Dear UWM Faculty and Staff,
I write with an update on our COVID-19 financial scenario planning and how we will adjust in 2020-21 due to budget realities. Our world has changed significantly in the last several months, and UWM will not look like or operate as it did in the past. While prioritizing health and safety, we will continue to fulfill our mission of providing access to education, conducting research and engaging meaningfully. But we will do so differently, drawing from the resiliency and grit that characterize UWM, demonstrated by how we have overcome adversity in the past. You have all accomplished so much with fewer resources than our peers, which makes this message difficult to share. As we proceed, we are making decisions with the best and most current information and will continue to consult and engage with governance representatives, along with deans and division heads and their teams.
As you may recall, we anticipate an operating deficit of about $15M for FY20, resulting from pre-COVID-19 enrollment declines, COVID-19 refunds and expenses, the state budget lapse at the end of the fiscal year, and the federal CARES funding that reduced some of these losses.
Now we turn to our outlook for FY21 and, for purposes of this message, I will focus on our academic and administrative operations (the non-auxiliary operations) that are primarily funded from tuition and state support. Our auxiliary units – including dining, housing, and transportation – that are funded by user fees are also impacted greatly by the pandemic but will not be addressed in this message. Those units are also engaged in thorough planning.
FY21 Financial Scenario Planning and Required Actions
Just as workgroups planned for health and safety scenarios for the fall, a financial impact team similarly created financial scenarios for FY21 at low, mid, and high impact levels. They reviewed both revenue losses and additional expenses caused by COVID-19 and measured them against the FY21 budget that was planned and finalized before the pandemic.
Right now, compared to this point in time last year, fall enrollment is about 8-9% lower with non-resident (higher tuition-paying) students also lower as a percentage. These numbers will fluctuate until we know the final enrollments in mid-September. In addition, we are planning for an approximate 10% cut in state appropriations, although we will not have final news on adjustments until later in the fall semester. Also, academic and administrative operations will collect less funding than they typically receive from auxiliary revenues, because user fee funding is down for auxiliary units. Other smaller revenue components are impacted as well, and we anticipate additional COVID-19 related expenses, including more financial aid for students than in prior years.
In sum, our best projection today is that the net loss for academic and administrative operations will be around $35M to $40M, without considering measures to reduce expenses. Equivalent to 10% of UWM’s total annual expenses, this projected loss would be the largest negative one-year impact of any year in UWM’s known history.
For this reason, it is critical that we take this situation seriously and respond both quickly and thoughtfully. We have already taken several actions to shrink expenses, and now we must increase those efforts. In careful consideration of the scenarios and range of impact, I have determined that we must cut FY21 academic and administrative expenses by at least $25M (7.5%). To account for the remaining approximate $10M or more of net loss, we will utilize our fund balances, but at a rate that will allow us to avoid a catastrophic loss of balances in FY21 or FY22.
This FY21 expense reduction of $25M will be allocated, proportionately based on the FY21 expense budgets, among all schools, colleges, and divisions that receive tuition and state funding. We have already started to reduce expenses, including through furloughs and the hiring and compensation freeze, which schools, colleges, and divisions will be able to count to meet their expense reduction targets.
In addition, we are now extending or imposing the following additional mandatory actions:
- The hiring and compensation freezes will be extended through June 30, 2021.
- All non-essential travel that is funded through unrestricted funds will be frozen through June 30, 2021. Travel that is funded through external gifts and grants may be approved by the division head, although use of funds that could be used for higher priorities is discouraged. Deans and division heads will be responsible for approving travel that is essential or funded through external sources.
We estimate that full implementation of the centrally imposed actions listed above – furloughs, hiring and compensation freezes, travel limits – will result in cumulative campus-wide savings of approximately $12-15M for FY21. Schools, colleges and divisions may apply their respective portions of the savings to their individual targets for the required $25M campus-wide expense reduction total.
To account for the remaining $10 -13M needed in expense reductions, schools, colleges, and divisions will need to take additional actions to aggressively reduce costs. This could include further reduction in supplies and expense (S&E) costs and additional use of position-specific furloughs, as well as layoffs which would be used when a unit determines a position will no longer be needed on a permanent basis. More details about the decision-making process to be used by schools, colleges and divisions for expense reductions will be provided in a memo to deans and division heads next week from Provost Johannes Britz and Vice Chancellor of Finance and Administrative Affairs Robin Van Harpen.
Forging our Future
Even before COVID-19, we knew that the path ahead would be challenging. When I commissioned the 2030+ Think Tank in October 2019, my charge described in detail the need for UWM to formulate a plan for its future to address the rapid change and challenges higher education has been facing.
Given the pandemic, it is as if 2030 is already here, with the reality we will not return to the UWM we previously knew. The 2030+ Think Tank recently issued its final report, recommending strong directions for UWM to pursue for a successful future, with three prioritized actions:
- Revise the undergraduate student experience and develop core competencies that makes UWM education distinctive;
- Make UWM radically welcoming and engaging for all; and
- Review our school/college organizational structure and program array.
Provost Johannes Britz and I have accepted these valuable recommendations which will guide us as we build our future. We are rapidly moving to the implementation stage and will share more details later this month.
UWM will continue to have a critical role as we educate, research, and engage – we are too important to the region and state for there to be any other outcome. Using the 2030+ Think Tank framework as a guide and being cognizant of how much better we can employ, educate, and serve diverse employees, students, and communities, we will evolve and adapt to uphold our mission with even greater conviction and success.
I thank each of you for your commitment and dedication to UWM and look forward to working with faculty, staff and students across our campuses as we form our new future.
Mark A. Mone
University of Wisconsin-Milwaukee