To the UVM Campus Community,

I am writing to follow up on President Garimella’s May 11 memo regarding the budget challenges confronting the University of Vermont. While there is still much uncertainty, we do know there will be many additional costs associated with COVID-19. By June 30, these costs will amount to almost $8.7 million and we expect to subsequently incur an additional $6.4 million in COVID-19 direct expenses. On top of this, there will be significantly higher demand for financial aid, and lower revenues from tuition and student fees.

The primary long-term budget challenge confronting us, however, is not related to COVID-19. Our position as a public flagship university located in a state that has a very small population and limited ability to support the university financially is the key ongoing challenge. Because of the low level of state support, we are heavily tuition-dependent, and currently have the fourth-highest out-of-state tuition for a public university. Given our demographics and the continuing decline in the number of Vermont high school graduates, we rely heavily on out-of-state students. If we do not stem the annual increases in tuition, we risk losing the students we rely on to financially support the university’s educational mission.

As we consider strategies to address UVM’s financial challenges, our primary focus is to stay true to our mission. At its core, that mission is to meet the educational needs of our students, and to keep that education accessible and affordable. With tuition as our single most important revenue source, and with our current high tuition rates, maintaining the status quo of annual expense increases will make it impossible to meet our obligation for assuring an affordable education for our students.

Across-the-board expense reductions, a budget approach typical of the past decade, have strategic limitations and are not sufficient to maintain the financial stability necessary to accomplish our educational mission long term. However, as we identify and develop new strategies, we must not only prioritize the needs of our students, we must also work to treat staff and faculty with fairness and respect.

Although the university will operate with an interim budget for the first quarter of fiscal year 2021 (FY 21), development of the full-year budget is underway, and we expect to take it to the Board of Trustees in September. In the meantime, we are making every effort to minimize expenditures as we close FY 20 to ensure that we have some one-time funds to pay for COVID-related expenses that we will incur in the coming year. To meet recurring non-COVID budgetary challenges, we have initiated several strategies to serve us in the long term:

Strategies Employed to Date

  • Employing fewer administrators than our peers – 5.6 administrators/1000 students as compared to the Integrated Postsecondary Education Data System (IPEDS) median of 7.8.
  • Senior administrators are voluntarily giving back 8.3% of their salaries for the coming year.
  • Deferred borrowing $30 million for the multipurpose center project and thereby avoided the increased cost of funding debt.
  • There will be two fewer vice presidents in FY 21 than in FY 20.
  • Several temporary positions have been eliminated and the work redistributed to reduce costs and to protect and maximize the use of existing permanent staff.
  • Strict hiring limits have been imposed.
  • Some vendor contracts have been renegotiated and others are being terminated.
  • Expenditure requests are being routed through a strict approval process to ensure they are essential.

 Strategies for FY 21

  • All units have been asked to develop budget plans that rely on a total of $26 million less in net tuition revenue than was included in the FY 20 budget; importantly, this is an optimistic estimate compared to current projections for the overall higher education sector, so it is subject to change.
  • Strict criteria for hiring and expenditures will continue.

 As we consider the options for addressing the long-term recurring budget challenges that lie ahead, we will maintain our focus on academic quality and accessibility. About half of the general fund budget goes to academic units with another 18% dedicated to academic support and student services. Also, more than half of our expenditures for facilities and debt service are allocated exclusively to academic and research facilities. In total, about 77% of the general fund budget is dedicated to direct educational activities and other student needs; 23% supports the administrative activities, such as personnel, operating (including supplies and travel), and maintenance, that are essential to the success of that work.

In addition to the actions outlined above, we have considered an array of personnel actions to create a sustainable budget while doing our best to protect our employees. I am announcing today, for administrators and non-represented faculty and staff, actions that will be implemented July 1, 2020, many of which also will be topics of discussion and negotiation with each of our bargaining units.

Salary/Wage Reduction: A salary/wage reduction incremented according to annual base earnings as follows:

  • Less than $45,000 – no reduction
  • $45,000 and no more than $60,000 – 2.5% reduction
  • Over $60,000 and no more than $80,000 – 3.5% reduction
  • Over $80,000 – 5% reduction

Mandatory Furloughs: These may occur in instances where this short-term strategy will alleviate a one-time budget shortfall.

Early Retirement Option: In instances where it will best serve operational needs, early retirement options may be available for staff and faculty who have reached the age of 60 and 15 years of service to UVM by July 1, 2020, subject to the approval of the relevant dean or vice president.

Vacation Accruals: The university will phase out the practice of paying for accrued vacation when someone ceases to be employed.

Specific guidance regarding these items will be available by June 10, 2020. Those whose salaries will be directly affected will also receive individual communications from Human Resources.

These are some of the difficult first steps towards creating a sustainable budget over the next few years. We are acutely aware that these actions will cause hardship. However, we are confident this work can be done in a way that supports UVM’s academic mission and helps to maintain the institution’s financial stability.

PUBLISHED

06-04-2020
Richard H. Cate, VP for Finance and Treasurer