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Provost previews 1993-94 operating budget outlook

STANFORD -- Faculty salaries will increase an average of 4 percent and staff salaries an average 3.3 percent next September as part of Stanford's 1993-94 operating budget.

Next year's $473 million budget, approved Tuesday, April 13, by the Board of Trustees, also calls for a 12 percent increase in library acquisition funds, Provost Gerald J. Lieberman told the Faculty Senate on Thursday, April 8, during a preview of the budget.

Income and expenditures in the 1993-94 operating budget will be in balance because of the second year of a budget adjustment program that will contribute $15 million in savings next year, and a temporary increase in endowment payout that will produce $26 million over and above the normal endowment income.

Only $12 million of the increased endowment payout is needed to cover deficits next year, leaving $14 million available as reserves to cover potential shortfalls at the Medical School and potential shortfalls in income from indirect costs, Lieberman said.

Unlike the robust 1980s, when the university could annually set aside 2 percent of the budget for innovation and program improvements, Lieberman told the senate that the 1993-94 budget includes only a .5 percent fund, totaling just $2 million universitywide for new programs and mandated improvements in such areas as health and safety.

That is "nothing to sneeze at, but also nothing to jump up and down about," he said. In the future, most new programs "will have to come from reallocations."

President Gerhard Casper interjected that the dearth of funds for innovation is probably Stanford's most serious long-term problem. To pursue new programs, the university will have to make significant cuts elsewhere in its budgets, he said. Fundraising also will be pursued, he said.

Lieberman said that last year's widespread faculty involvement during budget-cutting deliberations "has paid off in terms of implementation."

Indeed, it also produced an informed and lengthy discussion at the senate.

Lieberman began by reviewing the current budget, giving a progress report on the budget adjustment program, presenting more detailed information on the 1993-94 budget and commenting on the outlook for 1994-95 and beyond.

Faculty members then peppered the provost, who is also the university's chief budget officer, with thoughtful questions and comments in a session lasting nearly an hour.

Among other things, they questioned whether budget planners had been sufficiently conservative in assumptions relating to indirect-cost recovery, whether facility depreciation funds should be separated out of the budget, and whether Stanford's tuition is rising too fast.

Looking at the long term, Lieberman told the senate that Stanford possibly could attain equilibrium with annual salary increases of inflation plus 1 percent for faculty and inflation plus .5 percent for staff. He also projected tuition at inflation plus 2 percent for the near future.

"With numbers like that, we can maintain equilibrium," he said. "That's not easy, and it may be that we'll fall behind."

He pointed to the recent decision by University of California regents to cut salaries by 5 percent. Such a cut at Stanford would yield close to $10 million, Lieberman said, which is not far from the low-end of the $11 million to $19 million non- medical deficit projected for 1994-95. That projection does not include reductions in indirect-cost recovery that would occur if the government places new caps on research overhead.

Although Stanford could nearly solve its 1994-95 problem using the state system's "Draconian technique," there are no plans to do so, Lieberman said. Projected future deficits, while not easy to solve, are manageable, he said.

Eliminating future deficits could require greater reliance on restricted funds, increased efficiency in the support units and additional budget adjustments, he wrote in the 1993-94 Operating Budget Guidelines, a 51-page document available for public scrutiny.

More detailed plans for addressing the future shortfall will be developed over the coming months "as we learn more on the federal front and as the budget process for 1994-95 unfolds," Lieberman wrote.

Indirect costs

Despite continued uncertainties over resolution of the indirect-cost controversy, Lieberman projected 1993-94 revenue from indirect costs at $101 million, which represents 22 percent of operating budget income.

Lieberman told the senate that anticipated revisions to Federal Circular A-21, the document that sets forth rules for university research overhead, "could go against us."

The Bush administration at the last minute in January adopted new rules that would cap certain categories, which would leave Stanford unable to recover some of its costs. Several days later, the Clinton team put the changes on ice, but Lieberman said that many in Washington expect the Bush proposals to be adopted soon, without change.

