Financial Update for Fiscal Year 2020-2021
Dear DU Community,
There are moments in an organization’s trajectory when you understand the gravity of the situation and you know you are at a critical moment. This is one of those moments and this is a message that is so difficult to write and even harder to share.
It has been just three months since the coronavirus disrupted our everyday lives and called into question even our most basic assumptions. How do we manage our personal and communal health and safety? How do we continue to ensure the educational quality our students, families and alumni have come to expect? How do we maintain financial security? And are our practices and systems truly equitable during times of severe hardship? These are the issues that connect us to one another and to the University’s important work. Especially for our faculty and staff who have weathered difficult times before, this is a reminder that shared sacrifice—though necessary and worthwhile for the future—is not easy in the present.
Our challenge for Fiscal Year 2020-2021
I am writing today with news about some difficult but necessary next steps for our finances and budget planning for Fiscal Year 2021 (July 1, 2020 through June 30, 2021) that the Board of Trustees endorsed on Friday. As I communicated in messages on March 23 and April 29, we have been studying the financial impact of the coronavirus and projecting what might be needed to keep our institution viable. The measures I’m announcing today are based on a variety of likely assumptions and possible scenarios that depend on the trajectory of the virus, how it impacts higher education generally, and the resilience of DU’s specific enrollment figures and budget framework.
Our planning for this next year focused on three virus-dependent scenarios and their impact on our finances. Scenario I, in which the virus is contained, and students are back on campus, is financially the best-case scenario and we believe the most likely to occur. Even in this case, the budget gap is $45 million in FY 2021. Scenarios II and III are far more challenging because they assume the virus has dramatically resurged, our students must again study online, and the budget gaps are significantly larger than in Scenario I.
To build the budget for FY 2021, we have assumed Scenario I, while also acknowledging that significant pivots may be necessary during the coming year, if we are forced to move into the more-challenging scenarios.
We know now with great certainty that we will have a significant reduction of revenue and a substantial increase in expenses in FY 2021.
Our largest losses this next fiscal year will result from the loss of room and board revenue due to required dedensification efforts, cancellation of ticketed events and youth programs in athletics, loss of parking revenue, cancellation of summer conferences and events, temporary closure of the Newman Center for the Performing Arts, the loss of interest income that ordinarily supports our working-capital budget, and reductions to the value of our endowment.
Our largest new expenses related to COVID-19 include those related to testing and contact tracing; increased cleaning and disinfection of our residences, classrooms and workspaces; new technology costs related to online instruction and course supports; and of course, emergency financial aid for many of our families experiencing significant financial loss.
The unpredictability of the virus creates great uncertainty and therefore makes planning challenging. The one thing we can control is our commitment to honoring our values: protecting as many community members as humanly possible, especially those who are most vulnerable; ensuring that the quality of DU’s education is preserved through nimble repositioning of our teaching and learning; eyeing the long-term sustainability of the University; and communicating as proactively and transparently as possible.
I continue to be grateful for the swift and responsible decisions that will enable us to finish FY 2020 in a strong position. But, based on the $45 million shortfall we face for FY 2021 even in our best-case scenario, we are certain that without the measures I am announcing we would not be able to continue to serve our current students, support our talented faculty and staff, or fulfill our dedication to the public good. In short, we would be jeopardizing the future of this University.
Our decision process
Let me start with how we arrived at the decisions I am sharing today, and by expressing my gratitude to all who dedicated so much time to this important work. There are key components of the process that I want to emphasize:
- The current fiscal year: The retention of our students in the spring term and the measures we committed to in FY 2020—the hiring freeze, freeze on non-essential spending, and the pause and delay of capital projects—very quickly offset $21 million in lost revenue and unanticipated new expenses. Our diligence also protected our staff for as long as possible and gave us time to thoughtfully anticipate next steps based on the coronavirus’ trajectory and local, state and federal guidelines for mitigation of the virus.
- Tapping University expertise: Formation of the University Planning Framework task forces (announced on May 18) allowed us to assemble some of our wisest and most experienced faculty, staff and trustees to review the best and latest thinking from peer institutions and consultants, and to begin making solid recommendations based on DU’s own strengths and needs. The task forces will continue to identify opportunities and efficiencies that will help in future budget years, and as they work, they will provide updates on their meetings and recommendations here.
- Fall planning: The Fall Logistics Task Force did incredibly thoughtful and efficient work to create a well-constructed and comprehensive plan that is building confidence among students and families that DU will provide a safe environment for living and learning on campus in fall 2020, and that our combination of in-person, hybrid and digital courses will meet students’ needs and fulfill the value proposition they expect from DU.
- Listening: Throughout this process—and before making specific decisions—we gathered input from the Faculty Senate, Staff Advisory Council, faculty and staff affinity groups, University Council, the Board of Trustees, the University cabinet, deans and vice provosts, academic chairs and directors, and the business officers who serve our academic and administrative units across campus. Through these conversations, we listened carefully. We consistently heard that we should: make non-personnel cuts first, shield our lowest-paid employees from reductions in pay, favor temporary reductions of salary over reductions of staff, and avoid permanent measures unless absolutely necessary. We also heard over and over again that we should preference strategic cuts over across-the-board cuts, because these could strengthen the University over time.
- Scenario planning: The Scenario and Financial Solutions Task Force recommended, and the Board of Trustees endorsed on June 5, a multi-faceted approach to cost cutting, beginning with measures that are least likely to impact most of our people long-term, and building to actions with more-significant ramifications. The recommended strategies to close the $45 million gap for FY 2021 include:
- Continue to freeze all non-essential spending,
- Continue to freeze non-essential capital projects,
- Continue to freeze non-essential hiring,
- Temporarily reduce staff in those areas unable to work due to COVID restrictions,
- Enact a partial, temporary reduction of the retirement match,
- Enact temporary salary reductions, and
- Enact targeted reductions in auxiliary or non-mission critical units, including, in some cases, position eliminations.
