‘Just No Comparison’ for Pandemic’s Financial Shock

Furloughs, layoffs and pay cuts pile up as colleges buckle under the pandemic’s financial stress.

April 27, 2020
 
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In February, shortly after the first coronavirus case was confirmed in the United States, Barbara Mistick didn’t think the pandemic would have such a staggering impact on colleges.

“I was still traveling,” said Mistick, president of the National Association of Independent Colleges and Universities. “The conversation started in February with study abroad. I don’t think any of us saw the study abroad conversation leading to this total shutdown and impact on every single revenue source.”

Unforeseen expenses cropped up almost immediately. In early March, many colleges paid to bring students back from study abroad programs and lost money on prepaid tickets and hotel stays.

Since, the costs have only continued piling up. Canceled events, student move-outs, room and board refunds, scaled-up cleaning procedures, and online teaching have all brought unanticipated expenses.

Experts have for weeks been calling the pandemic an unprecedented financial challenge for colleges. To mitigate the financial burden, a growing number of colleges has announced employee pay cuts, furloughs and layoffs. They continued at a rapid pace last week.

Recently Announced Cuts at Colleges

  • Penn State University counts losses exceeding $100 million since March and expects another $160 million revenue loss next fiscal year, prompting actions including salary adjustments and 3 percent across-the-board cuts.
  • The University of Akron plans to cut academic and athletic programs and freeze hiring, plus implement some salary reductions and 20 percent cuts to athletic and nonacademic administrative expenses.
  • Lafayette College has implemented a hiring freeze and executive pay cuts, suspended employee salary increases and deferred nonessential capital projects to mitigate a loss of at least $7.6 million.
  • The University of Louisville will implement a 1 percent pay cut for faculty and some staff and furlough some workers, in addition to previous cuts for top administrators and faculty.
  • Boise State University will implement a tiered furlough structure, tying the number of furloughed days to salary amounts. The university has so far suffered a $10 million loss.
  • Trinity Washington University is not filling open positions and has temporarily eliminated some campus services, such as shuttle service to the Metro.
  • The University of Kentucky will implement layoffs, furloughs and hiring freezes in the face of a $70 million budget shortfall.
  • Northwestern University froze faculty and staff pay, in addition to a hiring freeze.
  • At Miami University in Ohio, many contingent faculty contracts will not be renewed for the upcoming academic year.
  • Syracuse University has lost $35 million and is planning pay cuts and hiring freezes.
  • Johns Hopkins University is expecting to make furloughs and layoffs. It faces a $100 million loss for fiscal 2020 and $375 million for fiscal 2021.
  • Washington University in St. Louis will furlough 1,300 employees for 90 days, many of whom are on the medical campus. The university so far faces a $60 million loss.
  • Anticipating a $200 million budget shortfall, Rutgers University has implemented a hiring freeze, banned university-sponsored travel and halted noncontractual pay increases, among other steps.

In a detailed austerity memo, Johns Hopkins University president Ronald Daniels warned of expected furloughs and layoffs to be made at the departmental level. The university is projecting a net loss of $100 million for fiscal 2020 and up to $375 million for fiscal 2021. “More than 1,200 employees have been rendered idle because they are unable to perform their duties,” Daniels wrote. “Many more are working off-site but at significantly reduced levels of productivity.”

The University of Louisville will implement a 1 percent pay cut for faculty and some employees making between $58,000 and $99,000, on top of a previous cut for faculty and administrators making $100,000 or more. The university has also halted contributions to employee retirement accounts.

Boise State University has implemented a tiered furlough structure for staff, tying the number of furloughed days to salary amounts. The university has so far suffered a $10 million loss.

The University of Kentucky will implement layoffs, furloughs and hiring freezes in the face of a $70 million budget shortfall. Northwestern University froze faculty and staff pay, in addition to a hiring freeze. At Miami University in Ohio, many contingent faculty contracts will not be renewed for the upcoming academic year. Syracuse University has lost $35 million and is planning pay cuts and hiring freezes.

The list goes on.

Personnel cuts are arguably the most dire cost-cutting measures colleges take, but Richard Ekman, president of the Council of Independent Colleges, an association for private institutions, has seen plenty of different, less newsworthy budget trimming. He noted that many colleges have halted retirement contributions, reduced employee benefits contributions and cut into faculty travel and sabbatical budgets.

Ekman also mentioned that some colleges are taking the opportunity to re-examine their use of space on campus and planning out more socially distant course schedules that could be implemented in the fall.

“You know the saying, ‘Never let a good crisis go to waste,’ if it enables you to take a look at other issues,” he said, noting that reconsidering academic schedules "should have been done all along."

Mistick of NAICU added that many construction projects are on hold, in part due to current state restrictions on construction.

Fall enrollments will be a key factor in budget projections for the next fiscal year. Ekman believes that current predictions, many of them negative, are not based on hard evidence.

“I’ve seen enrollment projections … that range from a loss of 5 percent to a loss of 40 percent,” he said. “The problem is it’s too early to tell. There’s not enough good information to base a prediction from any given college.”

Mistick worries about attrition among current students. She suspects some students will drop out as a result of the sudden disruption, and others will consider taking a break while courses remain online.

In Pennsylvania, a potential 5 percent decline in fall enrollment will result in a $300 million loss across the state’s 92 independent colleges, she said. A 15 percent decline could lead to a nearly $1 billion loss.

The pandemic and resulting economic downtown is a two-front war. While costs increase, revenue streams dwindle.

“Tuition does not cover the full cost of attendance at institutions,” Mistick said. “Auxiliary, room and board, everything from parking for events that are held on your campus make a tremendous contribution to our institutions. Cultural events, sporting events, facility rentals, all of those things.”

It’s too soon to tell when regular revenue streams will return, according to Ekman.

“I think it will vary regionally as the hot spots of the virus move around the country,” he said.

It's tempting to compare the current situation to other recent events that caused significant financial turmoil. Mistick believes this is a much more significant disruption.

“I don’t think we’ve ever experienced a moment like this before in higher ed,” Mistick said. “Folks say, ‘Hey, could you compare this to 2008 or Sept. 11?’ There is just no comparison.”

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