Fr. Jenkins, Provost Burish, Provost-Elect Miranda, EVP Cullinan - Additional information regarding financial outlook
June 15, 2020
Dear Members of the Notre Dame Community,
These are challenging times for our world, our nation and our communities, as we grapple with a global pandemic, an economic crisis, and deeply painful realities about continuing racism and injustice. We know these issues weigh heavily on many of us, and on those dear to us. In the midst of these challenges, we thank you for all you are doing. We are truly grateful for your steadfast dedication to our students, to one another, and to the University. You inspire us daily with your candor, compassion and willingness to work for positive change. The issues before us as a nation and as a University community are deep and wide, and they require the very best from each of us. We are confident that, working together, we will emerge from these present challenges a stronger, more unified and better Notre Dame community.
Today we write to provide additional information regarding the University’s financial outlook. As we prepare for the start of the 2020-21 Academic Year on August 10, Notre Dame remains committed to our guiding principles: to prioritize the health and safety of our students, faculty, and staff; to offer an unsurpassed undergraduate education that nurtures the mind, body and spirit; and to advance human understanding through scholarship, research and graduate programs that heal, unify and enlighten.
The financial indicators for our nation are sobering. A staggering 44 million people have applied for unemployment over the past 12 weeks. The Congressional Budget Office projected last week that the coronavirus impact could trim gross domestic product (GDP) by $15.7 trillion. Furthermore, it is forecasting GDP will fall at a 37.7 percent rate in the April to June 2020 quarter — the biggest quarterly decline on record.
Notre Dame is not immune to these economic effects. Since mid-March, we have continued to pay all full-time and benefits-eligible part-time employees regardless of their ability to work or the availability of work to do. We are projecting a revenue shortfall of $44 million for our current fiscal year ending June 30, 2020. Much of this is attributable to returning $22 million in spring undergraduate room and board fees, as well as the loss of auxiliary revenues (e.g., Hammes Bookstore, Morris Inn, campus-based retail dining outlets) during the second half of the semester. In an effort to mitigate this immediate impact, we, as an institution, enacted a series of measures including freezing staff hiring, stopping or postponing several capital projects, and eliminating University-sponsored travel and non-essential spending.
The challenges facing Notre Dame and higher education more broadly remain daunting. Ted Mitchell, President of the American Council on Education, stated, “It isn’t an exaggeration to say that this is the biggest shock to the higher education system in a generation.” Moody’s Investors Service, the agency that provides bond or credit ratings for many universities, downgraded its outlook for the higher education sector from stable to negative, citing unprecedented enrollment uncertainty. Many of our peer universities are projecting annual revenue losses ranging from $175 million to more than $750 million. We have already seen top private institutions announce significant mitigation strategies, including suspension of employer contributions to 403(b) retirement plans and drastic budget cuts, as well as furloughs and layoffs.
Although Notre Dame remains in a strong financial position relative to the vast majority of our peers, we too face significant budget challenges. For the upcoming fiscal year, from July 1, 2020 to June 30, 2021, we are currently projecting a revenue shortfall in excess of $100 million, compared to our original budget plans, due to increased financial aid expenditures, flat endowment payout, lower auxiliary revenue and projected lower levels of philanthropy. These financial challenges are not limited to fiscal year 2021. We anticipate continuing impacts on our budget for the foreseeable future.
Importantly, we cannot simply use the endowment to solve our financial challenges. The endowment is not a single unrestricted fund that can be utilized when we face budget shortfalls. The endowment is a collection of almost 7,000 individual funds, most with restrictions created by binding donor agreements that allow us to use the earnings from those funds only for specific purposes, such as financial aid, a professorship, or a lecture series.
We face considerable uncertainty in forecasting the University’s finances. We do not yet have answers to key questions that will have a major impact on our overall financial picture:
- How much additional financial aid will our students and families need? We currently estimate an increase of $30 million year over year in undergraduate need-based financial aid, but this amount will increase dramatically if the economic recovery stalls.
- Assuming students return this fall, will a second wave of COVID-19 force us to, once again, move to remote instruction and send our students home?
- What might we expect in terms of student enrollment for the fall and spring semesters? Will some students opt not to enroll?
- What impact will the pandemic and economic downturn have on our annual fundraising?
- How much will the revenue from our auxiliary units, such as the Hammes Bookstore or Athletics, decline?
- Given that the payout on the endowment represents 40 percent of the University’s annual revenue, how will the financial markets impact our endowment in fiscal year 2021?
In order to help offset some of the projected shortfall in our fiscal 2021 budget, we will need to take or consider additional actions, including, but not limited to, the following:
- Salary Actions: As previously communicated, there will be no faculty or staff merit salary increases for the upcoming fiscal year starting July 1 and no increases to existing salaries related to promotions until further notice. Senior leaders are also voluntarily reducing their salaries by 5 to 20 percent for the upcoming fiscal year.
- Budget Reductions: Units across the University have prepared 5 percent reduction plans on the unrestricted portion of their budgets. We implemented similar measures during the last two major recessions. We are asking all units to execute a 2.5 percent budget reduction for fiscal year 2021 and an additional 2.5 percent for fiscal year 2022.
- Open/Unfilled Staff Positions: We announced in March a staff hiring freeze, which will remain in effect for the foreseeable future. Any exceptions, which will be very limited (e.g., grant or endowment funded staff), will require Executive Officer approval. In addition, existing and open or unfilled staff lines supported by unrestricted funds will be permanently utilized to offset the multi-fiscal-year impact of the pandemic on the budget.
- Benefits Adjustments: A handful of our peer institutions have reduced or eliminated the employer 403(b) match for the upcoming fiscal year. We will host a series of listening sessions with faculty and staff as we consider this option (and welcome your feedback more broadly). If we were to reduce any portion of the match for a period of time, we would not do so before January 1, 2021.
The most frequent question from staff is whether we will implement furloughs, similar to many of our peers. A furlough is a temporary unpaid leave, during which participating individuals remain employees, typically continue to receive healthcare benefits and are eligible to apply for state unemployment. At this time, we are creating a job pool in the hope of repurposing as many staff members as possible with no or limited work to other units with heightened needs. For example, we are considering the possibility of reassigning staff who would clean instructional spaces between classes and assist as ushers in large classroom buildings at times of peak activity. This will require some flexibility on the part of our staff and exceptional collaboration across a number of units. We expect this job bank strategy will significantly reduce the need for University-wide furloughs, assuming our students are on campus for the fall semester. In the coming days, Human Resources will follow up with unit leaders and provide additional information regarding the job bank and employee matching process. Thank you for your patience and partnership in making this an effective strategy.
We want to underscore again that we are committed to doing all we can to support those who are part of the Notre Dame community. In writing this letter, we seek to be transparent about the financial challenges the University faces and to ask everyone to continue to be attentive and careful stewards of the University’s resources.
We end as we began, offering our deepest thanks for the teamwork, dedication and compassion you have demonstrated time and time again. Know that we continue to pray for the health, safety and well-being of you and your loved ones.
In Notre Dame,
Rev. John I. Jenkins, C.S.C.
Thomas G. Burish
Marie Lynn Miranda
Executive Vice President