Lieberman made no prediction of what the new rules could cost Stanford, but said that half of the $14 million contingency reserve would be available to deal with shortfalls.

For planning purposes, Lieberman and his team assumed a continuation of the current provisional indirect-cost rate of 60.3 percent for next year's budget. Budget planners also projected a 7.2 percent growth in research volume at the Medical School, and 3 percent growth in the non-medical area, which Lieberman labeled "conservative."

Professor David Botstein, genetics, questioned whether 60.3 percent was overly optimistic. Given rumblings in Washington, D.C., about potential dramatic decreases, he said, "I'm a little bit worried that this is not a realistic scenario."

Lieberman responded that planners decided to stay conservative in their research growth estimate rather than use more a conservative cost recovery figure.

Entering the discussion, Casper said that Botstein was "right to be worried." However, building in a 50 percent assumption for indirect costs "might be a self-fulfilling prophecy," he said.

Casper urged faculty members to defend research overhead costs in their dealings with granting agencies. "If we do not get indirect costs, Stanford will be in real trouble," he said.

Overhead costs have been "trivialized in the press," Casper said. "We need the help of everybody in this room to make the government, both on the executive side and the Hill side, know what is at stake."

Civil engineering Professor Ray Levitt raised the subject of how funds from building depreciation are used. During Stanford's rapid construction program, those funds were merged with other general funds, which fits the "letter of the law," but has left Stanford open to criticism from funding agencies, he said.

Casper agreed that federal standards have not required setting aside the funds, but that may change. "I'm not going to fight it," he said.

Budget guidelines for 1993-94 project one-time costs of about $6 million for legal fees, systems improvements and consultants relating to the indirect-cost issue, down from $16 million in 1992-93, Lieberman said.

Tuition income

As announced in February, undergraduate tuition will increase 7.5 percent and room and board will go up 3.5 percent, for a combined student fee increase of 6.4 percent.

Total revenue from tuition is budgeted 11 percent higher next year, in part due to a better accounting for graduate student tuition and also an increase in income resulting from approximately 374 extra full-paying master's students admitted as part of the budget adjustment plan. Tuition, which accounts for 49 percent of operating budget revenues, also will include $727,000 income from the Continuing Studies program previously not included in the operating budget.

Electrical engineering Professor Tony Siegman asked Lieberman whether Stanford's tuition rate would look too large to the general public. "I doubt it is politically sustainable," he said.

Lieberman responded that Stanford's tuition this year put it "in the middle of the pack."

Next year, Stanford's combined fees will be $24,310. Yale will charge $25,110; Harvard, $24,880; Princeton, $24,650; Brown, $24,618; and Dartmouth, $24,249.

Casper said he agreed with Siegman: "We have to worry, indeed, about the cost of undergraduate education." The university cannot duck the question, he said. "We have to think about it more radically."

Endowment income and the deficit plan

The other major revenue source, income from endowment payout, will total $96 million, or 20 percent of operating budget revenues.

"Payout" is the portion of endowment earnings made available for current spending; any earnings above that are reinvested to guard the endowment's value against inflation.

The next fiscal year will be the second and final year of an unprecedented increase from 4.75 percent to 6.75 percent that trustees approved in June 1992 as part of the deficit financing plan.

The plan, which called for $148 million to cover deficits from fiscal years 1991 through 1996, has been revised downward to $141 million in keeping with the lower total deficit. Some $26 million of that next year ($56 million over both years) is from the temporary payout increase. Other sources are unrestricted expendable reserves, both from the university and the Medical School, and the use of debt.

For next year, only $12 million of the increased payout is needed to balance the budget, Lieberman said, allowing budgeters to set aside $14 million for contingencies.

Commenting on the payout increase, political science Professor David Abernethy noted that the change "makes an enormous difference" in the university's ability to solve its budget problems. Could it be continued, he asked.

Budget officers are discussing with trustees a rate higher than 4.75 for the next few years, Lieberman admitted, but "I don't know if they'll buy it." The rate under discussion is in the "low 5s," he said.

