John’s Blog

Along with (I think), thousands of Stanford alums, yesterday in my in box I found an extraordinary letter from John Hennessy, Stanford’s President (and a wonderful CS professor and entrepreneur) about the current economic situation and the implications for Stanford. The letter speaks for itself, I think, but I’ll preface it by noting a few things. First, John’s proactive & candid openness is incredible and wonderful to me. Happily, there seems to be a lot of that going around lately. Second, the economic situation is very bad, expanding, and touching everyone. It’s going to get much worse.

Still, I can’t help but feel like we’re all developing ways to talk about challenges like a community of adults, whether they be in commercial terms like we have at Mozilla, in the academy like this note, or in our government with the new administration. That’s something we can build on.

—
Dear Alumni, Parents and Friends:

Many of you have contacted me over the past few months with questions about the recent shifts in the economy and how the University is affected. I would like to update you on our response to these challenges.

Financial Aid Commitments Still Secure
The questions came to me even before the academic year was under way, from parents moving their sons and daughters into their residences this past fall: Given the state of the economy, would the University be able to meet its commitments to financial aid? Would we be able to help in situations where decreased home equity might preclude a loan they were counting on to help pay tuition? How would we deal with job losses by a family member? Our response: We will stand by our commitments and, yes, we will reconsider the financial aid needs of any family negatively impacted by the economic downturn.

The questions continued through Reunion Homecoming Weekend as the Dow Jones average dropped approximately 25 percent further. How was the University’s endowment affected? What would this mean for financial aid, for operations and for the capital facilities projects already under way?

The Tightest Financial Outlook in Decades
Let’s start with the endowment. We weathered the period through early summer comparatively well, achieving an overall return of 6.2 percent for the year ending June 30, 2008. Since then, the endowment has declined steeply, although somewhat less precipitously than the market indices. In addition, sponsored research, our second largest revenue source, has been declining in real terms over the past several years, and given the challenges in the federal budget is unlikely to improve quickly. Tuition, our third major source of revenue, cannot be raised significantly out of fairness to our students and their families. All of these factors contribute to the tightest financial outlook we have seen in decades.

Fortunately, Stanford entered this period in a relatively healthy financial position, bolstered by several years of revenue increases, generous gifts from alumni, parents and friends, and remarkable growth in the endowment, which for the first time ever became the University’s largest source of revenue.

To manage our finances going forward, we anticipate reducing the $800 million general funds budget – which pays for most of our faculty and staff salaries, central administrative operations and non-research expenses – by 10 to 12 percent over the next few years. Declining federal research dollars could double the total revenue loss across the University. We cannot achieve these reductions without some significant and permanent cutbacks.

Cutting Costs Wisely
As we implement these budget cuts, we will do so with several principles in mind. First, we will focus on preserving the investments we have made in our faculty over the past decade. Likewise, we will maintain our commitment to both undergraduate and graduate students. The excellence of the University depends on its people, and we will do our best to maintain the quality of our faculty, staff and students as we make adjustments.

Second, we will review our capital projects. We are in the midst of a major capital program that includes some vital construction projects. Halting projects in mid-construction, even temporarily, would cost us more money in the long run. But not all our projects will be built according to the original schedule. We will reexamine projects that incur significant amounts of debt.

Third, through support from The Stanford Challenge we have launched a variety of efforts to address the most challenging problems facing humankind: sustaining our planet for future generations, enhancing peace and stability around the world, exploring the potential of stem cells for autoimmune diseases, improving K-12 education in the United States, and finding new ways to generate energy that will not increase greenhouse gases. These are critical initiatives, and while we must adapt our efforts to present circumstances, we will not shy away from our long-term responsibility to lead in finding solutions for these problems.

Trust in Our Stanford Community
We know we are not alone in dealing with this financial shockwave; some of you will experience situations far more difficult than we see on our campus. My sincere wish is that those whose lives have been disrupted will find firmer footing in coming months. In any crisis, we look to the people and places whose connections sustain and strengthen us. I hope that your place in the Stanford community provides such nourishment for you.

As always, I am happy to hear from you. Send your comment, suggestion or question to me at president@stanford.edu or to Howard E. Wolf, ’80, vice president for alumni affairs and president of Stanford Alumni Association, at alumnipresident@stanford.edu.

Sincerely,

John L. Hennessy
President