University ‘stronger than it has ever been,’ provost says
BY KATHLEEN J. SULLIVAN
Provost John Etchemendy gave a presentation May 29 to the Faculty Senate on the university’s budget plan for the 2008-09 academic year. The plan will go before the Board of Trustees for approval next week.
Before getting into the details of the 2008-09 university budget—the numbers, percentages and compound annual growth rates embedded in dozens of multi-colored slides—Provost John Etchemendy pronounced Stanford to be in "incredibly excellent" condition.
"I think the university is stronger than it has ever been, whether measured by the strength of the faculty, by the strength of the programs, by student selectivity, by our financial position, our alumni generosity," Etchemendy told the Faculty Senate last Thursday during the introduction to his presentation.
"You name it, we are in a very, very strong, enviable position."
As an example, Etchemendy cited The Stanford Challenge, the $4.3 billion fundraising campaign—the most ambitious in the university's history. In the last two years, the university has received more than $3 billion in pledges, a record sum.
Still, there are challenges on the horizon, said the provost, who is the university's chief academic and budgetary officer.
"On the revenue side, the main challenge is the continued decrease in federal support for research, which is continuing for the fourth year in a row," he said. "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."
In a presentation that lasted about 90 minutes, including questions and answers, Etchemendy described the three budgets that compose the annual budget plan and also discussed the Capital Facilities Fund, which was created last year to help pay for construction projects.
His presentation included an assessment of fiscal 2007-08, ending Aug. 31, based on projected results, and a financial forecast for fiscal 2008-09, which begins Sept. 1.
Consolidated budget for operationsThe consolidated budget covers revenues and operating expenses for the entire university, except the hospitals, which are separate corporations.
Etchemendy said Stanford is anticipating a surplus of $130 million in the consolidated budget of 2008-09 on $3.8 billion in revenues, $3.5 billion in expenses and $175 million in transfers. For the current fiscal year, the university expects to report a surplus of $119 million on $3.7 billion in revenues, $3.3 billion in expenses and $261 million in transfers.
Next year, revenue from students is expected to grow 3.7 percent to $602 million, compared with $581 million this year.
Income from sponsored research is expected to fall 2.3 percent next year to $1.060 billion, compared with $1.085 billion this year.
"That decrease is largely driven by a very large 11 percent decrease in the expected research revenue for the Stanford Linear Accelerator Center, largely because the major construction project—the Linac Coherent Light Source, the world's first X-ray free electronic laser—will be completed in the coming year," Etchemendy said.
The provost noted that Stanford long has been dependent on federal research dollars. Since World War II, he said, grants and contracts have been the university's largest source of revenue.
"Four years ago, grants and contracts were 35 percent of the consolidated budget," he said. "Next year, we are projecting that grants and contracts will be 28 percent. That's a big drop. We've passed a landmark. If this turns out to be a correct projection, grants and contracts will no longer be the largest single source of revenue. It will be investment income [at 29 percent]."
Revenue from investment income is expected to rise 7 percent in 2008-09 to $1.1 billion, compared with $1 billion this year. The largest component is endowment income, which is expected to grow 7 percent to $977 million next year, compared with $911 million this year.
Next year, revenue from healthcare services is expected to grow 4 percent to $418 million, compared with $402 million this year.
Salaries and benefits are expected to increase 6 percent to $1.85 billion, compared with $1.74 billion this year.
Spending on financial aid in 2008-09 is expected to rise 15 percent to $204 million, compared with $177 million in the current fiscal year.
"The enhancements to the financial aid program that we introduced in February will cost the university $15.5 million annually," Etchemendy said, noting that, under the new program, families with incomes of less than $100,000 will no longer pay tuition, and families with incomes of less than $60,000 will not be expected to pay tuition or contribute to the costs of room, board, books or other student expenses. (Students, however, will be expected to contribute their earnings from work during the summer and academic year toward the cost of their education.)
General fundsThe general funds budget is an essential element of the consolidated budget because general funds can be used for any university purpose. The main sources of general funds are student tuition, indirect-cost recovery from sponsored research, unrestricted endowment income and income from the expendable funds pool.
The general funds budget accounts for 24 percent of the consolidated budget.
Total general funds revenue in 2008-09 is projected to be $931 million, of which $136 million will go to the Graduate School of Business, the School of Medicine and the Continuing Studies and Summer Session programs, based on previously agreed-upon formulas.
After transfers and other adjustments, $780 million in general funds will be allocated directly by the provost in fiscal 2008-09, compared with $748 million this year. Most of the general funds—67 percent next year—will go to salaries.
"We are primarily a people enterprise," Etchemendy said.
Next year, the university is projecting a $41 million increase in general funds. Of that amount, the provost has decided to spend $16.6 million on new programs and additions to existing programs and to keep $6 million as a surplus to be used in the future.
The $16.6 million to be spent on new programs includes:
Looking forward, Etchemendy warned that general funds may be tight in coming years, based on projections showing that general fund revenue growth will slow to 3.8 percent from 2009 to 2012, compared with 7.5 percent from 2002 to 2008.
Capital planning budgetThe provost noted that the 2008-09 capital budget, at $680 million, is the largest the university has ever undertaken and represents a 76 percent increase over this year's budget of $386 million. The projected expenditures reflect only a portion of the total costs of capital projects, which typically span more than one year.
Among the dozen construction projects now under way, several are expected to be completed during 2008-09, including the John A. and Cynthia Fry Gunn Building (Stanford Institute for Economic Policy Research), Munger Graduate Residences and Stanford Athletics Practice Gymnasium.
The largest capital expenditures of 2008-09 are expected to be $101 million for the School of Engineering and Nano Centers; $100 million for the new campus and parking structure for the Graduate School of Business; $85 million for the Stanford Institutes of Medicine; and $73 million for the Munger Graduate Residences.
Etchemendy will present the 2008-09 budget plan to the Board of Trustees for approval at its meeting next week.