Expense outlook for 1993-94

On the expense side, Lieberman drew attention to faculty salary increases averaging 4 percent and increases averaging 3.3 percent for exempt and non-exempt staff, with an additional 0.2 percent for special adjustments. Bargaining unit employee will received the negotiated 3 percent range adjustment.

The number of staff members, a target of faculty criticism in recent years, has dropped, according to the Operating Budget Guidelines. Non-teaching staff grew by about 22 percent from 1981 to 1989. Since that peak, the number has dropped to the 1985 level, and would have dropped more except for growth in the Government Cost and Rate Studies Office, prompted by the indirect- cost dispute.

Also, most staff opting for the Staff Early Retirement Program (SERI) will not leave Stanford until this summer. At the time, core staff employment is expected to drop to its early 1980s level, according to the guidelines.

In the area of faculty salaries, Professor Ronald Rebholz, chairman of English, told Lieberman that publication of the salary program often leads to hard feelings and even grievances because faculty expect the average figure.

In several schools, including Humanities and Sciences, the deans hold back 1 percent for "fighting funds" - a pot used for recruitment and other special situations.

Lieberman acknowledged the practice, saying it is "not an administration policy," but also not something he is going to challenge.

Other expense assumptions and increases for 1993-94 include:

  • The faculty-staff benefits rate will be 30.9 percent.

The rate is high because of provisions for retiree medical insurance, increased workers' compensation costs and a carry-forward of staff early retirement costs.

Tuition remission for graduate research and teaching assistants still is included in the rate, pending revisions to A-21.

  • Unrestricted funds for undergraduate student aid will increase 12 percent to maintain Stanford's policy of need-blind admission.

On the one hand, the financial aid budget was targeted for a $2.5 million budget reduction over four years, through stricter application of guidelines.

On the other hand, trustees last year approved a plan to reduce student self-help (income from summer jobs and other employment) from about 25 percent to 20 percent.

Student aid from unrestricted funds will total $18 million next year.

  • Fellowship funds for graduate students will increase 6.5 percent, and unrestricted funds for teaching assistants will increase 4 percent.
  • Expendable materials and supplies, equipment, travel and other expense budgets will increase at the 3 percent rate of inflation, while telephone budgets will increase just 1 percent.
  • The library acquisition budget will increase 12 percent to preserve purchasing power in the face of spiraling costs in serials. In addition, several library cuts initially accepted during last year's budget adjustment program are being reversed.

Lieberman told the senate he was restoring $200,000 to the library, not including costs associated with the re-established library director position. The funds will reinstate some support for various computing clusters and allow Green Library to stay open late, rather than close at 10 p.m.

"We took too much," Lieberman said of the earlier cuts, which had generated faculty criticism.

  • In administrative computing, $650,000 is being added to amortize the capital cost of upgrading the mainframe computer.
  • Another $8 million has been set aside for "special items": $2 million for new programs in schools and support areas, and such items as increased chemical waste disposal costs; $3.2 million to cover the direct costs of the Housing Assistance Program should the government not allow it to be charged to the faculty- staff benefits pool; $3 million for one-time contingencies formerly funded through processes known as the "fall" and "June" revisions; and $684,000 to cover school and central administrative costs associated with incremental masters' degree students.

Formula schools

The Graduate School of Business and the School of Medicine receive funds on a "formula" basis, with the formula tied to enrollment, tuition and indirect-cost recovery.

The 1993-94 operating budget for the Medical School is set at $62 million, an increase of 7.4 percent.

The school's deficit for next year is projected at $3.8 million, an improvement over the December 1991 forecast of $9.2 million. This change is the result of research volume growth, new figures relating to patent and royalty income, delay in appointments of new faculty and the fact that new department chairs are spending their "dowries" more slowly than expected.

The budget for the Business School will total $24 million, an increase of 4 percent from this year. Income enhancements included in last year's budget adjustment program will be implemented as scheduled. Funds generated will be transferred to the university through an increase in the school's formula payment.



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