Keeping these strategies in mind, we have made every effort to first cut costs and freeze unnecessary spending, including significant cutbacks in travel, food, and event costs, the elimination of car and cell phone allowances, and freezes on non-essential capital projects and hiring. While the scope of necessary cuts will not be clear until we definitively know our fall enrollment numbers, we are certain that the measures we are announcing today are necessary. They will therefore be in effect for FY 2021 until further notice.
Tiered, temporary salary reductions
Clearly, any decision to reduce salaries is not an easy one. To reduce compensation in the most equitable way possible, we have created a progressive scale that places the highest burden on the highest-paid employees, including the chancellor, cabinet, deans and the highest-paid faculty and staff members. This five-tiered approach significantly offsets our anticipated budget shortfall, while protecting 82 percent of staff and 48 percent of faculty. Any individual with an annualized salary less than $90,000 per year will not experience a salary reduction. The tiers are as follows:
- Tier 1 ($90,000 to $129,999)—3.1 percent reduction
- Tier 2 ($130,000 to $169,999)—4.6 percent reduction
- Tier 3 ($170,000 to $209,999)—6.1 percent reduction
- Tier 4 ($210,000 to $249,999)—8.4 percent reduction
- Tier 5 ($250,000 and above)—10 percent reduction
Any salary reduction, along with any changes to retirement contributions explained below, will first appear in August 1 paychecks for exempt employees and in the July 10 check for those who are paid bi-weekly. For faculty, it will impact their first paycheck of the new academic year, which is September 1 for nine-month faculty in the law school, and October 1 for nine-month faculty in all other units. For faculty with deferred-pay plans, the temporary pay change will continue until the new academic year begins in fall 2021.
The temporary salary reductions will remain in place for FY 2021. To remain competitive for the excellent talent we have at DU, it is our expectation to restore prior salary levels in FY 2022, depending significantly upon the state of coronavirus mitigation in the country and world, and its potential effect on our enrollment numbers.
Suspension of merit process
Our new financial reality makes it impossible for us to award merit raises or bonuses in FY 2021.
Temporary reduction of retirement benefits
Retirement benefits are a significant cost to the University; yet importantly, they help us attract and retain excellent faculty and staff. We are committed to continuing to contribute to employees’ retirement plans for as long as possible; but beginning July 1 we must reduce our matching contribution to a maximum of 4 percent (it is presently 8 percent). Employees who are able to and choose to save towards their retirement can, of course, contribute in higher amounts to offset the difference, and we will continue to steward those funds through TIAA. As with the salary reductions noted above, this reduction of retirement benefits is temporary for FY 2021 and it is our expectation to fully restore these benefits in FY 2022.
Extended administrative leave with benefits
For the near term, we are forced to place specific groups of employees on extended administrative leave beginning July 1. These are employees who cannot work from home, but whose areas are expected to fully recover when our campus returns to greater density. Because we are committed to preserving them as employees, and to easing their transition back to their positions in the future, we will continue to provide health, disability, and tuition benefits. They will be eligible for unemployment benefits. This impacts approximately 37 staff who were notified about the leave by their supervisors earlier today. The areas most directly affected by COVID-19 and dedensification orders include the Newman Center, Conference and Events Services and Athletics & Recreation.
Despite every effort to preserve every job at the University, we simply cannot avoid laying off a number of employees whose jobs are not mission critical, and whose future need cannot be assured. These employees will be eligible for unemployment, and we will provide as much support as we can to ease the transition including severance packages. Layoffs will affect approximately 38 staff, who were notified by their supervisors yesterday and today. Out of respect for each person’s privacy we will not be specifying individual layoffs broadly.
Suspension of gainshare
In order to hold reserves centrally—where they can be used to help weather this financial crisis, keep as many individuals employed and benefited as possible, and support the entire University—we will suspend the use of gainshare funds by divisions and units for FY 2020 and FY 2021. Having a pool of centralized funds will likely be critical to fending off future cost-cutting measures.
Some final words
The plan I have laid out will be challenging for us all, albeit in different ways. Conversations between supervisors and staff should take place immediately to address any uncertainties or questions that arise. HR Partners stand ready to address questions, as well.
I know this is hard news to absorb. However, because of the incredible work that our faculty and staff instituted over the past two months, the gap we have to close is smaller than what it might have been. The feedback from the community we received about the scenarios was instrumental in crafting the plan outlined here. I am deeply appreciative of the way the community came together for those conversations. These decisions clearly create hardships but if we are successful in the coming months and serve our students well, we will not experience further dramatic losses and we will be able to restore pay and benefits by FY22.
If you are struggling in any regard, I hope you will reach out to your HR Partner, or to DU’s Employee Assistance Program: SupportLinc, which offers access to counseling and professional referrals to other experts. We offer free financial counseling through TIAA, and in some cases hardship withdrawals are permitted from retirement funds. You can also find an FAQ here, with more details about how this plan may affect you.
As you take the time to process this information, please remember that we anticipate that many of these measures will be temporary. We know that the University will thrive despite the present difficulties because we have confidence in our path ahead—a path that addresses affordability and access, creates a global and holistic student experience, cultivates a truly equitable and inclusive community, makes an impact in Colorado and around the world, and embodies our relentless pursuit of excellence. And through these hard times, our commitment to the public good and our kindness to one another truly matters.