Here Come the Furloughs

Sharp reductions in revenue and potential increases in expenses are spurring colleges to furlough or lay off employees while they wait for the coronavirus outbreak and the uncertainty it brings to subside.

April 10, 2020
 
Istockphoto.com/WillSelarep

First came the hiring freezes. Now come the furloughs.

Several colleges announced furloughs and layoffs this week and warned of potential additional staff reductions in the weeks to come. As colleges field unexpected expenses and lost revenue due to the coronavirus outbreak, paying employees -- especially those who are unable to do their jobs remotely -- is becoming more difficult.

MaryAnn Baenninger, president of Drew University, announced via video message on Sunday that a group of about 70 employees would be furloughed through at least the end of May. A smaller group will be laid off permanently. Furloughed staff members were notified Monday.

“I can’t guarantee that some of these furloughs won’t transition to permanent layoffs in the future,” Baenninger said in the video. According to the Drew website, furloughed employees will be updated by May 26 on the status of their furlough.

Staff reductions had been on the table for weeks while the Drew virtual team -- the group appointed to bring Drew online and weather the outbreak -- considered how to balance the needs of the university and what was best for employees.

The decision was, in part, an equity issue, Baenninger said.

“There were people who were working harder than they ever worked … and there were people for whom we wanted to have work, but we didn’t,” she said.

The financial picture Baenninger painted for Drew is similar to those at many other colleges and universities. She cited lost revenue from events, conferences, catering, summer camps and other operations, diminished endowment returns, and reduced giving from alumni and donors.

“On the expense side,” she continued in the video, “we will need to be prepared for potential changes in student financial aid, likely increases in health insurance costs, and we have had significant unexpected increases transitioning to a virtual environment, responding to the myriad changes brought on by COVID-19 and the potential need if called upon by the state of New Jersey to prepare our campus to house first responders and displaced medical patients.”

When colleges are forced to consider budget cuts, administrative costs such as travel and expense funds are typically the first to go, according to Ken Rodgers, director at S&P Global. Hiring freezes come next, which result in "a reasonable amount of savings," he said. If that's not enough, pay reductions, furloughs and layoffs become viable expense-saving options.

Baenninger and her team are considering salary reductions.

"We were pretty certain that salary reductions wouldn’t preclude a furlough, but maybe a furlough would prevent some salary reductions," she said in an interview.

Drew had already experienced financial struggles in recent years. But it is not alone in feeling increased pressure that forces furloughs amid the coronavirus.

The University of New Haven -- which is expecting a $12 million to $15 million in revenue loss due to issuing student refunds and credits -- announced across-the-board pay reductions for faculty and staff two weeks ago. Last week, the university announced that some employees would be furloughed.

Furloughs are sometimes used as defensive measures, Rodgers said. They can better position colleges should their financial situations get worse, “i.e., this fall, if it turns out that students, for whatever reason, don't come back.”

Guilford College in North Carolina has furloughed 133 people, more than half of its nonfaculty employees.

“Many of the jobs that we were looking at were really the jobs that couldn’t be done from home, because they involved direct contact with students,” said Jane Fernandes, president of Guilford. “We decided that just to help -- not to solve anything -- but to help our budget get to the end of the year, we would furlough staff.”

Marquette University announced Wednesday it would furlough approximately 250 employees beginning in mid-April. Bob Jones University, a private evangelical university in Greenville, S.C., also announced Wednesday that about 50 employees would be furloughed, with the potential for more down the road.

The furloughs don't appear to be cutting into faculty ranks at this time, although faculty numbers are likely to be affected by already announced hiring freezes, reductions in pay and other actions at colleges and universities around the country.

The first round of furloughs and layoffs is typically operationally easier on colleges, Rodgers said.

“Those initial layoffs and furloughs typically are -- you have to be careful when you say this -- not too difficult for the university to administer,” Rodgers said. “If you get into the situation where a lot of students choose not to come back to campus and you have to implement a more broad-based reduction, that would be more challenging for any university to implement … because then you have to cut into core programming.”

Employees who work on campuses for third-party vendors that contract with colleges are also being laid off. Bon Appétit Management Company, which provides dining services to many colleges around the country, has furloughed many of its employees. Contract workers are not usually considered employees of the college they work at, and they face an uncertain future until students return to campus.

Colleges are borrowing money to bolster their cash positions, but not to support recurring operations, including payroll, Rodgers said.

“We view unfavorably any organization that borrows money to support recurring operations, including for payroll purposes,” he continued.

June is likely to be a key decision point on future furloughs and layoffs, Rodgers said, because the June 30 end of the fiscal year will be approaching. Colleges will be working out their budgets for the new 2021 fiscal year.

“They’re trying to see how this is going to impact their fiscal '21 budget,” he said. “They’re having to make assumptions that may be very difficult to make as far as what enrollment to anticipate under scenario one, scenario two, scenario three.”

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