An update on our current fiscal year shortfall and the challenges ahead
Earlier this year, we announced the Lawrence and Edwards campuses face an estimated revenue shortfall of $120 million for the current fiscal year. This projection included assumptions about areas such as enrollment, residence hall occupancy, dining services, campus events, federal funding and state appropriations.
Since then, we have been able to refine many of the above-mentioned assumptions, and we have also implemented a number of cost-savings initiatives across the university. As a result, today we are able to report an updated shortfall of $47.6 million for the current fiscal year. This revised shortfall comprises three areas:
- General fund academic operations (funded primarily by tuition and state appropriations) – $11.4 million
- Auxiliaries (such as Housing, Recreation Services, Parking, Watkins Health) – $19.7 million
- Affiliates (such as Kansas Athletics, Memorial Union, Hilltop, Office of Research) – $16.5 million
Please note, this revised shortfall continues to rely on assumptions about the above-mentioned revenue sources, all of which are still in flux. We will continue to update the shortfall amount and keep you posted throughout the remainder of the fiscal year.
Additionally, it must be emphasized that the majority of the cost-savings steps we’ve taken in recent months generate one-time savings for the current fiscal year only, which means these savings do nothing to address next fiscal year’s projected budget shortfall. Without these one-time savings, our current university-wide operating deficit would be $80.7 million, which includes a $44.5 million operating deficit for general fund academic operations. In other words, these are the projected shortfall amounts that need to be addressed for the next fiscal year budget, which begins July 1, 2021. Therefore, we must continue to make difficult and painful cost-savings decisions in the months ahead.
Below is additional detail about the current fiscal year shortfall, as well as context about the challenges we will face in the next fiscal year.
A key component of our original $120 million projected shortfall was the assumption that fall semester enrollment could fall by as much as 15 percent. As you know, earlier this month we learned that enrollment fell just 2.8 percent. We want to recognize and thank everyone who worked so hard to bring students to KU this semester.
While our fall enrollment represents a bit of good news, there is reason for concern about the spring. Given the financial hardships the pandemic presents students and families, as well as this fall’s non-typical on-campus experience, we are at risk of losing more students during winter break than we normally would. Again, this is why it is so important that each of us does everything we can to ensure students have the best possible experience this fall.
As you know, the university has initiated a number of cost-savings measures in recent months to address the shortfall in our general fund academic operations. These steps total $33.1 million in savings and include:
- Executive salary cut for 10 months ($702,000 in one-time savings)
- Faculty and staff salary cut for six months ($4.3 million in one-time savings)
- Hiring freeze ($11 million in recurring savings)
- Unit carryforward balance sweep ($20.3 million in one-time savings)
- Voluntary Separation Incentive Program ($5.4 million in one-time costs; $5.4 million in recurring savings beginning in FY22)
- State of Kansas fringe benefit cost reduction ($2.2 million in one-time savings)
General fund academic operations, auxiliaries and affiliates
While general fund academic operations are funded primarily by tuition and state appropriations, auxiliaries and affiliates exist on revenue they generate, and each auxiliary and affiliate is expected to solve for its own shortfall.
Though auxiliaries and affiliates are expected to sustain themselves, the university has a fiduciary responsibility to them, meaning we cannot simply let these units fail. Additionally, the reality is, we cannot function as a university without services such as housing, dining and parking. Thus, we must continue to make difficult decisions and explore innovative solutions that ensure the long-term viability of these auxiliaries and affiliates so they can continue performing their crucial roles. (Note, no university funds will be used to address budget challenges in Kansas Athletics.)
Expenses for health and safety
As described in our July message, separate from the projected shortfall, KU has incurred $30 million in expenses for personal protective equipment, COVID-19 testing, quarantine and isolation space, sanitation, technology, and the reconfiguration of spaces. Of this $30 million, about $20 million has been covered through federal funding. We are grateful to report the remaining $10 million has been covered by a grant from KU Endowment, made possible by gifts from donors. Keep in mind, expenses for health and safety could increase as we make our way through the pandemic.
The bottom line is, the Lawrence and Edwards campuses face unprecedented fiscal challenges that necessitate cost-savings measures in the months and years ahead. In the short term, we must address the current fiscal year shortfall, which we have partly been able to do so far with one-time cost-savings initiatives. Beyond that, we must also begin to plan for Fiscal Year 2022, which looks even more difficult with the State of Kansas projecting a $1.4 billion shortfall —meaning it is prudent that KU not count on previous years’ funding levels from Kansas lawmakers.
All of this is to say, KU has no choice but to adopt new business models, to find efficiencies in our operations, to restructure and to implement cost reductions. All options must be considered, including changes in sourcing and procurement, operations and organizational structures, as well as personnel changes such as furloughs, layoffs and salary reductions. The decisions ahead will be made with clear focus on our mission, with a strong sense of stewardship of our resources, and with the expectation and recognition of productivity in academic and administrative units. These decisions will be hard, but they are necessary to ensure the long-term health of the university.
Most immediately, our priorities as we take our next steps will be as follows:
- Provide as much on-campus education as possible for students and continue the momentum and growth of interactive and engaging experiences for students, whether in-class and in co-curricular activities and student services, and whether students are on-campus, online or in hybrid formats. This keeps us competitive with our peers and is the most important thing we can do to address our enrollment challenges.
- Grow enrollments where possible on our research residential campus in Lawrence and our professional programs at the Edwards Campus. We must reach out to first-time freshman who enrolled for fall semester but did not attend and invite them to start in the spring; and reach out to students who withdrew during the fall because of course schedules and encourage them to come back in spring.
- Evaluate our procurement and purchasing processes, and move to strategic sourcing that lowers costs and removes duplicative systems, licenses and contracts.
- Review administrative services using a structured method to document service goals and metrics, improve processes and create more efficient operations in areas such as research administration, finance, human resources, information technology, marketing and communications, and academic administration.
- Evaluate low-enrolled academic programs, find new efficiencies in program delivery or academic structure organization and continue work through our academic performance review.
KU simply must strive to be fiscally viable if we are to remain a service to our students, the community, the state and the nation. That means doing all we can to recruit and retain students as we curtail expenses.
While it is clear that we have significant challenges ahead, we are confident in our ability to pull together as a community to ensure we continue to recruit students, remain competitive with our peer institutions, and be fiscally responsible.
Finally, we want to let you know we recognize and appreciate all the hard work you have already done in stewardship of KU. Thank you for all you are doing to help us serve students and continue fulfilling our mission during these difficult times. Please know how much we appreciate your efforts.
Doug and Barb
Douglas A. Girod
Barbara A. Bichelmeyer
Provost and Executive Vice Chancellor