Tallying Up FY09

Followers of Fiat Lux may have noticed my interest in the finances of the university, as I’ve written on the potential asset sale and the fact that it didn’t happen. So, as the fiscal year comes to a close, it seems only fitting that I delve into the final financial results for 2009 (which actually went from June 2008 to June 2009), a year that will go down as the worst (financially) in the university’s history, a title that it seems extremely unlikely that it will lose any time soon (or possibly ever).

Several days ago, Stanford reported its FY2009 results in short and long form. Most of the news isn’t too shocking (ok, the magnitude of the loss is still shocking, but it’s not a surprise any more): as we already knew, the endowment took a beating to the tune of about 27 percent or about $4.6 billion dollars, which dragged down Stanford’s total gain on net assets to -20 percent or -$4.9 billion.

The interesting side of things comes in looking at the fact that Stanford belt-tightening has certainly been effective. Students have been less than thrilled with trayless cafeterias, cuts to staff positions, and other changes that are less visible to students, but these cuts have undeniably had an effect. Since the endowment payout had been set prior to the collapse of the endowment, the university ended up with a $362 million dollar surplus on the year (of course, that means that our losses were just reduced by that amount).

Of course, once we break down these cost cuts, the picture is a little different: in 2008, Stanford spent ~$2.9 billion on salaries and benefits for employees, which actually ballooned to almost $3.1 billion in FY2009. Why did this happen when we expect to see belt-tightening? Severance payments to staff that were let go artificially pushed up the costs and, furthermore, some restricted funding went to hiring new staff and researchers, which pushes up costs, but only at the exact same rate as income increased. In fiscal years 2010 and 2011, we should see those costs fall below their 2008 levels. Non-salary operating costs, where cuts can pay off immediately (although in some cases, they can actually cause an increase in costs later, as in the case of building maintenance), fell by about $75 million in FY2009.

The Stanford numbers don’t separate the hospitals from the university for FY2008, but they do discuss a rise in operating expenses at both the Stanford Hospital and Clinics and at Lucille Packard Children’s Hospital to the tune of 13 percent and 9 percent respectively (note: the 9 percent figure is rough because it includes a 7 percent rise in salary; the actual figure for operational costs alone might be more in the 10-11 percent range). When we use those figures to calculate backwards from FY2009 (I used a total hospital wide figure of 10 percent), we see that, in fact, the university must have made cuts to the tune of an additional $69.2 million dollars, bringing total operating cuts at the non-hospital part of Stanford to ~$144.2 million or about 5 percent of total costs. However, that represents a more alarming 13.5 percent cut to non-salary operating costs. We can only hope that the major belt-tightening is through and that we’ll see it pay off over the tough next two years.

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