UD’s $250 million deficit will mean early retirements, layoffs, time reductions

 

The University of Delaware has told students to bring 7 to 14 face masks.
The University of Delaware will institute ‘austerity measures’ to cope with a $250 million budget deficit

 

The University of Delaware will take $100 million out of its endowment to help it cope with what’s expected to be a $250 million deficit in its academic budget because of COVID-19.

 President Dennis Assanis said in a letter to faculty and staff that as part of the school’s “austerity measures,” it also will have a voluntary retirement incentive program for staff, voluntary schedule reductions and workforce and time reductions in multiple departments. Non-academic units have been asked to cut spending by 25% to 35% and academic units reducing expenses by only 15%.

He blamed the shortfalls on a 10 percent drop in new students, 5 percent drop in returning students, only 20 percent of dorm capacity being used, a loss of parking revenue, a loss of student fees, reduced tuition and the increased costs of COVID-19 education, precautions and quarantine space.

The expected deficit is a quarter of the university’s $1 billion budget for the 20-21 school year. Of that, more than 60 percent is salaries and benefits, said spokeswoman Andrea Boyle Tippett.

In total, the university will draw down more than 10 percent of the value of its more than $1 billion endowment, an unsustainable practice, Assanis said.

 

If the situation with COVID-19 doesn’t improve in the spring, he said, the budget short fall could reach $288 million.

“These steps will achieve temporary and permanent savings, while creating some choices for our employees and spreading the impact over multiple measures.” Assanis wrote. “In parallel, we will continue to explore organizational restructuring, operational efficiencies and additional personnel strategies to further reduce expenses, which will likely be necessary.”

The university will “need to take bold steps now to reimagine our potential, positioning UD to thrive in the future,” he said in his letter to faculty and staff. “We must embrace the best ideas and cultivate a spirit of open-mindedness, cooperation and support.”

The school had eliminated almost all discretionary expenses for this year, he said.

“We have no choice but to turn to personnel actions,” Assanis said in the letter. “We are committed to balancing the respect and appreciation we have for our workforce with the need to respond to immediate financial pressures, while positioning UD for success in the next few years.” 

The budgetary news comes toward the end of a hard year for UD.

At the start of the year, Assanis caused a brouhaha when he said during a state budget hearing that only 40 percent of UD’s students are from Delaware because the rest are not qualified and accepting them could cause them mental problems. Then the state’s first recorded cases of COVID-19 showed up among UD faculty and staff in March, forcing the school to close in the spring and send everyone home.

The university announced it would have a mix of classes for fall, but when the number of positive cases among young adults kept rising during the summer, it switched tracks and went for mostly online classes, and many students decided not to attend or come to campus. Then, despite university and city efforts, as students returned to campus, the number of students testing positive grew because of off-campus events.

 

UD, and other colleges, will have to face the fallout from COVID-19 not only now, but probably into the next year.

Assanis will have a virtual town hall meeting Oct. 1 and take questions from the UD community, the press release said.

The announced cuts only affect university staff, not faculty. University leadership continue to talk to unions representing employees, including the UD chapter of the American Association of University Professors, the press release said.

 

“We began experiencing the impact in the spring as the fiscal year 2019-20 budget ended, and we expect this to continue through the current fiscal year 2020-21 budget and beyond,” Assanis said in his letter.

“Without extensive mitigation steps, it is becoming increasingly clear that our university could be facing a gap between revenues and expenses of approximately $250 million. For this reason, I feel it is essential for everyone in our community to understand these unprecedented financial challenges and the reasons why significant cost-cutting measures, beyond those we initiated this past spring, are now necessary.”

The school will prioritize efficiency so that it can continue to remain accessible and affordable for our students and families.

In the next few weeks, he said, UD will implement across the entire university a period of unpaid leave and temporary reductions to retirement contributions.

 

“The details of these measures are still being determined in order to minimize the impact on employees to the extent possible,” Assanis wrote. “We will provide more information about these measures as soon as it is available.

Anticipating budget shortfall

The 2020-21 budget was built on the assumption that UD would return to fall semester with a mix of face-to-face and online courses, full occupancy of campus residence halls, and athletic competitions, conferences and events taking place according to the “new normal.”

It didn’t. Only 1,300 students moved into the dorms, for example.

UD was already seeing enrollment challenges and projecting at least a $168 million gap between revenue and expenses in it operating budget, Assanis said. Many factors contributed to that, including:

  • Tuition freeze amid increasing expenses
  • Projected enrollment decline of 700 first-year students versus pre-COVID-19 target
  • Increased financial aid due to changing student demographics
  • Projected revenue losses in sponsored research, philanthropy, investments and self-supporting operations
  • Increased pandemic-related expenses to help ensure the safety of our community
  • Increased investment in online course conversion, technology and support

 

Recognizing these challenges, the administration, faculty and staff partnered to identify immediate cost-saving measures, while preserving the core workforce, Assanis wrote. These included:

  • Salary cut for senior administrators
  • Salary freeze for all UD faculty and staff
  • University-wide hiring freeze
  • Significant reduction in spending on supplies, contracts, equipment and travel throughout the University
  • Reduced spending on deferred-maintenance projects
  • Reduction in our part-time workforce

These mitigation actions covered approximately $86 million of the $168 million projected deficit, Assanis said. The Board of Trustees approved pulling the remaining $82 million of that projected operating deficit, Assanis said in the letter.

 

No events

Fewer students, fewer people in dorms, the elimination of events and canceled fall athletic competitions has had ripple effects that are still being calculated for the fall and projected for the spring, Assanis wrote.

They include:

  • Enrollment decline of 10% for first-year students and 5% drop in students returning as sophomores
  • Loss of tuition revenue from shifting enrollment dynamics and the offer of up to six free, transferrable academic credits during the winter and/or summer sessions
  • Loss of fee revenue, even though services continue and in some cases increase
  • Increased financial aid due to economic downturn
  • Residence halls at less than 20% capacity
  • Maintaining isolation and quarantine spaces for pandemic health management
  • New or increased costs for COVID testing, daily health checks, personal protective equipment and other pandemic-related necessities
  • Increased costs of campus transportation and loss of parking revenue

All that created an additional gap of  $60 million between revenues and expenses on top of the initially projected $168 million projected deficit, Assanis said.

 

“This projection assumes we can return to more normal operations in the spring semester, with higher campus density and resumed events and athletics,” he wrote. “However, if the current situation continues into the spring — similar residential density, primarily online instruction, no events, no athletics, combined with pandemic-related safety expenses — we expect an additional shortfall of $60 million.”

That could mean a short fall of $288 million, he wrote in the letter.

“The hard reality is that the financial difficulties facing UD — and all higher education institutions — are not a one-year event, and the road to recovery will extend over the next several years,” Assanis said in the letter. “We are already looking toward the challenges for fiscal year 2021-22, including reduced ability to recruit new students, a continuing need to increase student financial aid and the uncertainties of the economic environment and state support affecting students and families.”

 

The school will postpone large building projects for at least a year and only address critical maintenance needs, Assanis wrote. The only capital projects allowed to continue are those nearing completion or fully supported through funds from the state and/or public-private partnerships, he said.

The additional $100 million being drawn from the endowment “is over and above our consistent practice of drawing a dividend of approximately $50 million per year from our endowment to support operations,” he said. “In total, the university is distributing more than 10% of the value of the endowment to help get through this difficult period; this level of spending is not sustainable.”

This is a developing story. Check back for more.

 

 

 

 

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