UD Financial Outlook: Meeting the Challenges Ahead
September 24, 2020
A message from UD President Dennis Assanis
Dear UD Faculty and Staff,
Our fall semester is now fully underway at the University of Delaware, and I sincerely hope that you and your loved ones are staying safe and healthy during this challenging time. The COVID-19 pandemic has tested all of us in many ways, both individually and as an institution, and I want you to know how grateful I am for your dedication to care for each other and our entire community.
I know we are all disappointed that the fall semester has not unfolded with a vibrant campus that is bustling with UD students, faculty and staff, as we would normally expect. Yet I have been inspired to see our community work together to innovate creative solutions to the challenges we are facing together. We have adapted 90% of our courses for online delivery, resumed 85% of our research projects and created a robust COVID-19 testing program to help protect our community on and off our campus. I am proud of you — our amazing faculty and staff — as you carry on the vital mission of the University with impressive diligence.
As I shared in previous communications, the pandemic has continued to negatively affect UD’s financial situation. 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. 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.
Given that we will have eliminated almost all discretionary expenses for this year, we have no choice but to turn to personnel actions. 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. We also need to prioritize efficiency so that we continue to remain accessible and affordable for our students and families.
I want to express how much we value the contributions of every employee here at UD, which makes these decisions extremely difficult. I appreciate your efforts to come together as we work through this challenging period with a long-term focus on a thriving future for the University of Delaware. In the near term, the measures to stabilize the financial health of the institution will include:
- Voluntary retirement incentive program for staff — Eligible employees who have dedicated their careers to help make UD a world-class institution will have the opportunity to consider the benefits of retirement at this time.
- Voluntary schedule reductions — Eligible employees may choose to temporarily scale back work hours/compensation.
- Personnel reductions — Cost-saving measures will result in workforce and time reductions in multiple University departments. These decisions will be communicated to affected employees as soon as possible by their supervisors.
Over the next several weeks, we will also implement across the entire University a period of unpaid leave and temporary reductions to retirement contributions. We are having discussions with unions representing our employees regarding implementation of such measures. The details of these measures are still being determined in order to minimize the impact on employees to the extent possible. We will provide more information about these measures as soon as it is available.
I now want to provide an overview of the COVID-19 impact on our financial situation that necessitated these cost-cutting measures. I also plan to give a more detailed presentation and take questions from the UD community at a virtual town hall meeting on Oct. 1, 2020. Details will be forthcoming.
Anticipating a Budget Shortfall in Fiscal Year 2020-21
The fiscal year 2020-21 budget, approved by the Board of Trustees in early June, was built on the assumption that UD would return to campus this fall 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.” As were many other higher education institutions, UD was already seeing enrollment challenges with first-year and returning students. At that time, we were projecting at least a $168 million gap between revenue and expenses in our operating budget, which could worsen depending on the nature of the pandemic. This was due to several factors, 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 to mitigate the negative impact on our fiscal year 2020-21 budget, while still preserving our core workforce. 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. The Board of Trustees approved drawing on UD’s endowment portfolio to cover the remaining $82 million of that projected operating deficit.
Pivoting to adapt to the evolving reality of fall 2020
Now, in late September, the evolving reality of a de-densified campus — reduced on-campus residential student population, elimination of events and canceled fall athletic competitions — has created multiple ripple effects on the University’s enrollment and budget, which are still being calculated for the fall and projected for the spring. These include:
- Enrollment decline of 10% for first-year students and 5% drop in students returning as sophomores compared to last year’s classes
- Loss of tuition revenue from shifting enrollment dynamics and the offer of up to six free, transferable 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
The collective impact of the change in plans in response to the pandemic has created an additional gap of approximately $60 million between our revenues and expenses on top of our initially projected $168 million projected deficit for our fiscal year 2020-21 budget. This projection assumes we can return to more normal operations in the spring semester, with higher campus density and resumed events and athletics. 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.
In short, our projected deficit for the year is in the range of $228 million to $288 million.
Closing the Budget Gap
This budget gap presents a significant challenge. While we had already implemented belt-tightening measures for fiscal year 2020-21, the fluid and uncertain nature of the evolving situation forces us to now take additional austerity measures.
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. 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.
In considering how to cover this budget shortfall, we remain committed to preserving the educational core of our institution. Providing our students with a world-class education and ensuring their success is our most fundamental mission. Therefore, while our non-academic units are now cutting their spending by a total of 25% to 35%, our academic units are being asked to reduce expenses by only 15%. In addition, we are postponing the planning for large building projects for at least a year, and we are addressing only critical maintenance needs. The only capital projects continuing are those nearing completion or those fully supported through funds from the state and/or public-private partnerships.
With the full support of the Board of Trustees, the University already plans to draw from the endowment at least an additional $100 million to partially defray the combined impacts on fiscal years 2019-20 and 2020-21. This is over and above our consistent practice of drawing a dividend of approximately $50 million per year from our endowment to support operations. 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. The Board of Trustees is responsible for preserving the assets in our endowment to ensure the long-term success of the University’s education, research and service missions.
As I stated above, we simply have no other recourse than to take painful but necessary personnel-related measures. These steps will achieve temporary and permanent savings, while creating some choices for our employees and spreading the impact over multiple measures. In parallel, we will continue to explore organizational restructuring, operational efficiencies and additional personnel strategies to further reduce expenses, which will likely be necessary.
As the model for higher education will undoubtedly be transformed for the long-term following the COVID-19 pandemic, we need to take bold steps now to reimagine our potential, positioning UD to thrive in the future. We must embrace the best ideas and cultivate a spirit of open-mindedness, cooperation and support. Over the coming months, I will continue to engage many of you in developing innovative solutions that will help us reposition our institution for continuing academic and operational excellence.
Our Commitment to a Better Future
The pandemic has challenged the University of Delaware and our entire world in myriad ways, and, no doubt, additional challenges lie ahead.
Yet, as I consider our current situation and focus on the future of our institution, I draw encouragement from two fundamental values that have always defined and shaped the University of Delaware community. The first is our abiding belief in the power of education, research and engagement to build a better world. And the second is the unwavering UD spirit of collaboration, innovation and resilience that has built our institution and will carry us again through this difficult period. Indeed, at the University of Delaware, we meet challenges head on … and we overcome them.
I sincerely thank each and every one of you for everything you have done and continue to do to keep yourselves, each other and our entire community healthy and strong.
Dennis Assanis, President