Stanford Imposes Deeper Cuts, Too
Updated. Citing the deepening economic and financial crises, Stanford has decided to make deeper expense cuts in the next fiscal year; Yale recently imposed deeper cuts, too.
Updated March 10, 2009
Citing worsening economic and financial conditions, Stanford's provost, John Etchemendy, has told that University's faculty senate that deeper budget reductions would be required. In a presentation on March 5, the provost announced that Stanford's $800-million "general funds budget" would be trimmed by nearly $100 million for the fiscal year beginning on September 1. In a subsequent statement released on March 9, Etchemendy indicated that "Most administrative units are entirely funded through general funds, while schools receive between seven and 35 percent of their revenue from this source. Schools that depend heavily on their own endowed funds will, of course, see declines in these revenues comparable to the general funds decline"--which he indicated would be 15 percent across the board. (Stanford derives $900 million from endowment distributions for its annual operating revenues; at Harvard, the comparable figure is approximately $1.4 billion currently.)
The new decision represents an acceleration of plans put in place last fall, when Stanford foresaw a $100-million reduction phased in during the next two fiscal years, and means that the budget is to be reduced about $30 million more in the first year than recently anticipated. To achieve the goal, Stanford will now impose a salary freeze for the fiscal year, a step it had not previously planned to take. In addition, Stanford has already announced that it would cancel or delay $1.3 billion in proposed construction, and has laid off staff members and reduced the number of faculty searches. Additional layoffs are now expected in coming months.
(In its initial statement on the fiscal crunch early last autumn, Stanford said that its general-funds budget—for faculty and staff salaries, administrative operations, and non-research expenses—would need to be reduced $45 million in the 2009-2010 fiscal year, with further reductions of equal magnitude in the following year. While resisting “across-the-board” layoffs or salary freezes, Etchemendy then anticipated that “some jobs will be lost” and salary adjustments “will certainly be smaller than in recent years.” Every unit, academic and administrative, was accordingly asked to prepare budget reductions of 3, 5, and 7 percent, as the basis for allocating expense cuts. Because Stanford’s endowment spending policy operates so as to “buffer the effect of sharp volatility” in investment returns, Etchemendy said, it was then assumed that the university could effectively postpone budget reductions—but spread them out over “several years.” Finally, he forecast last fall, “Will all the projects in the capital plan be built at the speed we had originally hoped? No.” The aim was to curtail both construction outlays and the accompanying debt service. Stanford deans were told, he said then, “that we do not intend to add any new projects to the capital plan at this time.”)
The tighter belt-tightening echoes Yale's recent, similar action.
The statement accompanying Etchemendy's March 5 announcement did not say that the Stanford endowment had deteriorated further; it saw "a steep decline in the university endowment, which has fallen 25 to 30 percent"--in line with the results reported or forecast by other universities with large, similarly diversified endowments, including Harvard, Princeton, and Yale.
But the March 9 statement has a more ominous tone: "Our budget planning assumptions estimated a loss in our endowment of 20 to 30 percent; that figure is now trending higher, and it is increasingly clear that it will be a long time before we see the endowment's value return to previous levels." The implication, underlying the deeper cost-cutting, is clear: "Since the endowment is the university's primary source of investment income, the result will be a long-term decrease in university revenue," even though Stanford, unlike Harvard, is in the middle of a multibillion-dollar capital campaign (as are Columbia, the University of Pennsylvania, and Yale; Brown, Dartmouth, and Princeton are conducting somewhat smaller campaigns), which has helped bring in significant new cash and pledges: Stanford reported raising $785 million in fiscal year 2008.
Thus, this second round of austerity, like that at Yale, suggests a darkening forecast for everything from the length and depth of the recession to the outlook for donor support and access to credit (for capital projects) on acceptable terms.