Faculty Council hears updates on University budget

Faculty Council members heard updates on the University’s budget situation and spring semester planning during Friday’s virtual monthly meeting.

While the University faces financial challenges primarily due to the pandemic, efforts to mitigate potential shortfalls have already saved millions of dollars, said Nate Knuffman, interim vice chancellor for finance and operations.

Carolina faces three financial challenges in the FY20-21 fiscal year, he said. First, the University has operated with a structural budget deficit for several years, a permanent gap between expenditures and recurring revenue. The projected deficit for this fiscal year is about $100 million. While this gap existed prior to the COVID-19 pandemic, the ongoing health crisis has added to the pressures.

Second, with pandemic-related decreases in revenue from athletics, dining, housing, transportation and parking and the faculty practice in the UNC School of Medicine, the projected shortfall could be as high as $200 million for this fiscal year, Knuffman said. The decreases are caused by fewer students living and dining on campus, fewer people attending athletic events and reductions in clinical care as patients delay treatments in the faculty practice.

Third, the University has a backlog of deferred maintenance, primarily to academic and administrative buildings, of about $850 million.

Knuffman explained that the University gets its money from several primary fund sources: research revenue, which accounts for 27% of the budget; appropriations, 15%; tuition and fees, 14%; healthcare, 18%; and auxiliaries, 8%.

It is important to understand the sources of the funds and their respective restrictions, Knuffman said. Money from state appropriations and tuition goes into the general fund, which is heavily regulated and can only be used to support the teaching mission of the University.

All other non-general funds go into a trust fund, with restrictions based on the type of fund. The auxiliary units, such as housing and dining, fall into this category. These self-supporting units must operate from the revenue they generate. State appropriations cannot be used to make up for any losses.

The University took steps early to reduce the potential shortfall, including limiting spending and hiring and postponing capital projects. To date, Carolina has seen $65 million savings in non-personnel related expenses, Knuffman said.

No additional COVID-19 federal relief funds are expected at Carolina, Knuffman said. An updated state revenue forecast that was expected in October has been delayed and may not be received until January.

The University continues to hold meetings with units on campus to review budgets and plan for possible cuts, while also looking to increase revenue, such as increasing enrollment.

Commonly asked budget questions

Addressing some commonly asked questions about budget shortfall, including the possibility of using Carolina’s endowment funds to make up the difference, Knuffman explained that the UNC Investment Fund, worth $7.22 billion and spanning the UNC System, is made up of numerous smaller funds with individual restrictions based on the gift. Of that, Carolina’s share is $3.93 billion, and only a small percentage of those funds are not restricted and are used for scholarships and fellowships.

Another question concerns using the $564.6 million that University Development raised last year as part of the Campaign for Carolina. Of those funds, 97% are restricted based on the type of gift or commitment of funds made by individual donors, Knuffman said.

While employees have asked about furloughs and salary reductions, the University is not looking at furloughs at this time, said Becci Menghini, vice chancellor for human resources and equal opportunity and compliance. If the impact of the pandemic continues, that may be a solution, she said.

“Right now, we do not have the authority to do across-the-board furloughs or salary reductions for all of our employees,” Menghini said. Those actions would require the approval and authority of the General Assembly.

Taking such actions would provide one-time savings, Menghini said, but the University is looking to outline long-term structural savings to address challenges. Decisions, she added, will be made to be sure the University is focused on meeting its mission and supporting employees.

An early retirement option is another topic that is frequently a question. Menghini said the short answer is, “We don’t yet know.” While the University does not have an early retirement plan, the UNC System will advocate to the General Assembly to put one in place.

In the next five years, 54% of Carolina’s tenured faculty and 36.5% of Carolina’s employees will be eligible to retire, Menghini said.

Questions have also been raised about the financial considerations for bringing more students back to campus. Many factors go into decisions to bring students back, said Chancellor Kevin M. Guskiewicz. While bringing students back will generate revenue, there is a cost associated with preparing the campus and additional COVID-19 testing.

Other presentations

Faculty Council also heard updates about two surveys, including:

• A check-in survey of students to understand what hardships they face and to gauge their concerns about current issues.
• A Carolina Parents Council survey about the effectiveness of virtual instruction and other topics.

A recording of this meeting is available.