This fall most schools faced significant budget challenges as a result of lower revenue and higher expenditures than previous years. The major contributors to reduced revenue were lower enrollment than last year, reduced residence hall occupancy, lack of summer and event revenue and lower average net tuition per student because of increased financial aid needs. Expenses increases related to increased costs related to Covid-19 including facility modifications, testing, contract tracing and cleaning as well as increased faculty development and technology costs related to on-line and hybrid teaching. According to a survey of Chief Business Officers conducted by Lapovsky Consulting and Moss Adams (the survey) this fall, to further compound financial challenges faced by institutions, 17% of the institutions which were operating primarily on-line reduced their tuition from the originally announced amount further negatively impacting tuition revenue.
Schools dealt with these budget challenges in a variety of ways many of which are short-term in nature but some which have longer-term implications. The short-term adjustments included salary and benefit reductions, furloughs, deferral of capital expenditures, additional endowment draws, draw-down of reserves and use of Cares funding. Among the long-term budget adjustments, many schools refinanced their debt. The most impactful adjustments have been the elimination of academic, athletic and other programs and activities and the lay-off of the faculty and staff associated with these programs along with many process changes which were precipitated by the remote work environment. Most program changes related to those with low enrollment and/or little participation. Many schools used this crisis to declare fiscal exigency which allowed them to by-pass faculty handbooks and the regular procedures of shared governance. These changes were made swiftly out of necessity when they normally would have taken years to accomplish, if at all. In addition, some schools also implemented new programs, many of which were expansions of their mission moving into areas where there is greater market demand for graduates; initiatives that would not likely be implemented quickly in normal times.
Surprisingly, according to the survey, only 48% believe that the pandemic will result in a rethinking of their business model. Twenty-nine percent expect to make marginal changes to their operations while 10% percent of the respondents are looking forward to returning to normal and the rest are too busy living day-to-day to think about the future. According to Colleen Rozillis, Director at Moss Adams, as schools think about the future, they should think about their alternatives in terms of the human, operational and property impact realizing that these three areas intersect each other.
She recommends moving from the way we have historically looked at budgeting and planning, which relies on beginning with last year’s budget and deciding what needs to be cut in order to balance the budget, and instead focusing on what our goals are and thinking about what should be kept. This moves our thinking from where we were to what we want to be.
This is a powerful change in how we plan and should help liberate our thinking. We have all been operating quite differently than we are used to and we should reflect on the lessons we have learned which are numerous and range from the mundane to the very significant. We have learned that we can operate with little or no paper and without people in their offices. These two changes merit rethinking many of our processes and our space needs. We have realized that students can learn remotely which opens up incredible opportunities for course and curriculum sharing. We have learned that many co-curricular activities including clubs and other student activities can be done remotely providing the opportunity for students to stay connected with their home institution even if they study off-campus or take time away from courses. Students have experienced a variety of living arrangements with some few continuing to experience residence hall life albeit slightly modified, others returning home to their old spaces while many have found co-living spaces with friends where they live and study together forming their own pods.
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We should ponder how these experiences can benefit our thinking moving forward and how they can provide more opportunities for increasing opportunities for students and for institutions to operate more efficiently and to provide more opportunities for students and faculty. We should not just move forward looking backwards to what we were but we should take these experiences and let them guide us in developing new models for higher education.