering—will join the Office of the Vice Provost for Graduate Education as associate vice provosts in September.

"I am delighted to welcome two colleagues who are not only well respected in their fields and home departments, but also are highly regarded for their impressive records of university service and mentoring for Stanford graduate students," said Patricia Gumport, vice provost for graduate education.

Mark Horowitz, a professor of electrical engineering, finishes his two-year term as an associate vice provost for graduate education at the end of the summer quarter. Horowitz served as co-chair of the university Commission on Graduate Education, whose 2005 report recommended creating the Office of the Vice Provost for Graduate Education. The office was established in January 2007.

"We are all grateful for Mark's significant contributions in helping to launch the Office of the Vice Provost for Graduate Education," Gumport said, adding that Horowitz's leadership in interdisciplinary education could be seen in the Stanford Graduate Summer Institute, which offers free interdisciplinary courses to graduate students.

During the 2008-09 academic year, Boothroyd and Sheppard will help to conceptualize and develop pilot programs in leadership and professional development. In addition, they will contribute their expertise to existing programs designed to support graduate-student diversity and promote innovation within and across graduate programs.

Boothroyd served as senior associate dean for research and training at the School of Medicine from 2002 to 2005 and also was a member of the Commission on Graduate Education. He served as chair of the school's Microbiology and Immunology Department from 1999 to 2002.

In addition to teaching graduate students, medical students and postdoctoral fellows, Boothroyd teaches an undergraduate course on modern plagues. This summer, he will offer a second round of his popular Stanford Graduate Summer Institute course, Using Different Approaches to Solving Complex Problems: Responding to Pandemics.

Sheppard, co-director of the Center for Design Research in the School of Engineering, has taught undergraduate and graduate courses at Stanford since 1986. She is a nationally recognized expert on engineering education. She led a three-year study of engineering education in the United States at the Carnegie Foundation for the Advancement of Teaching. The study, "Educating Engineers," is expected to be released later this year by Carnegie and publisher Jossey-Bass.

In 2006-07, Sheppard served as chair of the Faculty Senate. For the last decade, she has been the faculty adviser to the Mechanical Engineering Women's Group at Stanford, which holds an annual seminar series and a welcome program for all female engineers.