Author: Eric Messinger

XIN SHIN/The Stanford Daily

XIN SHIN/The Stanford Daily

What a difference a year makes.

Financial results from Stanford’s fiscal year 2009 (FY09) have made clear the extent of losses incurred by the University over 12 months of “economic turmoil.”

FY09 lasted from Sept. 1, 2008 to Aug. 31, 2009. During that time, Stanford’s surplus from operations actually increased $62 million as compared to fiscal year 2008 (FY08), to $362 million. This positive result, however, was achieved largely through reaction to expected financial challenges and investment losses–losses that “overshadowed” the operating results, according to the 2009 Financial Review, a summary presented to the Board of Trustees in December.

Over FY09, the University sustained losses across a range of categories in comparison to FY08. In addition to the widely-reported endowment loss of 27 percent, or $4.6 billion, the University’s net assets also declined 21 percent, or $4.7 billion. Investments as a whole declined $5.3 billion, or 24 percent.

To address many of its needs, particularly for facilities and infrastructure projects, and to meet liquidity standards, Stanford also had to dramatically increase its debt. Stanford’s borrowings increased by $984 million, raising its total borrowings to $2.5 billion as of Aug. 31, 2009.

The University’s operating revenues also declined across a number of areas, necessitating an increased draw upon resources from the University endowment, in the form of a 34 percent payout–up from 31 percent in FY08.

Student income, which represents 11 percent of University operating revenues, is a particular area for concern. Despite increases in tuition, overall revenue from students dropped one percent in FY09 to a total of $401 million. Tuition rates increased 3.5 percent for undergraduates and an average 4.5 percent for graduate students.

The decrease in revenue from students was due to increased financial need, which has increased the demands placed upon the University’s financial aid commitments. Expenditures on financial aid rose 19 percent to a total of $210 million, and the Financial Review states that the University expects “families of University students will continue to need increased financial assistance in the years to come.”

Sponsored research support, which makes up fully 30 percent of University operating revenues, also declined by four percent, or $45 million, to a total of $1 billion. This decrease was due primarily to a decrease in federal funding for facility construction at the SLAC National Accelerator Laboratory.

Special program fees and other income, which represent 10 percent of University operating revenues, also declined by a modest four percent, to $341 million. The financial report cited reduced participation in “travel study programs, professional education programs, other special programs and conferences”–likely a symptom of tighter budgets among those who pay for these offerings.

Gifts and pledges to the University decreased by $384 million, a significant drop-off from FY08 levels. Still, the University received more than 104,000 individual gifts for a total reported amount of $542 million. The Financial Review states that the University anticipates “that gifts will not return to the strong levels of the past few years in the near term, as donors also feel the strain of declining investment portfolios.”

In more positive news, the Stanford Challenge fundraising campaign has continued to achieve gains for the University, surpassing its $4.3 billion milestone. Over the course of FY09, Stanford established 11 new endowed professorships, 66 new funds for graduate fellowships and 30 new undergraduate scholarship funds, among other gains. The Financial Review states, however, that “many priority areas included in the original goal have not yet been funded, and new needs have been identified since the campaign began.”

Health care service and hospital revenues were a bright spot for operating revenue, increasing by $57 million to a total of $429 million–12 percent of the University’s operating revenues. These results were due to the addition of MediCal Disproportionate Share Hospital (DSH) revenue, favorable contract rate increases, increased outpatient activity and other factors in FY09. From a long-term standpoint, the Hospitals are facing a significant need for expansion, with the Financial Review stating that “the Hospitals continue to be constrained by inpatient capacity, along with escalating costs. Construction of new facilities to meet community health care needs continues to be a priority. These new facilities are projected to cost more than $3 billion, representing the largest capital projects ever undertaken by the Hospitals.”

On the expenditures side, Stanford also faced significant challenges. Staff layoffs, which exceeded 400 persons, had associated costs that reduced their positive impact on FY09 finances. The Financial Review states that “most of the staff reductions occurred during the second half of FY09, and the University incurred one-time severance expenses for terminated employees. In addition, health care costs and expenses associated with retirement plans drove FY09 benefit costs higher.”

The cancellation or suspension of construction projects drove a four percent decrease in depreciation expenses. University budget cuts allowed for a decrease in other operating expenses by 14 percent, to $920 million. Finally, lower interest rates decreased interest expenses by $20 million.

The results, related in a summary presented to the Board of Trustees, state that a return to full financial health for the University will be a long process, and that “it will take years of economic gains and continued vigilance of expenditure levels to restore the University and Hospital investment balances to the 2008 levels.” More detailed results for fiscal year 2009 are scheduled for distribution this month through the University’s annual report.

President announces decision in major speech at West Point

President Barack Obama announced Tuesday night that he will send 30,000 additional troops to Afghanistan, escalating the United States’ eight-year military operation in the region.

The soldiers will deploy in early 2010, bringing the total number of American soldiers in Afghanistan to approximately 100,000.

The speech ends weeks of speculation about the precise decision President Obama would reach regarding strategy in Afghanistan for 2010 and beyond. The President argued for the deployment’s representing “the resources that we need to seize the initiative while building the Afghan capacity that can allow for a responsible transition of our forces out of Afghanistan.”

Obama announced the increase in front of 4,000 cadets at the United States Military Academy in West Point, New York. His speech also outlined and defined objectives for what the White House is calling “a new way forward.”

The decision raises the likelihood that the war in Afghanistan will be as defining to the Obama presidency as the Iraq War was to the terms of President George W. Bush. Conscious of this and the gravity of the increase, the President used much of the speech to explain the urgent necessity he saw for the move.

“I do not make this decision lightly,” he said. “I make this decision because I am convinced that our security is at stake in Afghanistan and Pakistan. This is the epicenter of the violent extremism practiced by al-Qaeda. It is from here that we were attacked on 9/11, and it is from here that new attacks are being plotted as I speak. This is no idle danger, no hypothetical threat.

“This danger will only grow if the region slides backwards and al-Qaeda can operate with impunity,” he added. “We must keep the pressure on al-Qaeda, and to do that, we must increase the stability and capacity of our partners in the region.”

The President also used the speech to clarify military strategy in Afghanistan, and said the United States’ “overarching goal” remains constant: “to disrupt, dismantle and defeat al-Qaeda in Afghanistan and Pakistan, and to prevent its capacity to threaten America and our allies in the future.”

Obama explicitly listed three main objectives that will define achieving that goal.

“We must deny al-Qaeda a safe haven,” he said. “We must reverse the Taliban’s momentum and deny it the ability to overthrow the government. And we must strengthen the capacity of Afghanistan’s security forces and government so that they can take lead responsibility for Afghanistan’s future.”

The President said the newly-deploying troops will return home beginning in 18 months.

Saying that the price of two ongoing wars can no longer be ignored, Obama also said he will work to monitor and control the costs of the increase and the continued conflict. Funding the new approach in Afghanistan will cost $30 billion in 2010, he said.

At the start of the President’s term, 32,000 American troops were deployed in Afghanistan. Earlier in the year, Obama also approved a longstanding troop increase request, but Tuesday’s announced increase emerges from an entirely new strategic review.

Obama closed his half-hour speech with a direct address to the American people.

“America, we are passing through a time of great trial,” he said. “And the message that we send in the midst of these storms must be clear: that our cause is just, our resolve unwavering. We will go forward with the confidence that right makes might, and with the commitment to forge an America that is safer, a world that is more secure and a future that represents not the deepest of fears but the highest of hopes.”