From: Andy Tanaka and Michael S. Roth
Subject: Update on Financial Impact of COVID-19
Date: July 31, 2020
We write today with an update on the University’s financial position and the steps being taken to preserve fiscal stability and capacity in the pandemic environment.
When the University moved to remote learning in March due to the global pandemic, we estimated a $10-15 million impact to the operating budget in fiscal year (FY) 2020, primarily as a result of the University returning over $10 million of the residential and comprehensive fee (RCF) to students and families. In addition, the University anticipated impacts to the annual fund of approximately $4 million, and additional expenses such as emergency funds for students. To counter these pressures, the University implemented a hiring freeze and wide-ranging reductions in discretionary spending across Cabinet divisions.
In May, the Board of Trustees passed a budget based on a fall residential model that included adjustments for shortfalls in enrollment and fundraising, as well as an increase in the financial needs of students. The budget included expense reductions in the areas of compensation (hiring and salary freezes), major maintenance, and divisional operating budgets.
Update as of July
The University achieved better-than-expected results in fundraising and cost reductions during the last quarter of FY ‘20. Several large commitments from donors as well as an unexpected bequest helped to completely close an anticipated fundraising gap of $4 million in the annual fund to support operations. In addition, the University’s benefits costs (primarily medical and dental) declined sharply as employees did not access as much medical and dental care during the pandemic. Almost every division across the University contributed more than the requested 10 percent reduction in operating budget, and there were greater-than-expected savings in auxiliary costs, such as dining and utilities. As a result, the University enters FY ’21 with the ability to absorb at least some of the unanticipated costs associated with reactivating campus this fall.
As of today, we project that it will cost at least an additional $7 million per semester to operate the campus in the current environment. These are charges that were not anticipated in the budget passed by the Board in May. This number has varied materially as a result of state guidelines and our own internal planning, and going forward, further variation is to be expected. The major areas of expense include:
- Testing, Isolation and PPE: $4 million
- Dining and Cleaning: $1.5 million
- Facilities, Technology and Other Investments: $1.5 million
In addition, we are seeing some pressure on enrollment, with the first-year class projected (at this moment) to be slightly smaller than anticipated. We will not know the full enrollment picture until September.
We are planning a phased approach to easing these and any additional budget pressures. In the first stage, the strategies focus on applying existing University resources to cushion what we see as a one-time impact to operations. These include using cash reserves and bond proceeds, and delaying how quickly we pay ourselves back for money we borrowed from the University budget in previous years. We plan to return any resources that we borrow from sources that were previously designated for other projects (mostly facilities projects) over a five-year period.
During the first stage, there will be some reorganization of departments and personnel, including a small number of position eliminations and furloughs. To the extent possible, any employees designated for furlough will be given options to transition to other duties necessitated by the pandemic response. Employees whose positions have been eliminated or furloughed at this time have already been informed. We also agreed to offer a Voluntary Separation Plan for members of the Physical Plant union.
We anticipate that these steps will see us through September and possibly beyond. A key factor will be the enrollment picture as the fall semester begins.
How does the University plan to respond if the financial situation worsens?
Should we see material changes in enrollment or find ourselves moving to a primarily non-residential environment, the impacts on the operating budget will require additional adjustments in order to protect the long-term financial health of the institution.
Depending on the severity of a downturn in our financial position, and in addition to using existing reserves on hand, we would deploy some combination of the following mitigation strategies. This list has been informed by meetings with groups from across campus.
- Seek additional areas to reduce discretionary operating budgets.
- Reduce University contributions to retirement plans.
- Deploy salary reductions.
- Additional furloughs and position eliminations.
For the retirement contribution and salary changes, we are considering various approaches to implementation (such as a sliding scale), should the need arise. We will decide on whether these approaches are necessary when the enrollment picture clarifies in September. If we decide to make changes, these would go into effect in October or November at the earliest.
We will continue to adjust our financial planning as information becomes available. Questions related to this communication will be addressed at the next All Staff & Faculty Forum. In September, we will provide an additional update to the campus community when the enrollment picture is clearer.
Thank you for all your efforts in managing expenditures during this difficult time. We recognize the additional burdens this has placed on our community. The University has done an admirable job curtailing spending, raising money, and managing the endowment during this time of uncertainty. All these efforts are providing us with the critical capacity to weather the challenges ahead and continue to deliver on our educational mission.
Senior Vice President, Chief Administrative Officer, and Treasurer
Michael S. Roth