News & Updates

Budget Update from Provost Etchemendy

December 2, 2008.

The following letter was sent to all Stanford faculty and staff to provide information about Stanford's ongoing response to the national and global economic downturn.

Dear Colleagues,

I am writing to update you on the university's response to the national and global economic downturn. First, let me express my gratitude to the entire campus community for your early efforts in helping us reduce our expenses. Many units have already taken immediate action to cut costs now in anticipation of future belt-tightening. These efforts will serve us in good stead.

The investment climate has worsened since our first message to you in October, and there remains great uncertainty about how deep and how long the economic downturn will be. We believe it is prudent to continually reassess our budget projections and to maintain enough flexibility to adjust plans as the outlook becomes clearer. Fortunately, final decisions about the 2009-10 budget are made in March, giving us time to approach long-term reductions with thoughtfulness and care.

Current outlook

So what is the current outlook? As you recall, our revenues come from three primary sources--investment income, federal research and tuition--all of which are under pressure. Revenues are declining in both investment income and sponsored research, while requests for financial aid from our students' families are increasing, effectively reducing tuition income. Our financial aid commitments remain firm, as they achieve our core mission of providing opportunity for the best young people to attend Stanford.

We now anticipate a need for deeper, permanent reductions in the general funds budget, which funds most of our faculty and staff salaries, central administrative operations and non-research expenses. The most prudent forecast requires us to eliminate as much as $100 million in base expenses from the $800 million general funds budget over the next two years. To give us planning flexibility, we are now asking every school and administrative unit to submit reduction scenarios to the University Budget Group of 5 percent, 7 percent and 10 percent for 2009-10, in the context of an overall plan to eliminate 15 percent over the next two years. The ultimate cuts may not have to be this deep, but we would be irresponsible not to prepare for this eventuality.

It is important to note that budget circumstances vary among campus units, including their dependence on general funds. Many schools and departments receive a significant portion of their income from dedicated endowment funds. Negative investment returns mean lower endowment payout, possibly worsening the scope of the budget cut required in those areas.

Reduction strategies

We are seeking strategic adjustments that retain our focus on the core academic and instructional missions of the university and that preserve the excellence we have achieved as an institution. This important goal will not be achieved through across-the-board reductions, so we will provide wide latitude to individual schools and campus units to find the best way to meet their budget objectives. The optimal strategy for one may not be good for another.

It is important to recognize that reductions of this scale will unfortunately not be possible without reducing the size of the university workforce. Again, we do not plan to mandate an across-the-board approach, and we will provide options for deans and managers to minimize the scale of the inevitable reductions. In some campus units, hiring freezes have already been implemented in order to preserve existing positions. A retirement incentive program will be offered in some units, and where feasible, some offices may allow employees to reduce their work hours on a permanent basis. Where layoffs are unavoidable, we hope to lessen the impact on the affected employees with an enhanced severance program. We will provide more details on these programs in January.

Many people have asked whether we still intend to have a salary program for the coming year. We have left room in the 2009-10 budget for very small salary increases. But we are also offering units the flexibility to freeze salaries as a way of meeting their budget objectives. Given the slowdown we are experiencing in the cost of living, this is a less painful option than it might be in other circumstances.

President Hennessy and I have decided that in light of the extraordinary pressure on the university budget, we both will take an immediate 10 percent reduction in our salaries. And many members of the University Cabinet, our senior university leadership, have also volunteered to take salary reductions, including all of the school deans.

Your help is important

Is there anything that you can do now to help your unit's budget situation? Obviously, any immediate reduction in discretionary spending, reduced travel or a delayed computer purchase will ease this year's budget. Less obviously, if you have an accumulated vacation balance, using up that balance will directly benefit your department's budget, since vacation pay comes out of a separate accrual account, not current funds. But most importantly, if you have ideas for significant savings that might be achieved in your department or office, please share them with your department chair, office manager or directly with me. We all can find ways to get things done more efficiently.

As challenging as these times may be for the university, they will be temporary. We remain a fundamentally strong, financially healthy institution. Your contributions to maintaining our standards of excellence, each and every day, are significant. We will weather these difficult circumstances. I will be back in touch with all of you as we have further developments in the budget circumstance. Thank you for all you do for the benefit of Stanford.

Sincerely,

John Etchemendy
Provost