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Stanford’s finances, explained

Courtesy of Wikimedia Commons

This article is the first in a series examining how Stanford — from the institution to its students — handles, allocates and spends money.

Every year, billions of dollars run through Stanford, and this money is spent on projects across the University — from construction sites to campus events to the functioning of basic utilities, such as electricity and running water.

At its most basic level, the University can be thought of like a funnel. Revenue is poured in at the top, and the money is then distributed to cover costs across campus. The driver behind most of this money allocation is the Office of the Provost. Provost Persis Drell and the Budget group, which is comprised of faculty and administration, hear from 26 separate academic and administrative units on campus — including the Graduate School of Business and the Office of Student Affairs — regarding their budget needs for the upcoming fiscal year; funds are then allocated to the units accordingly.

In the 2018-19 school year, total revenues are about $6.5 billion. Of that, just under $1 billion comes from student income (tuition from undergraduate and graduate programs, as well as room and board costs). Another $2.5 billion comes from sponsored research, $1.3 billion comes from revenue generated by Stanford’s health care services and $1.3 billion comes from the endowment. Those revenues go into costs — the biggest cost to the university is compensation, totaling nearly $4 billion in salaries and benefits for administration and faculty. $320 million goes into financial aid costs, and $1.8 billion is allocated for miscellaneous operating expenses — things like groundworks, utilities.

Although Stanford makes over $6 billion in revenue, only about one-fifth of that money is designated as a “general fund,” meaning the University can spend the money on anything it deems fit. The other four-fifths of the revenue is money that has to be allocated for specific purposes: grants given by the government for social science research, for example, can’t be used to fund projects within the Department of Engineering.

Some departments, like Residential & Dining Enterprises (R&DE), are auxiliaries, meaning that all the money they generate goes back into their own expenses — that is, the money R&DE generates from room and board payments goes back into things like compensation for residential staff.

“We can’t move money around very easily,” said Vice Provost for Budget and Auxiliaries Management Tim Warner.

He added that this inflexibility is one of the most misunderstood aspects of the University’s budget management, especially when it comes to the endowment.

Endowment

Similar to the overall budget, the majority of the endowment (about 78 percent) is held in restricted funds, meaning that the donors that gave money to the endowment put that money towards a specific purpose, and the University is legally obligated to use that money only for that purpose.

Valued at $26.8 billion as of Aug. 31, 2018, Stanford has one of the largest endowments in the United States, exceeded only by those of Harvard ($39.2 billion) and Yale ($29.4 billion).

The endowment itself is a bundle of over 7,000 individual donor-established funds merged into a larger pool.

But while the endowment is valued at $26.8 billion, that does not mean that Stanford can spend all $26.8 billion at once. The endowment is designed to last forever, so Stanford only spends an annual payout of around 5 percent. In the 2018-19 academic year, that amounted to about $1.3 billion in revenue. To increase the endowment payout means risking a decline in its long-run valuation; students and researchers in the future may have less funding if the endowment payout is increased now.

To maximize the returns that the endowment produces, the Stanford Management Company (SMC) — which oversees management of funds in the endowment — takes a more aggressive form of investment, allocating money to specific, diversified investments.

In recent years, the Board of Trustees and the SMC have come under fire for investment practices that some student groups have found unethical, including investments in private prisons and fossil fuels; the University later made clear that it has no direct holdings in private prisons. In response to student concerns, the SMC recently unveiled a new Ethical Investment Framework outlining its commitment to social considerations.

The endowment represents 69 percent of financial aid given out to students in the 2018-19 year. 17 percent comes from the University’s general funds, and the remaining 12 percent comes from the Stanford Fund (TSF), another body that plays a substantial role in allocating funds across campus.

The Stanford Fund

Unlike the endowment, TSF is made up of donations (often given annually, according to Amy Wilson, TSF Director) that are not designated for specific purposes. The fund was started specifically to address the University’s need for more flexible spending. Unlike most of the budget, which flows through the Provost’s office, money from TSF is allocated by the Office of the President.

Last year, 70 percent of TSF’s money went toward financial aid, another 20 percent went toward academic programs and 10 percent went toward more than 100 student groups on campus.

According to Wilson, TSF’s flexibility means that TSF funds are often poured into the beginnings of projects. Notable initiatives that began with funding help from TSF include the Stanford in New York program, the Leland Scholars Program and the Bing Overseas Studies Program to Cape Town.

Wilson said she feels rewarded by the work she does, in part because she sees the funds raised by TSF as a way for donors to give back to the Stanford community.

“Part of what makes Stanford different is sort of an ethos it’s cultivated; there’s a generosity of spirit,” she said. “There seems to be a drive towards collaboration and a drive towards community support, and I view annual fundraising as a way to help people support and further participate in that. Even something like giving $25 to your alma mater is actually a way of staying connected, of saying that your story is part of other people’s story.”

The donors feel the same way. Wilson shared with The Daily a note she received from a donor who received a TSF postcard.

“It was fantastic to actually see money at work, instead of going into some giant ‘donor vortex,’” the donor wrote. “Feels good to see positive things happening.”

 

Contact Adesuwa Agbonile at adesuwaa ‘at’ stanford.edu.

 

This article has been updated to clarify that the University has no direct holdings in private prisons.

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