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Budget and workforce update

Members of our Stanford community,

I hope that you are healthy and well, and that you’ve found some opportunities to rest and connect with your loved ones this summer. We are living through an extraordinary time. Both the coronavirus pandemic and the critical ongoing discussion of racial injustice have affected our society, our university, and each of us individually in profound ways. I am deeply grateful for all you are doing to advance our mission of research and education at Stanford.

I am writing today to provide an update on our budget planning process and its implications for our workforce.

As you know, the planning process has been underway across the university over the last several months. In my previous messages about our financial situation on April 28 and May 27, I outlined the serious budgetary challenges we are facing, due to reduced operating revenues and turbulence in the financial markets. As I noted at the time, by then it was already clear that these financial challenges are not just a temporary problem, but rather an ongoing concern that requires us to re-set expectations and establish a new steady state for the university’s operations, which we aimed to do by the end of July.  In the intervening months that conclusion has unfortunately been reinforced by the resurgence of infections we are seeing in much of the country, including in California.

To determine the new steady state, in April we asked units across the university to develop budget plans for 2020-21 that incorporated a potential 15% reduction in endowment payout and a 10% reduction in general funds (two important components of each unit’s budget) — a worst-case scenario for the 2021 fiscal year. Units submitted their plans, which we considered alongside other university-wide budget measures, in consultation with the Board of Trustees.

An in-depth analysis thankfully enabled us to back off of that worst-case scenario, so that cuts, though still necessary, have not been as deep as were originally planned. As we announced in June, the Board of Trustees approved a budget plan for 2020-21 that includes a 3% increase in endowment payout supporting student financial aid, a 10% decrease in payout from other endowment funds to mitigate market volatility, and the tapping of $150 million of unrestricted endowment funds to help balance the budget. In total, these actions resulted in an average 7% decrease in both endowment payout funds and general fund payments to units across the university.

Through this blended approach to the budget, we are able to sustain student financial aid while accounting for loss of revenues and continued volatility in the financial markets. However, although cuts to non-financial aid budgets have been less deep than we initially feared, they have still meant that units and departments have needed to make reductions in spending.

Because salaries are such a large component of the budgets of all units, unit leaders have had to make difficult choices about their workforces over the next year. After much consideration and careful planning, they have been able to obtain significant savings by eliminating approximately 450 open positions and by reducing some full-time positions to part time. This was not, however, sufficient to deal with the budgetary challenges in full, which are unfortunately also resulting in 208 permanent layoffs, including the staff reductions in athletics announced earlier this month, as well as 30 temporary layoffs (furloughs) of up to six months and the ending of a number of fixed term and contingent positions. Nearly all of the staff affected by these layoffs have been notified.

The loss of talented and committed members of our Stanford community is a big blow, certainly for each of these individuals, but also for our community as a whole. We are, of course, concerned for those immediately affected by these cuts, and we have taken steps to help them. Those who have been laid off, either temporarily or permanently, will stay on the payroll for 60 days.  Employees who are temporarily laid off may continue medical benefits, and individuals who have been laid off permanently will be eligible for career transition services, severance pay, and continued medical benefits. Our HR colleagues have provided more information about the layoffs and how we are helping those affected.

With these actions, the pay continuity that began in the spring will end on August 31, as previously announced. Pay continuation was in place to support our workforce while we worked through the impact of the crisis on our next fiscal year’s budget. That process is now complete. However, we know that many of the issues that this policy helped address in the short term, such as providing flexibility for child or elder care, continue to be important issues for members of our community. University Human Resources will shortly send a message to staff with more specific guidance about how the university will provide additional support for specific circumstances during this very challenging period.

Looking ahead

While these workforce reductions and other budgetary decisions allow us to enter FY21 on sounder financial footing, many uncertainties remain. In June, we announced our plan to bring undergraduates back to campus for the next academic year. But as we said at that time, implementation will depend both on the public health situation and on guidance from state and county officials.

As COVID-19 cases continue to rise across California, including in Santa Clara County, we are uncertain how state and county health guidance will affect our on-campus operations for this fall and into next year. Last week’s Stanford Report examined these possibilities in more detail. At this point, we are continuing to plan for the fall quarter as we announced it in June. But if the pandemic continues to worsen in our region and we are not allowed to bring back students as planned, there could be further significant impacts on our operations and revenue streams. As a result, at this time we cannot exclude the possibility of further layoffs, temporary or permanent, at some future date, although we earnestly hope they will not be necessary.

I know that many of you have questions and concerns. Provost Drell and I will be holding a conversation with the community on August 3 at noon Pacific time and we look forward to answering as many of your questions as we can.

This has been a terribly challenging time for everyone in our community, and the workforce decisions implemented this week are particularly painful. I know that you are all working so hard to advance our collective mission of education and research to benefit humanity through this difficult time, even as you navigate health concerns, family obligations, loss of child care, and the challenges of isolation—not to mention the anxiety and grief associated with living through a global pandemic. I am deeply appreciative of your efforts, and your continued perseverance, as we navigate these challenges together.

Best wishes,

Marc Tessier-Lavigne